Banco Santander (Brasil) SA

INFORMATION MEMORANDUM
Banco Santander (Brasil) S.A.
(a company incorporated under the laws of the Federative Republic of Brazil),
acting through its principal office in Brazil or acting through its Grand Cayman Branch
U.S.$10,000,000,000 Global Medium-Term Note Programme
Banco Santander (Brasil) S.A., acting through its principal office in Brazil or through its Grand Cayman Branch (“Santander Brasil,” “we” or the
“Issuer”), may from time to time issue medium-term notes (the “Notes”) pursuant to the Global Medium-Term Note Programme described herein (the
“Programme”) denominated in U.S. dollars or such other currencies or currency units as may be set forth in final terms (each, a “Final Terms”) to this
information memorandum subject to all legal and regulatory requirements applicable to issuances in particular currencies. The Notes will have maturities of
seven calendar days or more from their date of issue as set forth in the applicable Final Terms. The maximum nominal amount of all Notes from time to time
outstanding will not exceed U.S.$10,000,000,000 (or the equivalent, calculated as described herein, in other currencies or currency units), subject to any duly
authorized increase. All references herein to the Programme should be read to take into account such increases. The Notes may bear interest on a fixed or
floating rate basis, be issued on a fully discounted basis and not bear interest, or be indexed. The Notes may be issued in bearer or registered form. The Notes
will be unsecured and unsubordinated obligations of the Issuer and will rank pari passu with all other present and future unsecured and unsubordinated
obligations of the Issuer.
All Notes denominated in the same currency, having the same maturity date, bearing interest, if any, on the same basis and at the same rate and the
terms of which are otherwise identical, except for the issue date, interest commencement date and/or the issue price and, in respect of a series of Currency
Constraint Notes (as defined herein) and related Exchanged Notes (as defined herein), the Specified Principal Payment Currency (as defined herein) and
Specified Interest Payment Currency (as defined herein) (if applicable) and the related payment provisions, will constitute a series (each, a “Series”). Each
Series shall be all in bearer form or all in registered form and may be issued in one or more tranches (each, a “Tranche”) on different issue dates and at
different issue prices but on terms otherwise identical (except in relation to interest commencement dates and matters related thereto and matters related to
the Currency Constraint provisions (if applicable) described herein). The aggregate nominal amount, any interest rate or interest calculation, the issue price,
and any other terms and conditions not contained herein with respect to each Series or Tranche of Notes will be established at the time of issuance and set
forth in the applicable Final Terms.
The Notes may be offered by the Issuer directly or through one or more of the dealers listed below and any other dealer appointed from time to time by
the Issuer (each, a “Dealer”) on a continuous basis or through syndicated placements. The applicable Final Terms will specify the Dealer, Dealers or
syndicate of Dealers through which the Notes of a particular Series will be offered. Notes may also be sold to a Dealer or Dealers as principal, at negotiated
discounts or otherwise, and Notes may be sold to or through syndicates of financial institutions for which a Dealer will act as lead manager.
See “Risk Factors” beginning on page 10 for a discussion of certain factors to be considered in connection with an investment in the Notes.
Application has been made to admit the Programme for listing on the Official List of the Luxembourg Stock Exchange. Santander Brasil may,
but is not obliged to, apply for the Notes to be issued under the Programme to be admitted to listing on the Official List of the Luxembourg Stock
Exchange and to trading on the Euro MTF market. The Final Terms applicable to a Series will specify whether or not Notes of such Series have
been admitted to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market. In case the Notes are not
admitted to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market, Santander Brasil is not obliged
to list the Notes on any other stock exchange.
This information memorandum constitutes a base prospectus for the purposes of listing Notes on the Luxembourg Stock Exchange and
trading on the Euro MTF market, in accordance with the Luxembourg law dated July 10, 2005 as amended on Prospectuses for Securities, and is
valid for a period of one year from the date of this information memorandum. It should be read and construed together with any Final Terms and
any supplemental information memorandum and with any documents incorporated by reference herein and should only be used as a base for the
Notes to be issued under the Programme as set forth in the Final Terms, the form of which is attached hereto as Annex C.
_________________
WE HAVE NOT REGISTERED AND WILL NOT REGISTER THE NOTES UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”). ACCORDINGLY, THE NOTES ARE BEING OFFERED AND SOLD ONLY (I) IN THE UNITED
STATES TO QUALIFIED INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT AND (II) OUTSIDE
THE UNITED STATES TO NON-U.S. PERSONS IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT
(“REGULATION S”). BECAUSE THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT,
THEY ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALES AND TRANSFERS DESCRIBED UNDER “SUBSCRIPTION AND
SALE” AND “TRANSFER RESTRICTIONS.”
Arranger and Dealer
Santander
The date of this information memorandum is June 9, 2015.
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THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OR ANY STATE SECURITIES LAWS AND THE NOTES MAY INCLUDE NOTES IN BEARER
FORM THAT ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. THE NOTES MAY NOT BE
OFFERED, SOLD OR, IN THE CASE OF BEARER NOTES, DELIVERED DIRECTLY OR INDIRECTLY
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS
DEFINED IN REGULATION S), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. SEE “SUBSCRIPTION AND SALE.”
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN THE
UNITED STATES OR ANY OTHER REGULATORY AUTHORITY, AND NONE OF THE FOREGOING
AUTHORITIES HAS PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES
OR THE ACCURACY OR ADEQUACY OF THIS INFORMATION MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE IN THE UNITED STATES.
IN CONNECTION WITH THE ISSUE OF ANY TRANCHE OF NOTES, THE DEALER OR
DEALERS (IF ANY) NAMED AS THE STABILIZING MANAGER(S) (OR PERSONS ACTING ON
BEHALF OF ANY STABILIZING MANAGER(S)) IN THE APPLICABLE FINAL TERMS 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 STABILIZING MANAGER(S) (OR
PERSONS ACTING ON BEHALF OF A STABILIZING MANAGER) WILL UNDERTAKE
STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE
ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE
RELEVANT TRANCHE OF 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
RELEVANT TRANCHE OF NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE
RELEVANT TRANCHE OF NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT SHALL
BE CONDUCTED IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.
NOTICE FOR NEW HAMPSHIRE RESIDENTS ONLY: NEITHER THE FACT THAT A
REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER
CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (THE “RSA”) WITH THE STATE
OF NEW HAMPSHIRE NOR THE FACT THAT A NOTE IS EFFECTIVELY REGISTERED OR A
PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE
SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE
AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A NOTE OR A TRANSACTION MEANS THAT THE SECRETARY
OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, NOTE OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
__________________
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD BE AWARE THAT THE NOTES ARE
NOT GUARANTEED BY, NOR DO THEY CONSTITUTE AN OBLIGATION OF, BANCO SANTANDER,
S.A. OR ANY ENTITIES CONTROLLED BY IT OTHER THAN SANTANDER BRASIL.
Notes offered hereby may be issued in registered form, without interest coupons, or “Registered Notes,” or in
bearer form, with or without interest coupons, or “Bearer Notes,” as specified in the applicable Final Terms. Notes
initially sold to qualified institutional buyers, or “QIBs,” will, unless otherwise specified, be available only in
book-entry form, and will be represented by a Registered Note in the form of a restricted global note certificate, or
the “DTC Restricted Global Note,” deposited on or about the issue date as specified in the applicable Final Terms
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with or on behalf of The Depository Trust Company, or “DTC,” and will be registered in the name of its nominee.
Registered Notes sold outside the United States in reliance on Regulation S will, unless otherwise specified, be
available only in book-entry form and will be represented by either (i) an unrestricted global note certificate, or a
“DTC Unrestricted Global Note,” deposited on or about the issue date as specified in the applicable Final Terms
with or on behalf of DTC for the accounts of its direct and indirect participants, including Euroclear Bank
S.A./N.V., or “Euroclear,” and Clearstream Banking, société anonyme, or “Clearstream, Luxembourg,” or (ii) an
international global note certificate, or an “International Global Note Certificate,” deposited with a common
depositary located outside the United States, or a “Common Depositary,” for Euroclear and Clearstream,
Luxembourg. On or prior to the 40th day after the later of the commencement of the offering and the date of
delivery of the Notes of each Series, beneficial interests in a DTC Unrestricted Global Note representing Notes of
such Series may be held only through Euroclear or Clearstream, Luxembourg. Bearer Notes will, unless otherwise
specified, only be sold outside the United States to non-U.S. persons in reliance on Regulation S and will, unless
otherwise specified, initially be represented by a temporary global note, or a “Temporary Global Note,” without
interest coupons, deposited with or on behalf of a Common Depositary for Euroclear and Clearstream, Luxembourg.
Beneficial interests in such Temporary Global Note shall be exchangeable for beneficial interests in a Permanent
Global Note (as defined herein) in bearer form in an equal aggregate nominal amount, not earlier than the 40th day
after the applicable closing date, upon certification of non-U.S. beneficial ownership in the form required by
U.S. tax laws. See “Book-Entry; Delivery and Form—Bearer Notes.”
The obligations of the Issuer in respect of the Notes are not in any way guaranteed by any government or any
agency or political subdivision thereof. The Arranger and Dealers make no representations or warranties, express or
implied, and accept no responsibility, as to the accuracy or completeness of the information contained or
incorporated by reference in this information memorandum.
The Issuer has not authorized the making or provision of any representation or information regarding the Issuer
or the Notes other than as contained or incorporated by reference in this information memorandum, the Trust Deed
(as defined herein), the Dealer Agreement (as defined herein), the Agency Agreement (as defined herein) or any
Final Terms, or as approved for such purpose by the Issuer. Any such representation or information should not be
relied upon as having been authorized by the Issuer, the Arranger or the Dealers. Neither the delivery of this
information memorandum, any supplement hereto and any Final Terms, nor any sale made hereunder shall, in any
circumstance, create any implication that there has been no change in the affairs of the Issuer since the date hereof or
that the information contained herein is correct as at any date subsequent to the date on which it is given herein. No
person is or has been authorized to give any information or to make any representation not contained in or not
consistent with this information memorandum or any other information supplied in connection with the Programme
or the Notes or any information made public by the Issuer and if given or made, such information or representation
must not be relied upon as having been authorized by the Issuer, the Arranger or any of the Dealers.
This information memorandum can be used only for the purposes for which it has been published. This
information memorandum does not constitute an offer to sell in any jurisdiction to any person to whom it is unlawful
to make the offer or solicitation in such jurisdiction, nor does this information memorandum constitute an invitation
to purchase any Notes and should not be considered as a recommendation by the Issuer, the Arranger or the Dealers
that any recipient of this information memorandum should purchase any Notes. The distribution of this information
memorandum or any part of it, including any Final Terms, and the offer and sale of the Notes in certain jurisdictions
may be restricted by law. Persons into whose possession this information memorandum comes are required by the
Issuer, the Arranger and the Dealers to inform themselves about and to observe any such restrictions. For a
description of certain further restrictions on offers and sales of Notes and on distribution of this information
memorandum and other offering material relating to the Notes, see “Subscription and Sale.”
We are not making any representation to any purchaser of the Notes regarding the legality of an investment in
the Notes by such purchaser under any laws or regulations. You should not consider any information in this
information memorandum to be legal, business or tax advice. You should consult your own attorney, business
advisor and tax advisor for legal, business and tax advice regarding an investment in the Notes.
The Notes will not be offered or sold to persons in the United Kingdom, except in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom other than in the circumstances set
out in section 86 of the Financial Services and Markets Act 2000, as amended by the Financial Services Act 2012
and as further amended from time to time, or the “FSMA”. This information memorandum is for distribution only to
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persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Financial Promotion
Order”), (ii) are persons falling within Article 49(2) of the Financial Promotion Order, (iii) are outside the United
Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the
meaning of section 21 of the FSMA) in connection with the issue or sale of any securities may otherwise lawfully be
communicated or caused to be communicated (all such persons together being referred to as “relevant persons”).
This information memorandum is directed only at relevant persons and must not be acted on or relied on by persons
who are not relevant persons. Any investment or investment activity to which this communication relates shall be
available only to relevant persons and will be engaged in only with relevant persons.
This information memorandum has been prepared on the basis that, except to the extent sub-paragraph (ii)
below may apply, any offer of Notes in any Member State of the European Economic Area (each, a “Relevant
Member State”) which has implemented the Prospective Directive, will be made pursuant to an exemption under the
Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus
for offers of Notes. Accordingly any person making or intending to make any offer of Notes in that Relevant
Member State may only do so (i) in circumstances in which no obligation arises for the Issuer or any Dealer to
publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to
Article 16 of the Prospectus Directive, in each case, in relation to such offer, or (ii) if a prospectus for such offer has
been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in that Relevant Member State and (in either case)
published, all in accordance with the Prospectus Directive, provided that any such prospectus has subsequently been
completed by the applicable Final Terms which specify that offers may be made other than pursuant to Article 3(2)
of the Prospectus Directive in that Relevant Member State, such offer is made in the period beginning and ending on
the dates specified for such purpose in such prospectus or the relevant Final Terms, as applicable, and the Issuer has
consented in writing to its use for the purpose of such offers. The expression “Prospective Directive” means
Directive 2003/71 EC (as amended, including by Directive 2010/73/EC), and includes any relevant implementing
measure in the Relevant Member State.
The Notes will not be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários),
or “CVM.” Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in
Brazil is not legal without such prior registration under Law 6,385, at December 7, 1976, as amended. If a Brazilian
resident acquires any Note, such Note can neither circulate in Brazil in bearer form nor be repaid in Brazil in a
currency other than the Brazilian currency at the time such payment is made. The Dealers have agreed not to offer or
sell Notes in Brazil except in compliance with applicable Brazilian laws or pursuant to an available exemption
therefrom.
None of the Arranger, the Dealers or their affiliates assumes any obligation to purchase any Notes or to make a
market in the Notes, and no assurances can be given that a liquid market for the Notes will exist.
No invitation whether directly or indirectly may be made to the public in the Cayman Islands to subscribe for
the Notes unless the Issuer of the Notes is listed on the Cayman Islands Stock Exchange.
Santander Brasil may apply to, but is not obliged to, admit the Notes to be issued under the Programme to
listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market.
Santander Brasil, having made all reasonable inquiries, confirms that this information memorandum contains or
incorporates by reference all information with regard to the Issuer and its subsidiaries and affiliates, the financial
and political condition in Brazil, the banking, insurance and leasing industries in Brazil and the Notes which is
material in the context of the issue of the Notes, that such information contained or incorporated by reference in this
information memorandum is true and accurate in all material respects and is not misleading, that any opinions and
intentions expressed in this information memorandum are honestly held and that there are no other facts the
omission of which makes this information memorandum as a whole or any of such information or the expression of
any such opinions or intentions misleading in any material respect. Santander Brasil accepts responsibility
accordingly.
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TABLE OF CONTENTS
Page
DOCUMENTS INCORPORATED BY REFERENCE ............................................................................................................ VIII
WHERE YOU CAN FIND MORE INFORMATION .............................................................................................................. IX
FORWARD-LOOKING STATEMENTS ................................................................................................................................X
PRESENTATION OF FINANCIAL AND OTHER INFORMATION .......................................................................................... XII
SUMMARY ...................................................................................................................................................................... 1
THE PROGRAMME........................................................................................................................................................... 4
RISK FACTORS .............................................................................................................................................................. 10
USE OF PROCEEDS ........................................................................................................................................................ 25
CAPITALIZATION .......................................................................................................................................................... 26
EXCHANGE RATES ........................................................................................................................................................ 27
SELECTED FINANCIAL INFORMATION ........................................................................................................................... 28
SELECTED STATISTICAL INFORMATION ........................................................................................................................ 31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 44
RISK MANAGEMENT ..................................................................................................................................................... 70
INDUSTRY ..................................................................................................................................................................... 90
BUSINESS ..................................................................................................................................................................... 95
REGULATORY OVERVIEW........................................................................................................................................... 115
MANAGEMENT ........................................................................................................................................................... 138
PRINCIPAL STOCKHOLDERS ........................................................................................................................................ 165
RELATED PARTY TRANSACTIONS ............................................................................................................................... 167
TERMS AND CONDITIONS OF THE NOTES .................................................................................................................... 170
BOOK-ENTRY; DELIVERY AND FORM ......................................................................................................................... 202
SUBSCRIPTION AND SALE ........................................................................................................................................... 212
TRANSFER RESTRICTIONS........................................................................................................................................... 218
TAXATION .................................................................................................................................................................. 221
CERTAIN ERISA CONSIDERATIONS ............................................................................................................................ 234
ENFORCEABILITY OF JUDGMENTS............................................................................................................................... 236
LEGAL MATTERS ........................................................................................................................................................ 237
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INDEPENDENT AUDITORS ........................................................................................................................................... 238
GENERAL INFORMATION ............................................................................................................................................. 239
ANNEX A SUMMARY OF CERTAIN DIFFERENCES BETWEEN ACCOUNTING PRACTICES ADOPTED IN BRAZIL
AND IFRS ............................................................................................................................................................... A-1
ANNEX B INDEX TO FINANCIAL STATEMENTS ........................................................................................................... B-1
ANNEX C FORM OF FINAL TERMS ............................................................................................................................. C-1
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents shall be deemed to be incorporated in, and form part of, this information
memorandum:
•
the most recently published annual audited and interim unaudited condensed consolidated financial
statements, from time to time, of Santander Brasil, such financial statements in each case prepared in
accordance with accounting practices adopted in Brazil applicable to entities authorized to operate by the
Brazilian Central Bank (Banco Central do Brasil), or Brazilian GAAP as further defined below, and in the
English language;
•
all amendments and supplements to this information memorandum prepared from time to time in
accordance with the undertaking by Santander Brasil in the Dealer Agreement described below; and
•
the applicable Final Terms prepared in respect of any Tranche of Notes, including any interim reports on
Form 6-K, if any, as submitted by Santander Brasil to the U.S. Securities and Exchange Commission, or
“SEC,” and referred to in the Final Terms, provided that any statement contained herein or in a document,
all or a relevant portion of which is incorporated by reference herein, shall be deemed to be modified or
superseded for the purpose of this information memorandum to the extent that a statement contained in
any such subsequent document modifies or supersedes such earlier statement.
Santander Brasil will, at the specified office of its Listing Agent, provide, without charge, a copy of this
information memorandum and a copy of any or all of the documents incorporated herein by reference, where such
documents will be available free of charge to any interested person. Santander Brasil has agreed to furnish to the
Luxembourg Stock Exchange all such information as required by the rules of the Luxembourg Stock Exchange in
connection with the listing on the Luxembourg Stock Exchange of the Notes. Santander Brasil shall, during the
continuance of the Programme, prepare a supplement to this information memorandum whenever required by the
rules of the Luxembourg Stock Exchange. Our consolidated financial statements are also available at our website at
www.santander.com.br. None of the information on Santander Brasil’s website is part of, or incorporated by
reference in, this information memorandum.
viii
WHERE YOU CAN FIND MORE INFORMATION
Santander Brasil is a reporting company subject to the informational requirements of the U.S. Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance therewith, files reports and other
information with the SEC. As foreign private issuer, Santander Brasil is exempt from the Exchange Act rules
regarding the provision and control of proxy statements and regarding short-swing profit reporting and liability.
Such reports and other information can be inspected and copied at the public references facilities of the SEC at
Room 1580, 100 F Street N.E., Washington, D.C. 20549. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549.
Santander Brasil files materials with, and furnishes materials to, the SEC electronically using the EDGAR System.
The SEC maintains an internet site that contains these materials at www.sec.gov. In addition, such reports, proxy
statements and other information concerning Santander Brasil can be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, on which equity securities of Santander Brasil are
listed.
Our principal executive offices are located at Avenida Presidente Juscelino Kubitschek, 2,041 and 2,235, São
Paulo, SP 04543-011, Brazil, and our general telephone number is (55 11) 3553-3300. Our website is
www.santander.com.br. Banco Santander discloses quarterly financial information, available at the
website www.santander.com.br/ri. Information contained on, or accessible through, our website is not incorporated
by reference in, and shall not be considered part of, this information memorandum.
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FORWARD-LOOKING STATEMENTS
This information memorandum contains estimates and forward-looking statements, principally in “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
“Business.” Some of the matters discussed concerning our business operations and financial performance include
estimates and forward-looking statements within the meaning of the Securities Act and the Exchange Act.
Our estimates and forward-looking statements are based mainly on our current expectations and estimates on
projections of future events and trends, which affect or may affect our businesses and results of operations. Although
we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are
subject to certain risks and uncertainties and are made in light of information currently available to us. Our estimates
and forward-looking statements may be influenced by the following factors, among others:
•
a deterioration of Brazilian political or economic conditions;
•
exposure to various types of inflation and interest rate risks, and Brazilian government efforts to control
inflation and interest rates;
•
exposure to the sovereign debt of Brazil;
•
the effect of interest rate fluctuations on our obligations under employee pension funds;
•
exchange rate volatility;
•
infrastructure and labor force deficiencies in Brazil;
•
economic developments and perception of risk in other countries;
•
increasing competition and consolidation in the Brazilian financial services industry;
•
extensive regulation by the Brazilian government and the Brazilian Central Bank, among other entities;
•
changes in reserve requirements;
•
changes in taxes or other fiscal assessments;
•
potential losses associated with non-performing loans or non-performance by counterparties of other
financial instruments;
•
a decrease in the rate of growth of our loan portfolio;
•
potential prepayment of our loan and investment portfolio;
•
potential increase in our cost of funding, in particular with relation to short-term deposits;
•
a default on, or a ratings downgrade of, the sovereign debt of Brazil or of our controlling shareholder;
•
the effectiveness of our credit risk management policies;
•
our ability to adequately manage market and operational risks;
•
potential deterioration in the value of the collateral securing our loan portfolio;
•
our dependence on the proper functioning of information technology systems;
•
our ability to protect personal data;
x
•
our ability to protect our reputation;
•
our ability to detect and prevent money laundering and other illegal activity;
•
our ability to manage the growth of our operations; and
•
other risk factors as set forth under “Risk Factors.”
The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words
are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements are
intended to be accurate only as of the date they were made, and we undertake no obligation to update or to review
any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates
and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our
future results may differ materially from those expressed in these estimates and forward-looking statements. You
should therefore not make any investment decision based on these estimates and forward-looking statements.
xi
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this information memorandum, the terms “Santander Brasil,” “Banco Santander,” the “Bank,” “we,” “us,”
“our” and “our company” mean Banco Santander (Brasil) S.A. and its consolidated subsidiaries, unless otherwise
indicated. References to “Banco Real” mean Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois
Participações S.A. and their respective consolidated subsidiaries, unless otherwise indicated. References to
“Banespa” mean Banco do Estado de São Paulo S.A., one of our predecessor entities. The terms “Santander Spain”
and “our parent” mean Banco Santander, S.A. References to “Santander Group” mean the worldwide operations of
the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries,
including Santander Brasil.
All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All
references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars. All references to the “euro,” “euros” or
“€” are to the common legal currency of the member states participating in the European Economic and Monetary
Union. References to “CI$” are to Cayman Islands dollars. References to “£” are to United Kingdom pounds
sterling. See “Exchange Rates” for information regarding exchange rates for the Brazilian currency.
Solely for the convenience of the reader, we have translated certain amounts included in this information
memorandum from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank, or
“BACEN” as of December 31, 2014, which was R$2.6562 to U.S.$1.00, or on the indicated dates (subject to
rounding adjustments). We make no representation that the real or U.S. dollar amounts actually represent or could
have been or could be converted into U.S. dollars at the rates indicated, at any particular exchange rate or at all.
Certain figures included in this information memorandum have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that
precede them.
Consolidated Financial Statements
We maintain our books and records in reais, our functional currency and presentation currency for the
consolidated financial statements.
The consolidated financial statements included in this information memorandum have been prepared in
accordance with accounting practices adopted in Brazil applicable to entities authorized to operate by the Brazilian
Central Bank as established by Brazilian corporate law and standards established by the National Monetary Council
(Conselho Monetário Nacional), or “CMN,” the Brazilian Central Bank and the document template provided in the
Accounting National Financial System Institutions (Plano Contábil das Instituições do Sistema Financeiro
Nacional), or “Cosif,” and the CVM to the extent such practices do not conflict with the rules of the Brazilian
Central Bank, the Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis), or “CPC,” to
the extent approved by the Brazilian Central Bank, the National Council of Private Insurance (Conselho Nacional de
Seguros Privados), or “CNSP,” and the Superintendency of Private Insurance (Superintendência de Seguros
Privados), or “SUSEP.” Hereafter, we refer to such accounting practices as “Brazilian GAAP” or “BRGAAP.”
With effect on January 1, 2013, we adopted CPC 33 (R1), as amended, which established fundamental changes
in the accounting for and disclosure of employee post-employment benefits with the effects accounted for
retrospectively as a change in accounting policies as from January 1, 2012, which is the earliest period presented
with the financial statements for the year ended December 31, 2013, adjusting certain line items in our balance sheet
and our income statement for the year ended December 31, 2012 to give effect to the adoption of CPC 33 (R1) as if
they were in effect on these dates. The financial information derived from our balance sheets included in this
information memorandum as of December 31, 2011 and 2010 were not adjusted to reflect the adoption of CPC 33
(R1), and therefore is not comparable with the information derived from our balance sheet as of December 31, 2013
and 2012. For more information about these adjustments, see note 3.1 to our financial statements as of and for
the year ended December 31, 2014 included elsewhere in this information memorandum.
The following financial statements are included elsewhere in this information memorandum:
xii
•
our audited consolidated financial statements as of and for the years ended December 31, 2014, 2013 and
2012, prepared in accordance with Brazilian GAAP.
The consolidated financial statements of the Bank prepared in accordance with Brazilian GAAP described
above have been audited by Deloitte Touche Tohmatsu Auditores Independentes, independent auditors, whose
report is included herein.
Since 2008, the CPC has issued various standards in order to converge Brazilian GAAP with International
Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB.”
Because we are a financial institution, the standards issued by the CPC must be approved by the Brazilian Central
Bank before they apply to us.
As at the date of this Information Memorandum, the following pronouncements have been approved by the
Brazilian Central Bank and have been applied to our audited annual consolidated financial statements to the extent it
is applicable at the years ended December 31, 2014, 2013 and 2012, as described below:
•
Defined Benefit Plans (CPC 33), beginning on January 1, 2013, retrospectively;
•
Impairment of Assets (CPC 01) and Statements of Cash Flows (CPC 03), beginning with the year ended
December 31, 2008, prospectively;
•
Related Parties Disclosures (CPC 05), beginning with the year ended December 31, 2009, prospectively;
•
Accounting policies, changes in accounting estimates and errors (CPC 23), beginning with the year ended
December 31, 2012, prospectively;
•
Provisions, Contingent liabilities and Contingent Assets (CPC 25), beginning with the year ended
December 31, 2010, prospectively;
•
Events after the Reporting Period (CPC 24), beginning with the period ended March 31, 2011,
prospectively; and
•
Share-based Payment (CPC 10), beginning with the year ended December 31, 2012, prospectively.
•
Basic Conceptual Pronouncement with the Framework for the preparation and disclosure of accounting
and financial reporting, effective on the date of its publication on September 27, 2012.
•
Statements of cash flows (CPC 3), beginning on August 28, 2008.
Standards issued by the CPC but not approved by the Brazilian Central Bank are not required to be applied by
us.
The consolidated financial statements included in this information memorandum are prepared in accordance
with Brazilian GAAP effective as of the date reported. Brazilian GAAP differs in certain significant respects from
IFRS. Brazilian GAAP also differs in certain significant respects from U.S. GAAP. For the reconciliation between
our Brazilian GAAP and IFRS financial statements, see Annex A to this information memorandum.
The CMN Resolution 3,786 requires certain financial institutions to disclose IFRS Consolidated Financial
Statements in accordance with IASB. Our consolidated financial statements prepared in accordance with IFRS are
available on our website www.ri.santander.com.br.
Market Share and Other Information
We obtained the market and competitive position data, including market forecasts, used throughout this
information memorandum from internal surveys, market research, publicly available information and industry
publications. This data is updated to the latest available information for 2014. We have made these statements on the
xiii
basis of information from third-party sources that we believe are reliable, such as the Brazilian Association of
Savings and Mortgage Financing Entities (Associação Brasileira das Entidades de Crédito Imobiliário e Poupança),
or “ABECIP”; the Brazilian Association of Credit Card Companies (Associação Brasileira de Empresas de Cartões
de Crédito e Serviços), or “ABECS”; the Brazilian Association of Leasing Companies (Associação Brasileira de
Empresas de Leasing), or “ABEL”; the National Association of Credit Institutions, Financing and Investment
(Associação Nacional das Instituições de Crédito, Financiamento e Investimento), or “ACREFI”; the National
Association of Financial and Capital Markets Entities (Associação Brasileira das Entidades dos Mercados
Financeiro e de Capitais), or “ANBIMA”; the Brazilian Central Bank; the Brazilian Social and Economic
Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES”; the Brazilian Institute
of Geography and Statistics, or the “IBGE”; the Brazilian Bank Federation (Federação Brasileira de Bancos), or
“FEBRABAN”; the National Federation of Private Retirement and Life Insurance (Federação Nacional de
Previdência Privada e Vida), or “FENAPREVI”; the Getúlio Vargas Foundation (Fundação Getúlio Vargas), or
“FGV”; the Brazilian Central Bank system (Sistema do Banco Central), or “SISBACEN,” a Brazilian Central Bank
database; the SUSEP; the CVM among others.
xiv
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SUMMARY
The following summary is qualified in its entirety by, and is subject to, information contained elsewhere in this
information memorandum (including our consolidated financial statements and the notes thereto), and in relation to
the Terms and Conditions of any issue of Notes, the applicable Final Terms. See “Risk Factors” for a discussion of
certain factors that should be considered in connection with an investment in the Notes.
Overview
We are a leading full-service bank in Brazil. We are the third largest private bank in Brazil in terms of assets,
with a 8.0% market share, as of December 31, 2014, and the largest bank in Brazil controlled by a major global
financial group, according to the Brazilian Central Bank. Our operations are present in all Brazilian regions,
strategically positioned in the South and Southeast, an area that accounted for approximately 72% of Brazil’s GDP,
and where we have one of the largest branch networks of any Brazilian bank.
At the year ended December 31, 2014, we generated net income of R$2,161 million (excluding goodwill
amortization, the net income was R$5,850 million), and at that date we had total assets of R$590.0 billion and total
equity of R$57.3 billion. Our Basel capital adequacy ratio, in accordance with the Brazilian Central Bank, was
17.5% as at December 31, 2014.
Through our Commercial Banking segment, we offer traditional banking services, including checking and
savings accounts, home and automobile financing, unsecured consumer financing, checking account overdraft loans,
credit cards and payroll loans to mid- and high-income individuals and corporations (other than to our Global
Banking & Markets, or “GB&M,” clients). Our Global Wholesale Banking segment provides sophisticated and
structured financial services and solutions to a group of large local and multinational conglomerates, offering such
products as global transaction banking, syndicated lending, corporate finance, equity and treasury.
Our Competitive Strengths
We believe that our main competitive advantages are: (i) being part of the Santander Group; (ii) maintaining a
conservative risk profile; (iii) maintaining a strong capital base; (iv) maintaining a modern technology platform; and
(v) focusing on sustainable growth with a strong presence in attractive demographic and geographic areas.
Relationship with the Santander Group
We believe that being part of the Santander Group offers us a significant competitive advantage over our
competitors. Under the Santander Group business model, each unit is required to be self-sufficient in terms of capital
and liquidity. However, our relationship allows us to:
•
access the Santander Group’s global information systems platform, which reduces our technology
development costs, provides operational synergies with the Santander Group and enhances our ability to
provide global products and services to our customers;
•
provide our individual and small and medium sized enterprise (SME) customers with all the benefits of a
global platform and a strong presence in certain principal markets, predominantly in Latin America and
Western Europe;
•
take advantage of best practices already implemented in other countries in which the Santander Group
operates, providing all of our customers with products and services via modern and integrated channels;
•
benefit from the Santander Group’s operational expertise in areas such as internal control and risk
management, which have been developed in response to a wide range of market conditions across the
world and which we believe enhances our ability to expand our business within desired risk limits;
•
take advantage of the Santander Group’s experience with integration to maximize and accelerate the
generation of synergies from any future acquisitions; and
1
•
benefit from the Santander Group’s management training and development, which is composed of a
combination of in-house training and development with access to managerial expertise in other Santander
Group units outside Brazil.
Conservative Risk Profile
High quality risk management is one of the Santander Group hallmarks and consequently one of our priorities.
Throughout its 150 years, the Santander Group has combined prudence in risk management with use of advanced
techniques, always aiming to generate recurrent and balanced earnings and to create shareholder value. Our risk
management model is a key factor for achieving our strategic objectives.
Our risk management principles are: (i) independence and risk assessment; (ii) business support to maintain risk
quality; (iii) decision-making based on committee involvement; and (iv) use of modern tools and systems to analyze
risk effectively. Our risk management policy seeks to maintain a medium-low and predictable profile for all our risk.
To manage our risk, we have incorporated the Santander Group’s global program of risk management into
various levels of our organization. The entire Bank is responsible for risk management, from our branch employees
to our Risk Management Committee members.
Strong Capital Base
Due to our strong capital base, among other factors, we were considered in June 2014 to be the most solid bank
both in South America by Bloomberg Markets Magazine. As of December 31, 2014, our Basel capital adequacy
ratio was 17.5%. To achieve a more efficient capital structure consistent with the new Basel III capital rules and our
business strategy and asset growth plan, in 2013 we developed a plan to optimize our capital structure.
For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Capital.”
For further information on our capital adequacy requirements, see “Regulatory Overview—Capital Adequacy
and Leverage.”
Modern Technology Platform
We operate a modern global technology platform that is interconnected with the platform of the Santander
Group, which allows us to serve our customers on a global scale, under a platform that is uniquely
customer-centered. Our technological platform is structured to allow us to provide core banking services and our
standardized systems allow us to serve our customers quickly and efficiently.
In 2013, we concluded the construction of our new data center, located in Campinas, which we believe to be the
largest technology center in Latin America at 800,000 square meters. This data center has the maximum
classification level in capacity and availability (Tier IV, with 99.99% availability) according to the UpTime
Institute, a consortium of companies that engage in consulting for the enterprise data center industry. Our objectives
in terms of technology are to; (i) maintain our systems with a high security level, (ii) optimize our systems
technology activities; and (iii) operate efficiently through improved use of energy and natural resources.
In 2013, we also initiated a partnership with iZettle, a Swedish mobile payments company, to offer credit and
debit card readers that allow individuals and small businesses to accept card payments on their smartphones or
tablets.
Sustainable growth with a strong presence in attractive demographic and geographic areas
We continuously focus on sustainable growth, both organically and through select acquisitions and partnerships.
We believe we are well positioned to benefit from the growth in our customer base and the relatively low
penetration of financial products and services in Brazil. We have a strong presence in attractive demographic and
geographic areas and we have strengthened our competitive position in all Brazilian regions, mainly in the South
and Southeast, which are areas that account for approximately 72% of Brazil’s GDP as of December 31, 2014.
2
Our strong presence in the South and Southeast regions also allows us to reach mid- and high-income customers
that provide access to a stable and low-cost funding base through a wide variety of funding instruments.
Furthermore, our focus on these customers has increased our profitability, as they have traditionally produced higher
volumes and margins. Our presence in these attractive geographic areas allows us to effectively cover a significant
portion of Brazil’s economic base.
We have made significant investments to improve our product offerings. In 2014, we acquired the merchant
acquiring services provider, GetNet, which provided us with an integrated product offering (account services and
point of sale services) for SME customers. Also in 2014, we entered into a partnership with Banco Bonsucesso, a
mid-sized bank focused on payroll loans and credit cards, which is focused on increasing our position in the payroll
credit market. For more information on these transactions, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Our branch network, service channels and technology platform all have capacity for substantial growth in our
customer base and financial transactions. Santander Brasil is ranked third among the non-public banks in Brazil in
terms of assets, with an 8.0% market share, in December 31, 2014, according to the Central Bank of Brazil. Among
these banks, we believe that we have a top three position in the majority of our key product lines, as evidenced by
our market share in the following products and regions.
Payroll/individual loans .......................................................................................................................
Individual loans ............................................................................................................................
Payroll ..........................................................................................................................................
Auto leasing/CDC (Auto loans) ...........................................................................................................
Credit cards ..........................................................................................................................................
Branches ..............................................................................................................................................
Southeast ......................................................................................................................................
South ............................................................................................................................................
________________
At December 31, 2014
Market share
(%)
6.4%
11.0%
4.5%
17.9%
11.3%
11.0%
14.8%
8.3%
Source: Brazilian Central Bank.
We believe that our size and market leadership position provide us with exceptional competitive opportunities
including; (i) the ability to gather market intelligence to support decision-making in determining business
opportunities and (ii) the ability to meet our customers’ needs by operating as a full-service bank. In addition, we are
a leading wholesale bank in Brazil. Through our unique access to the Santander Group’s global network, we are able
to support our large Brazilian corporate customers in the globalization of their businesses.
Our Strategy
Our mission is to contribute to the progress of our customers. We constantly seek to offer market-leading
banking services, while also striving to gain the trust of employees, customers, shareholders and society. We believe
the way to achieve this is to offer simple, personal and fair banking services, provided in a convenient and easy to
understand format adapted to customers’ needs.
As a result, our strategy is focused on the following objectives:
•
to expand our main businesses, increasing revenues in a sustainable way and taking into account the
balance between loans, funding and services;
•
to maintain sustainable and efficient risk and cost management;
•
to promote an intense agenda of productive transformation following the transformation of the financial
industry focused on simplicity, productivity and efficiency; and
•
to maintain discipline in capital management and financial soundness in each of our business segments.
3
THE PROGRAMME
Issuer:
Banco Santander (Brasil) S.A., acting through its principal office
in Brazil or its Grand Cayman Branch, as specified in the
applicable Final Terms.
Arranger:
Santander Investment Securities Inc.
Dealer:
Santander Investment Securities Inc. and such other Dealers as
may be appointed from time to time by Santander Brasil under the
Programme.
Programme Amount:
U.S.$10,000,000,000 (or its equivalent as of the respective dates
of issue in other currencies) in aggregate nominal amount of Notes
outstanding at any time, subject to any duly authorized increase.
Offering:
Notes may be offered: (i) in the United States only to QIBs
pursuant to Rule 144A under the Securities Act; and/or (ii) outside
the United States to non-U.S. persons in reliance on Regulation S
under the Securities Act, as specified in the relevant Final Terms.
See “Subscription and Sale.”
Issue Price:
Notes may be issued at par or at a discount or premium to par. The
issue price for each issue of Notes shall be set forth in the
applicable Final Terms.
Specified Currencies:
Notes may be denominated in any currency as may be agreed
between the Issuer and the applicable Dealer or Dealers in the
relevant Final Terms, subject to applicable law.
Maturities:
The Notes may be issued with maturities of seven calendar days
or more from their date of issue, subject to all legal and regulatory
requirements applicable to the Issuer or the applicable Specified
Currency.
Interest:
Notes may: (i) bear interest on a fixed rate or floating rate basis
(determined by reference to one or more base rates); (ii) be issued
on a fully discounted basis and not bear interest or (iii) be
indexed, in each case as specified and described more fully in the
applicable Final Terms.
Final Terms:
The Final Terms for each issue of Notes shall set forth, among
other things, details of the Terms and Conditions of the Notes
being offered. Such information may differ from that set forth
herein and, in all cases, shall supplement and, to the extent
inconsistent herewith, supersede the information herein.
Withholding Tax:
Payments in respect of the Notes will be made without
withholding or deduction in respect of any taxes, duties,
assessments, or governmental charges imposed in Brazil, the
Cayman Islands or any political subdivision or taxing authority
thereof or therein or any other jurisdiction having power to tax in
which the Issuer is organized, doing business or otherwise subject
to the power to tax unless such withholding or deduction is
required by law. In such event, the Issuer will, subject to certain
exceptions and limitations, pay additional amounts (as described
herein) in respect of such withholding or deduction so that the
4
holder of the Notes receives the amount such holder would receive
in the absence of such withholding or deduction although the
Issuer may have the option to redeem the Notes in such an event if
so specified in the applicable Final Terms. See “Terms and
Conditions of the Notes — Taxation.”
Foreign Currency Constraint:
If it is specified in the applicable Final Terms, the Notes may
contain a Foreign Currency Constraint provision, as more fully
described herein and in the applicable Final Terms. Upon the
occurrence of a Foreign Currency Constraint Event (as defined
herein), holders of Notes affected thereby may elect to exchange
the Notes for an equivalent nominal amount of Exchanged Notes
with terms and conditions identical to the terms and conditions of
the original Notes except that payments in respect of the
Exchanged Notes will be made in the lawful currency of Brazil.
Upon termination of the Foreign Currency Constraint Event,
Exchanged Notes will be exchanged for an equivalent nominal
amount of the original Notes and such holder will receive future
payments in respect of the Notes in the Specified Currency (as
defined herein) of the Notes. If a holder does not elect to receive
payments in the lawful currency of Brazil by making such
exchange, after the termination of the Foreign Currency
Constraint Event such holder will receive any payments in respect
of the Notes in the Specified Currency of the Notes. A Foreign
Currency Constraint Event will not be deemed an Event of Default
provided that the Issuer has fully complied with its obligations
under Condition 15 of the Notes. See “Terms and Conditions of
the Notes—15. Foreign Currency Constraint, Sovereign Event and
Credit Event—(a) Foreign Currency Constraint.”
Sovereign Event:
If it is specified in the relevant Final Terms that the Notes contain
a Sovereign Event provision, as more fully described in the
Conditions, on the occurrence of a Sovereign Event (as defined in
the Terms and Conditions), the Issuer may elect to redeem such
Notes or deliver on the maturity date or earlier redemption date,
the Governmental Obligations (as defined in the Terms and
Conditions) or reais to the holder, whereupon the Issuer’s
obligations in respect of such payment under such Note shall be
deemed fully satisfied and discharged. See “Terms and Conditions
of the Notes—15. Foreign Currency Constraint, Sovereign Event
and Credit Event—(b) Sovereign Event.”
Credit Event:
If it is specified in the relevant Final Terms that the Notes contain
a Credit Event provision, as more fully described in the Terms and
Conditions, on the occurrence of a Credit Event (as defined in the
Terms and Conditions), the Issuer may elect to redeem such Notes
or deliver on the maturity date or earlier redemption date, the
Credit Obligations (as defined in the Terms and Conditions) or
reais to the holder, whereupon the Issuer’s obligations in respect
of such payment under such Note shall be deemed fully satisfied
and discharged. See “Terms and Conditions of the Notes—15.
Foreign Currency Constraint, Sovereign Event and Credit Event—
(c) Credit Event.”
5
Form of Notes:
Notes may be issued in registered form, without interest coupons,
or in bearer form, with or without interest coupons.
Registered Notes shall be represented initially by one or more
Global Notes in registered form, without coupons, which shall be
either DTC Global Notes (as defined herein) or an International
Global Note Certificate, as specified in the applicable Final
Terms. In the case of Notes represented by one or more DTC
Global Notes, the DTC Unrestricted Global Note and the DTC
Restricted Global Note will be registered in the name of DTC, as
depositary, or a successor or nominee thereof, and deposited on
behalf of the purchasers thereof with a custodian for DTC.
Beneficial interests in the DTC Restricted Global Note and DTC
Unrestricted Global Note shall be represented through book-entry
accounts of financial institutions acting on behalf of beneficial
owners as direct and indirect participants in DTC. Purchasers of
Notes may hold their interests in a DTC Restricted Global Note
directly through DTC if they are participants in the DTC system,
or indirectly through organizations which are participants in such
system. Purchasers of Notes may elect to hold interests in the
DTC Unrestricted Global Note through any of DTC (in the United
States), Clearstream, Luxembourg, or Euroclear if they are
participants in such systems or indirectly through organizations
which are participants in such systems, subject to the requirement
that on or prior to the 40th day after the later of the commencement
of the offering and the date of delivery of the Notes of each Series,
beneficial interests in a DTC Unrestricted Global Note
representing Notes of such Series may be held only through
Euroclear or Clearstream, Luxembourg. In the case of Notes
represented by an International Global Note Certificate, such
International Global Note Certificate will be deposited with a
Common Depositary for and registered in the name of a common
nominee of Euroclear and Clearstream, Luxembourg for credit to
the respective accounts of beneficial owners of the Notes
represented thereby. See “Book-Entry; Delivery and Form.”
Bearer Notes will, unless otherwise specified, only be sold outside
the United States to non-U.S. persons in reliance on Regulation S
and will, unless otherwise specified in the applicable Final Terms,
initially be represented by a Temporary Global Note without
interest coupons attached, deposited with or on behalf of a
Common Depositary located outside the United States for
Euroclear and Clearstream, Luxembourg. Interests in a Temporary
Global Note will be exchangeable for interests in a permanent
global Note in bearer form, without interest coupons (a
“Permanent Global Note”), which may be exchangeable in the
limited circumstances set out therein in whole, but not in part, for
definitive Notes in bearer form (each, a “Definitive Bearer Note”).
See “Book-Entry; Delivery and Form.”
Bearer Notes will not be exchangeable for Registered Notes and
Registered Notes will not be exchangeable for Bearer Notes. See
“Terms and Conditions of the Notes—1. Form, Denomination,
Title, Specified Currency and Final Terms” and “Book-Entry;
Delivery and Form.”
6
Denominations:
Notes will be issued in such denominations as may be specified in
the applicable Final Terms and, in all cases, Notes shall be issued
in such other minimum denominations as may be allowed or
required from time to time by the relevant central bank or
equivalent regulatory authority in the relevant jurisdiction, or any
laws or regulations applicable to the Issuer or the relevant
Specified Currency, as the case may be, subject in all cases to
changes in applicable legal or regulatory requirements. In the case
of any Notes which are to be admitted to trading on a regulated
market within the European Economic Area or offered to the
public in a Member State of the European Economic Area in
circumstances which would otherwise require the publication of a
prospectus under the Prospectus Directive, the minimum
denomination shall be at least €100,000 (or its equivalent in any
other currency as of the date of issue of the relevant Notes), and
provided further that in respect of Notes offered in the United
Kingdom with a maturity of less than one year, the minimum
denomination shall be at least £100,000 (or its equivalent in any
other currency as of the date of issue of the relevant Notes). In the
case of any Registered Notes which are resold pursuant to
Rule 144A under the Securities Act, as amended, the minimum
denomination shall be at least U.S.$150,000 and integral multiples
of U.S.$1,000 in excess thereof or, in respect of Notes
denominated in a currency other than U.S. dollars, its approximate
U.S. dollar equivalent. See “Terms and Conditions of the Notes—
Form, Denomination, Title, Specified Currency and Final Terms”
and “Book-Entry; Delivery and Form.”
Use of Proceeds:
The net proceeds from the sale of Notes will be used by Santander
Brasil for general banking purposes or as set forth in the Final
Terms applicable to each Series.
Redemption:
The Final Terms relating to each Tranche of Notes will specify if
such Notes can be redeemed prior to their stated maturity or if
such Notes will be redeemable at par or at such other redemption
amount as specified. See “Terms and Conditions of the Notes—
Redemption and Purchase.”
Tax Redemption:
The Notes will be redeemable at the Issuer’s option, in whole (but
not in part), at the amount specified in the applicable Final Terms,
plus accrued interest, in the event the Issuer is obliged to pay any
additional amounts in respect of, among other things, Brazilian or
Cayman Islands (or any political subdivision or any other
jurisdiction having power to tax in which the Issuer is organized,
doing business or otherwise subject to the power to tax (any of the
aforementioned being a “Taxing Jurisdiction”)) withholding or
other taxes as a result of a change in tax laws or regulations of a
Taxing Jurisdiction or in the interpretation thereof. See “Terms
and Conditions of the Notes—Redemption and Purchase—
Redemption for Taxation Reasons.”
Ranking:
The Notes will be direct, unconditional and unsubordinated
obligations of the Issuer and will rank pari passu and without any
preference among themselves and shall at all times rank at least
equally with all other present and future unsecured and
unsubordinated obligations of the Issuer subject to certain
7
limitations on payments if there is a Foreign Currency Constraint
Event, a Sovereign Event or a Credit Event. See “Terms and
Conditions of the Notes—Status.”
Negative Pledge:
There will be a negative pledge in respect of any Security securing
any Public External Indebtedness (as defined herein) or Guarantee
in respect of Public External Indebtedness of the Issuer or any of
its Material Subsidiaries (as defined herein) subject to certain
exceptions, all as more fully set out in Condition 4 of the Notes.
See “Terms and Conditions of the Notes—Negative Pledge and
Covenants.”
Listing and Trading:
Application has been made to admit the Programme for listing on
the Official List of the Luxembourg Stock Exchange. Santander
Brasil may, but is not obliged to, apply for the Notes to be issued
under the Programme to be admitted to listing on the Official List
of the Luxembourg Stock Exchange and to trading on the Euro
MTF market. The Final Terms applicable to a Series will specify
whether or not Notes of such Series have been admitted to listing
on the Official List of the Luxembourg Stock Exchange and to
trading on the Euro MTF market. In case the Notes are not
admitted to listing on the Luxembourg Stock Exchange and to
trading on the Euro MTF market, Santander Brasil is not obliged
to list the Notes on any other stock exchange.
Terms and Conditions:
The Terms and Conditions applicable to each Series of Notes will
be as agreed between the Issuer and the relevant Dealers or
purchasers at or prior to the date of issue of such Series and will
be specified in the Final Terms prepared in respect of such Notes.
The Terms and Conditions applicable to each Series will
accordingly be those set out in this information memorandum as
supplemented, modified or replaced by the relevant Final Terms.
Constitution:
The Notes are constituted, and investors’ rights will be governed,
by a trust deed dated April 12, 2013, between the Issuer and The
Bank of New York Mellon, as trustee (as amended from time to
time, the “Trust Deed”), a copy of which will be available for
inspection at the specified offices of the trustee, the registrar, the
registered office of Santander Brasil and the Listing Agent.
Trustee:
The Bank of New York Mellon
Principal Paying Agent:
The Bank of New York Mellon, London Branch
European Issuing and Paying Agent,
Exchange Agent and Calculation Agent:
The Bank of New York Mellon, London Branch
Registrar, New York Paying Agent and
Transfer Agent
The Bank of New York Mellon
Luxembourg Paying Agent, Transfer Agent
and Listing Agent:
The Bank of New York Mellon (Luxembourg) S.A.
Selling Restrictions:
The offer and sale of Notes will be subject to selling restrictions
including, in particular, those of the United States of America, the
United Kingdom, the Cayman Islands, Spain, Brazil, Portugal,
Japan and the Bahamas. Each issue of Notes denominated in a
8
currency in respect of which particular laws, guidelines,
regulations, restrictions or reporting requirements apply will only
be issued in circumstances which comply with such laws,
guidelines, regulations, restrictions or reporting requirements in
effect at the time of such issuance. See “Subscription and Sale.”
Any further restrictions that may apply to a particular issue of
Notes will be specified in the applicable Final Terms.
Further Issuances:
The Issuer reserves the right, with respect to any Series of Notes,
from time to time without the consent of the holders of the Notes,
to issue additional Notes of a Series so that the same shall be
consolidated with, form a single issue with, and increase the
aggregate nominal amount of, such Series of Notes.
Governing Law:
The Notes and the Trust Deed will be governed by, and be
construed in accordance with, English law.
Clearance and Settlement:
The Notes shall be accepted for clearing through one or more
clearing systems as specified in the applicable Final Terms. These
systems shall include, in the United States, the system operated by
DTC and, outside the United States, the systems operated by
Euroclear and Clearstream, Luxembourg.
9
RISK FACTORS
An investment in our Notes involves a high degree of risk. You should carefully consider the risks described
below before making an investment decision. Our business, financial condition and results of operations could be
materially and adversely affected by any of these risks. The trading price of our Notes could decline due to any of
these risks or other factors, and you may lose all or part of your investment. The risks described below are those
that we currently believe may materially affect us.
Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally
The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian
government’s macro-economic management strategies, as well as Brazilian political and economic conditions,
could adversely affect us and the trading price of our securities.
The Brazilian government has frequently intervened in the Brazilian economy and has on occasion made
significant changes in policy and regulations. In the past, the Brazilian government has adopted measures, including,
among others, changes in regulations, price controls, capital controls, changes in the exchange rate regime and
limitations on imports, which have affected Brazilian asset prices. Recently, the Brazilian government has adopted
measures, including changes in tax policies and constraints that have affected Brazilian asset prices and the trading
price of our securities. We and the trading price of our securities may be adversely affected by changes in policy or
regulations at the federal, state and municipal levels involving or affecting factors such as:
•
interest rates;
•
currency volatility;
•
inflation;
•
reserve requirements;
•
capital requirements;
•
liquidity of capital and lending markets
•
non-performing loans;
•
tax policies;
•
exchange rate controls and restrictions on remittances abroad, such as those that were briefly imposed
in 1989 and early 1990;
•
other political, social and economic developments in or affecting Brazil.
Uncertainty over whether the Brazilian government will implement changes in policy or regulation creates
instability in the Brazilian economy, increasing the volatility of the Brazilian securities markets, which may have an
adverse effect on us and our securities. Recent economic and political instability has led to a negative perception of
the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us
and our securities.
For example, between the end of 2010 and the beginning of 2011, the Brazilian Central Bank adopted certain
measures in order to control outstanding credit growth, known as macro prudential measures. These measures
focused on controlling the issuance of new loans, such as increasing the down payment required for new loans,
increasing the minimum payment of credit card bills, implementing a higher minimum capital requirement for
certain types of loans and increasing reserve requirements. Additionally, the government increased tax on foreign
capital inflow in order to control the trend of exchange rate appreciation. These measures negatively impacted the
results of all Brazilian banks.
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In 2012, the Brazilian government decided to promote credit growth at state-owned banks, increasing their
market share mainly in the market for lending to individuals, which also adversely affected the results of operations
for private-owned banks.
Political demonstrations in Brazil have also affected the development of the Brazilian economy and investors’
perceptions about Brazil. For example, street protests, which started in mid-2013, have continued in 2014 (albeit to a
lesser degree than in 2013) and returned in 2015 in Brazil demonstrated the public’s dissatisfaction with corruption
and certain political measures. Additionally, the corruption allegations regarding oil and gas companies and Brazil’s
state-owned oil company brought to light by the judicial investigation known as “Lava Jato” or “car wash” have
raised investors’ risk aversion with regard to Brazil. This is reflected in the devaluation of the real against the U.S.
Dollar and adverse movements in the prices of Brazilian-related credit default swaps. For further information please
refer to the risk factor “The ongoing “Lava Jato” investigation regarding corruption at certain oil and gas, energy
and infrastructure companies may hinder the growth of the Brazilian economy and could have an adverse effect on
our business”.
We are not able to fully estimate the impact of global and Brazilian macro-economic developments and
economic regulatory policy changes on our business and lending activity, nor are we able to predict how current or
future measures implemented by regulatory policy-makers may impact our business. Any changes in regulatory
capital requirements for lending, reserve requirements, or product and service regulations, among others, may
materially adversely affect our business.
Government efforts to control inflation and changes in interest rates may hinder the growth of the Brazilian
economy and could harm our business.
Brazil has experienced extremely high rates of inflation in the past and has therefore implemented monetary
policies that have resulted in one of the highest interest rates in the world. The Brazilian government’s measures to
fight inflation, principally through the Brazilian Central Bank, have had and may in the future have significant
effects on the Brazilian economy and our business. Tight monetary policies with high interest rates and high
compulsory reserve requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes
and increase our loan loss provisions. Conversely, less strict government and Brazilian Central Bank policies and
interest rate decreases may trigger increases in inflation, and consequently, growth volatility and the need for sudden
and significant interest rate increases, which could negatively affect our credit spreads.
From January 2000 to August 2005, the average annual interest rate in Brazil was 18.90%, with the minimum
rate of 15.25% and maximum of 26.50% during this period. With the favorable macroeconomic environment and
inflation stability, the Brazilian Central Bank began a cycle of reducing the SELIC rate (the benchmark interest rate
payable to holders of certain Brazilian government securities, based on Brazilian Central Bank’s overnight rate),
starting at a rate of 19.5% in September 2005 and lowering it to 8.75% in March 2010, when the SELIC rate reached
a then historical low. At the end of 2010, in order to balance domestic demand, the Brazilian Central Bank started to
increase the SELIC rate again, reaching 12.5% in July 2011. However, the Brazilian Central Bank revised its
monetary policy in August 2011, when it implemented a monetary easing policy to mitigate the spillover effects of
the then ongoing international financial crisis. As a result of this change in policy, the SELIC rate was decreased a
number of times during the second half of 2011 and throughout 2012, reaching 7.25% (the lowest rate on record) by
the end of 2012. The Brazilian Central Bank tightened monetary policy once more in 2013, progressively increasing
the SELIC rate starting in April 2013 and reaching 10.0% in November 2013, in an effort to control increasing
inflation. In 2014, persistent high inflation led to consecutive increases of the SELIC rate, reaching 11.75% in
December 2014. On January 21, 2015 the SELIC rate was increased to 12.25%, on March 4, 2015 to 12.75%, on
April 29, 2015 to 13.25% and on June 3, 2015 to 13.75%. On June 9, 2015, the SELIC rate was 13.75%.
The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our
results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and
related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian
economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2014, a
1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our
net interest income of R$490 million. Any changes in interest rates may negatively impact our business, financial
condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing
11
the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk
of default by our customers.
Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to
inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and
the general index of market prices (Índice Geral de Preços-Mercado), or IGP-M. For example, considering the
amounts in 2014, each additional percentage point change in inflation, would impact our personnel and other
administrative expenses by approximately R$72 million and R$67 million, respectively.
Despite the Brazilian Central Bank’s repeated raises in the SELIC rate during 2013 and 2014, inflation has
continued to increase, reaching 7.1% for the twelve-month period ending January 2015 and further increasing to
7.7% for the twelve-month period ending February 2015, the latter being the highest level recorded since May 2005.
Brazil’s high rate of inflation, compounded by high and increasing interest rates, declining consumer spending and
increasing unemployment, may have a material adverse impact on the Brazilian economy as a whole, as well as on
our financial conditions, operations and profits.
The ongoing “Lava Jato” investigation regarding corruption at certain oil and gas, energy and infrastructure
companies may hinder the growth of the Brazilian economy and could have an adverse effect on our business.
Certain Brazilian companies active in the oil and gas, energy and infrastructure sectors are facing investigations
by the CVM, the SEC, the Brazilian Federal Police and the Brazilian Federal Prosecutor’s Office, in connection with
corruption allegations (the so called “Lava Jato” investigations). Depending on the duration and outcome of such
investigations, the companies involved may face downgrade from rating agencies, funding restrictions and a
reduction in their revenues. Given the relatively significant weight of the companies cited in the investigation, this
could have an adverse effect on Brazil’s growth prospects in the near to medium term. Negative effects on a number
of companies may also impact the level of investments in infrastructure in Brazil which may lead to lower economic
growth in the near to medium term. The combination of these factors could have an adverse effect on our asset
quality.
Exposure to Brazilian federal government debt could have a material adverse effect on us.
We invest in Brazilian government sovereign bonds. As of December 31, 2014, approximately 20% of our total
assets, and 86% of our securities portfolio, was comprised of debt securities issued by the Brazilian government.
Any failure by the Brazilian government to make timely payments under the terms of these securities, or a
significant decrease in their market value, will have a material adverse effect on us.
Fluctuations in interest rates and other factors may affect our obligations under legacy employee pension funds
We sponsor certain defined benefit pension plans and a health care plan that benefit certain of our former and
current employees, most of which were inherited from Banespa (though we discontinued the use of defined benefit
pension plans for our employees in 2005).
In order to determine the funded status of each legacy defined benefit pension plan and consequently the carried
reserves necessary to pay future beneficiaries, we use certain actuarial techniques and assumptions which are
inherently uncertain and involve the exercise of significant judgment, including with respect to interest rates, which
are a key assumption in determining our current obligations under the legacy pension plans as interest rates are used
to calculate the present value of such obligations.
Changes in the present value of our obligations under our legacy defined benefit pension plans, due to a
reduction in the value of the pension fund assets (depending on the performance of financial markets) or an increase
in the pension fund liabilities due to changes in mortality assumptions, the rate of increase of salaries, discount rate
assumptions (primarily based on yield levels of high graded securities), inflation, the expected rate of return on plan
assets, or other factors, could cause us to have to increase contributions to reduce or satisfy the deficits which would
divert resources from use in other areas of our business and reduce our capital resources. While we can control a
number of the above factors, there are some over which we have no or limited control. Increases in our pension
liabilities and obligations could have a material adverse effect on our business, financial condition and results of
operations.
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Decreases in interest rates can increase the present value of obligations under our legacy defined benefit pension
plans, such as the rate decrease experienced in 2012, when the SELIC rate decreased to a historic low of 7.25% p.a.,
and may materially and adversely affect the funded status of our legacy defined benefit plans and require us to make
additional contributions to these plans to meet our pension funding obligations.
Exchange rate volatility may have a material adverse effect on the Brazilian economy and on our business.
The Brazilian currency has during past decades experienced frequent and substantial variations in relation to the
U.S. dollar and other foreign currencies. For example, as a result of the 2008 global financial markets crisis, the real
depreciated 31.9% against the U.S. dollar, reaching R$2.34 per U.S.$1.00 on December 31, 2008. The real
recovered in the second half of 2009 and continued to appreciate in 2010, reaching R$1.74 per U.S.$1.00 on
December 31, 2009 and R$1.67 per U.S.$1.00 on December 31, 2010, mainly due to the recovery of consumer
confidence and exports and foreign investments in the second half of 2009. These effects continued through 2010. In
2011, due to the ongoing international financial crisis (particularly in Europe) the exchange rate reached R$1.88 per
U.S.$1.00 as of December 31, 2011. Since 2012, the real has continued to depreciate due to a drop in commodities
prices and a recovery of the U.S. economy, reaching R$2.04 per U.S.$1.00 on December 31, 2012, R$2.34 per
U.S.$1.00 on December 31, 2013 and R$2.65 per U.S.$1.00 on December 31, 2014. On June 8, 2015, the exchange
rate reached R$3.11 per U.S.$1.00.
Depreciation of the real against the U.S. dollar also could create inflationary pressures in Brazil and cause
increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm
our financial condition and results of operations. Additionally, depreciation of the real could make our foreign
currency-linked obligations and funding more expensive, negatively affect the market price of our securities
portfolios and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S.
dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency accounts,
as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the
real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition
and results of operations.
In the year ended December 31, 2014, a variation of 1.0% in the exchange rate of reais to U.S. dollars would
have resulted in a variation of expenses on our net foreign exchange position denominated in U.S. dollars of R$1.6
million.
Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse
effect on us.
Our performance depends on the overall health and growth of the Brazilian economy. GDP growth was 1.8% in
2012, 2.7% in 2013 and 0.1% in 2014. Growth is limited by inadequate infrastructure, including potential energy
shortages (including as a result of deficient hydrological energy generation resulting from the ongoing drought in
Brazil) and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and
the lack of private and public investments in these areas, which limit productivity and efficiency. Any of these
factors could lead to consumer and labor market volatility, and generally impact the availability of income,
purchasing power and consumption levels, which could limit growth, increase delinquency rates and ultimately have
a material adverse effect on us.
Developments and the perception of risk in other countries may adversely affect the Brazilian economy and
market price of Brazilian issuers’ securities.
The market value of securities of Brazilian issuers is affected by economic and market conditions in other
countries, including the United States, European countries (including Spain, where Santander Spain, our indirect
controlling stockholder, is based), as well as in other Latin American and emerging market countries. Although
economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil,
investors’ reactions to developments in these other countries may have an adverse effect on the market value of
securities of Brazilian issuers. In particular, investor perceptions of the risks associated with our securities may be
affected by perception of risk conditions in Spain. Additionally, crises in other emerging market countries may
diminish investor interest in securities of Brazilian issuers, including our securities. This could adversely affect the
13
market price of our securities, restrict our access to capital markets and compromise our ability to finance our
operations in the future on favorable terms, or at all.
In 2013 and 2014, there was an increase in volatility in all Brazilian markets due to, among other factors,
uncertainties about how monetary policy adjustments in the United States would affect the international financial
markets, the increasing risk aversion to emerging market countries, and the uncertainties regarding Brazilian
macroeconomic conditions. These uncertainties adversely affect us and the market value of our securities.
In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of
their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy,
an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit
availability. We lend primarily to Brazilian borrowers, and these effects could materially and adversely affect our
customers and increase our non-performing loans, resulting in increased risk associated with our lending activity and
requiring us to make corresponding revisions to our risk management and loan loss reserve models.
Disruption or volatility in the global financial markets could further increase negative effects on the financial
and economic environment in Brazil and the other countries in which we operate, which could have a material
adverse effect on us.
Risks Relating to the Brazilian Financial Services Industry and our Business
The increasingly competitive environment in the Brazilian financial services market may adversely affect our
business prospects.
The Brazilian financial markets, including the banking, insurance and asset management sectors, are highly
competitive. We face significant competition in all of our main areas of operation from other Brazilian and
international banks, as well as state-owned institutions. In recent years, the competition has increased in the sectors
of banking and insurance.
In 2012, 2013 and 2014, the Brazilian economy grew less than in prior years, while inflation and currency
depreciation increased. The inflation rate reached a level of 7.7% for the twelve-month period ending February
2015, the highest level on record since May 2005. The Brazilian government, in an attempt to foster economic
growth, stimulated the availability of credit through large state-owned banks, sustaining the pace of the previous
years’ growth. Such state-owned banks started to offer credit at significantly lower interest rates. The privatelyowned banks followed this lead by reducing interest rates for their customers, while tightening customer credit
approval policies in an effort to control potential increases in delinquency rates. Due to these measures, margins and
spread were reduced, and credit risk increased.
Increasing competition could require that we increase our rates offered on deposits or lower the rates we charge
on loans, which could also have a material adverse effect on us.
In addition, if our customer service levels in our retail or wholesale businesses were perceived by the market to
be materially below those of our competitor financial institutions, we could lose existing and prospective business
opportunities. If we are not successful in retaining and strengthening customer relationships, we may lose market
share, incur losses on some or all of our activities or fail to attract new or retain existing deposits, which would have
a material adverse effect on us.
We are subject to substantial regulation which could adversely affect our business and operations.
The Brazilian financial markets are subject to extensive and continuous regulatory control by the Brazilian
government, principally by the Brazilian Central Bank, the CVM and CMN, which, in each case, materially affects
our business. We have no control over the issuance of new regulations that may affect our operations, including in
respect of:
•
minimum capital requirements;
•
reserve and compulsory deposit requirements;
14
•
limits on investments in fixed assets;
•
lending limits and other credit restrictions, including compulsory allocations;
•
limits and other restrictions on fees;
•
limits on the amount of interest banks can charge or the period for capitalizing interest; and
•
accounting and statistical requirements.
The regulations governing Brazilian financial institutions are continuously evolving, and the Brazilian Central
Bank has been known to react actively and extensively to developments in our industry.
Changes in regulations in Brazil and international markets may expose us to increased compliance costs and
limitations on our ability to pursue certain business opportunities and provide certain products and services. As some
of the banking laws and regulations have been recently issued or become effective, the manner in which those laws
and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent
these recently adopted regulations are implemented inconsistently in the jurisdictions in which we operate, we may
face higher compliance costs. The measures of the Brazilian Central Bank and the amendment of existing laws and
regulations, or the adoption of new laws or regulations could adversely affect our ability to provide loans, make
investments or render certain financial services. No assurance can be given generally that laws or regulations will be
adopted, enforced or interpreted in a manner that will not have a material adverse effect on our business and results
of operations.
We may also be subject to potential impacts relating to regulatory changes affecting our controlling shareholder
due to regulatory changes implemented as a result of the unification of the European banking system under a
European Banking Union and as a result of the implementation of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) and the Volcker Rule promulgated in connection with the DoddFrank Act. We cannot predict the final outcome of any proposed regulations from the European Banking Union or
their effects on our controlling shareholder and, consequently, their effects on us, nor can we predict the impact of
the Volcker Rule on our controlling shareholder or on us. See “Regulatory Overview—Capital Adequacy and
Leverage——U.S. Banking Regulation – Volcker Rule.”
Increases in reserve, compulsory deposit and minimum capital requirements may have a material adverse effect
on our business, financial condition and results of operations.
The Brazilian Central Bank has periodically changed the level of reserves and compulsory deposits that
financial institutions in Brazil are required to maintain with the Brazilian Central Bank, as well as determined
compulsory allocation requirements to finance government programs. The Brazilian Central Bank may increase the
reserve and compulsory deposit or allocation requirements in the future or impose new requirements. Increases in
reserve and compulsory deposit or allocation requirements reduce our liquidity to fund our loan portfolio and other
investments and, as a result, may have a material adverse effect on our business, financial condition and results of
operations.
Compulsory deposits and allocations generally do not yield the same return as other investments and deposits
because a portion of compulsory deposits and allocations:
•
do not bear interest;
•
must be held in Brazilian federal government securities; and
•
must be used to finance government programs, including a federal housing program and rural sector
subsidies.
In 2013, 2014 and early 2015, the Brazilian Central Bank published several rules to implement Basel III in
Brazil. This new set of regulations covers the revised definition of capital, capital requirements, capital buffers,
credit valuation adjustments and exposures to central counterparties, leverage and liquidity coverage ratios. No
15
assurance can be given that the Basel III will be adopted, enforced or interpreted in a manner that will not have an
adverse effect on us.
For more information on the rules implementing Basel III, see “Regulatory Overview—Capital Adequacy and
Leverage—Basel III.”
We may not be able to detect or prevent money laundering and other criminal activities fully or on a timely basis,
which could expose us to additional liability and could have a material adverse effect on us.
We are required to comply with applicable anti-money laundering (“AML”), anti-terrorism, sanctions and other
laws and regulations in the jurisdictions in which we operate. These laws and regulations require us, among other
things, to conduct full customer due diligence regarding sanctions and politically-exposed person screening, keep
our customer, account and transaction information up to date and have implemented effective financial crime
policies and procedures detailing what is required from those responsible for complying with it. Our requirements
also include AML training for our employees, reporting suspicious transactions and activities to the relevant
regulatory authorities and appropriate law enforcement following full investigation by the special incidents area.
Financial crime has become the subject of enhanced regulatory scrutiny and supervision by regulators globally.
AML sanctions, laws and regulations are increasingly complex and detailed, and have become the subject of
enhanced regulatory supervision, requiring improved systems, sophisticated monitoring and skilled compliance
personnel.
We have developed policies and procedures aimed at detecting and preventing the use of our banking network
for money laundering and other financial crime related activities. These require implementation and embedding
within our business effective controls and monitoring, which in turn require on-going changes to systems and
operational activities. Financial crime is continually evolving and subject to increasingly stringent regulatory
oversight and focus. This requires proactive and adaptable responses from us so that we are able to effectively deter
threats and criminality. Even known threats can never be fully eliminated, and there will be instances where we may
be used by other parties to engage in money laundering and other illegal or improper activities. In addition, we rely
heavily on our employees to assist us by spotting such activities and reporting them, and our employees have
varying degrees of experience in recognizing criminal tactics and understanding the level of sophistication of
criminal organizations. Where we outsource any of our customer due diligence, customer screening or anti-financial
crime operations, we remain responsible and accountable for full compliance and any breaches. If we are unable to
apply the necessary scrutiny and oversight, there remains a risk of regulatory breach.
If we are unable to fully comply with applicable laws, regulations and expectations, our regulators and relevant
law enforcement agencies have the ability and authority to impose significant fines and other penalties on us,
including requiring a complete review of our business systems, day-to-day supervision by external consultants and
ultimately the revocation of licenses.
The reputational damage to our business and global brand would be severe if we were found to have breached
AML, anti-terrorism, or sanctions requirements. Our reputation could also suffer if we are unable to protect our
customers or our business from being used by criminals for illegal or improper purposes.
Any of such risks could have a material adverse effect on our operating results, financial condition and
prospects.
Changes in taxes and other fiscal assessments may adversely affect us.
The Brazilian government regularly enacts reforms to the tax and other assessment regimes to which we and our
customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of
temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these
changes and any other changes that result from enactment of additional tax reforms have not been, and cannot be,
quantified and there can be no assurance that these reforms will not, once implemented, have an adverse effect upon
our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of
borrowing and contributing to the increase in our non-performing credit portfolio.
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Changes in tax policy, including the creation of new taxes, may occur with relative frequency and such changes
could have an adverse effect on our financial position or operating results. For example, in 2011, the Brazilian
government established the Tax on Financial Transactions (the “IOF Tax/Derivatives”) at a rate of 1.0% per day on
the notional value of increased foreign exchange exposure. The rate was reduced to zero in 2013. Furthermore, the
rules regarding IOF tax assessed on the settlement of exchange transactions (“IOF Tax/FX”) for the inflow of funds
related to foreign loans have been changed multiple times since 2012. In addition, the IOF Tax rates applicable to
local loans to individuals (“IOF Tax/Loans”) have been frequently revised in recent years, ranging from 1.5% at the
beginning in 2011 to the current rate of 3.0%, with several adjustments in the rate (both up and down) during this
period. We cannot accurately estimate the impact that a change in tax laws or tax policy could have on our
operations. For example, the IOF Tax is a tool used by the Brazilian government to attempt to regulate economic
activity, which does not directly impact our results of operations, though changes in the IOF Tax can impact our
business volumes generally.
Also, the Brazilian Congress may discuss broad tax reforms in Brazil to improve the efficiency of allocation of
the economic resources, as proposed by the executive branch of the Brazilian federal government. Major tax reforms
in Brazil have been discussed over the last few years. We cannot predict if tax reforms will be implemented in the
future. The effects of these changes, if enacted, and any other changes that could result from the enactment of
additional tax reforms, cannot be quantified.
If we are unable to effectively control the level of non-performing or poor credit quality loans in the future, or if
our loan loss reserves are insufficient to cover future loan losses, this could have a material adverse effect on us.
Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties
are inherent in a wide range of our businesses. Non-performing or low credit quality loans have in the past and can
continue to negatively impact our results of operations. We cannot assure you that we will be able to effectively
control the level of impaired loans in our total loan portfolio. In particular, the amount of our reported nonperforming loans may increase in the future at a faster rate than the growth in our total loan portfolio. In 2014, our
loan portfolio increased 8.0% as compared to an increase of 7.3% in 2013. Our non-performing credit portfolio
decreased 3.9% in 2014 compared to a decrease of 25.6% in 2013. We believe the decreases in our non-performing
credit portfolio were due primarily to improved lending standards and credit collection practices, though there can
be no assurance that the measures we have implemented to improve the quality of our credit portfolio will continue
to be effective or that our non-performing credit portfolio will not increase again in the future due to factors outside
of our control.
Our current loan loss reserves may not be adequate to cover eventual increases in the amount of non-performing
loans or future deteriorations in the overall credit quality of our total loan portfolio. Our loan loss reserves are based
on our current assessment of and expectations concerning various factors affecting the quality of our loan portfolio.
These factors include, among other things: our borrowers’ financial condition, repayment abilities and repayment
intentions; the realizable value of any collateral, the prospects for support from any guarantor, government
macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors, including
the trends described above, are beyond our control. As a result, there is no precise method for predicting loan and
credit losses, and we cannot assure you that our loan loss reserves will be sufficient to cover future losses. If our
assessment and expectations concerning the factors mentioned above differ from actual developments, if the quality
of our total loan portfolio deteriorates, for any reason, we may be required to increase our loan loss reserves, which
may adversely affect us. If we were unable to control or reduce the level of our non-performing or poor credit
quality loans, this could have a material adverse effect on us.
Our loan portfolio may not continue to grow at the same rate and economic uncertainty may lead to a contraction
in our loan portfolio.
There can be no assurance that our loan portfolio will continue to grow at rates similar to the historical growth
rate we have experienced. The recent slow growth rate of the Brazilian economy from 2012 through 2014, a
slowdown in the growth of customer demand, an increase in market competition, changes in governmental
regulation and an increase of the SELIC rate, could adversely affect the rate of growth of our loan portfolio and our
risk index and, consequently, increase our required allowances for impairment losses. Ongoing economic
uncertainty could adversely affect liquidity, businesses and financial condition of our customers as well as lead to a
17
general decline in consumer spending and a rise in unemployment. All this could lead to a decrease in demand for
borrowings in general, which could have a material adverse effect on our business.
Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect
on us.
Our fixed rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a
borrower or issuer to pay a debt obligation prior to maturity. Generally, in a declining interest rate environment,
prepayment activity increases, which reduces the weighted average life of our earning assets and could have a
material adverse effect on us. We would also be required to amortize net premiums into income over a shorter
period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a
significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the
weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at
lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments could have a
material adverse effect on us.
Since our principal sources of funds are short-term deposits, a sudden shortage of funds could cause an increase
in costs of funding and an adverse effect on our revenues and our liquidity levels.
Customer deposits are our primary source of funding. As of December 31, 2014, 63.1% of our customer
deposits had remaining maturities of one year or less, or were payable on demand while 39.9% of our assets have
longer maturities, resulting in a mismatch between the maturities of liabilities and the maturities of assets. The
ongoing availability of this type of funding is sensitive to a variety of factors outside our control, such as general
economic conditions and the confidence of commercial depositors in the economy, in general, and the financial
services industry in particular, and the availability and extent of deposit guarantees, as well as competition between
banks for deposits. If a substantial number of our depositors withdraw their demand deposits or do not roll over their
time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially
and adversely affected. We cannot assure you that in the event of a sudden or unexpected shortage of funds in the
banking system, any money markets in which we operate will be able to maintain levels of funding without
incurring higher funding costs or the liquidation of certain assets. If this were to happen, our results of operations
and financial condition may be materially adversely affected.
Credit, market and liquidity risks may have an adverse effect on our credit ratings and our cost of funds. Any
downgrading in Brazil’s, our controlling stockholder’s, or our credit rating, would likely increase our cost of
funding, require us to post additional collateral under some of our derivative contracts and adversely affect our
interest margins and results of operations.
Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies
regularly evaluate us and their ratings of our long-term debt are based on a number of factors, including our
financial strength, conditions that affect the financial services industry generally and the economic environment in
which we operate.
Any downgrade in Brazil’s sovereign credit ratings, those of our controlling stockholder, or in our ratings,
would likely increase our borrowing costs. For example, a ratings downgrade could adversely affect our ability to
sell or market certain of our products, such as subordinated securities, engage in certain longer-term and derivatives
transactions, and retain our customers, particularly customers who need a minimum rating threshold in order to
invest. This, in turn, could reduce our liquidity and have an adverse effect on our operating results and financial
condition
While certain potential impacts of any ratings downgrade may be quantifiable, the full consequences of a credit
rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related
factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of a
firm’s long-term credit rating precipitates downgrades to its short-term credit rating, and assumptions about the
potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower
than any hypothetical example, depending upon certain factors including which credit rating agency downgrades our
credit rating, any management or restructuring actions that could be taken to reduce cash outflows and the potential
18
liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding
capacity.
In the second half of 2013 and in early 2014, the Spanish economy demonstrated increased economic stability
and improved growth prospects, which led, in 2013, to a revision in its credit rating outlook to stable from negative
by the three major risk rating agencies mentioned above (S&P on November 29, Fitch on November 1 and Moody’s
on December 4). Subsequently, Moody’s upgraded Spain’s sovereign rating to Baa2 from Baa3 with a positive
outlook on February 21, 2014. Fitch Ratings upgraded Spain’s sovereign rating to BBB+ from BBB with a stable
outlook on April 25, 2014. S&P upgraded Spain’s sovereign rating to BBB from BBB- with a stable outlook on May
23, 2014. Consequently, Santander Spain’s credit rating was upgraded and currently the credit ratings of Santander
Spain are A- by Fitch, BBB+ by S&P and Baa1 by Moody’s, with a stable outlook in the three rating agencies. In
each case Santander Spain is one notch above Spain’s sovereign rating.
On March 24, 2014, S&P lowered Brazil’s credit rating to BBB- from BBB, principally due to the performance
of fiscal accounts. On September 9, 2014 Moody’s revised the Brazilian sovereign debt outlook to negative from
stable, mainly due to a sustained reduction of economic growth, worsening perception by investors and deterioration
in indebtedness metrics. Currently the sovereign Brazilian rating is: BBB- with a stable outlook by S&P, BBB with
a stable outlook by Fitch Ratings and Baa2 with a negative outlook by Moody’s.
Our long-term debt in foreign currency is currently rated BBB+ with a stable outlook by S&P, BBB with stable
outlook by Fitch and Baa2 with a negative outlook by Moody’s. We estimate that any downgrade in our credit rating
could increase our cost of international funding by around 50-100 basis points, in which case we expect we would
concentrate our funding efforts in the domestic market.
We cannot assure you that the rating agencies will maintain their current ratings or outlooks, or with regard to
those rating agencies that have a negative outlook with respect to us or our controlling stockholder, there can be no
assurances that such agencies will revise such outlooks upward. Our failure to maintain favorable ratings and
outlooks would likely increase our cost of funding and adversely affect our interest margins and results of
operations.
The effectiveness of our credit risk management is affected by the quality and scope of information available in
Brazil.
In assessing customers’ credit worthiness, we rely largely on the credit information available from our own
internal databases, certain publicly available customer credit information, credit contracted information provided by
Brazilian Central Bank and other sources. Due to limitations in the availability of information and the developing
information infrastructure in Brazil, our assessment of credit risk associated with a particular customer may not be
based on complete, accurate or reliable information. In addition, we cannot assure that our credit scoring systems
collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be
assessed correctly. Without complete, accurate and reliable information, we have to rely on other publicly available
resources and our internal resources, which may not be effective. As a result, our ability to effectively manage our
credit risk and subsequently our loan loss allowances may be materially adversely affected.
The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full
value of the collateral securing our loan portfolio.
The value of the collateral securing our loan portfolio may fluctuate due to factors beyond our control, including
macroeconomic factors globally and in Brazil. We may also not have adequately recent information on the value of
collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such
collateral. If this were to occur, we may need to make additional provisions to cover actual impairment losses of our
loans, which may materially and adversely affect our operational results and financial condition.
We are subject to market, operational and other related risks associated with our derivative transactions and our
investment positions that could have a material adverse effect on us.
We enter into derivative transactions for trading purposes as well as for hedging purposes. We are subject to
market, credit and operational risks associated with these transactions, including basis risk (the risk of loss
19
associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or
default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its
obligations thereunder, including providing sufficient collateral). We also hold securities in our own portfolio as part
of our investment and hedging strategies.
Financial instruments, including derivative instruments and securities represented 25.2% of our total assets as of
December 31, 2014. Any realized or unrealized future gains or losses from these investments or hedging strategies
could have a significant impact on our income. These gains and losses, which we account for when we sell or markto-market investments in financial instruments can vary considerably from one period to another. If, for example, we
enter into derivatives transactions to protect ourselves against decreases in the value of the real or in interest rates
and the real instead increases in value or interest rates increase, we may incur financial losses. We cannot forecast
the amount of gains or losses in any future period, and the variations experienced from one period to another do not
necessarily provide a meaningful forward-looking reference point. Gains or losses in our investment portfolio may
create volatility in net revenue levels, and we may not earn a return on our consolidated investment portfolio, or on a
part of the portfolio in the future. Any losses on our securities and derivative financial instruments could materially
and adversely affect our operating income and financial condition. In addition, any decrease in the value of these
securities and derivatives portfolios may result in a decrease in our capital ratios, which could impair our ability to
engage in lending activity at the levels we currently anticipate.
Failure to successfully implement and continue to improve our risk management policies, procedures and
methods, including our credit risk management system, could materially and adversely affect us, and we may be
exposed to unidentified or unanticipated risks.
The management of risk is an integral part of our activities. We seek to monitor and manage our risk exposure
through a variety of separate but complementary financial, credit, market, operational, compliance and legal
reporting systems. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques,
such techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market
environments or against all types of risk, including risks that we fail to identify or anticipate. We use certain
qualitative tools and metrics for managing market risk, including our use of value at risk, or “VaR,” and statistical
modeling tools, which are based upon observed historical market behavior. We apply statistical and other tools to
these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to
predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or
correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could
be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all
risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to
material unanticipated losses. If existing or potential customers believe our risk management is inadequate, they
could take their business elsewhere. This could harm our reputation as well as our revenues and profits. We also face
risks from operational losses that may occur due to inadequate processes, people and systems failures or even from
external events like natural disasters, terrorism, robbery and vandalism. Despite the operational risk management
process supported by the Board and the internal audit tests, the internal controls and procedures effectiveness may
not be fully adequate or sufficient to avoid all the known and unknown operational risks. We have suffered losses
from operational risk in the past, including losses related to the migration of customer accounts in connection with
acquisitions, phishing scams perpetuated by third parties, and information system platform upgrades. There can be
no assurance that we will not suffer material losses from operational risk in the future, including losses related to
cyber-attacks or other such security breaches.
We face various cyber-security risks, including but not limited to: penetration of our information technology
systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our
systems, contamination (whether intentional or accidental) of our networks and systems by third-parties with whom
we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside
of our organization, and cyber-attacks causing systems degradation or service unavailability that may result in
business losses. We may not be able to successfully protect our information technology systems and platforms
against such threats. Further, as cyber-attacks continue to evolve, we may incur significant costs in the attempt to
modify or enhance our protective measures or investigate or remediate any vulnerability.
In addition, as a commercial bank, one of the main types of risks inherent in our business is credit risk. For
example, an important feature of our credit risk management system is to employ an internal credit rating system to
20
assess the particular risk profile of a customer. As this process involves detailed analyses of the customer, taking
into account both quantitative and qualitative factors, it is subject to human error. In exercising their judgment, our
employees may not always be able to assign an accurate credit rating to a customer or credit risk, which may result
in our exposure to higher credit risks than indicated by our risk rating system.
We have been trying to refine our credit policies and guidelines to address potential risks associated with
particular industries or types of customers. However, we may not be able to timely detect these risks before they
occur, or due to limited tools available to us, our employees may not be able to effectively implement them, which
may increase our credit risk. Failure to effectively implement, consistently follow or continuously refine our credit
risk management system may result in an increase in the level of non-performing loans and a higher risk exposure
for us, which could have a material adverse effect on us.
We are subject to counterparty risk in our banking business.
We are exposed to counterparty risks in addition to credit risks associated with lending activities. Counterparty
risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under
which counterparties have obligations to make payments to us, or executing securities, futures, currency or
commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the
counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries.
We engage in transactions with counterparties in the financial services industry, including brokers and dealers,
commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. Defaults by, and
even rumors or questions about the solvency of, certain financial institutions and the financial services industry
generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many
of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our
significant counterparties.
If these risks give rise to losses, this could materially and adversely affect our results of operations and financial
condition. We have a diversified loan portfolio, with no specific concentration exceeding 10.0% of total loans,
however we cannot assure this will continue to be the case. If counterparty risks give rise to losses, this could
materially and adversely affect our results of operations and financial condition.
We engage in transactions with related parties that others may not consider to be on an arm’s-length basis.
We are likely to continue to engage in transactions with related parties (including our controlling stockholder)
that others may not consider to be on an arm’s length basis. Conflicts of interest between us and related parties may
arise. These conflicts are not required to be and may not be resolved in our favor. See “Related Party Transactions.”
Our business is highly dependent on proper functioning of information technology systems
Our business is highly dependent on the ability of our information technology systems to accurately process a
large number of transactions across numerous and diverse markets and products in a timely manner. The proper
functioning of our financial control, risk management, accounting, customer service and other data processing
systems is critical to our business and our ability to compete effectively. We have backup data for our key data
processing systems that could be used in the event of a catastrophe or a failure of our primary systems, and have
established alternative communication networks where available. However, we do not operate all of our redundant
systems on a real-time basis and cannot assure you that our business activities would not be materially disrupted if
there were a partial or complete failure of any of these primary information technology systems or communication
networks. Such failures could be caused by, among other things, major natural catastrophes, software bugs,
computer virus attacks or conversion errors due to system upgrading. In addition, any security breach caused by
unauthorized access to information or systems, or intentional malfunctions or loss or corruption of data, software,
hardware or other computer equipment, could have a material adverse effect on our business, results of operations
and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our
information technology systems and increase our capacity on a timely and cost effective basis. Any substantial
21
failure to improve or upgrade information technology systems effectively or on a timely basis could materially and
adversely affect our competitiveness, results of operations and financial condition.
Failure to protect personal information could adversely affect us.
We manage and hold confidential personal information of customers in the ordinary course of our banking
operations. Although we have procedures and controls to safeguard personal information in our possession,
unauthorized disclosures or security breaches could subject us to legal actions and administrative sanctions as well
as damages that could materially and adversely affect our results of operations and financial condition.
We may be required to report events related to information security issues (including any cybersecurity issues),
events where customer information may be compromised, unauthorized access and other security breaches, to the
relevant regulatory authorities. Any material disruption or slowdown of our systems could cause information,
including data related to customer requests, to be lost or to be delivered to our clients with delays or errors, which
could reduce demand for our services and products and could materially and adversely affect us.
Damage to our reputation could cause harm to our business prospects.
Maintaining a positive reputation is critical to attracting and maintaining customers, investors and employees.
Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation
may arise from numerous sources, including, among others, employee misconduct, litigation or regulatory
outcomes, failure to deliver minimum standards of service and quality, compliance failures, unethical behavior, and
the activities of customers and counterparties. Furthermore, negative publicity regarding us, whether true or not,
may result in harm to our business prospects.
Actions by the financial services industry generally or by certain members of, or individuals in, the industry
may also affect our reputation. For example, the role played by financial services firms in the financial crisis and the
seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and
others in the financial services industry to decline. Any failure to establish or preserve a favorable reputation among
our customers and in the market in general could have a material adverse effect on our business, financial condition
and results of operations.
Further, our businesses are exposed to risk from potential non-compliance with policies, employee misconduct
or negligence and fraud, which could result in regulatory sanctions and serious reputational or financial harm. In
recent years, a number of multinational financial institutions have suffered material losses due to the actions of
“rogue traders” or other employees. It is not always possible to deter or prevent employee misconduct, and the
precautions we take to detect and prevent this activity may not always be effective.
We plan to continue to expand our operations and we may not be able to manage such growth effectively, which
could have an adverse impact on our profitability.
We allocate management and planning resources to develop strategic plans for organic growth and to identify
possible acquisitions, disposals and areas for restructuring our businesses. We cannot provide assurance that we will,
in all cases, be able to manage our growth effectively or achieve our strategic growth objectives. Challenges that
may result from the strategic growth decisions include our ability to:
•
efficiently manage the operations and employees of expanding businesses;
•
maintain or grow our existing customer base;
•
assess the value, strengths and weaknesses of investment or acquisition candidates;
•
fully integrate strategic investments, or newly-established entities or acquisitions in line with our
strategy;
•
align our current information technology systems adequately with those of a larger group;
22
•
apply our risk management policy effectively to a larger group; and
•
manage a growing number of entities without over-committing management or losing key personnel.
Any failure to manage growth effectively, including relating to any or all of the above challenges associated
with our growth plans, could have a material adverse effect on our operating results, financial condition and business
prospects.
Risks Relating to Our Controlling Shareholder and our Notes
Our ultimate controlling shareholder has a great deal of influence over our business.
Santander Spain, our ultimate controlling shareholder, currently owns, directly and indirectly, approximately
88.3% of our total capital (not including the shares held by Banco Madesant - Sociedade Unipessoal). For further
information, please see “Principal Stockholders”. Due to its share ownership, our controlling shareholder has the
power to control us and our subsidiaries, including the power to:
•
elect a majority of our directors that appoint our executive officers, set our management policies and
exercise overall control over our company and subsidiaries;
•
influence the appointment of our principal officers;
•
declare the payment of any dividends;
•
agree to sell or otherwise transfer its controlling stake in our company; and
•
determine the outcome of substantially all actions requiring shareholder approval, including transactions
with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.
In December 2012, primarily in response to the requirements of the European Banking Authority, Santander
Spain adopted a corporate governance framework (Marco de Gobierno Interno del Group Santander) to organize
and standardize the corporate governance practices of certain companies of the Santander Group (including us). We
adopted this corporate governance framework in May 2013, subject to applicable Brazilian laws, regulations and
limitations, such as banking secrecy laws, as well as our corporate governance practices, including our policies for
related-party transactions and for disclosure of material acts and facts. We operate as a stand-alone subsidiary within
the Santander Group. Our controlling shareholder has no liability for our banking operations, except for the amount
of its holdings of our capital stock and as set forth in Brazilian Law. The interests of Santander Spain may differ
from the interests of our other shareholders, and the concentration of control in Santander Spain will limit other
shareholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do
not view as beneficial.
Holders of Notes with Sovereign Event or Credit Event provisions may be subject to certain additional risks.
In connection with Notes with Sovereign Event or Credit Event provisions, we may deliver Governmental
Obligations, Credit Obligations or reais, as the case may be, to a São Paulo Paying Agent. Each holder will then be
required to make arrangements, at its own cost and risk, to receive payments in reais or take delivery of the
Governmental Obligations or the Credit Obligations. These arrangements may require the holder to open a demand
deposit or securities account in Brazil. No assurance can be given as to whether the holder will be able to open such
an account, any registration or other procedures that may be required to open any such account, or whether any taxes
or fees will accrue or be payable by the holder as a result of opening such account. There can be no assurance as to
whether legal recourse to the government of Brazil will exist or whether a market will exist for any such
Governmental Obligations.
If a Sovereign Event or Credit Event occurs and we have opted to deliver Governmental Obligations or Credit
Obligations, and are therefore prevented from delivering to the holders any Governmental Obligations or Credit
Obligations, then our obligation to make the delivery shall be suspended until we are no longer prevented from
making the delivery and holders will have no right either to call a default on the Notes or to sue for the undelivered
23
Governmental Obligations or Credit Obligations. If such a condition occurs, there can be no assurance as to when, if
ever, it will terminate.
If we are unable to make payments on the Notes from the Cayman Islands and must make payments from Brazil,
we may experience delays in obtaining or be unable to obtain the necessary Brazilian Central Bank approvals,
which would delay or prevent us from making payments on the Notes.
Securities issued through the Grand Cayman Branch do not require approval by or registration with the
Brazilian Central Bank. Should we be required to make remittances under the Notes directly from Brazil (whether
by reason of a lack of liquidity of the Grand Cayman Branch or imposition of any restriction under the laws of the
Cayman Islands), a specific Brazilian Central Bank approval may be required in case payment under these Notes is
made directly from Brazil (whether by reason of a lack of liquidity of the Grand Cayman Branch or imposition of
any restriction under the laws of the Cayman Islands). If we are unable to obtain the required approvals in
connection with the payment of amounts owed through our Grand Cayman Branch through remittances from Brazil,
we may have to seek other lawful mechanisms to effect payment of amounts due under the Notes. However, we
cannot guarantee that other remittance mechanisms will be available. If we are unable to make payments on the
Notes through our Grand Cayman Branch and we are prevented from making the payments from Brazil, we will be
forced to suspend payments on the Notes, which could adversely impact the market value of the Notes.
Our obligations under the Notes will be subordinated to some Brazilian statutory obligations.
Under Brazilian law, our obligations under the Notes will be subordinated to certain statutory preferences. In
the event of our liquidation, bankruptcy, insolvency, liquidation, dissolution, winding up or similar proceeding,
certain claims, such as claims for salaries and wages of our employees (subject to limitations imposed by Brazilian
law), claims deriving from transactions secured by collateral (e.g., mortgage or pledge), as well as taxes and court
expenses, will have preference over any other claim, including the Notes.
An active trading market for the Notes may not develop.
While application may be made to list the Notes on the Official List of the Luxembourg Stock Exchange and for
them to be admitted to trading on the Euro MTF market, there can be no assurance that an active trading market for
the Notes will develop, or, if one does develop, that it will be maintained. If an active trading market for the Notes
does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected.
The market for debt securities issued by Brazilian companies is influenced by economic and market conditions
in Brazil and, to varying degrees, market conditions and interest rates in other Latin American countries. For
example, following the various economic crises in the region, the market for debt instruments issued by Latin
American companies (including Brazilian companies) has been volatile, and this volatility has adversely affected the
price of such securities. There can be no assurance that events in Latin America or elsewhere will not cause a
continuation or recurrence of such market volatility or that such volatility will not adversely affect the price of the
Notes or that economic and market conditions will not have any other adverse effect.
24
USE OF PROCEEDS
The net proceeds from the sale of each issue of Notes under the Programme will be used by Santander Brasil for
general banking purposes or as set forth in the Final Terms applicable to the Notes.
25
CAPITALIZATION
The following table presents our consolidated capitalization as of December 31, 2014, as derived from our
audited consolidated financial statements included elsewhere in this information memorandum.
As of December 31, 2014, we complied with the capital adequacy requirements of the CMN, which adopted,
with certain modifications, the methodology of the Basel Accord. Our Basel capital adequacy ratio, in accordance
with the Brazilian Central Bank was 17.5% as of December 31, 2014.
As at December 31, 2014
in millions of
in millions of R$
U.S.$(2)
Capitalization
Current Liabilities
Deposits ...................................................................................................
Money Market Funding ...........................................................................
Funds from Acceptance and Issuance of Securities .................................
Interbank Accounts and Interbranch Accounts ........................................
Borrowing ................................................................................................
Domestic Onlendings - Official Institutions ............................................
Derivative Financial Instruments .............................................................
Subordinated Debts..................................................................................
Other Current Payables ............................................................................
Total Current Liabilities ...............................................................................
92,206.5
69,587.1
46,317.2
2,691.7
22,873.6
5,260.4
3,927.5
199.1
113,784.7
356,847.7
34,713.7
26,198.0
17,437.4
1,013.4
8,611.4
1,980.4
1,478.6
75.0
42,837.4
134,345.2
Long-Term Liabilities
Deposits ...................................................................................................
Money Market Funding ...........................................................................
Funds from Acceptance and Issuance of Securities .................................
Borrowing ................................................................................................
Domestic Onlendings - Official Institutions ............................................
Derivative Financial Instruments .............................................................
Subordinated Debts..................................................................................
Other Long-Term Payables ......................................................................
Total Long-Term Liabilities .........................................................................
Deferred Income ............................................................................................
Minority Interest............................................................................................
Stockholders’ Equity .....................................................................................
Total Capitalization (1) ...................................................................................
51,425.5
40,765.7
28,634.4
1,570.2
10,353.1
4,885.0
7,095.0
29,508.5
174,237.4
408.9
1,141.4
57,320.7
589,956.2
19,360.6
15,347.4
10,780.2
591.1
3,897.7
1,839.1
2,671.1
11,109.3
65,596.5
153.9
429.7
21,580.0
222,105.3
_________________
(1)
(2)
Total Capitalization equals the sum of total current and long-term liabilities, deferred income, minority interest and stockholders’ equity.
Translated for convenience only using the selling rate as reported by the Brazilian Central Bank on December 31, 2014 from
reais into U.S. dollars of R$2.6562 to U.S.$1.00.
Except as disclosed herein, there has been no material change in our total capitalization since December 31,
2014.
26
EXCHANGE RATES
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international
transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
Since 1999, the Brazilian Central Bank has allowed the real/U.S. dollar exchange rate to float freely, which
resulted in increased foreign exchange rate volatility. Until early 2003, the value of the real declined in relation to
the U.S. dollar. Between 2006 and 2008, the real strengthened, except during the most severe period of the global
economic crisis. Given the recent turmoil in international markets, the real started to depreciate. The Brazilian
Central Bank has intervened in the foreign exchange market to control unstable movements of exchange rates. The
real may fluctuate against the U.S. dollar substantially in the future. For further information on these risks, see “Risk
Factors—Risks Relating to Brazil and Macroeconomic Conditions in Brazil and Globally—Exchange rate volatility
may have a material adverse effect on the Brazilian economy and on our business.”
The following tables set forth the selling rate, expressed in reais per U.S. dollar (R$/U.S.$), for the periods
indicated:
Period-end
Year:
2010 ...................................................................................................
2011 ...................................................................................................
2012 ...................................................................................................
2013 ...................................................................................................
2014 ...................................................................................................
1.67
1.87
2.04
2.34
2.66
Period-end
Month Ended:
September 2014 .................................................................................
October 2014......................................................................................
November 2014..................................................................................
December 2014 ..................................................................................
January 2015 ......................................................................................
February 2015 ....................................................................................
March 2015 ........................................................................................
April 2015 ..........................................................................................
May 2015 ...........................................................................................
June 2015 (through June 8, 2015) ......................................................
Average(1)
Low
(per U.S. dollar)
1.76
1.67
1.96
2.16
2.36
High
1.65
1.53
1.70
1.95
2.19
1.88
1.90
2.11
2.45
2.74
Average(1)
Low
(per U.S. dollar)
High
2.45
2.44
2.56
2.66
2.68
2.84
3.20
3.01
3.18
3.11
2.35
2.45
2.55
2.64
2.63
2.82
3.15
3.04
3.06
3.14
2.24
2.38
2.49
2.55
2.57
2.70
2.90
2.92
2.97
3.11
2.44
2.52
2.61
2.74
2.71
2.91
3.29
3.16
3.18
3.17
_________________
Source: Brazilian Central Bank
(1)
Represents the average of the exchange rates on the close of each business day during the period.
Our parent company, Santander Spain, reports its financial condition and results of operations in euros. On
December 31, 2014, the exchange rate for the euro to real was R$3.227 per €1.00.
27
SELECTED FINANCIAL INFORMATION
Financial information for Santander Brasil as at and for the years ended December 31, 2014, 2013 and 2012 has
been derived from our audited consolidated financial statements prepared in accordance with Brazilian GAAP,
which differs in certain significant respects from IFRS. See Annex A, “Summary of Certain Differences between
Accounting Practices Adopted in Brazil and IFRS.”
This financial information should be read in conjunction with our audited consolidated financial statements and
the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this information memorandum.
Income Statement Data
2014
Financial Income
Loan, lease and other credit operations ...................................
Securities and derivative financial instruments .......................
Foreign Exchange Operations .................................................
Operations of Sale or Transfer of Financial Assets .................
Compulsory Investments .........................................................
Total Financial Income .................................................................
Financial Expenses
Funding operations ..................................................................
Borrowing and Onlendings Operations ...................................
Allowance for Loan Losses .....................................................
Total Financial Expenses ..............................................................
Gross Profit from Financial Operations......................................
Operating Expenses ......................................................................
Fee and Commission Income ..................................................
Personnel Expenses .................................................................
Other Administrative Expenses ...............................................
Tax Expenses ..........................................................................
Investments in Affiliates and Subsidiaries ..............................
Other Operating Expenses.......................................................
Operating Income .........................................................................
Non-operating Income ............................................................
Income Before Taxes on Income and Profit Sharing .................
Income Tax and Social Contribution.......................................
Profit Sharing ..........................................................................
Minority Interest .....................................................................
Net Income .....................................................................................
As at December 31,
2013
(in millions of R$)
2012
41,985.8
18,005.9
1,751.3
31.7
3,192.3
64,967.0
40,217.6
14,002.9
(212.6)
57.3
2,312.5
56,377.6
41,772.1
10,266.4
400.9
65.7
2,981.8
55,487.0
(32,802.4)
(3,666.0)
(11,908.9)
(48,377.3)
16,589.7
(14,112.2)
11,057.9
(6,395.3)
(13,050.8)
(3,146.4)
2.5
(2,580.1)
2,477.5
140.8
2,618.3
732.7
(991.2)
(198.6)
2,161.2
(23,765.2)
(2,863.6)
(14,319.1)
(40,947.9)
15,429.7
(15,025.1)
10,674.4
(6,282.9)
(12,800.8)
(2,987.8)
20.1
(3,648.1)
404.6
1,257.8
1,662.4
1,650.8
(958.4)
(247.5)
2,107.3
(21,482.8)
(1,440.9)
(14,991.4)
(37,915.1)
17,571.9
(14,988.3)
9,680.4
(6,318.1)
(12,180.8)
(3,027.7)
1.1
(3,143.2)
2,583.6
218.2
2,801.7
1,030.6
(980.5)
(126.1)
2,725.7
2014
As at December 31,
2013
(in millions of R$)
2012
5,074.7
39,808.6
132,270.8
30,308.4
0.0
245,596.3
(14,582.0)
134,253.2
5,485.7
47,655.2
78,145.8
35,833.4
0.8
227,482.3
(14,999.2)
86,173.2
4,742.5
36,770.9
76,832.1
34,516.6
1.5
211,958.7
(14,588.7)
75,782.3
Balance Sheet Data
Current and Noncurrent Assets
Cash .............................................................................................
Interbank Investments ..................................................................
Securities and Derivative Financial Instrument............................
Interbank Accounts ......................................................................
Interbranch Accounts ...................................................................
Loan Portfolio ..............................................................................
Allowance for loan losses ............................................................
Other Assets .................................................................................
28
572,730.1
As at December 31,
2013
(in millions of R$)
465,777.2
426,015.9
37.9
6,922.8
10,265.4
17,226.1
589,956.2
137.4
6,806.5
13,144.5
20,088.4
485,865.6
40.0
5,602.1
17,217.6
22,859.7
448,875.6
16,049.2
37,938.9
3,776.4
85,867.4
110,352.8
74,951.6
13.9
2,677.8
40,057.3
8,812.5
143,293.2
7,249.1
531,085.2
408.9
1,141.4
57,320.7
589,956.2
15,604.6
33,589.1
3,919.5
81,099.9
78,462.1
69,060.9
63.7
2,770.9
29,751.3
5,865.5
92,657.2
8,906.1
421,750.8
308.2
987.4
62,819.2
485,865.6
13,457.1
26,856.9
3,392.5
82,838.7
72,528.6
56,293.6
18.5
2,002.0
25,426.7
5,205.1
84,434.3
11,919.1
384,373.1
222.1
828.8
63,451.5
448,875.6
2014
Total Current and Noncurrent Assets ..............................................
Permanent Assets
Investments ..................................................................................
Fixed Assets .................................................................................
Intangibles ....................................................................................
Total Permanent Assets .....................................................................
Total Assets .........................................................................................
Liabilities
Demand Deposits .........................................................................
Savings Deposits ..........................................................................
Interbank Deposits .......................................................................
Time Deposits ..............................................................................
Money Market Funding ...............................................................
Funds from Acceptance and Issuance of Securities .....................
Interbank Accounts .....................................................................
Interbranch Accounts ..................................................................
Borrowing and Onlending ...........................................................
Derivative Financial Instruments ................................................
Other Payables ............................................................................
Subordinated Debts .....................................................................
Total Liabilities .................................................................................
Deferred Income ................................................................................
Minority Interest ...............................................................................
Stockholders’ Equity .........................................................................
Total Liabilities and Stockholders’ Equity .....................................
2012
Selected Consolidated Ratios (*)
As at December 31,
Profitability and performance
Adjusted return on average total assets (annualized) (1) ....................
Adjusted return on average shareholders’ equity (1) .........................
Capital adequacy
Average shareholders’ equity as a percentage of average total
assets (annualized)....................................................................
Average shareholders’ equity excluding goodwill as a percentage
of average total assets excluding goodwill(1) ............................
Basel capital adequacy ratio(2) ..........................................................
2014
2013
2012
(adjusted)
1.2%
11.7%
1.3%
11.0%
1.5%
12.9%
11.5%
13.8%
14.8%
10.0%
11.7%
11.8%
17.5%
19.2%
20.8%
________________
* Average annual balance sheet data has been calculated based upon the average of the monthly of balances at 13 dates: on December
31 of the prior year and each of the month-end balances of the 12 subsequent months.
(1)
(2)
Non-GAAP financial measurement that excludes R$27 billion in goodwill arising from the acquisition of Banco Real in 2008.
In accordance with the Brazilian Central Bank.
29
As at December 31,
2014
2013
2012
(in millions of R$, except as otherwise indicated)
Return on average total assets
Net income for the period ..................................................................
Average total assets ...........................................................................
Return on average total assets (annualized) .......................................
Adjusted return on average total assets
Net income for the period ..................................................................
Goodwill amortization expenses ........................................................
Net income for the period excluding goodwill amortization
expenses .....................................................................................
Average total assets ...........................................................................
Average amortized goodwill ..............................................................
Average total assets excluding goodwill ............................................
Adjusted return on average total assets (annualized) ..........................
Return on average shareholders’ equity
Net income for the period ..................................................................
Average shareholders’ equity ............................................................
Return on average shareholders’ equity (annualized) ........................
Adjusted return on average shareholders’ equity
Net income for the period ..................................................................
Goodwill amortization expenses ........................................................
Net income for the year excluding goodwill amortization
expenses .....................................................................................
Average shareholders’ equity ............................................................
Average amortized goodwill ..............................................................
Average shareholders’ equity excluding goodwill .............................
Adjusted return on average shareholders’ equity ...............................
Average shareholders’ equity as a percentage of average total
assets
Average shareholders’ equity ............................................................
Average total assets ...........................................................................
Average shareholders’ equity as a percentage of average total
assets (annualized) .....................................................................
Average stockholders’ equity excluding goodwill as a percentage of
average total assets excluding goodwill
Average shareholders’ equity ............................................................
Average amortized goodwill ..............................................................
Average shareholders’ equity excluding goodwill .............................
Average total assets ...........................................................................
Average amortized goodwill ..............................................................
Average total assets excluding goodwill ............................................
Average shareholders’ equity excluding goodwill as a percentage
of average total assets excluding goodwill (annualized) ............
30
2,161.2
508,550.4
0.4%
2,107.3
459,279.4
0.5%
2,725.7
430,401.5
0.6%
2,161.2
(3,688.9)
2,107.3
(3,637.0)
2,725.7
(3,637.0)
5,850.1
508,550.4
8,179.4
500,371.0
1.2%
5,744.3
459,279.4
11,174.4
448,105.0
1.3%
6,362.7
430,401.5
14,755.9
415,645.6
1.5%
2,161.2
58,234.2
3.7%
2,107.3
63,520.7
3.3%
2,725.7
63,712.2
4.3%
2,161.2
(3,688.9)
2,107.3
(3,637.0)
2,725.7
(3,637.0)
5,850.1
58,234.2
8,179.4
50,054.8
11.7%
5,744.3
63,520.7
11,174.4
52,346.3
11.0%
6,362.7
63,712.2
14,755.9
48,956.3
12.9%
58,234.2
508,550.4
11.5%
58,234.2
8,179.4
50,054.8
508,550.4
8,179.4
500,371.0
10.0%
63,520.7
459,279.4
13.8%
63,520.7
11,174.4
52,346.3
459,279.4
11,174.4
448,105.0
11.7%
63,712.2
430,401.5
14.8%
63,712.2
14,755.9
48,956.3
430,401.5
14,755.9
415,645.6
11.8%
SELECTED STATISTICAL INFORMATION
The following information for Santander Brasil is included for analytical purposes and is derived from and
should be read in conjunction with the consolidated financial statements contained elsewhere herein as well as
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information is
presented as at and for the years ended December 31, 2014, 2013 and 2012, and in the case of certain information
related to our loans and leases and related allowances, also as at December 31, 2011 and 2010.
Average annual balance sheet data has been calculated based upon the average of the month-end balances at 13
separate dates: the balance as at December 31 of the prior year and each of the month-end balances of the 12
subsequent months. Average rate and balance sheet data and other related statistical information have been prepared
on a consolidated basis.
We believe that the average data set forth herein accurately reflects in all material respects its financial
condition and results of operations at the dates and for the periods specified.
Average Balances and Interest Rate Data
The following table presents our average balances and rates of interest-earning assets and interest-bearing
liabilities.
As at and for the year ended December 31,
Average
Balance
2014
Income
(Expense)(*)
Average
Rate
Average
Balance
2013
Income
Average
(Expense)(*)
Rate
Average
Balance
2012
Income
(Expense)(*)
Average
Rate
(in millions of R$, except percentages)
Interest-Earning Assets:
Lending and leasing(1) ......
Interbank investments and Securities
transactions(2) ...........
Foreign exchange operations
Compulsory investments .
Total interest-earning assets:
215,478.8
39,468.5
18.3%
212,897.8
37,704.6
17.7%
189,170.6
40,003.4
21.1%
128,480.5
12,989.9
33,588.7
390,537.9
17,176.5
1,751.3
3,192.2
61,588.5
13,4% 103,914.9
13.5%
13,165.6
9.5%
30,886.0
15.8% 360,864.3
13,567.0
(212.6)
2,312.5
53,371.5
13.1%
89,272.0
(1.6%)
8,394.8
7.5%
37,080.5
14.8% 323,917.9
11,071.8
400.9
2,981.8
54,457.9
12.4%
4.8%
8.0%
16.8%
81,876.9
(9,129.2)
11.1%
80,400.7
(6,105.3)
7.6%
82,116.3
(6,506.6)
7.9%
91,758.6 (11,987.7)
35,775.9 (2,386.0)
3,889.0
(386.7)
13.1%
6.7%
9.9%
79,864.8
29,668.2
3,542.2
(7,841.8)
(1,736.8)
(343.6)
9.8%
5.9%
9.7%
71,252.2
24,866.8
3,053.9
(7,345.5)
(1,491.8)
(305.1)
10.3%
6.0%
10.0%
71,653.2 (6,941.1)
8,027.7
(886.6)
5,497.8
(973.4)
298,479.1 (32,690.7)
33,225.5 (3,665.9)
9.7%
11.0%
17.7%
11.0%
11.0%
62,594.0 (6,181.3)
9,763.6
(814.4)
(648.7)
265,833.5 (23,671.9)
27,113.6 (2,863.6)
9.9%
8.3%
n.a
8.9%
10.6%
49,361.2 (4,197.5)
11,440.1 (1,016.8)
–
(525.9)
242,090.5 (21,389.2)
24,878.9 (1,440.9)
8.5%
8.9%
n.a
8.8%
5.8%
331,704.6 (36,356.6)
25,231.9
11.0% 292,947.1 (26,535.5)
4.8%
24,580.8
9.1%
5.1%
266,969.4 (22,830.1)
31,627.8
8.6%
8.3%
Interest-Bearing Liabilities:
Funding operations
Time deposits ..................
Securities sold under repurchase
agreements(3 ...........
Savings deposits ...............
Interbank deposits ............
Funds from Acceptance and Issuance
of Securities.............
Subordinated debts ...........
Other(4) .............................
Total funding operations .
Borrowing and onlendings
Total interest-bearing liabilities:
................................
Net interest......................
_________________
(*)
(1)
(2)
(3)
(4)
Includes exchange differences.
Average balance consists of lending operations and other receivables included as part of our total loan portfolio and income includes
financial income in respect of both lending operations and such other receivables. Excluding Advances Against Exchange (Adiantamento
sobre Contrato de Câmbio), or “ACC.”
Average volume and Interest Income from Interbank investments, excluding foreign currency investments, and Securities transactions were
adjusted to exclude derivative positions.
“Money market funding” as shown on our balance sheets.
Balance consists of "debt instruments eligible to compose capital", “assumption of debt” and “contributions to fund guarantee of credit”
and the expenses consist of financial expense in respect of these liabilities.
31
Changes in Financial Income and Expense - Volume and Rate Analysis
The following table presents changes in our net interest income between changes in volume and changes in
rates at the year ended December 31, 2014 compared to 2013 and at the year ended December 31, 2013 compared to
2012. Volume and rate variances have been calculated based on movements in average balances over the period and
changes in nominal interest rates on average interest-earning assets and average interest-bearing liabilities. The net
change attributable to changes in both volume and rate has been allocated to the change due to volume and the
change due to rates on a proportional basis.
Change in Interest Income and Expense 2014/2013
Change Due To Change Due To
Change Due To
Volume
Rates
Volume and Rates Net Change
(in millions of R$)
Interest-Earning Assets:
Lending and leasing operations(1) .......................
Interbank investments and Securities
transactions.................................................
Foreign exchange operations..............................
Compulsory investments ....................................
Total interest-earning assets: ..................................
Interest-Bearing Liabilities:
Funding Operations
Time deposits .....................................................
Securities sold under repurchase agreements(2) ..
Savings deposits .................................................
Interbank deposits ..............................................
Funds from acceptance and issuance of
securities ....................................................
Subordinated debts .............................................
Other(3) ...............................................................
Total Funding Operations ..................................
Borrowing and Onlendings ................................
Total interest-bearing liabilities:.............................
457.1
1,291.1
15.7
1,763.9
3,207.3
2.8
202.4
3,869.5
325.3
1,987.6
622.8
4,226.9
76.9
(26.5)
54.5
120.5
3,609.5
1,963.9
879.7
8,217.0
112.1
1,167.8
357.5
33.6
2,859.3
2,592.0
241.9
8.6
52.5
386.0
49.8
0.8
3,023.9
4,145.9
649.2
43.1
894.6
(144.8)
2,420.9
645.5
3,066.4
(117.8)
263.9
5,848.0
128.0
5,975.9
(17.0)
(46.9)
425.2
28.8
454.0
759.8
72.2
8,694.1
802.3
9,496.4
_________________
(1)
(2)
(3)
Lending operations and other receivables included as part of our loan portfolio. Lease operations as defined for purposes of calculating our
total loan portfolio.
“Money market funding” as shown on our balance sheets.
Consists of “assumption of debt” and “contribution to fund guarantee of credit.”
32
Change in Interest Income and Expense 2013/2012
Change Due To Change Due To
Change Due To
Volume
Rates
Volume and Rates Net Change
(in millions of R$)
Interest-Earning Assets
Lending and leasing operations(1) .......................
Interbank investments and Securities
transactions.................................................
Foreign exchange operations..............................
Compulsory investments ....................................
Total interest-earning assets....................................
Interest-Bearing Liabilities
Funding Operations
Time deposits .....................................................
Securities sold under repurchase agreements(2) ..
Savings deposits .................................................
Interbank deposits ..............................................
Funds from acceptance and issuance of
securities ....................................................
Subordinated debts .............................................
Other(3) ...............................................................
Total Funding Operations ..................................
Borrowing and Onlendings ................................
Total interest-bearing liabilities ..............................
5,017.5
(6,500.9)
(815.4)
(2,298.8)
1,816.1
227.8
(11.0)
7,050.4
583.4
(536.5)
3.1
(6,450.9)
95.7
(304.9)
(0.5)
(1,025.1)
2,495.2
(613.5)
(8.4)
(425.5)
(135.9)
887.9
288.0
48.8
(271.0)
(349.4)
(36.1)
(8.9)
5.7
(42.2)
(7.0)
(1.4)
(401.3)
496.3
245.0
38.5
1,125.3
(149.0)
2,065.0
129.4
2,194.5
677.0
(62.6)
(50.9)
1,186.7
1,135.8
181.5
9.2
145.7
106.6
252.3
1,983.8
(202.4)
2,159.9
1,422.7
3,582.6
_________________
(1)
(2)
(3)
Lending operations and other receivables included as part of our loan portfolio. Lease operations as defined for purposes of calculating our
total loan portfolio.
“Money market funding” as shown on our balance sheets.
Consists of “assumption of debt” and “contribution to fund guarantee of credit.”
Balance Sheet Maturity
As part of our asset and liability management, we aim to minimize the negative impact interest rate fluctuations
have on financial results by selectively matching assets and liabilities. The following table presents our consolidated
interest-earning assets’ and interest-bearing liabilities’ maturities. The information may not reflect interest rate gap
positions at other times.
33
Up to
90 days
Interest-earning assets:
Interbank investment ................................................
Central bank compulsory deposits(1) ........................
Trading securities(2)(5) ...............................................
Securities available for sale ......................................
Securities held to maturity .......................................
Loan Portfolio(3) .......................................................
Total interest-earning assets ....................................
Interest-bearing liabilities:
Saving deposits(4) .....................................................
Time deposits ...........................................................
Interbank deposits ....................................................
Money Market Funding............................................
Funds from acceptance and issuance of
securities ..........................................................
Local borrowing .......................................................
Foreign borrowing....................................................
Domestic onlendings ................................................
Debt Instruments Eligible to Compose Capital
Subordinated Debts ..................................................
Total interest-bearing liabilities ...............................
Asset/liability gap ......................................................
Cumulative gap ..........................................................
Ratio of cumulative gap to cumulative total interestearning assets .....................................................
At December 31, 2014
91 days to
Over
365 days
1 year
(in millions of R$)
Total
37,372.8
33,588.7
49,299.0
8,781.3
71,428.0
200,469.8
2,308.0
3,778.3
0.1
64,979.4
71,065.8
127.8
62,049.3
109,188.9
171,366.0
39,808.6
33,588.7
49,299.0
74,608.9
0.1
245,596.3
442,901.6
37,938.9
23,595.3
1,976.2
54,337.3
11,384.7
1,262.1
15,249.7
50,887.4
538.1
40,765.8
37,938.9
85,867.4
3,776.4
110,352.8
16,265.2
12.5
8,477.2
1,494.3
148.3
144,245.2
56,224.6
56,224.6
30,052.0
106.6
14,277.3
3,766.1
199.1
76,297.6
(5,231.8)
50,992.8
28,634.4
4.1
1,566.1
10,353.1
6,628.3
7,095.0
146,472.3
24,893.7
75,886.5
74,951.6
123.2
24,320.6
15,613.5
6,776.6
7,294.1
367,015.1
75,886.5
75,886.5
0.1
0.1
0.2
_________________
(1)
(2)
(3)
(4)
(5)
Brazilian Central Bank compulsory deposits include interest cash deposits.
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Loan Portfolio excludes non-performing loans.
The saving deposits that have no contractual maturity were allocated as due in 90 days or less.
Trading securities are classified as short-term assets, regardless of their maturity, in conformity with Brazilian Central Bank’s Circular
3.068/2001.
Up to
90 days
Interest-earning assets
Interbank investment ............................................
Central bank compulsory deposits(1) ....................
Trading securities(2)(5) ...........................................
Securities available for sale ..................................
Securities held to maturity ....................................
Loan Portfolio(3) ...................................................
Total interest-earning assets ..............................
Interest-bearing liabilities
Saving deposits(4) .................................................
Time deposits .......................................................
Interbank deposits ................................................
Money Market Funding ........................................
Funds from acceptance and issuance of securities
Local borrowing ....................................................
Foreign borrowing.................................................
Domestic onlendings ............................................
Foreign onlendings ...............................................
Subordinated Debts ..............................................
As at December 31, 2013
91 days to
Over
365 days
1 year
(in millions of R$)
Total
44,969.4
30,886.0
23,551.1
4,915.4
38,019.1
142,341.0
2,508.0
3,036.1
0.3
62,783.9
68,328.3
177.8
39,381.5
0.1
126,679.3
166,238.7
47,655.2
30,886.0
23,551.1
47,333.0
0.4
227,482.3
376,908.0
33,589.1
18,229.3
755.4
40,807.5
13,742.8
15.8
5,687.4
884.4
9.7
-
12,354.6
2,066.8
14,128.4
21,849.8
39.1
10,500.8
2,707.7
9.5
2,370.0
50,516.0
1,097.3
23,526.2
33,468.4
26.3
1,705.9
8,164.6
6,536.1
33,589.1
81,099.9
3,919.5
78,462.1
69,061.0
81.2
17,894.1
11,756.7
19.2
8,906.1
34
Total interest-bearing liabilities ........................
Asset/liability gap ................................................
Cumulative gap ....................................................
Ratio of cumulative gap to cumulative total
interest-earning assets ..................................
Up to
90 days
113,721.4
28,619.6
28,619.6
0.1
As at December 31, 2013
91 days to
Over
365 days
1 year
66,026.7
125,040.8
2,301.6
41,197.9
30,921.2
72,119.1
0.1
0.2
Total
304,788.9
72,119.1
72,119.1
-
_________________
(1)
(2)
(3)
(4)
(5)
Brazilian Central Bank compulsory deposits include interest cash deposits.
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Loan Portfolio excludes non-performing loans.
The saving deposits that have no contractual maturity were allocated as due in 90 days or less.
Trading securities are classified as short-term assets, regardless of their maturity, in conformity with Brazilian Central Bank’s Circular
3.068/2001.
Up to
90 days
Interest-earning assets
Interbank investment ..............................................
Central bank compulsory deposits(1) ......................
Trading securities(2)(5) .............................................
Securities available for sale ....................................
Securities held to maturity .....................................
Loan Portfolio(3) .....................................................
Total interest-earning assets ................................
Interest-bearing liabilities
Saving deposits(4) ...................................................
Time deposits .........................................................
Interbank deposits ..................................................
Money Market Funding..........................................
Funds from acceptance and issuance of securities .
Local borrowing .....................................................
Foreign borrowing..................................................
Domestic onlendings ..............................................
Foreign onlendings.................................................
Subordinated Debts ................................................
Total interest-bearing liabilities ..........................
Asset/liability gap ..................................................
Cumulative gap ......................................................
Ratio of cumulative gap to cumulative total
interest-earning assets ....................................
As at December 31, 2012
91 days to
Over
365 days
1 year
(in millions of R$)
Total
25,817.9
31,274.6
28,083.7
4,202.4
0.1
34,231.4
123,610.1
10,882.3
–
–
4,109.7
16.0
56,907.8
71,915.8
70.7
–
–
34,795.9
793.2
120,819.5
156,479.3
36,770.9
31,274.6
28,083.7
43,108.8
809.3
211,958.7
352,005.2
26,856.9
18,741.6
734.9
36,297.9
10,947.3
16.0
4,781.7
703.6
10.4
1,442.4
100,532.7
23,077.4
23,077.4
–
13,792.3
1,318.9
9,052.0
19,278.6
32.9
9,917.9
3,090.3
10.1
2,285.4
58,778.4
13,137.4
36,214.8
–
50,304.8
1,338.7
27,178.7
26,067.7
73.4
1,179.6
5,590.7
20.2
8,191.4
119,945.2
36,534.1
72,748.9
26,856.9
82,838.7
3,392.5
72,528.6
56,293.6
122.3
15,879.2
9,384.6
40.7
11,919.2
279,256.3
72,748.9
72,748.9
6.6%
10.3%
20.7%
-
_________________
(1)
(2)
(3)
(4)
(5)
Brazilian Central Bank compulsory deposits include interest cash deposits.
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Loan Portfolio excludes non-performing loans.
The saving deposits that have no contractual maturity were allocated as due in 90 days or less.
Trading securities are classified as short-term assets, regardless of their maturity, in conformity with Brazilian Central Bank’s Circular
3.068/2001.
35
Net Financial Margin and Spread
2014
Averages
Average total assets .....................................................................
Average interest-earning assets....................................................
Average interest-bearing liabilities ..............................................
Average stockholders’ equity ......................................................
Profitability
Net interest margin(1) ...................................................................
Net interest spread(2) ....................................................................
Average yield on average interest-earning assets(3) .....................
Average yield on average interest-bearing liabilities(4) ................
Adjusted return on average stockholders’ equity(5) ......................
At the year ended December 31,
2013
2012
(in millions of R$, except percentages)
508,550.4
390,537.9
331,704.6
58,234.2
6.5%
4.8%
15.8%
11.0%
11.6%
459,279.4
360,864.3
292,947.1
63,520.7
430,401.5
323,917.9
266,969.4
63,712.2
7.4%
5.7%
14.8%
9.1%
11.0%
8.9%
7.4%
15.9%
8.6%
12.9%
_______________
(1)
(2)
(3)
(4)
(5)
Gross profit from financial operations before provision for loan losses as a percentage of average interest-earning assets. Interestearning assets are described in Note (1) above. See “—Average Balances and Interest Rate Data” for a table setting forth interestearning assets.
The difference between the average yield on total interest-earning assets and the average yield on interest-bearing liabilities.
Financial income as a percentage of average interest-earning assets. See Note (2) above.
Financial expenses before provision for loan losses as a percentage of average interest-bearing liabilities. See Note (3) above.
Non-GAAP financial measurement that excludes R$27 billion in goodwill arising from the acquisition of Banco Real in 2008.
Return on Equity and Assets
The following tables present our selected financial ratios for the periods indicated.
ROE: Return on average stockholders’ equity .....................................
ROA: Return on average total assets ...................................................
Average stockholder’s equity as a percentage of average total assets..
36
At the year ended December 31,
2014
2013
3.7%
3.3%
0.4%
0.5%
11.5%
13.8%
2012
4.3%
0.6%
14.8%
Securities Portfolio and Derivative Financial Instruments
The following table presents Santander Brasil’s portfolios of securities and derivative financial instruments at
the dates indicated. The securities portfolios are presented net of adjustment for market value of R$493 million,
R$1,503 million on December 31, 2014 and 2013, respectively.
2014
Federal government securities(1) .....................
Corporate debt securities .........................
Marketable equity securities and others ..
Total securities ......................................
Derivative financial instruments .............
Total securities and derivative
financial instruments ....................
Securities and derivative financial
instruments as a percentage of
total assets ......................................
Total Assets ............................................
As at December 31,
2013
%
2012
(in millions of R$, except percentages)
85.1%
51,742.9
73.0%
56,573.0
11.8%
14,595.8
20.6%
11,187.5
3.1%
4,545.7
6.4%
4,240.5
93.7%
70,884.4
90.7%
72,001.0
6.3%
7,261.3
9.3%
4,831.2
%
105,432.4
14,627.5
3,848.0
123,907.9
8,362.9
132,270.8
100.0%
22.4%
589,956.0
78,145.7
16.1%
485,865.6
100.0%
-
76,832.2
%
73.6%
14.6%
5.5%
93.7%
6.3%
100.0%
-
17.1%
448,875.6
_________________
(1)
Refers mainly to National Treasury Bills (LTN) and National Treasury Notes (NTN). For more detailed information see note 6 to our
audited consolidated financial statements as at December 31, 2014.
Breakdown and Maturity of Securities
The following table presents the maturity distribution for our consolidated portfolio of securities.
As at December 31, 2014
91 days to
1 year to
365 days
3 years
(in millions of R$)
673.0
17,668.0
3,105.4
3,412.2
3,778.4
21,080.2
Up to
90 days (1)
Federal government securities .................
Corporate debt securities .........................
Marketable equity securities and others ...
Total securities .......................................
53,509.0
2,538.7
2,032.7
58,080.4
Over
3 years
33,582.4
5,571.2
1,815.3
40,968.9
Total
105,432.4
14,627.5
3,848.0
123,907.9
_________________
(1)
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Up to
90 days (1)
Federal government securities ................
Corporate debt securities ........................
Marketable equity securities and others .
Total securities .....................................
23,403.8
918.3
4,144.4
28,466.5
As at December 31, 2013
91 days to
1 year to
Over
365 days
3 years
3 years
(in millions of R$)
917.4
5,952.1
21,469.6
2,119.0
3,926.9
7,631.6
1.1
400.2
3,036.4
9,880.1
29,501.4
Total
51,742.9
14,595.8
4,545.7
70,884.4
_________________
(1)
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Up to
90 days (1)
Federal government securities ................
Corporate debt securities ........................
27,483.6
562.1
As at December 31, 2012
91 days to
1 year to
Over
365 days
3 years
3 years
(in millions of R$)
2,995.6
12,359.7
13,734.1
1,130.1
2,676.4
6,818.9
37
Total
56,573.0
11,187.5
4,240.5
32,286.2
Marketable equity securities and others .
Total securities .....................................
–
4,125.7
–
15,036.1
–
20,553.0
4,240.5
72,001.0
_________________
(1)
Securities classified as trading securities are presented as 90 days or less, as they are bought and held principally for the purpose of selling
in the near term. Securities classified as available for sale and held to maturity are presented as contractual maturities of those securities.
Brazilian Central Bank Compulsory Deposits
We are required to maintain reserve deposits with the Brazilian Central Bank. For a discussion of reserve
deposits, see “Regulatory Overview—Reserve and Lending Requirements.” The following table presents the
amounts of such deposits for Santander Brasil at the indicated dates.
As at December 31,
Central Bank Compulsory
Deposits
2014
Non-interest-earning
deposits ......................................
Interest-earning deposits(1) .............
Total compulsory deposits ...........
3,572.6
26,697.5
30,270.1
%
2013
%
2012
(in millions of R$, except percentages)
11.8%
88.2%
100.0%
2,497.6
31,469.2
33,966.8
_________________
(1)
Includes compulsory deposits of federal government securities in relation to time deposits.
38
7.4%
92.6%
100.0%
3,204.2
31,274.6
34,478.8
%
9.3%
90.7%
100.0%
Loan Portfolio
The following table presents a summary of Santander Brasil’s loan portfolios by category of economic activity
of the borrowers and the percentage amounts of types of loans to total loan portfolio at the dates indicated.
2014
As at December 31,
2013
%
%
2012
%
(in millions of R$, except percentages)
Public sector......................................
Private sector
Industry ........................................
Commercial ..................................
Financial Institutions ...................
Service industries and other
activities....................................
Individuals ....................................
Credit Cards...............................
Mortgage Loans.........................
Payroll Loans.............................
Leasing and Auto Finance .........
Other..........................................
Agricultural ..................................
Total private sector ..........................
Total loan portfolio before
allowance for loan losses ..............
Allowance for loan losses ...................
Total loan portfolio after
allowance for loan losses ..............
156.5
0.1%
122.5
0.1%
153.8
0.1%
52,789.5
26,175.8
5.8
21.5%
10.7%
0.0%
35,115.9
25,864.3
199.8
15.4%
11.4%
0.1%
30,058.0
25,061.8
23.1
14.2%
11.8%
0.0%
52,591.8
107,712.7
18,340.7
21,318.3
11,342.2
33,551.6
23,159.9
6,164.1
245,439.7
21.4%
43.9%
7.5%
8.7%
4.6%
13.7%
9.4%
2.5%
100.0%
55,738.2
105,410.0
17,220.7
15,702.0
13,718.5
33,732.2
25,036.6
5,031.8
227,360.0
24.5%
46.4%
7.6%
6.9%
6.0%
14.8%
11.0%
2.2%
100.0%
51,205.1
101,072.4
16,174.4
11,812.4
13,547.6
32,765.0
26,773.0
4,384.5
211,804.9
24.2%
47.7%
7.6%
5.6%
6.4%
15.5%
12.6%
2.1%
100.0%
245,596.3
(14,582.0)
100.0%
-
227,482.3
(14,999.2)
100.0%
-
211,958.7
(14,588.7)
100.0%
-
231,014.3
-
212,483.1
-
197,370.0
-
The loan portfolio categories set forth above comprise the following credits:
•
Public Sector: loans to Brazilian federal, state and municipal government entities.
•
Private Sector: loans to entities with no preponderant participation or control by the federal, state and
municipal governments.
•
Industry: loans to entities that are in the manufacturing, mineral extraction, processing and
transformation, construction and utility sectors, among others.
•
Commercial: loans to entities that operate as intermediaries in the purchase and sale of goods, including
both retail and wholesale activities.
•
Financial institutions: loans to entities that operate as banks, brokerage houses and leasing companies.
•
Service industries and other activities: loans to entities that perform financial intermediation activities
and render services in other activities related to air, road, railway and hydro-transportation,
communication, education and culture and entertainment, among others.
•
Individuals: loans to individuals include lines of loans to individuals as a result of overdrafts on their
related deposit accounts under pre-approved credit limits, personal loans, and consumer financing and
financing of credit cards, among others.
•
Agricultural: loans to borrowers that operate in the agricultural business, including farming, produce,
livestock and forestry.
39
Maturity of Loan Portfolio
The following table presents an analysis by maturity of our loans and advances to customers by type of loan as
at December 31, 2014 and 2013, respectively.
Less than one year
Balance
% of Total
As at December 31, 2014
One to five years
Over five years
Balance
% of Total
Balance
% of Total
Balance
Total
% of Total
(in millions of R$, except percentages)
Public sector ........................
Private sector .......................
Commercial, financial and
Industrial ......................
Individuals ........................
Real Estate ........................
Agricultural ......................
Total .....................................
53.7
137,686.6
100.0%
102.4
84,453.1
0.1%
99.9%
0.2
23,300.2
100.0%
156.4
24,5439.9
0.1%
99.9%
84,085.0
43,391.2
6,034.7
4,175.7
137,740.3
61.0%
31.5%
4.4%
3.0%
100.0%
40,635.5
30,006.7
12,099.0
1,711.9
84,555.5
48.1%
35.5%
14.3%
2.0%
100.0%
6,646.4
2,909.9
13,467.9
276.0
23,300.5
28.5%
12.5%
57.8%
1.2%
100.0%
131,366.9
76,307.8
31,601.6
6,163.6
245,596.3
53.5%
31.1%
12.9%
2.5%
100.0%
As at December 31, 2013
Less than one year
Balance
% of Total
One to five years
Balance
Over five years
% of Total
Balance
Total
% of Total
Balance
% of Total
(in millions of R$, except percentages)
Public sector ........................
Private sector .......................
Commercial, financial and
Industrial ......................
Individuals ........................
Real Estate ........................
Agricultural ......................
Total .....................................
42.2
59,358.9
43,373.7
2,291.7
3,408.6
108,475.2
-
54.7%
40.0%
2.1%
3.1%
100.0%
80.2
0.1%
0.2
43,234.9
44,590.7
7,519.0
1,397.4
96,822.2
44.7%
46.1%
7.8%
1.4%
100.0%
14,324.3
1,743.5
5,891.4
225.7
22,184.9
-
22.7%
7.9%
68.5%
1.0%
100.0%
122.5
0.1%
116,918.2
89,707.9
15,072.1
5,031.8
227,482.3
47.3%
39.4%
11.0%
2.2%
100.0%
Fixed and Variable Rate Loans
The following table presents a breakdown of our fixed and variable rate loans having a maturity of more than
one year as at December 31, 2014.
Fixed rate ...................................................................................
Floating rate ...............................................................................
Total ..........................................................................................
40
Fixed and variable rate loans having
a maturity of more than one year
(in millions of R$)
67,727
38,236
105,963
Risk Level of Loan Portfolio
We present below the classification of our loan portfolio based on the risk level established by the Brazilian
Central Bank as at December 31, 2014, 2013 and 2012. For more information see “Risk Management––Credit
Classifications.”
2014
Risk
Level
Loan
Portfolio
(*)
% of total
As at and for the year ended December 31,
2013
Allowance
Allowance
for Loan
Loan
for Loan
Losses
Portfolio
% of total
Losses
2012
Loan
Portfolio
% of total
Allowance
for Loan
Losses
(in millions of R$, except percentages)
AA ....
A.......
B .......
C .......
D.......
E .......
F .......
G.......
H.......
Total
102,217
89,865
19,875
9,222
7,995
3,699
2,248
2,000
8,393
245,514
42%
37%
8%
4%
3%
2%
1%
1%
3%
100%
707
475
573
799
1,110
1,124
1,400
8,393
14,582
58,620
111,270
20,489
14,387
6,041
2,623
3,844
1,746
8,463
227,482
26%
49%
9%
6%
3%
1%
2%
1%
4%
100%
889
492
620
604
787
1,922
1,222
8,463
14,999
47,960
110,117
18,518
13,309
5,355
2,711
3,941
1,643
8,405
211,959
23%
52%
9%
6%
3%
1%
2%
1%
4%
100%
–
857
458
399
535
813
1,971
1,150
8,405
14,589
(*) Including R$82 million related to the adjustment of fair value of loans that are hedged, registered under the article 5 of Circular Letter 3,624
of the Brazilian Central Bank, the loan portfolio amounted R$245,596 million.
Allowance for Loan Losses
The following table presents the movements in allowances for loan losses for the periods indicated.
Allowance for loan losses as at January 1 .........................................................
Impairment losses charged to income for the year ..............................................
Commercial, financial and Industrial ..........................................................
Real Estate ..................................................................................................
Individuals ..................................................................................................
Leasing .......................................................................................................
Write-offs ...........................................................................................................
Commercial, financial and Industrial ..........................................................
Real Estate ..................................................................................................
Individuals ..................................................................................................
Leasing .......................................................................................................
Allowance for loan losses as at December 31 ..................................................
Recoveries of loans previously charged off .....................................................
Commercial, financial and Industrial ..........................................................
Real Estate ..................................................................................................
Individuals ..................................................................................................
Leasing .......................................................................................................
Charge-offs as a percentage at total loan portfolio ........................................
Allowance for loan losses as a percentage of total loan portfolio ..................
41
At the year ended December 31,
2014
2013
(in millions of R$, except percentages)
14,999.2
14,588.7
11,908.9
14,319.1
4,283.9
5,785.1
108.2
115.7
7,444.8
8,254.8
72.0
163.5
(12,326.2)
(13,908.6)
(5,100.6)
(4,718.4)
(96.6)
(60.2)
(7,003.6)
(8,871.0)
(125.4)
(259.0)
14,581.9
14,999.2
2,517.4
2,507.1
567.7
979.0
91.7
77.7
1,825.2
1,393.0
32.7
57.4
5.0%
6.1%
5.9%
6.6%
Allowance for loan losses as at January 1 .................................................
Impairment losses charged to income for the year ........................................
Write-offs .....................................................................................................
Allowance for loan losses as at December 31 ............................................
Recoveries of loans previously written off ...................................................
Write-offs as a percentage of total loan portfolio .........................................
Allowance for loan losses as a percentage of total loan portfolio .................
At the year ended December 31,
2012
2011
2010
(in millions of R$, except percentages)
11,998.2
8,724.4
9,462.6
11,522.4
8,257.3
14,991.1
(8,248.3)
(8,995.4)
(12,041.1)
14,588.7
11,998.5
8,724.4
2,064.3
1,031.8
1,768.7
4.2%
5.4%
5.9%
6.1%
5.3%
6.9%
The following table presents a summary of Santander Brasil’s allowance for loan losses by category of
economic activity at the dates indicated.
At the year ended December 31,
% of
% of
total loans
2013
total loans
2012
(in millions of R$, except percentages)
2014
Allowance for loan losses ...................................
Commercial, financial and Industrial ..........
Real Estate ..................................................
Individuals....................................................
Leasing ........................................................
Total ...................................................................
6,627.5
229.1
7,650.0
75.3
14,581.9
39.2
1.6
52.5
6.8
100.0
7,444.2
217.5
7,208.8
128.7
14,999.2
49.6
1.5
48.1
0.9
100.0
6,377.5
162.1
7,825.0
224.1
14,588.7
% of
total loans
45.5%
1.6%
52.5%
0.5%
100.0%
Non-Performing Loans
The following table presents a summary of non-performing loans, together with certain asset quality ratios for
Santander Brasil. The policy for designating loans as non-performing is consistent with Brazilian Central Bank
policies, and represents loans classified 60 days or more overdue. See “Selected Financial Information” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting the
Comparability of our Results of Operations—Changes in Rates of Inflation, Interest Rates and Foreign Exchange
Rates” for a discussion of non-performing loans.
2014 (*)
Total assets ....................................
Total loans ....................................
Non-performing loans ....................
NPL / total loans ............................
NPL / total assets ...........................
Allowance for loan losses .............
Allowance for loan losses as a
percentage of:
Total loans ......................................
Non-performing loans ....................
Stockholders’ equity .......................
NPL / stockholders’ equity .............
589,956.1
245,513.9
9,949.7
4.1%
1.7%
14,581.9
As at December 31,
2013
2012
2011
(in millions of R$, except percentages)
485,865.6
448,875.6
423,725.8
227,482.3
211,958.7
197,062.4
10,353.1
13,919.7
10,796.0
4.5%
6.6%
5.5%
2.1%
3.1%
2.5%
14,999.2
14,588.7
11,998.5
5.9%
146.6%
57,320.7
17.4%
6.6%
144.8%
62,819.2
16.5%
6.8%
104.8%
63,451.5
21.9%
6.1%
111.1%
65,578.6
16.5%
2010
387,212.2
165,378.8
7,703.6
4.7%
2.0%
8,724.4
5.3%
113.3%
64,850.9
11.9%
(*) Including R$82 million related to the adjustment of fair value of loans that are hedged, registered under the article 5 of Circular Letter 3,624
of the Brazilian Central Bank, the loan portfolio amounted R$245,596 million.
The following table presents a summary of Santander Brasil’s non-performing loans by category of economic
activity at the dates indicated.
At the year ended December 31,
42
2014
Non-performing loans
Commercial, financial and Industrial ......................................
Individuals ..............................................................................
Real Estate ..............................................................................
Leasing ...................................................................................
Total non-performing loans .........................................................
2013
(in millions of R$)
3,332.7
6,073.8
485.6
57.6
9,949.7
2012
3,549.1
6,278.9
416.1
109.0
10,353.1
4,248.2
9,063.9
360.2
247.4
13,919.7
Average Deposit Balances and Interest Rates
The following table presents our average balances of deposits, together with the average rate paid for each
period presented.
2014
Average
Balance
Non Interest-Bearing
Deposits
Demand Deposits...................
Interest-Bearing Deposits ....
Time Deposits ........................
Savings Deposits....................
Interbank Deposits .................
Total Deposits .......................
14,282.9
121,541.8
81,876.9
35,775.9
3,889.0
135,824.7
At the year ended December 31,
2013
2012
Average
Average
Average
Average
Average
Rate
Balance
Rate
Balance
Rate
(in millions of R$, except percentages)
10.2%
11.7%
6.7%
9.9%
-
13,458.3
113,611.1
80,400.7
29,668.2
3,542.2
127,069.4
7.2%
7.6%
5.9%
9.7%
-
12,370.4
110,037.0
82,116.3
24,866.8
3,053.9
122,407.4
7.5%
7.9%
6.0%
10.0%
-
Deposit Maturity
The following table presents our deposits by maturity as set below:
Without
maturity
Demand Deposits ........
Savings Deposits .........
Interbank Deposits.......
Time deposits
Total ...........................
16,049.2
37,938.9
235.8
54,223.9
90 days or
less
1,976.2
23,359.5
25,335.7
As at December 31, 2014
91 days to
1 year to 3
365 days
years
1,262.1
11,384.7
12,646.8
441.6
38,596.7
39,038.3
43
As at December 31,
3 years to
5 years
(in millions of R$)
96.6
12,277.7
12,374.2
Over 5
years
13.0
13.0
Total
2013
2012
16,049.2
37,938.9
3,776.4
85,867.4
143,631.9
15,604.6
33,589.1
3,919.5
81,099.9
134,213.1
13,457.1
26,856.9
3,392.5
82,838.7
126,545.1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012 and the
related notes, included elsewhere in this information memorandum. The preparation of the consolidated financial
statements referred to in this section required the adoption of assumptions and estimates that affect the amounts
recorded as assets, liabilities, revenue and expenses in the years and periods addressed and are subject to certain
risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors
that affect our business, including, among others, those mentioned in “Forward-Looking Statements” and “Risk
Factors” in this information memorandum. Our consolidated financial statements as of and for years ended
December 31, 2014, 2013 and 2012 have been prepared in accordance with Brazilian GAAP, which differs in
certain significant respects from IFRS. See Annex A, “Summary of Certain Differences between Accounting
Practices Adopted in Brazil and IFRS.”
Overview
We are a leading full-service bank in Brazil. We are the third largest private bank in Brazil in terms of assets,
with a 8.0% market share, as of December 31, 2014, and the largest bank in Brazil controlled by a major global
financial group, according to the Brazilian Central Bank. Our operations are present in all Brazilian regions,
strategically positioned in the South and Southeast, an area that accounted for approximately 68% of Brazil’s GDP,
and where we have one of the largest branch networks of any Brazilian bank.
At the year ended December 31, 2014, we generated net income of R$2,161 million (excluding goodwill
amortization, the net income was R$5,850 million), and as at that date we had total assets of R$590.0 billion and
total equity of R$57.3 billion. Our Basel capital adequacy ratio, in accordance with the Brazilian Central Bank, was
17.5% as at December 31, 2014.
Through our Commercial Banking segment, we offer traditional banking services, including checking and
savings accounts, home and automobile financing, unsecured consumer financing, checking account overdraft loans,
credit cards and payroll loans to mid- and high-income individuals and corporations (other than to our GB&M
clients). Our Global Wholesale Banking segment provides sophisticated and structured financial services and
solutions to a group of large local and multinational conglomerates, offering such products as global transaction
banking, syndicated lending, corporate finance, equity and treasury.
Brazil’s Macroeconomic Environment
As a Brazilian bank, we are significantly affected by the general economic environment in Brazil. The
following table presents key data of the Brazilian economy for the periods indicated:
For the year ended December 31,
GDP growth(1) .........................................................................
CDI rate(2) ................................................................................
TJLP(3) .....................................................................................
SELIC rate(4) ...........................................................................
Increase (decrease) in U.S. dollar value against the Real ........
Selling exchange rate (at period end) R$ per U.S.$1.00 .........
Average exchange rate R$ per U.S.$1.00(5) ............................
Inflation (IGP-M)(6) .................................................................
Inflation (IPCA)(7) ...................................................................
2014
2013
2012
0.3%
10.8%
5.0%
11.8%
13.4%
2.66
2.36
3.7%
6.4%
2.3%
8.0%
5.0%
10.0%
14.5%
2.34
2.17
5.5%
5.9%
1.0%
8.4%
5.5%
7.3%
8.9%
2.04
1.95
7.8%
5.8%
______________________
Sources: BNDES, Brazilian Central Bank, FGV and IBGE.
(1) Revised series. Source: IBGE.
(2) The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI,” is the average daily interbank deposit rate in Brazil
(at the end of each month and annually).
(3) Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).
44
(4)
(5)
(6)
(7)
The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and
traded on the SELIC.
Average of the selling exchange rate for the last day of each month during the period.
The inflation rate is the IGP-M, as calculated by FGV.
The inflation rate is the IPCA, as calculated by the IBGE.
Interest Rates
Since the implementation of an inflation target framework in 1999, local interest rates have been on a
downward trend. The SELIC rate was lowered from 45.00% per annum in 1999 to 13.75% in 2008, shortly before
the global financial crisis began. The global financial crisis led to further reductions of the SELIC rate, which
reached 8.75% in 2009 (its lowest historic level until then). The reduction in the SELIC rate contributed
significantly to economic recovery in Brazil. The stabilization of local liquidity conditions and inflationary pressures
in 2010 led the Brazilian Central Bank to raise rates by 375 basis points between April 2010 and July 2011, when the
SELIC rate reached 12.50%. Nevertheless, the persistence of uncertainty in the international markets and signs of a
slowdown in domestic activity led the Brazilian Central Bank to resume monetary easing in August 2011. As a
result, the SELIC rate was cut by 525 basis points between August 2011 and December 2012. On October 10, 2012,
the SELIC rate reached an annual rate of 7.25%, its lowest level on record. In 2013, the Brazilian Central Bank
began a monetary tightening cycle due to rising inflation, the depreciation of the real, and a perceived recovery of
certain economic activity. The SELIC rate was increased by 275 basis points, reaching 10% on November 27, 2013.
The upward trend continued in 2014, and the SELIC rate reached 11.75% on December 31, 2014. On January 21,
2015 the SELIC rate was increased to 12.25%, on March 4, 2015 to 12.75%, on April 29, 2015 to 13.25% and on
June 3, 2015 to 13.75%. As of the date of this information memorandum, the SELIC rate was 13.75%.
The following table presents the low, high, average and period-end SELIC rate since 2009, as reported by the
Brazilian Central Bank:
Year
2009 .................................................................
2010 .................................................................
2011 .................................................................
2012 .................................................................
2013 .................................................................
2014 .................................................................
Low
High(1)
Average(2)
Period-End
8.75
8.75
11.00
7.25
7.25
10.50
12.75
10.75
12.50
10.50
10.00
11.75
9.92
10.00
11.71
8.46
8.44
11.02
8.75
10.75
11.00
7.25
10.00
11.75
______________________
(1) Highest month-end rate.
(2) Average of month-end rates during the period.
Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to
increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but
we maintain an exposure to interest rate movements. As of December 31, 2014, a 100 basis point increase in the
yield curve would have resulted in a R$490 million decline in the net interest income over a one-year period.
Credit Volume and Quality
Between 2010 and 2011, outstanding credit increased 20% on average, the household debt burden (defined as
the percentage of monthly available family income owed to service debt) was 20.2% in this same period, and by the
end of 2011 non-performance loans of individuals represented 7.7%. In 2012, with the slowdown in economic
activity, the household debt burden increased to 22.5%, and the level of non-performing loans of individuals
increased to 8.0%, which resulted in a deceleration of the annual growth of outstanding credit to 16.4%. The
slowdown of credit growth continued through 2013 and 2014, even with a remarkable expansion of credit supplied
by state-owned banks. The total outstanding credit increased 14.6% and 11.3% in 2013 and 2014, respectively. The
level of non-performing loans of individuals decreased to 6.5% in 2014, and the household debt burden decreased to
21.2% by the end of 2014.
The total outstanding credit to GDP ratio has increased from 35.4% in December 2007 to 58.9% in December
2014. Although this is one of the highest levels ever achieved by Brazil, it is still low compared to other economies.
45
Total Credit Outstanding* .............................................................................
Earmarked credit ...................................................................................
Non earmarked based credit ..................................................................
Of which ................................................................................................
Corporate ..............................................................................................
Individuals (retail) .................................................................................
As of Year ended December 31,
2014
2013
2012
(in billions of R$)
3,022
2,715
2,368
1,443
1,207
969
1,579
1,508
1,399
793
786
763
745
706
693
______________________
(*) Some figures may be subject to revision by the Brazilian Central Bank
Source: Brazilian Central Bank
Foreign Exchange Rates
Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency
denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In
2014, we recorded foreign exchange gains of R$1,751 million. In 2013 and 2012, we recorded foreign exchange
losses of R$213 million and gains of R$401 million, respectively. These results are due to the variation of the U.S.
dollar against the real on our assets and liabilities positions in U.S. dollar denominated instruments during these
years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain
on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences
(net).”
The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to
the U.S. dollar and other foreign currencies. Most recently, the real was R$1.566 per U.S.$1.00 in August 2008.
Primarily as a result of the crisis in the global financial markets, the real depreciated 31.9% against the U.S. dollar,
and reached R$2.337 per U.S.$1.00 at year end 2008. In 2009 and 2010, the real appreciated against the U.S. dollar
and reached R$1.666 per U.S.$1.00 at year end 2010. During 2011 the real depreciated and on December 31, 2011
the exchange rate was R$1.876 per U.S.$1.00. During 2012, 2013 and 2014, the real continued to depreciate and on
December 31, 2014, the exchange rate was R$2.656 per U.S.$1.00.
Inflation
The adoption of inflation targeting in 1999 resulted in a significant reduction in inflation rates in Brazil
(measured by the IPCA, Consumer Price Index, the official inflation rate provided by the IBGE). In recent years,
inflation has been oscillating around the target, which is set by the National Monetary Council. The target, which is
still in effect, has been set at 4.5% since 2005 with a tolerance interval of 2 percentage points above and below this
target.
The 2008 global financial crisis contributed to containing inflation in 2009, however domestic demand recovery
and commodity price increases contributed to an inflation increase to 5.9% in 2010. In 2011, consumer price
inflation increased to 6.5% driven by a 9% increase in service prices, and through 2012, consumer price inflation
showed a mild reduction to 5.8%, mainly due to the impact of tax reduction on durable goods prices. The inflation
rate was 5.9% in 2013 due to inflation for services around 9%, and food inflation, which was partially offset by very
low inflation of regulated prices, such as urban transport fares and electricity and telecommunication tariffs.
However, in 2014, regulated prices inflation started to increase as well, bringing consumer inflation to 6.4% as
compared to a target of 4.5%. This trend has continued in 2015.
Reserve and Lending Requirements
The requirements set by the Brazilian Central Bank for reserves and credit has significant impact on the
operational results of the financial institutions in Brazil. Increases or decreases in such requirements may have an
impact on our operational results by limiting or expanding the amounts available for commercial credit transactions.
During 2014, the reserve requirement for demand deposits increased from 44% to 45%.
In addition, reserve requirements for time deposits that do not bear interest increased from 0% to 60%.
According to the current rule, starting in August 2015, our entire reserve requirement for deposits must bear interest.
46
The table below shows the requirements for reserves and credit to which we are subject for each financing
category:
Product
Demand deposits
Rural credit loans(1) ...............................
Microcredit loans(2) ...............................
Reserve requirements ............................
Additional reserve requirements ...........
Free funding(3) .......................................
At December 31,
2014
At December 31, Form of Required
2013
Reserve
Yield
34.0%
2.0%
45.0%
0.0%
19.0%
34.0%
2.0%
44.0%
0.0%
20.0%
Loans
Loans
Cash
Cash
Cap rate: 5.5% p.a.
Cap rate: 2.0% p.m.
Zero
SELIC
Savings accounts
Mortgage loans .....................................
65.0%
65.0%
Loans
Reserve requirements(4) (6) .....................
Additional reserve requirements(7) ........
Free funding(3) .......................................
20.0%
10.0%
5.0%
20.0%
10.0%
5.0%
Cash
Cash
Cap of TR + 12.0% p.a.
TR + 6.17% p.a., or
TR + 70.0% of the
target SELIC
SELIC
Time deposits
Reserve requirements(8) .........................
20.0%
20.0%
In cash or other instruments(5) .......
In cash ...........................................
Additional reserve requirements ...........
Free funding(3) .......................................
12.0%
8.0%
11.0%
69.0%
5.4%
14.6%
11.0%
69.0%
Cash or other
instruments
Cash
Cash
Zero for Cash
SELIC
SELIC
______________________
(1) Rural credits are credits granted to farmers in the amount of R$5.0 billion and R$6.2 billion on December 31, 2013 and December 31, 2014,
respectively.
(2)
Micro-credits are credits granted to very small businesses with open position of R$268.0 million and R$287.6 million on December 31,
2013 and December 31, 2014, respectively.
(3)
Interest-free financing is the amount to be used on a free of interest basis for other purposes in each financing category.
(4)
Upon publication of Circular No. 3,596/2012 of the Brazilian Central Bank, the rule for calculation of the interest received on deposit
reserves in savings accounts requirements was changed. As of May 31, 2012, whenever SELIC rate target was lower than or equal to 8.5%
per year, Cap TR + 70.0% of SELIC target was used, otherwise the former rule was used, i.e. Cap TR + 6.17% per year.
(5)
Other instruments include motorcycle and vehicles financing, working capital and certain assets (mainly loan portfolios and Financial Bills)
from eligible financial institutions in accordance with Circular 3,569 of December 2011 of the Brazilian Central Bank.
(6)
As of June 2015, the reserve requirement in relation to savings deposits will increase from 20% to 24.5% (18% of this requirement can be
fulfilled through mortgage loans), except for rural savings deposits in connection with which the reserve requirement will increase to
15.5%.
(7)
As of June 2015, this additional reserve requirement will decrease from 10.0% to 5.5%.
(8)
As of June 2015, the reserve requirement in relation to time deposits will increase from 20.0% to 25.0%, with effects as of September 2015.
Taxes
See “Regulatory Overview—Taxation.”
Hedging in Foreign Investments
We operate a branch in the Cayman Islands and a subsidiary named Santander Brasil Establecimiento
Financiero de Credito, EFC, or “Santander EFC,” (an independent wholly-owned subsidiary in Spain) which is used
primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are
extended to our customers for working capital and trade-related financings. Under Brazilian income tax rules, the
gains or losses resulting from the impact of appreciation or devaluation of the real on foreign investments is
nontaxable. This tax treatment results in volatility in the income tax line on our income statement. This asymmetry
is offset through a derivative position in U.S. dollar futures, which generates gains or losses depending of any
devaluation or appreciation of the real, which is our strategy to protect our after-tax results.
47
Goodwill of Banco Real
We generated goodwill of R$27 billion as a result of our acquisition of Banco Real in 2008. At December 31,
2014, the total amortization was R$20 billion. Under Brazilian GAAP, we are required to analyze goodwill for
impairment at least annually or whenever there are indications of impairment. From 2012 through 2014, we assessed
goodwill impairment based on net present value techniques. Value is used as the base to evaluate goodwill with the
impairment test. For this purpose, we estimate cash flow for a period of five years considering several factors,
including: (i) macro-economic projections, such as interest rates, inflation and exchange rates, among others; (ii) the
performance and growth estimates of the Brazilian financial system; (iii) increased costs, returns, synergies and
investment plans; (iv) the behavior of customers; and (v) the growth rate and long-term adjustments to cash flows.
These estimates rely on assumptions regarding the likelihood of future events, and changing certain factors could
result in differing outcomes. The estimate of cash flows is based on valuations prepared by an independent research
company, which is reviewed and approved by the Executive Board. The goodwill realization at the Santander Brasil
entity level is also considered remote because the possibility of loss on impairment or disposal only applies to the
entity as a whole and, according to the characteristics of the business combination performed it is not possible to
segregate and identify the business originally acquired.
Based on the assumptions described above, we did not identify any impairment to goodwill in the tests carried
out in 2014, 2013 and 2012.
Main Assumptions
Basis of valuation .................................................................................
Period of the projections of cash flows(1) ............................................
Growth rate .........................................................................................
Discount rate(2) ....................................................................................
2014
2013
Value in use: cash flows
5 years
5 years
7.0%
7.0%
14.4%
14.8%
2012
10 years
6.0%
15.0%
__________________
(1) The projections of cash flow are prepared using internal budget and growth plans of management based on historical data, market
expectations and conditions such as industry growth, interest rates and inflation.
(2) The discount rate is calculated based on the capital asset pricing model (CAPM).
Factors Affecting the Comparability of Our Results of Operations
Plan to Optimize the Regulatory Capital
As part of our plans to optimize our capital structure in light of the new Basel III capital rules, our business
strategy and asset growth plan, and with the purposes of eliminating the trades in centavos (cents of reais) of our
common and preferred shares, increasing liquidity and reducing costs of transaction thereof, our board of directors
submmited to the approval of the shareholders a plan to optimize our capital structure, comprising of (i) an equity
distribution to our shareholders in the total amount of R$6 billion, with no reduction in the number of shares, (ii) the
issuance abroad of capital instruments to compose Tier I and Tier II of Santander Brasil’s regulatory capital; and
(iii) a bonus share program and an adjustment in the composition of the Units, followed by a reverse share split
(inplit).
Equity Distributions
On November 1, 2013, our shareholders approved the proposal for distribution of equity, which was effected
on January 29, 2014, after all conditions precedent being met, including the lapse of the opposition period for
unsecured creditors, approval by the Brazilian Central Bank and filing of the minutes of the meeting at the Junta
Comercial do Estado de São Paulo - JUCESP).
Issuance of Notes
On January 14, 2014 the board of directors approved the issuance of U.S. Dollars – denominated notes outside
of Brazil in an amount of R$6 billion (the “Notes”). The issuance of the Notes occured on January 29, 2014.
The specific characteristics of the Notes issued to compose the Tier I capital are:
• Notional value: US$1,247 billion, equivalent to R$3 billion;
48
• Interest rate: 7.375% p.a.;
• Maturity: The Tier I Notes are perpetual notes;
• Frequency of interest payment: interest will be paid quarterly from April 29, 2014;
• Discretion: Santander Brasil can cancel the distribution of interest at any time, for an unlimited period,
with no accumulation rights and this suspension shall not be considered as a default event; and
• Subordination: in the case of insolvency, the Notes' financial settlement is subordinated to all Tier II
capital instruments.
The specific characteristics of the Notes issued to form the Tier II capital are:
• Notional value: US$1,247 billion, equivalent to R$3 billion;
• Interest rate: 6.0% p.a.;
• Maturity: the Tier II Notes will mature on January 29, 2024; and
• Frequency of interest payment: interest payable semi-annually from July 29, 2014.
On April 15, 2014, the Brazilian Central Bank approved the issued notes to compose the Tier I and Tier II of
our regulatory capital since the issuance date.
Bonus Shares and Share Reverse Split (Inplit)
With the purpose of eliminating the trading in cents of SANB3 (common) and SANB4 (preferred) shares,
increasing liquidity and reducing the transaction costs thereof, our shareholders approved on March 18, 2014 (i) a
bonus share issue of 19,002,100,957 preferred shares to our shareholders, at the ratio of 0.047619048 preferred
shares for each common share (SANB3) or preferred share (SANB4), which resulted in a bonus share issue of five
preferred shares for each Unit (SANB11), through the capitalization of reserves in the amount of approximately
R$172 million; and (ii) a reverse share split (inplit) of the totality of our common shares and preferred shares at a
ratio of 1:55, so that each fifty-five common shares and fifty-five preferred shares would thereafter correspond to
one common share and one preferred share, respectively. As a result, each Unit (ticker SANB11) came to be
comprised of one common share and one preferred share. The bonus share issue and reverse share split were
implemented on June 2, 2014.
Exchange Offer
On April 29, 2014, our indirect controlling shareholder, Santander Spain, announced its intention to launch the
Brazilian exchange offer and the U.S. exchange offer. As a result of the transaction, we continued to be a listed
company, although we changed from the Level 2 Segment to the traditional segment of the BM&FBOVESPA.
On June 9, 2014, an Extraordinary General Meeting was held, at which the following items were approved: (a)
the exit of the Bank from the Level 2 Segment; and (b) the appointment of NM Rothschild & Sons (Brasil) Ltda.
(“Rothschild”) to prepare a valuation report for the purposes of the Brazilian exchange offer and the U.S. exchange
offer and the consequent exit from the Level 2 Segment.
On June 13, 2014, Santander Brasil announced to the market that the valuation report prepared by Rothschild
had been duly filed on that date with (i) the CVM; (ii) the BM&FBOVESPA; and (iii) the SEC. On the same date,
Santander Brasil also announced to the market that an application for registration of the Brazilian exchange offer
had been duly filed with the CVM on that same date.
On October 2, 2014, Santander Brasil’s board of directors issued an opinion regarding the Brazilian exchange
offer and the U.S. exchange offer, and Santander Brasil filed with the SEC its position with respect to the proposed
transaction by means of a Schedule 14D-9. On October 16, 2014, Santander Spain and Santander Brasil disclosed to
the market an adjustment of the exchange ratio referred to in the public notice (edital) published on September 18,
49
2014. The exchange ratio, and consequently the amount of BDRs to which each subscription receipt was entitled,
was adjusted from 0.70 BDR for each Unit, and 0.35 BDR for each share, either ordinary or preferred, to 0.7152
BDR for each Unit and 0.3576 BDR for each share, either ordinary or preferred, in view of the compensation
declared by Santander Spain on October 16, 2014, under the “Santander Dividendo Elección” program, with a
recorded date of October 17, 2014.
On October 31, 2014, Santander Brasil together with Santander Spain announced to the market the results of the
Brazilian exchange offer and the U.S. exchange offer. Santander Spain acquired 1,640,644 shares and 517,827,702
Units, representing, together, 13.65% of the share capital of Santander Brasil, thereby increasing the Santander
Group stake in Santander Brasil to 88.30% (not including the shares held by Banco Madesant - Sociedade
Unipessoal) of its total share capital (88.87% of its common shares and 87.71% of its preferred shares, also
considering also the ADRs, representing Units acquired in the United States). As consequence of the Brazilian
exchange offer and the U.S. exchange offer, Santander Brasil’s shares are no longer listed on the Level 2 Segment,
and are now listed in the traditional segment of BM&FBOVESPA.
Sale of the Investment Fund Management and Managed Portfolio Operations
On December 17, 2013, we concluded the sale of our asset management business, by way of disposal of all
shares of Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A., or “DTVM,” a
company controlled by us. The asset management activities then performed by DTVM were segregated into a new
asset manager created for that purpose. The sales price was R$2,243 million, generating a post-tax capital gain of
R$1,205 million (after deducting costs) in 2013.
We remain the administrator of the funds and in charge of distribution activities, receiving remuneration in line
with market practices. As the administrator of the funds, we will continue to oversee the management of the funds,
perform services related directly or indirectly to the functioning and maintenance of the funds. Additionally, we will
also continue to engage in sales and distribution activities. We will not manage the funds invested or make
investment decisions with respect thereto, which duties are now performed by the new asset manager.
This transaction was part of a worldwide partnership between Santander Spain and two of the world’s leading
private equity companies, Warburg Pincus and General Atlantic. As part of this alliance, Santander Spain now holds
50% of a holding company called Santander Asset Management, which integrates the asset management businesses
of the Santander Group in eleven countries (including Brazil), with the remaining 50% of shares in Santander Asset
Management being held by Warburg Pincus and General Atlantic.
Sale of Zurich Santander Brasil Seguros e Previdência S.A. (the new corporate name of Santander Seguros S.A.)
On October 5, 2011, we concluded the sale of all shares issued by Zurich Santander Brasil Seguros e
Previdência S.A. and indirectly by Zurich Santander Brasil Seguros S.A. (the new corporate name of Santander
Brasil Seguros S.A.) to the following companies: (i) Zurich Santander Insurance America S.L., or “Zurich
Santander,” a holding company based in Spain that was 51% held by Zurich Financial Services Ltd. and its affiliates
(Zurich) and 49% held by Santander Spain, and (ii) Inversiones ZS America SPA, a company established in Chile
and held by Zurich Santander (Inversiones ZS). On June 8, 2012, SUSEP approved the transfer of the direct control
of Zurich Santander Brasil Seguros e Previdência S.A. to Zurich Santander Holding (Spain), S.L., a holding
company based in Spain that is 100% held by Zurich Santander and currently the owner of the shares initially
transferred to Zurich Santander.
This closing effected the transfer (i) by us to Zurich Santander of 11,251,174,948 common shares of Zurich
Santander Brasil Seguros e Previdência S.A., and to Inversiones ZS of 3 common shares of Zurich Santander Brasil
Seguros e Previdência S.A. and (ii) payment of the preliminary purchase sale price to us, amounting to a net of
R$2,741 million (received on October 5, 2011). On May 10, 2013 the final purchase price was defined by the parties
in the amount of R$ 2,745 million.
We recognized a gain of R$424 million in 2011, recorded as a result of our disposal of non-current assets held
for sale that were not classified as discontinued operations.
50
This transaction fits into the strategic partnership between Santander Spain and Zurich, involving the
acquisition by Zurich Santander of all property and casualty insurers and life and welfare of Santander Spain in
Argentina, Brazil, Chile, Mexico and Uruguay.
As part of the arrangement of the transaction, we exclusively distribute these insurance products over the next
25 years through our branch network, with the exception of automobile insurance that is not included in the scope of
the transaction. As a result of these contracts, we receive a relative payment equivalent to that received before the
transaction. The operation aims to promote and strengthen our activities in the insurance market, providing a greater
range of products, reaching classes of customers not currently being reached and leveraging our distribution
capabilities.
Acquisition of GetNet Tecnologia em Captura e Processamento de Transações Eletrônicas H.U.A.H. S.A.
(GetNet) and merger into Santander GetNet Serviços Para Meios de Pagamento Sociedade Anônima
On April 4, 2014, we and our controlled company Santander GetNet Serviços para Meios de Pagamento
Sociedade Anônima (“SGS”) entered into a Share Purchase Agreement for the acquisition, by SGS, of 100% of the
voting and total corporate capital of GetNet Tecnologia em Captura e Processamento de Transações Eletrônicas
H.U.A.H. S.A. or “GetNet”.
The purchase price of 100% of the shares issued by GetNet was R$1,156 million and the acquisition was
concluded on July 31, 2014 upon receipt of all regulatory approvals. We became the holder of 88.5% of the total
corporate capital of SGS, with the previous owners of GetNet holding the remaining 11.5%.
On August 31, 2014, the shareholders of GetNet and SGS approved the merger of GetNet into SGS. On the
same date, SGS had its corporate name changed to GetNet Adquirência e Serviços para Meios de Pagamento S.A.
(“SGS GetNet”). The financial statements of GetNet have been consolidated with our financial statements since
August 2014.
Due to the consolidation of the vertical business acquired from GetNet, we believe we can further improve our
commercial approach to our clients’ business and will enhance the differentiation of our services and improve
customer loyalty and retention.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with Brazilian GAAP.
General
Our principal accounting policies are described in note 3 to our audited consolidated financial statements. The
following discussion describes those areas that require the most judgment or involve a higher degree of complexity
in the application of the accounting policies that currently affect our financial condition and results of operations.
The accounting estimates made in these contexts require management to make assumptions about matters that are
highly uncertain. In each case, if management had made other estimates, or if changes in these estimates occur from
period to period, these accounting estimates could have a material impact on our financial condition and results of
operations.
Management bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under current circumstances. Actual results may differ from these estimates if assumptions
and conditions change. Judgments or changes in assumptions are submitted to the audit and compliance committee
and to our regulatory authorities and are disclosed in the notes to our consolidated financial statements.
Securities
Securities are stated and classified into the following categories:
I - Trading securities;
II - Available-for-sale securities;
51
III - Held-to-maturity securities.
Trading securities include securities purchased for the purpose of being actively and frequently traded while
held-to-maturity securities include those that the Bank intends and is able to hold to maturity. Available-for-sale
securities include those which cannot be classified in categories I (“trading”) and III (“held-to-maturity”). Securities
classified into categories I and II are stated at acquisition cost plus income earned through the balance sheet date,
calculated on a daily pro rata basis, and adjusted to fair value, with gains or losses on such adjustment being
recorded against:
(1) The corresponding income or expense account, net of tax effects, in profit or losses for the period, when relating
to securities classified into the trading category; and
(2) A separate account in stockholders’ equity, net of taxes, when related to securities classified into the
available-for-sale category. The adjustments to fair value recorded on sale of these securities are transferred to
income for the period.
Securities classified into the held-to-maturity category are stated at acquisition cost plus income earned through
the balance sheet, calculated on a daily pro rata basis.
Any permanent losses recorded on the realizable value of securities classified into available-for-sale and
held-to-maturity are recognized in the income of the period.
The fair value of securities is computed based on the average quotation in an organized market and their
estimated cash flows, discounted to present value using the applicable interest rate, which reflects market conditions
at the balance sheet date.
The principal interest rates are obtained from futures and swap contracts traded on the BM&FBOVESPA.
Adjustments to these curves are made whenever certain points are considered illiquid or when, for unusual reasons,
they do not fairly represent market conditions.
Derivatives
Derivatives are classified according to whether or not management intends to use them for hedging purposes.
Transactions made at customers’ request, on own account, or that do not qualify as hedge accounting, especially
derivatives used to manage the global risk exposure, are reported at fair value, with realized and unrealized gains
and losses recorded in income for the period.
Derivatives designated as hedge can be classified as:
I - Market risk hedge; and
II - Cash flow hedge.
Derivatives designated as hedge and the respective hedged items are adjusted to fair value, considering the
following:
(1) For those classified in category I, the increase or decrease is recorded in income or expense for the period, net
of tax effects; and
(2) For those classified in category II, the increase or decrease is recorded in a separate caption in stockholders’
equity, net of tax effects.
Some hybrid financial instruments contain both a derivative financial instrument and a non-derivative asset or
liability. In these cases, the derivative financial instrument represents an embedded derivative. Embedded
derivatives are recorded separately from the host contracts to which they are related.
52
Loan Portfolio and Allowance for Losses
The loan portfolio includes lending operations, leasing operations, advances on exchange contracts and other
loans with credit characteristics. It is stated at present value, considering the indexes, interest rates and charges
agreed, calculated on a daily pro rata basis until the balance sheet date. For lending operations overdue 60 days, the
recognition of revenue only occurs upon receipt.
Normally, the Bank writes off loans when they are more than 360 days late. Long-term loans with a term of
more than 3 years are written off when they are 540 days late. The written off loans are recorded in a memorandum
account for a minimum of 5 years and while all the procedures for collection have not been exhausted.
Credit assignments without risk retention are fully recognized at the time of divesture.
Since January 2012, as determined by CMN Resolution 3.533/2008 and Resolution 3.895/2010, all credit
assignments with risk retention have their results recognized by the remaining terms of operations, and financial
assets subject to the assignment shall remain registered as lending operations and the amount received as obligations
for sale operations or transfer of financial assets.
Allowances for loan losses are recognized based on analyses of outstanding lending operations (past-due and
current), past experience, future expectations, specific portfolio risks, and management’s risk assessment policy for
recognizing allowances, including those required by the CMN and Brazilian Central Bank standards.
Post-employment Benefits Plan
Post-employment benefit plans include our commitment to provide: (i) additional benefits beyond those of our
public pension plan; and (ii) medical assistance in case of retirement, permanent disability or death of employees,
and their direct beneficiaries.
Defined Contribution Plans
A defined contribution plan is the post-employment benefit plans which we, and our subsidiaries, as the
sponsoring entities, pay fixed contributions into a pension fund, not having a legal or constructive obligation to pay
further contributions if the fund does not hold sufficient assets to pay all benefits relating to services provided in the
current and in previous periods.
The contributions made in this context are recognized under personnel expenses in the income statement.
Defined Benefit Plans
A defined benefit plan is the post-employment benefit plan which is not a defined contribution plan. For this
type of plan, the sponsoring entity’s obligation is to provide the agreed benefits to employees, assuming the potential
actuarial risk that the benefits will cost more than expected.
Since January 2013, Banco Santander applies CPC 33 (R1) that provides substantially the full recognition of
liabilities when on account actuarial losses (actuarial deficit) recognized will not occur, in contrast to the equity
(other valuation adjustments).
Main Definitions
•
The present value of the defined benefit obligation is the present value of expected future payments
required to settle the obligation resulting from employee service in the current and past periods, without
deducting any plan assets.
•
Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan
assets.
•
The sponsoring entity may recognize the plan’s assets in the balance sheet when they meet the following
characteristics: (i) the assets of the fund are sufficient to meet all employee benefit plans or sponsor
53
obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee
benefits already paid.
•
Actuarial gains and losses are changes in present value of defined benefit obligation resulting from:
(a) adjustments by experience (the effects of differences between the actuarial assumptions adopted and
what has actually occurred); and (b) effects of changes in actuarial assumptions.
•
Current service cost is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period.
•
The past service cost is the change in present value of defined benefit obligation for employee service in
prior periods resulting from a change in the plan or reductions in the number of employees covered.
Post-employment benefits are recognized in income in the lines of other operating expenses - actuarial losses retirement plans and expenses.
The defined benefit plans are recorded based on an actuarial study, conducted annually by an external
consultant and approved by management at the end of each year to be effective for the subsequent period.
Further information on retirement benefit obligations is set out in notes 3.1 and 35 to our consolidated financial
statements as of and for the year ended December 31, 2014.
Results of Operations
We are a financial group whose main business focus is commercial banking and global wholesale banking
services.
Our main source of income is the interest that we earn from our lending activities, by borrowing funds from
customers at certain rates and lending them to other customers at different rates. We also derive income from the
interest and dividends that we receive from our investments in fixed/variable income and equity securities, from our
trading activities in such securities and derivatives, by buying and selling these instruments to take advantage of
current and/or expected differences between purchase and sale prices, and from entering into derivative transactions
with customers on which we hedge our market risk exposure and earn a spread.
Another source of income is the fees and commissions that we earn from the different banking and other
financial services that we provide, including credit and debit cards, insurance sales, account management, bill
discounting, guarantees, advisory and custody services, and from our mutual and pension fund management
services.
In addition, from time to time, we derive income from the capital gains we make from the sale of our holdings
in group companies.
Results of Operations for the year ended December 31, 2014 compared to the year ended December 31, 2013
The following discussion should be read in conjunction with our audited consolidated financial statements,
including the notes thereto, as of and for the years ended December 31, 2014, 2013 and 2012, which have been
prepared in accordance with Brazilian GAAP and are included elsewhere in this information memorandum.
The following table shows our results of operations for the years ended December 31, 2014 and 2013.
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
64,967.0
56,377.7
15.2%
8,589.3
(48,377.3)
(40,948.0)
18.1%
(7,429.3)
16,589.7
15,429.7
7.5%
1,160.0
(14,112.2)
(15,025.1)
(6.1)%
912.9
2014
Financial Income ...............................................................................
Financial Expenses ............................................................................
Gross Profit From Financial Operations .......................................
Other Operating Expenses .................................................................
54
Operating Income ............................................................................
Non-operating Income ......................................................................
Income Before Taxes on Income and Profit Sharing ....................
Income Tax and Social Contribution .................................................
Profit Sharing ....................................................................................
Minority Interest ...............................................................................
Net Income .......................................................................................
2,477.5
140.8
2,618.3
732.7
(991.2)
(198.6)
2,161.2
404.6
1,257.8
1,662.4
1,650.8
(958.4)
(247.5)
2,107.3
n.d.
(88.8)%
57.5%
(55.6)%
3.4%
(19.8)%
2.6%
2,072.9
(1,117.0)
955.9
(918.1)
(32.8)
48.9
53.9
Our net income increased 2.6% to R$2,161 million for the year ended December 31, 2014 compared to R$2,107
million for the year ended December 31, 2013. Net income is influenced by the goodwill amortization of our Banco
Real acquisition which had an impact on other administrative expenses of R$3,689 million for the year ended
December 31, 2014 compared to R$3,637 million for the year ended December 31, 2013. Disregarding 100% of the
goodwill amortization effect, our net income increased 1.8% to R$5,850 million for the year ended December 31,
2014 compared to R$5,744 million for the year ended December 31, 2013.
2014
Net income .................................................................................
Goodwill amortization ................................................................
Net income excluding 100% of goodwill amortization ..........
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
2,161.2
3,688.8
5,850.0
2,107.3
3,637.0
5,744.3
2.6%
1.4%
1.8%
53.9
51.8
105.7
The principal components of our net income and the reasons for the increase in the net income are discussed
further below.
Financial Income
The following table shows the components of our consolidated financial income for the years ended December
31, 2014 and 2013.
2014
Financial Income
Loan, lease and other credit operations ................................
Securities and derivative financial instruments ....................
Foreign Exchange Operations ..............................................
Operations of Sale or Transfer of Financial Assets ..............
Compulsory Investments ......................................................
Total Financial income ..............................................................
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
41,985.9
18,005.9
1,751.3
31.7
3,192.2
64,967.0
40,217.6
14,002.9
(212.6)
57.3
2,312.5
56,377.7
4.4%
28.6%
n.d.
(44.7)%
38.0%
15.2%
1,768.2
4,003.0
1,963.9
(25.6)
879.8
8,589.3
Revenues from financial income increased 15.2% to R$64,967 million for the year ended December 31, 2014
from R$56,378 million for the year ended December 31, 2013. The principal components of our revenues from
financial income are:
Loan, Lease and Other Credit Operations
Revenues from loan, lease and other credit operations increased 4.4% to R$41,986 million for the year ended
December 31, 2014 from R$40,218 million for the year ended December 31, 2013. This variation reflects an
increase of 7.9% in our loan portfolio (principally in our large corporate segment), partially offset by a reduction in
our average loan portfolio spread, which resulted from a change in portfolio mix due to an increase in products with
lower risk.
55
Securities and Derivative Financial Instruments
Revenues from securities and derivative financial instruments totaled R$18,006 million for the year ended
December 31, 2014, a 28.6% increase from R$14,003 million for the year ended December 31, 2013 mainly due to
(i) gains related to income from fixed-income securities as a consequence of a higher SELIC rate, which was 11.8%
in December 30, 2014 compared to 10.0% in the same period of 2013, and (ii) lower expenses related to derivative
instruments used to hedge the impact of exchange rate variation on our foreign branches. A hedge position,
composed of derivatives, was established to mitigate the exchange rate variation and the effects of offshore
investments on our net profit.
Foreign Exchange Operations
Revenues from foreign exchange operations increased R$1,964 million to R$1,751 million for the year ended
December 31, 2014 from expenses of R$213 million for the year ended December 31, 2013, mainly due to higher
gains on foreign exchange positions, partially offset by hedging losses from securities and derivate financial
instruments.
Operations of Sale or Transfer of Financial Assets
Revenues from operations of sale or transfer of financial assets totaled R$32 million for the year ended
December 31, 2014, a R$26 million decrease from R$57 million for the year ended December 31, 2013, mainly due
to gains of R$22 million from the sale of financial assets in 2013 that did not occur in 2014.
Compulsory Investments
Revenues from compulsory investments increased R$880 million to R$3,192 million for the year ended
December 31, 2014 from R$2,313 million for the year ended December 31, 2013, mainly due to a higher SELIC rate
in the year ended December 31, 2014, when compared to the same period in 2013.
Financial Expenses
The following table shows the components of our financial expenses for the years ended December 31, 2014
and 2013.
2014
Financial Expenses
Funding operations .....................................................................
Borrowing and Onlending operations.........................................
Allowance for Loan Losses ........................................................
Total Financial Expenses .................................................................
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
(32,802.4)
(3,666.0)
(11,908.9)
(48,377.3)
(23,765.2)
(2,863.6)
(14,319.1)
(40,948.0)
38.0%
28.0%
(16.8)%
18.1%
(9,037.2)
(802.4)
2,410.3
(7,429.3)
Financial expenses increased 18.1% to R$48,377 million for the year ended December 31, 2014 from R$40,948
million for the year ended December 31, 2013. The principal components of our financial expenses are:
Funding Operations
Expenses for funding operations (including time deposits, saving deposits, interbank deposits, money market
funding, and others) increased 38.0% to R$32,802 million for the year ended December 31, 2014 from R$23,765
million for the year ended December 31, 2013. This variation was mainly due to an increase in money market
funding expenses and an increase in time deposits expenses driven principally by the increase in the SELIC rate in
the period when compared to the same period in 2013.
Borrowing and Onlending Operations
Borrowing and onlending operations (including local borrowings, foreign borrowings, domestic onlendings and
foreign onlendings) increased by R$802 million to an expenses of R$3,666 million for the year ended December 31,
56
2014 from an expense of R$2,864 million for the year ended December 31, 2013, mainly due to the impact of
exchange rate variation and an increase in our foreign borrowings and our domestic onlending portfolio.
Allowance for Loan Losses
Allowance for loan losses decreased 16.8% to R$11,909 million for the year ended December 31, 2014 from
R$14,319 million for the year ended December 31, 2013, mainly due to an improvement in the quality of our credit
portfolio. Our delinquency ratio over 90 days decreased from 3.7% as of December 31, 2013 to 3.3% as of
December 31, 2014 due to a better performance in both individuals and corporate segments.
Other Operating Expenses
The following table shows the components of our other operating (expenses) income for the year ended
December 31, 2014 and 2013.
2014
Other Operating Expenses
Fee and Commission Income ....................................................
Personnel Expenses ...................................................................
Other Administrative Expenses .................................................
Tax Expenses ............................................................................
Investments in Affiliates and Subsidiaries ................................
Other Operating Expenses..........................................................
Total Other Operating Expenses .............................................
11,057.9
(6,395.3)
(13,050.8)
(3,146.4)
2.5
(2,580.2)
(14,112.2)
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
10,674.4
(6,282.9)
(12,800.8)
(2,987.8)
20.1
(3,648.1)
(15,025.1)
3.6%
1.8%
2.0%
5.3%
(87.6)%
(29.3)%
(6.1)%
383.5
(112.4)
(250.0)
(158.6)
(17.6)
1,068.0
912.9
Total other operating expenses decreased 6.1% to R$14,112 million for the year ended December 31, 2014 from
R$15,025 million for the year ended December 30, 2013. This increase was due to:
Fee and Commission Income
Fee and commission income totaled R$11,058 million for the year ended December 31, 2014, a 3.6% increase
from R$10,674 million for the year ended December 31, 2013, mainly due to an increase of 5.0% in credit card and
merchant acquiring services fees and an increase of 14.0% in collections services fees, which was partially offset by
an 13.9% reduction in asset management fees due to the sale of our asset management business.
Personnel Expenses
Personnel expenses increased 1.8% to R$6,395 million for the year ended December 30, 2014 from R$6,283
million for the year ended December 31, 2013, mainly due to higher compensation expenses since October 2014
related to the collective bargaining agreement, partially offset by lower training expenses.
Personnel expenses, including profit sharing, increased 2.0%, or R$145 million, to R$7,387 million for the year
ended December 31, 2014 from R$7,241 million for year the year ended December 31, 2013.
The following table shows the effects of including profit sharing expenses on our personnel expenses line
item for the year ended December 31, 2014 and 2013.
Personnel Expenses ...........................................................................
Profit Sharing ......................................................................................
Personnel Expenses including Profit Sharing .................................
57
For the year ended December 31,
% Change
Change
2014
2013
(in millions of R$, except percentages)
(6,395.3)
(6,282.9)
1.8%
(112.4)
(991.2)
(958.4)
3.4%
(32.8)
(7,386.5)
(7,241.3)
2.0%
(145.2)
Other Administrative Expenses
Other administrative expenses increased 2.0% to R$13,051 million for the year ended December 31, 2014 from
R$12,801 million for the year ended December 31, 2013. Disregarding the goodwill amortization effect of R$3,689
million for the year ended December 31, 2014 and R$3,637 million in the same period in 2013, our administrative
expenses increased 2.2%, to R$9,362 million compared to R$9,164 million for the same period in 2013. This growth
was mainly due to higher expenses from outsourced and specialized services and data processing.
Tax Expenses
Tax expenses increased 5.3% or R$159 million for the year ended December 31, 2014, compared to R$2,988
million for the year ended December 31, 2013 mainly due to the foreign exchange on investments abroad, provisions
updates for PIS and Cofins pursuant to Brazilian Law 9.718/1998 and payments related to REFIS, a Brazilian
amnesty and installment program for tax debts, penalties and interest established by Brazilian Law 12,996/2014.
Investments in Affiliates and Subsidiaries
Investments in affiliates and subsidiaries totaled revenues of R$2.5 million and revenues of R$20 million for the
year ended December 31, 2014 and 2013, respectively.
Other Operating Expenses
Other operating expenses decreased 29.3% or R$1,068 million to R$2,580 million for the year ended December
31, 2014 compared to expenses of R$3,648 million for the year ended December 31, 2013, mainly due to gains
related to monetary variation as a consequence of higher SELIC rate and expenses of R$285 million related to
impairment of assets, due to obsolescence of software and the discontinued use of IT systems that occurred in 2013,
partially offset by higher expenses in provisions as a result of more contingency provisioning.
Non-operating Income
Non-operating income decreased R$1,117 million to R$141 million for the year ended December 31, 2014
compared to income of R$1,258 million for the year ended December 31, 2013, mainly due to non-operating income
generated for the year ended December 31, 2013 of R$1,021 million that did not occur in 2014 (gains of R$2,008
million from the sale of Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários, income
of R$121 million related to the sale of properties to our real estate fund partially offset by R$120 million related to
an increase in Webmotor’s capital and expenses of R$988 million of higher provisions for restructuring and labor
indemnities).
Income Tax and Social Contribution
Income tax and social contribution totaled an income of R$733 million for the year ended December 31, 2014, a
R$918 million decrease from an income of R$1,651 million for the same period in 2013. For the year ended
December 31, 2014, the appreciation of the U.S. dollar against the real in the fiscal hedge results resulted in an
income tax benefit of R$1,554 million in tax expenses compared to an income tax benefit of R$2,169 million for the
same period in 2013. Disregarding these effects, income tax and social contribution totaled expenses of R$821
million and R$518 million, respectively, for the year ended December 31, 2014 and 2013.
The table below shows the effects of our hedge results on our income tax and social contribution line item for
the year ended December 31, 2014 and 2013.
For the year ended December 31,
2013
% Change
Change
(in millions of R$, except percentages)
732.7
1,650.8
(55.6)%
(918.1)
1,553.5
2,168.5
(28.4)%
(615.0)
(820.8)
(517.7)
58.5%
(303.1)
2014
Income tax and social contribution .....................................
Fiscal hedge ...........................................................................
Income taxes excluding fiscal hedge ......................................
58
Profit Sharing
Profit sharing increased 3.4% to expenses of R$991 million for the year ended December 31, 2014, compared to
expenses of R$958 million for the year ended December 31, 2013. We have a profit sharing plan with our
employees based on predetermined goals for our annual operating and financial results.
Results of Operations for the year ended December 31, 2013 compared to the year ended December 31, 2012
The following discussion should be read in conjunction with our audited consolidated financial statements,
including the notes thereto, as of and for the years ended December 31, 2013 and 2012, which have been prepared in
accordance with Brazilian GAAP and are included elsewhere in this information memorandum.
The following table shows our results of operations for the years ended December 31, 2013 and 2012.
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
56,377.6
55,487.0
1.6%
890.7
(40,947.9)
(37,915.1)
8.0%
(3,032.9)
(12.2)%
(2,142.2)
15,429.7
17,571.9
(15,025.1)
(14,988.3)
0.2%
(36.8)
(84.3)%
(2,179.0)
404.6
2,583.6
1,257.8
218.2
476.4%
1,039.7
(40.7)%
(1,139.3)
1,662.4
2,801.7
1,650.8
1,030.6
60.2%
620.2
(958.4)
(980.5)
(2.3)%
22.1
(247.5)
(126.1)
96.3%
(121.5)
2,107.3
2,725.7
(22.7)%
(618.4)
2013
Financial Income ...............................................................................
Financial Expenses ............................................................................
Gross Profit From Financial Operations .......................................
Other Operating Expenses .................................................................
Operating Income ............................................................................
Non-operating Income ......................................................................
Income Before Taxes on Income and Profit Sharing ....................
Income Tax and Social Contribution .................................................
Profit Sharing ....................................................................................
Minority Interest ...............................................................................
Net Income .......................................................................................
Our net income decreased 22.7% to R$2,107 million for the year ended December 31, 2013 compared to
R$2,726 million for the year ended December 31, 2012. Net income is influenced by the goodwill amortization of
our Banco Real acquisition which had an impact on other administrative expenses of R$3,637 million for both the
year ended December 31, 2013 and 2012. Disregarding 100% of the goodwill amortization effect, our net income
decreased 9.7% to R$5,744 million for the year ended December 31, 2013 compared to R$6,363 million for the year
ended December 31, 2012.
2013
Net income .................................................................................
Goodwill amortization ................................................................
Net income excluding 100% of goodwill amortization ..........
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
2,107.3
3,637
5,744.3
2,725.7
3,637
6,362.7
(22.7)%
(9.7)%
(618.4)
(618.4)
The principal components of our net income and the reasons for the decrease in the net income are discussed
further below.
59
Financial Income
The following table shows the components of our consolidated financial income for the years ended
December 31, 2013 and 2012.
2013
Financial Income
Loan, lease and other credit operations ................................
Securities and derivative financial instruments ....................
Foreign Exchange Operations ..............................................
Operations of Sale or Transfer of Financial Assets ..............
Compulsory Investments ......................................................
Total Financial income ..............................................................
40,217.6
14,002.9
(212.6)
57.3
2,312.5
56,377.6
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
41,772.1
10,266.4
400.9
65.7
2,981.8
55,487.0
(3.7)%
36.4%
n.d
(12.9)%
(22.4)%
1.6%
(1,554.5)
3,736.5
(613.5)
(8.5)
(669.4)
890.7
Revenues from financial income increased 1.6% to R$56,378 million for the year ended December 31, 2013
from R$55,487 million for the year ended December 31, 2012. The principal components of our revenues from
financial income are:
Loan, Lease and Other Credit Operations
Revenues from loan, lease and other credit operations decreased 3.7% to R$40,218 million for the year ended
December 31, 2013 from R$41,772 million for the year ended December 31, 2012. This variation was mainly due to
lower spreads, which is mainly explained by an increase in products with lower spreads and lower risk in the credit
portfolio, partially offset by a 7.3% increase of our loan portfolio. Our loan portfolio totaled R$227.5 billion at the
year ended December 31, 2013, compared to R$212.0 billion at the year ended December 31, 2012, an increase of
7.3% during this period.
Securities and Derivative Financial Instruments
Revenues from securities and derivative financial instruments totaled R$14,003 million for the year ended
December 31, 2013, a 36.4% increase from R$10,266 million for the year ended December 31, 2012 mainly due to
gains related to interbank investments, partially offset by higher expenses related to derivative instruments used to
hedge the impact of exchange rate variation from our foreign branches. A hedge position, composed of derivatives,
was established to mitigate the exchange rate variation and the effects of offshore investments on our net profit.
Foreign Exchange Operations
Revenues from foreign exchange operations decreased R$613 million to losses of R$213 million for the year
ended December 31, 2013 from gains of R$401 million for the year ended December 31, 2012, mainly due to lower
gains from foreign exchange operations, driven principally by the depreciation of the real against the U.S. dollar.
Operations of Sale or Transfer of Financial Assets
Revenues from operations of sale or transfer of financial assets totaled R$57 million for the year ended
December 31, 2013, a R$9 million decrease from R$66 million for the year ended December 31, 2012. In
accordance with CMN Resolution 3,533/2008, as amended, the sale or transfer of credit operations with a substantial
retention of risks, recourse and benefits, began to be retained in our loan portfolio as of January 1, 2012.
Compulsory Investments
Revenues from compulsory investments decreased R$669 million to R$2,312 million for the year ended
December 31, 2013 from R$2,982 million for the year ended December 31, 2012, mainly due to the lower required
volume of compulsory deposits in the period ended December 31, 2013. Regulatory requirements related to the
compulsory deposits changed during the end of 2012, the required average volume of deposits decreased by 17%
and consequently impacted income from compulsory deposits.
60
Financial Expenses
The following table shows the components of our financial expenses for the years ended December 31, 2013
and 2012.
2013
Financial Expenses
Funding operations .....................................................................
Borrowing and Onlending operations.........................................
Allowance for Loan Losses ........................................................
Total Financial Expenses .................................................................
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
(23,765.2)
(2,863.6)
(14,319.1)
(40,947.9)
(21,482.8)
(1,440.9)
(14,991.4)
(37,915.1)
10.6%
98.7%
(4.5)%
8.0%
(2,282.4)
(1,422.7)
672.3
(3,032.9)
Financial expenses increased 8.0% to R$40,948 million for the year ended December 31, 2013 from
R$37,915 million for the year ended December 31, 2012. The principal components of our financial expenses are:
Funding Operations
Expenses for funding operations (including time deposits, saving deposits, interbank deposits, money market
funding, and others) increased 10.6% to R$23,765 million for the year ended December 31, 2013 from
R$21,483 million for the year ended December 31, 2012. This variation was mainly due to an increase in funds from
acceptance and issuance of securities expenses and an increase in money market funding expenses driven principally
by the depreciation of the real against the U.S. dollar.
Borrowing and Onlending Operations
Expenses for borrowing and onlending operations (including local borrowing, foreign borrowing, domestic
onlendings and foreign onlendings) increased by R$1,423 million to R$2,864 million for the year ended
December 31, 2013 from R$1,441 million for the year ended December 31, 2012, mainly due to an increase in our
foreign borrowing and our domestic onlending portfolio and the impact of the depreciation of the real against the
U.S. dollar during the period.
Allowance for Loan Losses
Allowance for loan losses decreased 4.5% to R$14,319 million for the year ended December 31, 2013 from
R$14,991 million for the year ended December 31, 2012 mainly as a consequence of an improvement in the quality
of our credit portfolio.
Other Operating Expenses
The following table shows the components of our other operating expenses for the years ended December 31,
2013 and 2012.
2013
Other Operating Expenses
Fee and Commission Income ....................................................
Personnel Expenses ...................................................................
Other Administrative Expenses .................................................
Tax Expenses ............................................................................
Investments in Affiliates and Subsidiaries ................................
Other Operating Expenses..........................................................
Total Other Operating Expenses .............................................
61
10,674.4
(6,282.9)
(12,800.8)
(2,987.8)
20.1
(3,648.1)
(15,025.1)
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
9,680.4
(6,318.1)
(12,180.8)
(3,027.7)
1.1
(3,143.2)
(14,988.3)
10.3%
(0.6)%
5.1%
(1.3)%
n.d.
16.1%
0.2%
994.0
35.2
(620.0)
39.9
19.0
(504.9)
(36.8)
Total other operating expenses increased 0.2% to R$15,025 million for the year ended December 31, 2013 from
R$14,988 million for the year ended December 31, 2012. This increase was due to:
Fee and Commission Income
Fee and commission income totaled R$10,674 million for the year ended December 31, 2013, a 10.3% increase
from R$9,680 million for the year ended December 31, 2012 mainly due to the increase in credit card volume
transactions and higher revenues from merchant acquiring services, and an increase in commissions from the sale of
insurance products.
Personnel Expenses
Personnel expenses decreased 0.6% to R$6,283 million for the year ended December 31, 2013 from
R$6,318 million for the year ended December 31, 2012, mainly due to the lower compensation and social
contribution expenses.
Personnel expenses, including profit sharing, decreased 0.8%, or R$57 million, to R$7,241 million for the year
ended December 31, 2013 from R$7,299 million for year ended December 31, 2012, mainly due to the reduction in
profit sharing and lower compensation expenses for year ended December 31, 2013.
Other Administrative Expenses
Other administrative expenses increased 5.1% to R$12,801 million for the year ended December 31, 2013 from
R$12,181 million for year ended December 31, 2012. Disregarding the goodwill amortization effect
(R$3,637 million for the year ended 2013 and 2012, respectively), administrative expenses were R$9,164 million for
the year ended December 31, 2013 and R$8,544 million for year ended December 31, 2012, a 7.3% increase. This
growth was mainly due to an increase in outsourced and specialized services expenses, data processing and rentals
expenses.
Tax Expenses
Tax expenses decreased 1.3% or R$40 million for the year ended December 31, 2013 to R$ 2,988 million,
compared to R$3,028 million for the year ended December 31, 2012.
Investments in Affiliates and Subsidiaries
Investments in affiliates and subsidiaries increased R$19.0 million to R$ 20.1 million for the year ended
December 31, 2013 compared to R$1.1 million for the year ended December 31, 2012.
Other Operating Expenses
Other operating expenses increased 16.1%, or R$505 million, to R$3,648 million for the year ended
December 31, 2013 compared to expenses of R$3,143 million for the year ended December 31, 2012, mainly due to
R$853 million related to sundry contingency provisions, R$254 million of which related to impairments due to
obsolescence of software and discontinuity of such systems, partially offset by gains of R$568 million related to an
installment program and cash payment of tax and social security debts.
Non-operating Income
Non-operating income increased R$1,040 million to R$1,258 million for the year ended December 31, 2013
compared to income of R$218 million for the year ended December 31, 2012, mainly due to R$2,008 million related
to gains of the sale of Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários (for
further information, see “Business—Commercial Banking—Asset Management”), partially offset by R$988 million
in expenses related to the establishment of a fund to cover the impact of projects aimed at improving operational
productivity and efficiency.
62
Income Tax and Social Contribution
Income tax and social contribution totaled income of R$1,651 million for the year ended December 31, 2013, a
R$620 million increase from income of R$1,031 million in 2012. For the year ended December 31, 2013, the
appreciation of the U.S. dollar against the real in the fiscal hedge results, caused an income tax benefit of
R$2,168 million in tax expenses, compared to an income tax benefit of R$1,327 million in the same period of 2012.
Disregarding these effects, income tax and social contribution were expenses of R$518 million and R$296 million,
respectively, for the years ended December 31, 2013 and 2012.
The table below shows the effects of our hedge results on our income tax and social contribution line item for
the years ended December 31, 2013 and 2012:
For the year ended December 31,
2012
% Change
Change
(in millions of R$, except percentages)
1,650.8
1,030.6
60.2%
620.2
2,168.5
1,327.0
63.4%
841.5
(517.7)
(296.4)
74.7%
(221.3)
2013
Income tax and social contribution .....................................
Fiscal hedge ...........................................................................
Income taxes excluding fiscal hedge ......................................
Profit Sharing
Profit sharing decreased 2.3% to expenses of R$958 million for the year ended December 31, 2013, compared
to expenses of R$981 million for the year ended December 31, 2012. We have a profit sharing plan with our
employees based on predetermined goals for our annual operating and financial results.
Liquidity and Capital Resources
Our asset and liability management strategy is defined by the Executive Financial Committee, which operates
under strict guidelines and procedures established by the Santander Group. The Executive Financial Committee
establishes our funding strategy, structural balance sheet, interest rate position and capital management. Our
Executive Financial Committee also establishes and coordinates transfer pricing policies, management of
risk-weighted assets, economic capital exposure, management of local regulatory capital, decision making on capital
instrument issuances, and risk appetite.
Pursuant to the Santander Group’s model, all subsidiaries have to be self-funded in terms of liquidity and
capital. In addition, our general asset and liability management policy is to maintain a close match of maturity,
interest rate and currency exposures. Subject to our internal risk management policies, we aim to maintain adequate
liquidity to meet our present and future financial obligations and to capitalize on business and market opportunities
as they arise.
Most of our liquidity is raised in the local market and we maintain a portfolio of high quality public bonds for
liquidity management. Legal reserve requirements consumes a significant amount of funding in Brazil, see
“Regulatory Overview—Principal Regulatory Agencies—Compulsory Reserve Requirements.”
Due to our stable and diversified sources of funding, which include a large client deposit base in the local
market and a large number of correspondent banks with long-standing relationships, historically we have not
experienced liquidity problems.
Capital
Our capital management is based on conservative principles and continuous monitoring of the items that affect
our solvency level. We are required to comply with Brazilian capital adequacy regulations under Central Bank rules.
In October 2013, new regulation related to the definition of capital and the regulatory capital requirements of the
Basel Committee on Banking Supervision, or “Basel III,” came into effect in Brazil. The minimum regulatory
capital requirements currently remain at 11%. The Tier I requirement is 5.5%, divided into principal capital of at
least 4.5% (consisting mainly of corporate capital and profit reserves, including shares, units of ownership, reserves
63
and earned income) and supplementary capital (certain reserves, revenue earned and hybrid securities and
instruments capital authorized by the Central Bank).
According to the new rules on regulatory capital in Brazil, the value of goodwill for the calculation of capital
base will be deducted from the capital base according to the “phase-in” for implementation of Basel III in Brazil
which will be completed by 2019. In addition, if Basel III requirements were fully implemented as of the date
hereof, we believe we would continue to maintain an adequate regulatory capital ratio under Basel III and Brazilian
Central Bank rules.
Our Basel capital adequacy ratio, in accordance with the Brazilian Central Bank was 17.5% as of December 31,
2014.
The following table sets forth our capitalization as at December 31, 2014, 2013 and 2012.
As at December 31(1),
2014
2013
2012
(in millions of R$, except percentages)
58,592.4
63,594.7
65,213.3
55,228.7
63,594.7
3,363.7
4,971.0
2,701.0
5,069.8
63,563.4
66,295.7
70,283.1
40,010.1
37,936.1
37,131.4
35,527.9
34,199.5
32,410.0
2,807.8
2,047.6
2,951.2
1,674.4
1,689.0
1,770.2
16.1%
18.4%
15.2%
18.4%
17.5%
19.2%
20.8%
Tier I Regulatory Capital .......................................................
Principal Capital ....................................................................
Supplementary Capital ..........................................................
Tier II Regulatory Capital ......................................................
Regulatory Capital (Tier I and II) ......................................
Required Regulatory Capital..................................................
Portion of Credit Risk(2) .........................................................
Market Risk Portions(3) ..........................................................
Operational Risk Portion ......................................................
Basel I Ratio .........................................................................
Basel Principal Capital ........................................................
Basel Ratio ............................................................................
_______________________
(1) Amounts calculated based on the consolidated financial statements provided by the financial institutions. For further information, see
“Regulatory Overview – Capital Adequacy and Leverage – Consolidated Enterprise Level (conglomerado prudencial).”
(2) March 4, 2013, which revoked BACEN Circular 3,563/2011. The main changes were (i) with respect to real estate loans, the change in
weight depending on the amount financed (LTV), (ii) with respect to payroll loans, the change in aggregate weight from 300% to 150%, and
(iii) with respect to the segregated weight for large companies (with more than R$100 million exposure), a change from 75% to 85%.
(3) Includes portions for market risk exposures subject to variations in rates of foreign currency coupons, or “PJUR2,” price indexes, or
“PJUR3,” and interest rate, or “PJUR1/PJUR4,” the price of commodities, or “PCOM,” the price of shares classified as trading portfolios, or
“PACS,” and portions for gold exposure and foreign currency transactions subject to foreign exchange, or “PCAM.”
Plan to Optimize Our Capital Structure
To achieve a more efficient capital structure consistent with the new Basel III capital rules and our business
strategy and asset growth plan, we developed in 2013 an equity optimization plan. In accordance with this plan, our
shareholders approved on November 1, 2013, a capital decrease of Santander Brasil of R$6.0 billion, the main
reason for the decrease from R$62,819 million as of December 31, 2013 to R$57,000 million as of June 30, 2014,
without diluting the percentage of ownership held by our shareholders. Our shareholders also approved the
amendment of our bylaws to confer upon our Board of Directors the authority to issue securities within the limits of
the authorized capital. On January 7, 2014, all conditions for the equity distribution were concluded, including the
expiration of the 60-day period for objections of any unsecured creditors, which expired on January 3, 2014.
Payment of the distribution occurred on January 29, 2014.
On January 29, 2014, we issued U.S. dollar denominated notes in an amount equivalent to R$6 billion, which
were fully subscribed by our shareholders. Santander Spain agreed to use its entire cash distribution to subscribe to
the notes and agreed to subscribe to any notes from the total issuance that were not subscribed by our other
shareholders.
The notes constitute Tier 1 and Tier 2 regulatory capital, as approved by the Brazilian Central Bank on April 15,
2014. The Tier 1 notes were issued for an amount equivalent to R$3,000 million, with interest at 7.375% per annum
and are perpetual. The Tier 2 notes were issued for an amount equivalent to R$3,000 million, with interest at 6.0%
64
per annum and will mature on January 29, 2024. The notes shall be converted into our common shares and preferred
shares upon the occurrence of certain conversion events. The notes constitute unsecured and subordinated
obligations. In accordance with applicable law, the rights and claims of holders of the (a) Tier 1 notes will rank prior
to all holders of common equity Tier 1 capital or (b) Tier 2 notes will rank prior to all holders of common equity Tier
1 capital and additional Tier 1 capital.
Liquidity / Funding
Market conditions and prospects as well as the Brazilian Central Bank requirements for compulsory deposits
and stress tests determine our minimum liquidity levels. We control, manage and review our liquidity, analyzing
current and expected levels of liquidity, structuring the sources of financing to achieve an optimal diversification in
terms of maturities, instruments, currencies, markets as well as setting forth contingency plans. The objective is to
ensure that we have sufficient liquidity to honor our commitments in light of market conditions, our institutional
needs and market opportunities.
Funding
The following table presents a break-down of our funding for each period presented:
2014
Demand Deposits ..........................
Savings Deposits ...........................
Interbank Deposits .........................
Time Deposits ................................
Money Market Funding .................
Funds from Acceptance and
Issuance of Securities ..........
Real Estate Credit Notes LCI.....................................
Agribusiness Credit Notes –
LCA ..................................
Financial Bills ........................
Securities Issued Abroad .......
Exchange Acceptances ..........
Funding by Structured
Operation Certificates ........
Borrowing
Local ......................................
Foreign...................................
Onlending
Local – Official Institutions ..
Foreign...................................
Subordinated Debt .......................
Debt Instruments Eligible to
Compose Capital (1) ......................
Total Funding...............................
16,049.2
37,938.9
3,776.4
85,867.5
110,352.7
As at December 31,
2013
%
2012
(in millions of R$, except percentages)
4.2%
15,604.6
4.9%
13,457.1
9.9%
33,589.1
10.5%
26,856.9
1.0%
3,919.5
1.2%
3,392.5
22.4%
81,099.9
25.3%
82,838.7
28.8%
78,462.1
24.5%
72,528.6
%
%
4.6%
9.2%
1.2%
28.3%
24.8%
74,951.6
19.6%
69,060.9
21.6%
56,293.7
19.2%
22,671.1
5.9%
17,080.2
5.3%
11,241.2
3.8%
1,902.8
37,319.1
11,795.6
998.9
0.5%
9.7%
3.1%
0.3%
1,681.6
30,853.5
18,169.7
1,275.9
0.5%
9.6%
5.7%
0.4%
2,008.5
26,492.6
15,298.4
1,253.0
0.7%
9.1%
5.2%
0.4%
264.1
0.1%
0.0
0.0%
0.0
0.0%
123.3
24,320.6
0.0%
6.3%
81.2
17,894.1
5.6%
122.3
15,879.1
5.4%
15,613.5
0.0
7,294.1
4.1%
0.0%
1.9%
11,756.7
19.2
8,906.1
3.7%
2.8%
9,384.6
40.7
11,919.1
3.2%
4.1%
6,776.6
383,064.4
1.8%
100%
320,393.5
100.0%
292,713.3
100.0%
__________________
(1) This indebtedness results from our Plan to Optimize our Capital Structure. For more information see “—Plan to Optimize our Capital
Structure.”
Deposits
Our balance of deposits was R$143.6 billion on December 31, 2014 and R$134.2 billion on December 31, 2013.
Deposits accounted for 37.5% and 41.9% of our total funding as of December 31, 2014 and 2013. The composition
of our deposits has remained concentrated in time deposits and savings accounts, which accounted for 59.8% and
26.4% of our total deposits, respectively, as of December 31, 2014.
65
Demand and Savings Deposits
Our balance of demand deposits was R$16.0 billion on December 31, 2014 and R$15.6 billion on December 31,
2013 and our balance of savings deposits was R$37.9 billion on December 31, 2014 and R$33.6 billion on
December 31, 2013.
Demand and savings deposits accounted for 37.6% of our total deposits as of December 31, 2014.
Interbank Deposits
We issue CDIs to other financial institutions in the interbank market. Generally, we do not fund ourselves to a
material extent in the CDI market as we have alternative sources of funds available. As of December 31, 2014,
interbank deposits accounted for only 1.0% of our total funding, maintaining the same level as of the previous
period.
Time Deposits
Time deposits increased 5.9%, to R$85.9 billion as of December 31, 2014, from R$81.1 billion as of December
31, 2013.
Money Market Funding
We maintain a portfolio of Brazilian public and private sector liquid debt instruments used to obtain overnight
funds from other financial institutions or investment funds by selling such securities and simultaneously agreeing to
repurchase them. Due to the short-term (mainly overnight) nature of this funding source, such transactions are
volatile and are composed, generally, of Brazilian public securities and of repurchase agreements linked to
debentures. Money Market Funding, which includes securities sold under repurchase agreements, increased 40.6%,
from R$78.5 billion on December 31, 2013 to R$110.4 billion on December 31, 2014, representing 24.5% and
28.8% of total funding, respectively.
Funds from Acceptance and Issuance of Securities
Funds from acceptance and issuance of securities increased 8.5% from R$69.1 billion on December 31, 2013, to
R$75.0 billion on December 31, 2014. In the local market, the highlight was the growth in Real Estate Credit Notes,
or “LCI,” which increased 32.7%, from R$17.1 billion on December 31, 2013 to R$22.7 billion on December 31,
2014. Financial Bills (Letras Financeiras), an important funding instrument, which provide greater stability with a
minimum maturity term of two years, totaled R$37.3 billion as of December 31, 2014, a 21.0% increase from
December 31, 2013.
The Agribusiness Credit Notes (Letra de Crédito do Agronegócio, or “LCA”), which are credit notes that are
freely negotiated and represent an unconditional promise of payment in cash, are issued exclusively by financial
institutions and related to credit rights originated from transactions conducted between rural producers and their
cooperatives and agents of the agribusiness production chain and the exchange acceptances, reached R$1.9 billion as
of December 31, 2014.
In the international market, securities issued abroad (mainly transactions under our Medium-Term Notes
Programme and under our Diversified Payment Rights Program), decreased 35.1%, to R$11.8 billion as of
December 31, 2014 from R$18.2 billion as of December 31, 2013.
To remove some restrictions on our operations imposed by our diversified payment rights program, we
redeemed all of the outstanding notes under the Program on December 4, 2014 and subsequently terminated the
Program. Some of the notes under the Program required the payment of a make whole premium. The redemption of
the outstanding notes occurred on December 4, 2014 with a total redemption price of U.S.$747.2 million.
The Structured Operations Certificate (Certificado de Operações Estruturadas), or “COE,” is a new security,
recently established in Brazilian financial market, which combines several investment strategies in one certificate
and contains an embedded derivative component that adjusts the security's risk and return profile. As of December
31, 2014, we had issued R$ 264.1 million in Structured Operations Certificates.
66
Foreign Borrowing
We have relationships with banks all over the world, providing foreign currency-linked credit lines (either to the
U.S. dollar or to a basket of foreign currencies). We apply the proceeds from these transactions mainly to U.S.
dollar-linked lending operations and in particular to trade finance operations. As of December 31, 2014, we had
R$24.3 billion in foreign borrowings.
Local Onlending
We onlend from public institutions, mainly BNDES and FINAME (Agência Especial de Financiamento
Industrial), for which we act as a financial agent. Funding from these sources in Brazil represents a method of
providing long-term loans with attractive average interest rates to certain sectors of the economy. Loans from these
funds are allocated by BNDES through banks to specific sectors targeted for economic development. This type of
lending is known as “repassing” or “onlending”. Under this arrangement, we borrow funds from BNDES or
FINAME, the equipment financing subsidiary of BNDES, and pass the funds to the targeted sector of the economy.
These loans are generally granted at rates below the average market rates and have an average maturity of up to five
years. Because the repassed funds are generally matched and/or funded by loans from a federal government agency,
we take no interest rate or maturity mismatch risk nor charge interest at a fixed margin over its cost of funds. We,
however, retain the commercial credit risk of the borrower and therefore have discretion in the lending decision and
application of the credit criteria. This type of funding is not affected by compulsory deposit requirements. The
onlending is generally secured or guaranteed, although this is not required by the terms of the onlending. As of
December 31, 2014, we had R$15.6 billion in domestic onlending.
Subordinated Debt
As of December 31, 2014, our subordinated debt included R$7.3 billion of certificates of deposit issued by us in
the local market in various issuances at average interest rates indexed to CDI or IPCA.
Debt Instruments Eligible to Compose Tier 1 and Tier 2 Capital
We have issued notes that constitute Tier 1 and Tier 2 regulatory capital as part of our plan to optimize our
capital structure. For more information see “—Plan to Optimize our Capital Structure.” As of December 31, 2014
the balance for both Tier 1 and Tier 2 debt instruments was R$6.8 billion.
Contractual Obligations
Our contractual obligations as of December 31, 2014 are summarized as follows:
Demand Deposits ..............................................................
Savings Deposits ...............................................................
Time Deposits....................................................................
Interbank Deposits .............................................................
Money Market Funding .....................................................
Funds from Acceptance and Issuance of Securities ...........
Borrowings and Onlendings ..............................................
Subordinated Debts ...........................................................
Debt Instruments Eligible to Compose Capital .................
Employee Benefit Plan ......................................................
Total ..................................................................................
Without
maturity
16,049.2
37,938.9
235.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
54,223.8
As of December 31, 2014
(in millions of R$)
Over
90 days or
91 days to
365 days
less
365 days
0.0
0.0
0.0
0.0
0.0
0.0
23,359.6
11,384.7
50,887.4
1,976.1
1,262.1
538.1
54,337.3
15,249.7
40,765.7
16,265.2
30,052.0
28,634.4
9,984.0
18,150.0
11,923.3
0.0
199.1
7,095.0
148.3
0.0
6,628.3
0.0
0.0
3,869.7
106,070.6
76,297.6
150,341.9
Total
16,049.2
37,938.9
85,867.4
3,776.4
110,352.8
74,951.6
40,057.3
7,294.1
6,776.6
3,869.7
386,933.9
The above table does not reflect amounts that we may have to pay on derivative contracts. The amounts
ultimately payable will depend upon movements in the financial markets. The aggregate fair value of all our
derivative contracts as of December 31, 2014 was a liability of R$449.7 million compared to assets of R$1,395.9
million as of December 31, 2013.
67
In addition, we lease many properties under standard real estate lease contracts, which can be canceled at our
option and include renewal options and escalation clauses. Total future minimum payments of non-cancelable
operating leases as of December 31, 2014 were R$2,522.0 million, of which R$654.9 million mature in up to one
year, R$1,497.2 million from one year to up to five years and R$369.9 million after five years. Additionally, we
have contracts with indeterminate maturities totaling R$0.1 million per month.
Off-Balance Sheet Arrangements
We have entered, in the normal course of business, into several types of off-balance sheet arrangements,
including lines and letters of credit and financial guarantees.
Lending-Related Financial Instruments and Guarantees
We utilize lines and letters of credit and financial guarantee instruments to meet the financing needs of our
customers, the contractual amount of these financial instruments represents the maximum possible credit risk should
the counterparty draw down the commitment or we fulfill our obligation under the guarantee, and the counterparty
subsequently fails to perform according to the terms of the contract. Most of these commitments and guarantees
expire without the counterparty drawing on the credit line or a default occurring. As a result, the total contractual
amount of these instruments does not represent our future credit exposure or funding requirements. Further, certain
commitments, primarily related to consumer financing are cancelable, upon notice, at our option.
The “maximum potential amount of future payments” represents the notional amount that could be lost if there
was a total default by the guaranteed parties, without consideration of possible recoveries from collateral held or
pledged, or recoveries under recourse provisions. There is no relationship between these amounts and probable
losses on these guarantees. In fact, maximum potential amount of future payments significantly exceeds inherent
losses.
The following table sets forth the maximum potential amount of future payments under credit and financial
guarantees.
2014
Contingent liabilities
Financial guarantees and other securities .....................................................
Documentary credits ....................................................................................
Total contingent liabilities .................................................................................
39,615.4
948.3
40,563.7
As at December 31,
2013
(in millions of R$)
30,784.5
785.1
31,569.6
2012
27,626.3
945.6
28,571.9
Capital Expenditures and Divestitures
Our principal capital expenditures are comprised of investments in information technology. Our information
technology (“IT”) platform focuses on our customers and supports our business model. In 2014, 2013 and 2012,
total investments in information technology were R$1.029 million, R$1.014 million and R$958 million,
respectively.
In 2013 and 2014, we continually improved our technology platform by means of investments in systems and
hardware renewal. During these years, our main projects were the construction of a new data center with the most
advanced requirements in terms of data centers, the introduction of biometric security features and updates to our
electronic channels.
Technology management by specialized companies within the Santander Group enables us to achieve a global
scale and other benefits similar to outsourcing, without the loss-of-control that is often seen when outsourcing core
activities. For further discussion regarding our technology infrastructure see “Business — Technology and
Infrastructure” below.
Our major divestitures in the three fiscal years prior to the date of this information memorandum were:
68
•
the sale in June 2014 of our qualified custody and third-party fund administrator business (Santander
Securities Services Brazil DTVM S.A.) to a holding company owned by Banco Santander S.A. and a group
of Warburg Pincus private equity funds, for R$859 million, which is subject to certain conditions
precedent;
•
the sale in December 2013 of our asset management business to a holding company owned by Banco
Santander, S.A. and the private equity funds Warburg Pincus and General Atlantic for R$2,243 million
(See “Business—Commercial Banking—Asset Management”); and
•
the sale, in 2012 and 2013, of real estate assets, mainly branches, to Santander Real Estate Mutual Fund
(Santander Agências Fundo de Investimento Imobiliário), that generated gains of R$335 million and
R$88 million, respectively.
69
RISK MANAGEMENT
Overview
To manage the risks of our operations, we have incorporated the Santander Group’s global risk management
functions at various levels of our organization. Certain members of our risk management team are seconded from
the Santander Group to ensure a consistent risk management approach worldwide by implementing our risk
management policies for all areas, including financial, credit and market risk. In addition, committees headed by
senior management, oversee our risk reports in each of these areas. Risk limits and exposures in local jurisdictions
are further subject to the approval of the Santander Group.
Risk management reports provided to our senior management are generated mainly by the control department
and the risk consolidation department based on the databases corresponding to each department. Likewise, the
reports for senior management for the Santander Group’s financial entities and foreign branches are generated
mainly by the risk control departments of each of those entities and branches.
The presentation of risk management information to senior management is designed to enhance the
understanding and management of risks for the Santander Group’s administrative bodies and branches. These reports
are targeted to different audiences within senior management, whether the Santander Group, its financial entities, or
its foreign branches, depending on the kind of information each type of report highlights. Information may be
transmitted to senior management either through our intranet risk reporting tool, through e-mail or by live
presentations.
Information, analyses and decisions are also disseminated through the channels described below, fostering
communication among areas within the Bank and within the risk management process:
•
internal department mailboxes, which allow for the exchange of information within groups and areas;
•
periodic meetings (departmental, monthly, quarterly, off-site, conventions), which allow for regular
exchange of information on an in-person basis;
•
regulations portal, which is an internal portal within our intranet where we maintain our current risk
management policies;
•
e-mail;
•
video and teleconferences with Santander Spain; and
•
risk committees, including the executive risk committee for Brazil, the risk management committee,
centralized risk committees, decentralized committees and decentralized instances for business
management.
Information is prepared in an effort to improve risk management and is classified as standard information or
non-standard information.
•
Standard information: includes information and reports generated on a regular basis and with fixed
content, subject to revisions, which is available to senior management for different target areas, depending
on the type of information included in each report. This information is used to facilitate knowledge about
credit use, instrument valuation and the results generated, in addition to the analyses needed to manage
these risks and optimize capital. Each report may have a distinct presentation based on the guidelines
pursuant to which it is prepared.
•
Non-standard information: includes presentations and other information prepared for our senior
management on an ad hoc basis or upon specific request and addresses specific topics that are not included
in the standard reports. When the request for certain information becomes more regular, such report
becomes standard and is generated automatically. Standard information delivered to our senior
70
management is intended to facilitate the understanding of all risks for which the risk management
department is responsible.
•
The content of each report fits within one of two fundamental bases: the nature of the information and its
frequency. The nature of the information prepared is either quantitative or qualitative.
Quantitative Information. Quantitative information includes risk metrics that permit our senior management to
better analyze situations, trends and developments in each segment, activity or portfolio, relating to planned
scenarios or defined limits, with emphasis on any scenarios falling outside such limits. Quantitative information is
developed primarily to analyze liquidity and market risks, and solvency risks. Information related to liquidity and
market risk includes, among other items, measurements of positions, mark-to-market valuations, sensitivity
analyses, volume analyses, measures of liquidity gaps and country risk models, impacts of risks on results, economic
risks, stress test simulations and back-testing. Information related to solvency risks includes, among other items,
credit exposure measures, abnormal events, doubtful asset measurements, impacts of solvency risks on our results,
measures of expected loss, stress test simulations, and other information related to economic and market risks.
Qualitative Information. Qualitative information includes internal and external events relating to the economic,
financial or competitive environment, and an evaluation and analysis of the causes and consequences or foreseeable
consequences of such events. These also include measures used to prepare such models.
The frequency with which quantitative and qualitative risk management information is prepared is determined
by the kind of information provided, as follows:
Daily information:
•
liquidity and market risk: includes data on treasury limits (VaR, positions, sensibility of linear and nonlinear books) and the principal changes in the treasury portfolio; and
•
solvency risk: focuses on sharp changes in our business and/or business environment or those that involve
significant variations in the evolution of the business and its environment.
Weekly information:
•
focuses on generating updated high-level information in different segments (focused on solvency risk) or
portfolios (focused on market risk), as well as a summary of the relevant facts and expected short-term
changes;
•
is generated for our senior management, including president and vice presidents of retail, risks and
finance, and an independent member of our board of directors; and
•
is drawn from our risk management framework and policies globally and is validated by local market and
solvency risk areas.
Monthly information:
•
liquidity and market risk: facilitates the analysis of the current situation of different activities, including
structural and interest rate risks; it also includes a detailed analysis of alternative measures and stress
scenarios;
•
solvency risk: facilitates an assessment of the current situation in different segments, compared to the
budgeted situations and an analysis of the causes of deviations; also introduces credit rating with a basis of
analysis;
Monthly information is generally more detailed than weekly information.
Risk Management Committees
71
The following table describes our principal credit and market risk management committees in Brazil, the
responsibilities and members of each such committee and the frequency with which such committees meet.
Committee
Executive Risk
Committee
(focused on
portfolios
management)
Responsibilities
•
•
•
Executive Risk
Committee
(focused on
clients)
•
•
•
•
•
•
Members
Approves the risk tolerance that Chief Executive Officer
will be proposed to the board of Vice Presidents that are members
of the Executive Committee
directors of Santander Brasil;
Monitors portfolios and ensures
compliance with Santander
Brasil’s risk tolerance and
budget; and
Monitors the market to identify
risks and opportunities that
must be managed.
Analyzes and approves credit Vice Presidents for Risk
risks and market operations for Management in Brazil and
Global Wholesale clients and reporting officers
Corporate as well as limits and Invited members:
treasury
products
and Auditors, Compliance officers
restructuring proposals and
payment arrangements.
Applies the Group’s risk
policies locally in a manner
compatible with the objectives
of the business areas;
Handles general issues related
to market risk, cross-border
limits, country risk, global
banking operations, enterprises
and retail clients;
Receives monthly updates on
changes in business and risk
policies that impact net
margins,
gross
margins,
provisions for doubtful accounts
and the plan for credit
management, as well as any
other matters related to risk
management;
Approves credit management
plans; and
Reviews the observations and
recommendations made from
time to time by regulators and
internal and external auditors.
Meeting
Frequency
Monthly
Three times a week
Our executive credit committee makes decisions with regard to risk management in Brazil with representatives
of our senior management, including our Chief Executive Officer, our vice president of risk management and the
other members of our executive committee. The main responsibilities of the executive credit committee include
defining our level of risk tolerance, monitoring our loan portfolios and market conditions as well as any
recommendations made by the Brazilian Central Bank. The executive credit committee also raises any matters to our
board of directors that exceed the authority of the committee. Each of our risk management committees has certain
72
powers and approval levels, in each case subject to Brazilian law and regulations. Decisions at the committee level
are intended to be collegial in a manner to ensure that differing opinions are all considered.
Credit Risk
The Santander Group risk management model is based on prudent risk management and the definition of risk
tolerance by our Executive Board.
We operate within the risk management culture of the Santander Group following the guidelines of our
Executive Board, the Brazilian Central Bank regulations and international best practices, to protect capital and
ensure profitability.
One of our credit risk management principles is independence from our business areas that provides sufficient
autonomy to accomplish an appropriate risk management.
Another characteristic of our credit model is the direct involvement of our senior management in
decision-making through credit committees.
Our credit approval process, particularly the approval of new loans and risk monitoring, is structured according
to our classification of customers and products between our retail and wholesale lending operations.
Retail Lending
In retail banking, credit requests by individuals are analyzed by a credit approval system applying various types
of processes depending on the credit history of the individual and the type of credit requested. For standard credit
requests in amounts less than R$2.0 million with respect to mortgage loans, approval is generally made at our
branches based on an automatic, standardized process. When the customer’s request is submitted for credit approval,
we collect relevant credit information from the customer, including the individual’s profession, level of income,
internal and external financial restrictions, credit history, current indebtedness and relationship with us. Based on
this data and the type of credit requested, our credit rating system automatically assigns a credit rating based on a
scoring model and our risk management policies. We use our scoring models in two different phases: during the
“application” process and later in the “ongoing” phase. A credit scoring model is applied in the application phase
when the customer begins a relationship with us and a behavioral scoring model is used when the customer has
already had a relationship with us for a period established by our risk management policies. This policy allows us to
evaluate our existing customers with a more complete analysis than if we applied a pure scoring model for all
customers.
For financing products offered to SMEs, the credit risk approval process can be based on an automated scoring
system, based on credit policies, and or be manually individually analyzed and approved, based on the
creditworthiness of the SME, in accordance with the respective credit risk approval authority levels as described in
the table below. This preliminary analysis also generates a credit rating based on our internal models. Additional
information, such as the characteristics of the financing product being offered, including related terms and
conditions and collateral granted in connection therewith, is also taken into account as part of the approval process.
Pre-approved limits are granted lines of credit for a particular individual or a SME based on the
creditworthiness and size as determined according to our scoring criteria. Credit approval by our branches is allowed
by authorized personnel according to established parameters. Credit limits are managed based on the performance of
the customer taking into account its risk profile.
Credit authorizations are established through policies that define the rules and responsibilities of the members
of each committee. We have established procedures and authorized certain organizational bodies to approve credit
requests in amounts greater than those delegated to individual branches (both for individuals and SMEs). Such
approvals are made following application of the relevant scoring model and individualized analysis by the relevant
authorized organization body. The following table presents the individuals or organization bodies authorized to
make extensions of credit to retail borrowers for the amounts specified:
Authorization Required
Amount
73
Authorization Required
Branch(1)
Business Committees(2)
Network Committees(3)
Decision centers(4)
Retail Risk Committee(5)
Superior Risk Committee for Retail(6)
Superior Risk Committee(7)
Brazil Executive Risk Committee(8)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Amount
Up to R$2 million
Up to R$2 million
Up to R$4 million
Up to R$8 million
Up to R$15 million
Up to R$60 million
Up to U.S.$70 million
Up to €100 million
For individuals, the maximum value is R$2.0 million for mortgages; for other credit lines, the maximum is R$150,000. For SMEs the
maximum value for credit lines is R$500,000.
Members of Business Committees include a credit risk manager.
Members of Network Committees include a credit risk manager.
Members of the Decision Centers of Risk includes Superintendents and other representatives of the Risk area.
Members of the Retail Risk Committee include a Retail Risk Superintendent and other representatives of the Risk area.
Members of the Superior Risk Committee for Retail include the Retail Risk Director.
Members of the Superior Risk Committee include the Director of Wholesale, Retail Risk Director, Director of Market Risk, Director of
Billing and representatives from each Risk department.
Composed of Santander Brasil’s Chief Executive Officer, Credit Risk Vice President/Brazil, Market Risk Director/Brazil, Risk Officers of
Wholesale, Retail, Recovery and Solvency, and Vice Presidents of Santander Brasil’s Business areas (wholesale and retail).
Wholesale Lending
With respect to our Global Wholesale Banking customers, the approval process is determined for each customer
class and product separately. Credit requests by our GB&M customers, a group of approximately 600 entities, are
approved by the superior risk committee or by the Brazil executive risk committee. Credit requests by our corporate
customers in our Global Wholesale Banking segment (corporations with annual revenues in excess of R$80 million)
must be approved by the relevant credit committees.
Authorization Required
Regional approval committee
Regional Wholesale Risk Committee
Territorial Risk Committee
Superior Risk Committee(1)
Brazil Executive Risk Committee(2)
(1)
(2)
Amount Corporate Customers
(GB&M)
N.A.
N.A.
N.A.
Up to U.S.$40 million
Up to €100 million
Amount Corporate Customers
Up to R$6 million
Up to R$15 million
Up to R$40 million
Up from U.S.$70 million
Up to €100 million
Members of the Superior Risk Committee include, among others, officers of wholesale, retail, market risk, recovery and representatives
from the risk departments.
Composed of Santander Brasil’s Chief Executive Officer, Credit Risk Vice President/Brazil, Market Risk Director/Brazil, Risk Officers of
Wholesale, Retail, Recovery and Solvency, and Vice Presidents of Santander Brasil’s Business areas (wholesale and retail).
Credit Monitoring
Credit lines to retail banking SME customers are reviewed on a weekly basis. Credit lines to retail banking
individual clients are reviewed, systemically, on a daily basis, based on a client’s credit rating. This process allows
for improvements in the credit exposure of customers that have presented good credit quality. Specific early
warnings are automatically generated in the case of the deterioration of a customer’s credit quality. In this case, with
the identification of the client’s solvency problem, a process to reduce credit risk, designed to prevent default, is
implemented. For example, early warnings are automatically generated for SMEs, and their financial performance is
monitored monthly. In addition, the financial situation of each enterprise is discussed by specific committees in the
presence of the commercial area with the aim of continuously improving the quality of our loan portfolio.
Credit lines to Global Wholesale Banking customers and related credit quality are reviewed on an annual basis.
There is a monitoring procedure and for any specific concern in regard of the credit quality of a certain customer, we
use a system of customer monitoring known as FEVE (Firms for Special Vigilance), with possible actions to be
taken under the following categories: “monitor,” “reduce exposure,” “seek collateral” or “cancel.” A customer
subject to action under one of these categories will be reviewed on a quarterly or a semi-annual basis, depending on
the situation.
74
Credit Classifications and Provisioning
We are required to classify our credit transactions at different levels, (AA, A, B, C, D, E, F, G or H) and
recognize provisions according to the level attributed to each such transaction. The classification is based on the
financial condition of the clients the terms and conditions of the transaction and the number of days a transaction is
past due. The levels correspond to one of our own internal risk rating categories, which have been approved by the
Brazilian Central Bank. We classify all transactions with individuals based solely on the number of days past due.
We classify all other transactions at the higher of our own internal risk classification or the risk classification
resulting from the number of days the transaction is past due. Our credit classifications take into account:
•
the conditions of the debtor and any guarantor, such as the debtor’s and/or guarantor’s economic and
financial situation, level of indebtedness, capacity for generating profits, cash flow, administration,
corporate governance and quality of internal controls, payment history, the sector in which such debtor or
guarantor is active, contingencies and credit limits; and
•
characteristics of the transaction, such as its nature and purpose, type, sufficiency and level of liquidity of
collateral and the total amount of the credit.
Our rating and risk management systems are reviewed by both the Brazilian Central Bank and the Santander
Group’s internal auditors. Our management has not had any disputes with the Brazilian Central Bank or the
Santander Group regarding our risk management operations.
The Brazilian Central Bank specifies a minimum provision for each credit transaction rating category.
Therefore, the credit classifications must be reviewed on a monthly basis and each level has a specific allowance
percentage that is applied to it and which we use to calculate our minimum allowance for loan losses, as set forth in
the following table.
Brazilian Central Bank
Classification
(Risk level)
AA
A
B
C
D
E
F
G
H
Minimum
Provision in %
—
0.5
1.0
3.0
10.0
30.0
50.0
70.0
100.0
Days Past Due Classification
(days past due)
None
None
15-30
31-60
61-90
91-120
121-150
151-180
Over 180
Recovery
Our business recovery area is responsible for all of our non-performing portfolios. This area defines,
implements and monitors strategies and performance related to non-performing portfolios, seeking to ensure
maximum efficiency in recovery subject to applicable Brazilian law and regulation.
The business recovery area uses statistical tools to study the behavior of clients and strategize more effective
recovery. Customers with greater probability of payment are classified as low risk customers and those with a low
probability of payment are classified as high risk with collection more intensified.
The channels of operation are defined as Responsibility Map (Mapa de Responsabilidade), using the time value
of default versus risk value, in addition to other characteristics, to create strategies for recovery. Our credit recovery
tools include daily contact through our call center, inclusion of defaulting clients to external sources of credit
75
protection, sending collection letters. In addition, direct contacts through our branch network are also used for credit
recovery. Internal teams specialized in restructuring and debt recovery work directly with loans of higher values
where defaulting clients are overdue by more than 60 days. We use outside agencies and lawyers to recover highrisk loans. These agencies receive a success fee for any amounts recovered.
We often sell non-performing loans in our portfolio. These sales of non-performing loans in our portfolios
happen periodically through an auction process in order to look for better market opportunities.
Executive Financial Committee
Our asset and liability management strategy is defined by the Executive Financial Committee, which operates
under the strict guidelines and procedures established by the Santander Group. Members of the Executive Financial
Committee include our chief executive officer, chief financial officer, treasurer, executive vice president of risk
management, senior vice president of Global Wholesale Banking operations, senior vice president of retail banking,
the head of ALM and our chief economist, among others. The Executive Financial Committee establishes our
funding strategy, structural balance sheet interest rate position and capital management. It uses several risk metrics
to monitor the impact of market conditions, including interest rate margin sensitivities. Other financial committee
activities include the establishment of transfer pricing policies, management of risk-weighted assets and economic
capital exposure, management of local regulatory capital and decision making on capital instrument issuances, each
of which is in line with the Santander Group’s guidelines and limits.
Market Risk
Types of market risk
Interest rate risk
Interest rate risk is the possibility that changes in interest rates could adversely affect the value of a financial
instrument, a portfolio or our operations as a whole. We are exposed to interest rate risk whenever there is a
mismatch between interest rate sensitive assets and liabilities, subject to any hedging we have engaged in using
interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both
our trading and non-trading activities.
Exchange rate risk
Exchange rate risk arises due to the sensitivity of the value of a foreign currency position in relation to a base
currency (in our case, reais) due to a potential change in exchange rates. We are exposed to foreign exchange rate
risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different
currencies, either as a result of trading or in the normal course of business. We maintain non-trading open currency
positions arising from our investments in overseas subsidiaries (such as our Cayman Islands branch), affiliates and
their respective currency funding. Our principal non-trading currency exposure is the U.S. dollar, which, as
mandated by our policies, is hedged to the real within established limits.
Equity price risk
Equity price risk arises due to the sensitivity of the value of an investment position in equity markets to adverse
movements in the market prices or in response to expectations of future dividends. Among other instruments, equity
price risk affects positions in shares, stock market indices and derivatives using shares as the underlying asset (puts,
calls, and equity swaps). We are exposed to equity price risk in both our trading and non-trading investments in
equity securities.
Commodities price risk
Commodities price risk is the risk derived from the effect of potential change in commodity prices. Our
exposure to this risk is not significant and is concentrated in derivative operations involving commodities for clients.
76
Volatility risk
Volatility risk is the sensitivity of the value of a portfolio to changes in the volatility of a number of risk factors,
including volatility of interest rates, exchange rates, share prices and of commodity prices. This risk is applicable to
financial instruments which have volatility as a variable in their valuation model.
Other, more complex, risks to which we may be exposed include:
Correlation risk
Correlation risk is the sensitivity of the value of a portfolio to changes in the relation between risk factors,
whether of the same type (for example, between two exchange rates) or of a different nature (for example, between
an interest rate and the price of a commodity).
Market liquidity risk
Market liquidity risk is that of a Bank entity or the Santander Group as a whole finding itself unable to exit or
close a position in time without affecting the market price or the cost of the transaction. This risk can be caused by a
decrease in the number of market makers or institutional investors, the execution of large volumes of operations,
market instability and increases of the concentration existing in certain products and currencies. Market depth is the
main liquidity driver in our trading portfolio, even though our policy is to trade the most liquid assets. Our liquidity
risk also arises in non-trading activity due to the maturity gap between assets and liabilities mostly in the retail
banking business.
Risk of prepayment or cancellation
In certain transactions the relevant loan agreement allows, explicitly or implicitly, voluntary prepayment prior
to maturity without any penalty, which creates a risk that the cash flows expected from that particular credit line
have to be reinvested at a potentially lower interest rate. This mainly affects loans or mortgage securities.
Underwriting risk
Underwriting risk occurs as a result of participation in underwriting a placement of securities or another type of
debt, assuming the risk of partially owning the issue or the loan due to non-placement of all or any proportion of any
issuance among potential buyers.
Derivatives used in Managing Market Risks
We use derivatives both in trading and non-trading activities to manage market risks. Trading derivatives are
used to eliminate, reduce or modify risk in trading portfolios (interest rate, foreign exchange and equity price risk),
and to provide financial services to customers. Our principal counterparties (in addition to customers) for this
activity are financial institutions and the BM&FBOVESPA. Our principal derivative instruments include interest
rate swaps, interest rate futures, foreign exchange forwards, foreign exchange futures, foreign exchange options,
cross currency swaps, equity index futures and equity options and interest rate options. With respect to non-trading
activity, derivatives are used in order to manage interest rate risks and foreign exchange risks arising from asset and
liability management activity. We also use interest rate and foreign exchange linear derivatives in non-trading
activity. We have no credit derivatives in Brazil, as there is no market for credit derivatives in Brazil.
Activities subject to market risk
Our market risk area is responsible for measuring, controlling and monitoring risk in respect of those operations
where risk to our business arises as a result of changes in market factors. Market risk arises due to changes and
potential volatility in interest rates, exchange rates, share prices and commodities prices, as well as due to liquidity
risk of the various products and markets in which we operate. The following list summarizes the principal market
risks to which we are exposed.
77
On the basis of the origin of the risk to which we are exposed, our activities are classified as follows:
Trading book
The trading book includes financial services to customers and purchase-sale and positioning mainly in fixed
income, equity and currency products. The trading book comprises our proprietary positions in financial instruments
held for resale and/or bought to take advantage of current and/or expected differences between purchase and sale
prices. This portfolio also includes positions in financial instruments deriving from market-making and sales
activities. As a result of trading fixed income securities, equity securities and foreign exchange, we are exposed to
interest rate, equity price and foreign exchange rate risks. We are also exposed to volatility when non-linear
derivatives are used.
Non-trading book (banking/structural)
The non-trading book is constituted of market risks inherent in the balance sheet, excluding the trading
portfolio. These include:
i.
Structural interest rate risk. This arises from mismatches in the maturities and re-pricing of all assets and
liabilities.
ii. Structural exchange rate risk/hedging of results. Exchange rate risk occurs when the currency in which the
investment is made is different from the real in companies or branches that consolidate and those that do
not (structural exchange rate). In addition, exchange rate hedging of future results generated in currencies
other than the real (hedging of results).
iii. Structural equity risk. This involves investments via stakes in financial or non-financial companies that are
not consolidated, as well as portfolios available for sale formed by equity positions.
Market Risk Management Framework
Our board of directors is responsible for establishing our policies, procedures and limits with respect to market
risk, including which businesses to enter into and maintain. The risk committee monitors our overall performance in
light of the risks we assume. Together with the local and global assets and liabilities committees, each market risk
unit measures and monitors our market and liquidity risk and provides figures to the assets and liabilities committees
to use in managing such risks.
Market risk is regulated and controlled through certain policies, set forth in our market and liquidity risk
management policies manual, and through structures setting forth specific limits to our exposure to market risk
which is based on global limits established for the entire Santander Group. In addition, authorized products are listed
and reviewed periodically.
These policies, procedures and limits on market risk are applicable to all units, businesses or portfolios
susceptible to market risk, and rest on five basic pillars, that we believe are vital for correct management of market
risks:
i.
Measurement, analysis and control of market and liquidity risks;
ii.
Calculation, analysis, explanation and conciliation of results;
iii. Defining, capturing, validating and distributing market data;
iv. Admission of limits, products and underlying assets; and
v.
Consolidation of information.
In turn, our market risk management is guided by the following basic principles:
78
i.
Involvement of senior management;
ii.
Independence of the risk function from business;
iii. Clear definition of powers;
iv. Risk measurement;
v.
Limiting risks;
vi. Analysis and control of risk positions;
vii. Establishing risk policies and procedures; and
viii. Assessing risk methodologies.
Structure of Limits Regarding Market Risk
The market risk limit structure represents the Bank’s risk appetite and is aligned with our global market risk
management policies, which encompass all of our business units and serve to:
i.
identify and define the main types of risk incurred in a manner consistent with our business strategy;
ii. quantify and report to our business segments with respect to appropriate risk levels and risk profile in line
with senior management’s assessment of risks to help avoid any of our business segments taking undesired
risks;
iii. provide flexibility to our business segments to timely and efficiently establish risk positions responsive to
market changes and our business strategies, and always within risk levels acceptable to Santander Brasil;
iv. allow the individuals and teams originating new business to take prudent risks that will help attain budgeted
results;
v. establish investment alternatives by limiting equity requirements; and
vi. define the range of products and underlying assets within which each unit of treasury can operate, taking
into consideration our risk modeling and valuation systems and our liquidity tools. This will help to
constrain market risk within our defined risk strategy.
Global market risk management policies define our risk limit structure while the risk committee reviews and
approves such policies. Business managers administer their activities within these limits. The risk limit structure
covers both our trading and non-trading portfolios and includes limits on fixed income instruments, equity securities,
foreign exchange and other derivative instruments.
Limits considered to be global limits refer to the business unit level. To date, system restrictions prevent
intra-day limits. Our business units must comply with approved limits. Potential excesses require a range of actions
carried out by the global market risk function unit including (1) providing risk-reducing suggestions and controls,
which are the result of breaking “alarm” limits and (2) taking executive actions that require risk takers to close out
positions to reduce risk levels.
The market risk limits used by us are established along different metrics intended to cover all activity subject to
market risk from many perspectives, applying criteria we believe to be conservative. The principal limits include:
Trading limits
79
i.
VaR limits;
ii.
Limits of equivalent positions and/or nominal;
iii. Sensitivity limits to interest rates;
iv. Vega limits;
v.
Risk limits of delivery by short positions in securities (fixed income and equities); and
vi. Limits aimed at reducing the volume of effective losses or protecting results already generated during
the period:
•
Loss trigger; and
•
Stop loss.
Structural limits
i.
ii.
Structural interest rate risk of the balance sheet:
•
Sensitivity limit of net interest margin over a one-year period; and
•
Sensitivity limit of market value of equity.
Structural exchange rate risk comprised of the net position in each currency.
iii. Liquidity Risk: limits defined based on several stress scenarios
Market Risk Statistical Tools
Locally, we use a variety of mathematical and statistical models, including VaR models, historical simulations
and stress testing to measure, monitor, report and manage market risk. Such numbers, produced locally, also serve as
input for global activities such as evaluations of RORAC, and to allocate economic capital to various activities in
order to evaluate the RORAC of such activities.
Trading Activity
•
VaR: as calculated by us, our internal VaR model is an estimate of the expected maximum loss in the
market value of a given portfolio over a one-day period at a 99% confidence level, subject to certain
assumptions and limitations discussed below. Our standard methodology is based on historical simulation
of 520 days and is calculated using full revaluation. In order to capture recent market volatility in the
model, the reported VaR is the higher between two different VaR figures, both of which use a historical
window of 520 days. One VaR figure applies an exponential declining factor to give a higher weight for
the most recent observations and the other VaR figure gives the same weight to all observed values. This
methodology makes our VaR numbers react very quickly to changes in current volatility, significantly
reducing the likelihood of back testing exceptions. We use VaR estimates to alert senior management
whenever the statistically estimated losses in our portfolios exceed prudent levels.
Assumptions and limitations: our VaR methodology should be interpreted in light of the limitations
that (1) a one-day period may not fully capture the market risk of positions that cannot be liquidated or
hedged within one day and (2) at present, we compute VaR at the close of business and trading
positions may change substantially during the course of the trading day.
Calibration measures: in order to calibrate our VaR model, we use back testing, which is a
comparative analysis between VaR estimates and the daily clean profit and loss (theoretical result
generated assuming the mark-to-market daily variation of the portfolio considering only the movement
80
of the market variables). The purpose of these tests is to verify and measure the precision of the models
used to calculate VaR.
•
Stressed VaR: our stressed VaR model uses the same calculation methodology as VaR with the following
two exceptions: (1) the stressed VaR uses a window of 250 days, instead of 520 days for the VaR; and
(2) unlike when calculating the VaR the higher between the percentile uniformly weighted and the one
exponentially weighted is not applied. Instead, only the uniformly weighted percentile is used. All the
other aspects regarding the methodology and the inputs for calculating the stressed VaR are the same as
those for the VaR. To determine the period of observation the methodology area has analyzed the history
of the main market risk factors, which were chosen on the basis of expert criteria, and taking into account
the most relevant positions of our portfolio.
•
Stress Test: this is a simulation technique, which consists of estimating the potential impact on results by
applying different stress scenarios to all the trading portfolios and considering the same assumptions
according to the relevant risk factor. These scenarios can replicate events that happened in the past (such
as crisis events) or hypothetical scenarios that do not correspond to past events. These results are analyzed
at least monthly and, along with the VaR provide a fuller spectrum of the risk profile.
•
Sensitivities: our market risk sensitivity measures are those that gauge the change (or sensitivity) of the
market value of an instrument or portfolio to changes in each of the risk factors. The sensitivity of the
value of an instrument to changes in market factors can be obtained through analytical approximations by
partial derivatives or through a full revaluation of the portfolio.
Non-trading Activities
•
Interest rate gap of assets and liabilities: interest rate gap analysis focuses on lags or mismatches between
changes in the value of asset, liability and off-balance sheet items. Gap analysis provides a basic
representation of the balance sheet structure and allows for the detection of interest rate risk by
concentration of maturities. It is also a useful tool for estimating the impact of eventual interest rate
movements on net interest margin or equity. All on- and off-balance sheet items must be broken down by
their flows and analyzed in terms of re-pricing and maturity. In the case of those items that do not have a
contractual maturity, an internal model of analysis is used and estimates are made of their duration and
sensitivity.
•
Net interest margin, or “NIM,” sensitivity: The sensitivity of net interest margin measures the change in
the short- and medium-term in the accruals expected over a 12-month horizon, in response to a shift in the
yield curve. The yield curve is calculated by simulating the net interest margin, both for a scenario of a
shift in the yield curve as well as for the current scenario. The sensitivity is the difference between the
calculation of the two margins.
•
Market value of equity, or “MVE,” sensitivity: Net worth sensitivity measures the interest risk implicit in
net worth (equity) over the entire life of the operation on the basis of the effect that a change in interest
rates has on the current values of financial assets and liabilities. This is an additional measure to the
sensitivity of the net interest margin.
•
Value at risk: The VaR for balance sheet activity and investment portfolios is calculated with the same
standard as for trading and historical simulation, with a confidence level of 99.0% and a time frame of one
day.
•
Analysis of scenarios of stress test: We apply three scenarios for the performance of interest rates: six
standard deviations up and six standard deviations down of risk factors and one abrupt scenario in which
risk factors are increased by 50.0% up and down from current levels. These scenarios are applied to the
balance sheet, obtaining the impact on net worth as well as the projections of net interest revenue for the
year.
•
Liquidity risk: Liquidity risk is associated with our capacity to finance our commitments at reasonable
market prices, as well as to carry out our business plans with stable sources of funding. We permanently
81
monitor maximum gap profiles. The measures used to control liquidity risk are the liquidity gap, stress
scenarios and contingency plans.
o
Liquidity gap: The liquidity gap provides information on contractual and expected cash
inflows and outflows for a certain period of time, for each of the currencies in which we
operate. The gap measures the net need or excess of funds at a particular date and reflects the
level of liquidity maintained under normal market conditions.
o
Analysis of scenarios/contingency plan: The contingency plan includes the local and external
activities and consists of a formal set of preventive and corrective actions taken in times of
liquidity crises. Using analysis of historical scenarios and simulations of impacts on bank
liquidity we define action plans and contingencies to establish roles and responsibilities and
levels to trigger the contingency plan. Each unit should prepare its contingency plan.
Additionally, Santander Spain must be periodically informed about the contingency plan of
each subsidiary. The document can be updated more or less frequently depending on the
market liquidity conditions.
Quantitative Analysis
Trading Activity
Quantitative analysis of daily VaR in 2014
Our risk performance with regard to trading activity in financial markets during 2014, measured by daily VaR
(measured at a 99% of confidence level, over a one day time frame), is shown in the following graph.
During 2014, VaR fluctuated between R$15.7 million and R$71.7 million, its highest rate in recent years. In
comparison, in 2013, VaR fluctuated between R$14.7 million and R$63.1 million. Despite spurts of volatility over
the year, VaR remained relatively stable over most of 2014, with higher levels in June and July due to large interest
rate positions in the short term. As of December 31, 2014, VaR was mainly driven by interest rate positions, with
low level of equity and foreign exchange exposures.
The histogram below shows the distribution of average risk in terms of VaR between 2012 and 2014 where the
accumulation of days with VaR levels between R$20 million and R$35 million can be observed in 79% of the
distribution.
82
VaR by Risk Factor
The minimum, maximum, average and year-end 2014 VaR values by risk factor were as follows:
in Millions of R$
2014
Dec-13
Trading VaR ...............................................................
Diversification Effect ..................................................
Interest Rate VaR........................................................
Equity VaR .................................................................
Foreign Exchange VaR ...............................................
17.41
(23.36)
17.09
8.05
15.63
Low
15.66
(0.63)
14.47
0.75
1.08
Average
32.34
(8.93)
30.95
4.75
5.58
High
71.69
(31.15)
67.60
12.13
23.11
Dec-14
27.38
(1.78)
26.48
0.75
1.92
In 2014, the average VaR was R$32.3 million, with most of the risk due to interest rate positions. We were
relatively conservative in equity and foreign exchange trading activity, but very active in fixed income strategies,
especially due to the elections that occurred in October.
The average VaR of the three main risk factors, interest rates, equity prices and exchange rates, were R$31.0
million, R$4.8 million and R$5.6 million, respectively, with a negative average diversification effect of R$8.9
million. The chart below shows the evolution of the risk groups VaR interest rates (IR), VaR exchange rates (FX)
and VaR equity prices (EQ) (at a 99% confidence level, over a one day time frame and a 15 day moving average).
83
Risk management of structured derivatives
Our structured derivatives activity is mainly focused on designing investment products and managing hedging
risks for clients. Our risk management is focused on ensuring that the net risk exposure is the lowest possible. These
transactions include options on equities, currencies, fixed-income instruments and mostly market making books.
The chart below shows the VaR Vega performance of our structured derivatives business in 2012, 2013 and
2014, which fluctuated around an average of R$2.9 million. In general, the periods with higher VaR Vega levels are
related to episodes of significant increases in market volatility.
84
Scenario analysis
Different stress test scenarios were analyzed during 2014. A correlation break scenario generated the results
presented below.
Worst Case Scenario
The table below shows the maximum daily losses for each risk factor (fixed-income, equities and currencies) as
of December 31, 2014, in a scenario that uses historical volatilities and simulates variations of the risk factors for +/3 and +/-6 standard deviations on a daily basis. From this group of scenarios, we generate a table of stress test
results, which identifies the largest loss per risk factor. The sum of the largest losses of each risk factor is the result
of the Worst Case Scenario, which considers the break of correlation between risk factors.
Exchange Rate
Worst Case Stress Test
Total trading......................................................
Fixed Income
Equity
(in millions of R$)
(99.0)
(2.1)
(1.3)
Total
(102.4)
The stress test shows that the economic loss suffered by the group in the marked-to-market result would be, if
this scenario materialized in the market, R$102.4 million.
Non-trading Activity
Quantitative Analysis of Interest Rate Risk in 2014
Convertible Currencies
At the end of 2014, the sensitivity of net interest margin at one year, to a parallel rise of 100 basis points in the
local yield curve was R$ 490 million.
In addition, at the end of 2014, the sensitivity of net worth to parallel rises of 100 basis points in the yield
curves was R$ 1,846 million in the local currency yield curve.
Structural Gap
The following table shows the managerial gaps between the re-pricing dates of our assets and liabilities in
December 31, 2014 in millions of reais.
Structural Gap
Money Market ................
Loans ..............................
Permanent ......................
Other ...............................
Total Assets ...................
Money Market ................
Deposits ..........................
Equity and Other .............
Total Liabilities .............
Balance Gap ....................
Off-Balance Gap ...........
Total Structural Gap .......
Accumulated Gap .........
Total
0-1
month
207,689
234,161
20,083
156,071
618,003
(194,675)
(191,138)
(232,190)
(618,003)
-
68,561
58,439
90,101
217,101
(140,085)
(124,630)
(100,339)
(365,054)
(147,953)
(44,482)
(192,435)
(192,435)
1-3
months
3-6
months
6-12
months
1-3
years
(in millions of R$)
15,399
8,331 19,574
42,790
25,165
28,886 40,474
46,025
44
23
9
40,608
37,240 60,057
88,815
(1,748)
(4,180) (9,653) (21,217)
(7,185)
(3,714) (9,046) (17,526)
(10,019)
(4,511) (3,211)
(1)
(18,952) (12,404) (21,910) (38,744)
21,656
24,835 38,147
50,071
(1,171)
22,478 19,364
(3,139)
(20,485)
47,313 57,511
46,932
(171,949) (124,636) (67,125) (20,192)
3-5
years
Not
> 5 years Sensitive
20,722 30,275
6,509
10,483 15,150
5,026
20,083
65,892
31,205 45,425
97,510
(16,854) (9,101)
(6,649) (7,101) (15,287)
- (5,092) (113,863)
(23,503) (21,293) (129,150)
7,702 24,132 (31,640)
4,892
2,055
12,594 26,186 (31,640)
(7,598) 18,588 (13,052)
The interest rate risk of our balance sheet management portfolios, measured by the sensitivity of the net margin
to a parallel movement of 100 basis points, increased R$115 million during 2014, reaching a maximum of R$ 601
85
million in May. The sensitivity of the market value decreased R$ 468 million during 2014, reaching a maximum of
R$ 1,846 million in December. The main factors in 2014 that influenced sensitivity were the purchases and sales of
government bonds in the non-trading book.
The following chart shows our NIM and MVE sensitivity during each month in 2014.
Interest Rate Risk Profile at December 31, 2014
The currency gap tables below show the managerial distribution of risk by maturity and currency in Brazil as of
December 31, 2014 in millions of reais.
Total
Gaps in local currency
Money Market ...................
Loans .................................
Permanent ..........................
Others ................................
Total Assets ......................
Money Market ...................
Deposits .............................
Equity and Other ................
Total Liabilities ................
Off-Balance Gap ..............
Gap ....................................
0-1
month
169,036
57,284
197,982
49,630
19,921
77,751
16,724
464,690
123,638
(159,318) (139,632)
(182,618) (118,015)
(122,754) (11,422)
(464,690) (269,069)
510
13,658
510
131,774
Total
Gaps
in
foreign
currency
Money Market ...................
38,653
Loans .................................
36,179
Permanent ..........................
162
78,319
Others ................................
Total Assets ...................... 153,313
Money Market ................... (35,357)
Deposits .............................
(8,520)
Equity and Other ................ (109,436)
Total Liabilities ................ (153,313)
(510)
Off-Balance Gap ..............
(510)
Gap ....................................
1-3
months
15,139
19,479
34,618
(578)
(6,025)
(6,603)
(2,869)
25,146
0-1
month
1-3
months
11,277
8,809
73,377
93,463
(453)
(6,615)
(88,916)
(95,985)
(58,140)
(60,661)
260
5,686
44
5,990
(1,170)
(1,160)
(10,019)
(12,349)
1,698
(4,661)
3-6
months
8,190
18,660
26,850
(1,416)
(3,714)
(5,130)
2,637
24,358
3-6
months
140
10,226
23
10,390
(2,764)
(4,511)
(7,275)
19,841
22,955
86
6-12
months
1-3
years
15,226
29,691
44,916
(4,868)
(8,575)
(13,443)
(11,948)
19,525
37,314
44,841
82,155
(9,022)
(17,336)
(26,358)
(6,054)
49,742
6-12
months
1-3
years
3-5
years
5,476
1,184
6,660
(12,195)
(190)
(1)
(12,386)
2,916
(2,810)
4,769
214
4,983
(14,227)
(74)
(14,301)
1,438
(7,880)
4,348
10,783
9
15,141
(4,785)
(471)
(3,211)
(8,467)
31,312
37,986
3-5
years
>5
years
Not
Sensitive
15,953 15,762
5,016
10,269 15,010
6,344
19,921
61,027
26,222 30,773
92,308
(2,627) (2,583)
(6,575) (7,091) (15,287)
- (5,092) (111,009)
(9,202) (14,746) (126,296)
3,454
1,625
20,475 17,651 (33,989)
Not
> 5 years Sensitive
14,513
139
14,652
(6,537)
(9)
(6,547)
430
8,535
1,493
(1,318)
162
4,866
5,203
(2,854)
(2,854)
2,349
Market Risk: VaR Consolidated Analysis
Our total daily VaR as of December 31, 2014 and December 31, 2013, broken down by trading and structural
(non-trading) portfolios, is set forth below. Our VaR data for trading and non-trading portfolios were summed and
thus does not reflect the diversification effect.
2014
Low
Trading ........................................................................
Non-trading..................................................................
Diversification effect ...................................................
Total ............................................................................
Average
15.6
245.5
261.1
2013
High
Period End
(in millions of R$)
32.3
71.7
451.6
614.4
483.9
686.1
27.4
605.4
632.8
Period End
17.4
539.4
—
556.8
Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk were as set forth
below:
Interest Rate Risk
2014
Low
Average
High
Period End
2013
Period End
(in millions of R$)
Interest rate risk
Trading ........................................................................
Non-trading..................................................................
Diversification effect ...................................................
Total ............................................................................
14.5
245.5
260.0
30.9
451.6
482.5
67.6
614.4
682.0
26.5
605.4
631.9
17.1
539.4
—
556.5
Foreign Exchange Rate Risk
2014
Low
Average
2013
High
Period End
Period End
(in millions of R$)
Exchange rate risk
Trading ................................................................
Non–trading .........................................................
Diversification effect ...........................................
Total ....................................................................
1.1
N.A.
-
5.6
N.A.
-
23.1
N.A.
-
1.9
N.A.
-
1.1
5.6
23.1
1.9
15.6
N.A.
—
15.6
Equity Price Risk
2014
Low
Average
2013
High
Period End
Period End
(in millions of R$)
Equity price risk
Trading ........................................................................
Non–trading .................................................................
Diversification effect ...................................................
0.7
N.A.
-
87
4.8
N.A.
-
12.1
N.A.
-
0.8
N.A.
-
8.0
N.A.
—
2014
0.7
Total ............................................................................
4.8
2013
12.1
0.8
8.0
Our daily VaR estimates by activity were as set forth below:
2014
Low
Average
High
Period End
2013
Period End
(in millions of R$)
Trading
Interest rate risk ...........................................................
Exchange rate risk........................................................
Equity ..........................................................................
Total ............................................................................
Non-trading interest rate
Interest rate ..................................................................
Non-trading foreign exchange .....................................
Exchange rate ..............................................................
Non-trading equity
Equity ..........................................................................
Total ............................................................................
Total (Trading + Non-Trading) ...............................
Interest rate ..................................................................
Exchange rate ..............................................................
Equity ..........................................................................
14.5
1.1
0.7
16.3
30.9
5.6
4.8
41.3
67.6
23.1
12.1
102.8
26.5
1.9
0.8
29.2
17.1
15.6
8.0
40.8
245.5
451.6
614.4
605.4
539.4
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
245.5
261.8
260.0
1.1
0.7
N.A.
451.6
492.9
482.6
5.6
4.8
N.A.
614.4
717.2
682.0
23.1
12.1
N.A.
605.4
634.6
631.9
1.9
0.8
N.A.
539.4
556.5
556.5
15.6
8.0
Operational Risk
Operational risk losses can occur due to inadequate processes, people and systems failures or even from
external events like natural disasters, terrorism, robbery and vandalism.
To accomplish our operational risk objectives, we have adopted the following organizational structure, which is
part of our corporate governance framework:
•
Executive Operational Risk Committee: A senior independent committee with decision-making autonomy,
responsible for contributing to the definition of the strategies and guidelines for the management and
control of operational, technological and business continuity risks;
•
Operational Risk Forum: A independent mid-management level forum, responsible for implementing and
disseminating cultural norms, defining methodologies, standards, policies, tools, training and procedures
applicable and required for the effective and efficient management and control of operational risk; and
•
Non-Financial Risk Unit: Responsible for implementing sound operational and technological risk
management practices throughout the organization. It is also responsible for disseminating our operational
risk culture, defining methodologies, policies, tools, training and applicable procedures and requirements
for the effective management of operational risk and of ensuring there is adequate business contingency
planning in place throughout the organization. The unit assists managerial staff in meeting their strategic
objectives by strengthening the decision-making process and optimizing execution of daily activities.
In 2014, we adapted the structure to be in-line with the Three Lines Defence model, set forth in the ”Principles
for the Sound Management of Operational Risk document (Bank for International Settlements – BIS”) and thus, to
enhance evolution of management and control of operational risk as well as best practices through the creation of a
local framework with: (i) business line management, (ii) an independent corporate operational risk management
function and (iii) an independent review.
88
Objectives
Customer

Contribute to the strategy of the Santander´s risk
management and meet the local and external regulatory
requirements;

Disseminate the Corporate culture for operational risk

Contribute to the objectives and sustain business and
control management, internal control and accountability;
strengthen the Santander image;

Provide inputs and tools to assist the decision-making,
according to Santander risk appetite;

Ensure Santander business continuity and increase
resilience of the Corporation;

Reduce and prevent risks and losses, improving the risk
profile;

Contribute to the improvement of costs efficiency,
assumed events and risks.
Costs
Risk
All the employees has the responsibility to manage the operational risks inherent to its activities
Environmental and Social Risk
We have an environmental and social risk management system for analyzing clients in the Global Wholesale
Banking segment. Under this system, clients with credit limits and/or risk greater than R$1.0 million are screened
for environmental and social concerns, such as contaminated land, illegal deforestation, labor violations and other
major environmental and social issues for which there are potential legal penalties. In 2014, we screened
approximately 1,700 wholesale corporate customers, including about 34 major new projects, both Equator Principles
and non-Equator Principles, for these types of risks. A specialized team with backgrounds in biology, health and
safety engineering, chemistry engineering and geology monitors our customers’ environmental practices. Our
financial analysts assess the damage that unfavorable environmental conditions may cause to our customers’
financial condition and collateral, among other effects. Furthermore, Global Wholesale Banking segment clients,
when starting their commercial relationship with Santander Brasil, are screened for environmental and social
concerns by the new clients’ acceptance area. The social and environmental risk unit uses a software which
optimizes, organizes and standardizes the analysis process, leading to more precise monitoring of clients. Our
monitoring activity focuses on preserving our capital and our reputation in the market. We constantly train our credit
and commercial areas about how to apply environmental and social risk standards in credit approval process for
companies. The areas responsible for hiring any supplier must identify potential environmental risks and
opportunities. Suppliers must comply with standards required by applicable environmental and labor legislation.
89
INDUSTRY
In the last few decades, the Brazilian financial system has experienced significant structural shifts, following the
evolution on the country’s economic environment and developing a solid framework for both legal and financial
supervision.
In recent years, the consolidation of the Brazilian financial sector, with the merger of large banks and the
privatization of state-owned banks, has increased competition in the Brazilian market for banking and financial
services. According to the Brazilian Central Bank, in December 2014 there were 130 universal banks, 22
commercial banks and 14 investment banks, along with several brokers, leasing companies and other financial
institutions operating in Brazil. Between 2012 and 2014, the Brazilian economy grew less than in prior years, while
delinquency rates, inflation and currency depreciation increased. The Brazilian government, in an attempt to foster
economic growth, stimulated the availability of credit through large state-owned banks, sustaining the pace of the
previous years’ credit growth. Such state-owned banks started to offer credit at significantly lower interest rates. The
privately-owned banks followed their lead by reducing the interest rates for their customers, while tightening
customer credit approval policies in an effort to control potential increases in delinquency rates. Due to these
measures, margins and spread were reduced, and credit risk increased.
Currently, there are six financial institutions at the forefront of the Brazilian financial industry in terms of
assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil, Caixa Econômica Federal and BNDES.
Together, these financial institutions accounted for 76% of the credit and 81% of the funding available in the
country in December 2014, according to the Brazilian Central Bank and the financial statements of the
aforementioned banks.
Industry Transformation
Recently, the Brazilian banking industry has tried to adapt to the economic environment of the post-global crisis
world in a transformation process that has brought important changes to the country’s banking model.
One of these changes is a shift to a more conservative product mix. Due to the increase in default rates and the
regulatory changes that increased banks’ capital requirements, the leading banks started to move their credit
portfolio from products with larger spreads (and therefore, increased credit risk) to products with lower risks (and
therefore, lower spreads). The leading banks also attempted to change the composition of their revenue, reducing
revenue derived from financial margins (which are subject to default risks) and increasing revenue derived from fees
(which are not subject to default risks).
Another relevant change is the decrease in banking spreads. The Brazilian government, through the state-owned
banks, induced a reduction in interest rates available on certain products to foster credit demand, which led the
privately-owned banks to compress their spreads to remain competitive.
As a result of the above mentioned changes, there was a significant increase in need for efficiency
improvement, aiming to offset, at least partially, losses resulting from the change in product mix and the decrease in
credit spreads.
Public Sector
Despite privatizations and consolidations in the banking industry, the Brazilian government still controls
commercial banks on the state and federal levels. In addition to its role as a credit supplier (with a 48% market
share) and a deposit taker (with a 52% market share), the public banks also act as regional development agencies,
with a strong position in markets like housing and rural credit.
The three main financial institutions controlled by the federal government are:
•
Banco do Brasil: a full service bank that offers a wide range of products to the public and private sectors.
It’s the main financial agent of the Brazilian government;
90
•
Caixa Econômica Federal: a full service bank, mainly involved in deposit taking, housing credit and urban
infrastructure development; and
•
BNDES: an investment bank that offers credit lines of medium and long-term financing at competitive
interest rates to the private sector, especially the industrial sector. It operates with direct or indirect
financing, through the transfer of resources to other public and private financial institutions.
Private Sector
Following the movements involving the country’s largest private banks, we consider two financial institutions
to be our main competitors: Bradesco and Itaú Unibanco. Both have established brands and distribution capacity
throughout the country, competing in every category of banking activity. Furthermore, we also face competition
from local and regional banks that operate with commercial bank products in specific niches. In the GB&M
segment, our competitors are global financial institutions focused on investment banks services, which fill this role
as a result of their experience in complex and structured operations, as well as their distribution network throughout
Europe, North America and Asia.
Market Share
The following table shows the main players’ market share in 2014:
Santander Brasil
Total Assets1 .................................................
Total Lending2 ..............................................
Total Deposits 2 ............................................
Demand Deposits2 ....................................
Savings Accounts2 ....................................
Time Deposits2 .............................................
Mutual Funds3 ..............................................
Retail3 .......................................................
8.0
8.1
8.0
6.5
5.7
10.2
6.4
8.6
Bradesco
Itaú Unibanco
(In percentage)
11.8
11.5
12.0
13.5
13.9
10.2
18.8
11.3
15.0
13.6
13.5
15.4
16.7
10.4
16.5
13.0
Banco do
Brasil
17.7
22.8
25.0
30.3
22.4
25.5
21.7
39.4
______________________________________________________________________________________
(1)
(2)
(3)
According to the Brazilian Central Bank’s report of the 50 largest banks in Brazil in accordance with Brazilian GAAP (December 2014).
According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2014).
According to ANBIMA (December 2014).
Credit Market in Brazil
There has been a steady increase in credit penetration in Brazil since 2002, but it is still at a level below that of
other developed and emerging markets. However, after a decade where the credit penetration more than doubled
compared to the GDP, the pace of growth slowed in 2013 and 2014.
Total Credit as a percentage of GDP*
91
* Data from 2010 for all countries, except Brazil (2014).
Source: Brazilian Central Bank and IBGE
The Brazilian credit market is based on two types of loans:
•
mandatory or earmarked credit, which is subject to government controlled interest rates and follows rules
for funding and destination defined by law.
•
market-based credit, which is not subject to any constraints regarding interest rates, funding or resource
allocation.
By the end of December 2014, 52.2% of the R$3,022 billion of total credit outstanding in Brazil was marketbased credit, of which 49.8% were loans to individuals and 50.2% were corporate loans.
2014
2013
2012
(in billions of Reais)
3,022
2,715
2,368
1,443
1,207
969
1,579
1,508
1,399
793
763
707
786
745
692
Total Credit Outstanding ........................................................................................
Earmarked Credit .......................................................................................................
Market-Based Credit ..................................................................................................
Corporate ...............................................................................................................
Individuals .............................................................................................................
_________________________
Source: Brazilian Central Bank
Retail Credit
According to the Brazilian Central Bank, the total outstanding market-based credit for individuals increased at
an average annual compounded rate (CAGR) of 9.0% between April 2011 and December 2014, reaching R$785.9
billion or 26.0% of all the loans in Brazil.
The following table shows the changes in the main retail credit products offered to individuals:
2014
2013
2012
Change
between
December 31,
2014 vs.
December 31,
2013
(in billions of R$, except percentages)
Overdraft Accounts ..................................................................
Payroll Loans ...........................................................................
Personal Credit ........................................................................
Credit Card ..............................................................................
Consumer Goods (except Auto)...............................................
Autos........................................................................................
Leasing ....................................................................................
Mortgage Financing (only individuals)....................................
Others ......................................................................................
Total ........................................................................................
23.0
252.0
102.2
41.6
12.0
184.2
3.3
432.5
363.2
1.414.0
21.9
221.9
97.8
36.1
11.4
192.8
7.9
341.5
319.9
1,251.2
20.2
188.9
90.2
34.2
10.5
193.2
17.9
255.4
265.4
1,075.8
5.0%
13.6%
4.5%
15.0%
5.3%
(4.4%)
(58.0%)
26.7%
13.5%
13.0%
_______________________
Source: Brazilian Central Bank
Historically, the costs of market-based loans in Brazil have always been high, due to the lack of competition and
high default rates. A safer and more attractive market-based loan for individuals is the payroll loan. As its payments
are deducted directly from the borrower’s paycheck, it is considerably less risky and therefore has lower interest
rates than unsecured consumer credit and total volume of payroll loans increased 13.6% in 2014. As of December
31, 2014, payroll loans represent approximately 17.8% of the retail credit market in Brazil. As of December 31,
2014, we had 4.5% of the market share in payroll loans, according to the Brazilian Central Bank.
92
The auto financing market has very competitive interest rates and its access to a low-cost source of funding is an
important advantage. Thus, this market has been dominated by the large retail banks, which gradually assumed the
business from the automakers’ lending arms. As this product is secured by the asset being financed, it tends to have
lower default rates than other market-based products. However, in 2012, the default rate of auto financing increased
considerably because of an easing of credit standards—basically long term loans and low down payments—leading
the main competitors into tighten the conditions for granting new credit, such that this market decreased by 4.4% in
2014. As of December 31, 2014, we were the market leaders, with 17.9% of the market share in vehicle financings,
according to the Brazilian Central Bank.
The credit card market has relatively high default rates and, as a result, higher interest rates than other marketbased products. This market is dominated by the large retail banks, operating their own labels associated with
international labels (such as Visa and MasterCard). In May, 2013, the Brazilian Central Bank began to regulate
electronic payment services. It is expected that this supervision will help decrease the risk of electronic transactions
and reduce related costs. As of December 31, 2014, we had 11.3% of the market share in credit cards, according to
the Brazilian Central Bank.
The housing and real estate financing market is still developing in Brazil, after a few decades of stagnation.
According to the Brazilian Central Bank, the ratio of mortgage loans to GDP went from 5.3% in December 2011 to
9.8% in December 2014. The country’s housing deficit (8.53% in 2012, according to IPEA) is gradually decreasing
due to the structural changes in the economy and the government incentives, including:
•
incentives and tax exemptions for civil construction;
•
reduction of default risks for contractors through real estate collateralization;
•
improved safety for home buyers through a special tax regime, which separates the contractors assets from
the construction project’s assets; and
•
simplification and increased enforcement of foreclosure laws.
Housing and real estate financing represent approximately 30.6% of the retail credit market in Brazil according
to the Brazilian Central Bank. As of December 31, 2014, our market share was 4.9%.
Corporate Credit
According to the Brazilian Central Bank, the amount of loans granted to companies has increased at a CAGR of
11.6% between April 2011 and December 2014, reaching R$1,607.7 billion, or 53.2% of the country’s total lending.
The main corporate products are the BNDES loans, which represent 19.7% of the country’s total lending, and
Working Capital Loans, which represent 13.1%.
In the period of high inflation, the supply of long-term credit lines to Brazilian companies were limited, leading
to a low level of corporate leverage in the country. However, according to the Brazilian Central Bank, the amount of
corporate credit increased significantly, from R$186.7 million in December 2000 to R$1.6 billion in December
2014, a CAGR of 16.6%.
Asset Management
According to ANBIMA, the asset management industry in Brazil increased at a CAGR of 13.1% between
January 2008 and September 2014, reaching R$2,557.0 billion of total assets. Retail funds represent 15.1% of this
total, or R$387.0 billion. The largest players in the market are the large financial conglomerates and their main
clients are institutional investors, including pension funds, insurance companies and private banking clients.
The constant evolution of the investment fund industry has encouraged market participants to adopt better
corporate governance practices and increase transparency in the management of investment funds. The industry has
also benefited from macro-economic factors such as:
•
economic stability in Brazil and increased disposable income and savings;
93
•
expansion of the insurance and private pension markets, influenced, in part, by the growth of products,
including private pension plans, whose assets increased the volume of assets under management of the
Brazilian mutual fund industry;
•
improved credit ratings of Brazilian issuers; and
•
increased access to financial products offered over the internet.
94
BUSINESS
History
Santander Group in Brazil
The Santander Group has expanded globally through a number of acquisitions and the integration of the
acquired businesses to achieve synergies.
In 1957, the Santander Group first entered the Brazilian market through an operating agreement with Banco
Intercontinental do Brasil S.A. Since the 1990s, the Santander Group has sought to establish its presence in Latin
America, particularly in Brazil. The Santander Group pursued this strategy through organic growth as well as
acquisitions. In 1997, the Santander Group acquired Banco Geral do Comércio S.A., which subsequently changed its
name to Banco Santander Brasil S.A. In the following year, the Santander Group acquired Banco Noroeste S.A. In
1999, Banco Noroeste was merged into Banco Santander Brasil. In January 2000, the Santander Group acquired
Banco Meridional S.A. (including its subsidiary Banco Bozano, Simonsen S.A.).
In November 2000, the Santander Group acquired Banespa, a bank owned by the State of São Paulo, and
became one of Brazil’s largest financial groups. In 2006, Santander Brasil, consolidated its investments into one
entity, Banco Santander Banespa S.A., which was later renamed Banco Santander (Brasil) S.A. In 2007, the
Santander Group implemented a brand unification program to consolidate its operations in Brazil at such time under
the Santander brand.
On November 1, 2007, RFS Holdings B.V., a consortium comprising Santander Spain, The Royal Bank of
Scotland Group PLC, Fortis SA/NV and Fortis N.V., or “Fortis,” acquired 96.95% of the shares of ABN AMRO
Holding N.V. (and, together with ABN AMRO Bank N.V., “ABN AMRO”), the controlling shareholder of Banco
Real. In the first quarter of 2008, Fortis and Santander Spain reached an agreement whereby Santander Spain
acquired the right to the Brazilian asset management activities of ABN AMRO, which Fortis had acquired as part of
the consortium’s purchase of ABN AMRO. On July 24, 2008, Santander Spain took indirect share control of Banco
Real, which it then incorporated into the Santander Group to consolidate its investments in Brazil. On August 29,
2008, the acquisition by Santander Brasil of Banco Real’s share capital was approved through a share exchange
transaction (incorporação de ações), and Banco Real became a wholly-owned subsidiary of Santander Brasil. On
April 30, 2009, Banco Real was merged into Santander Brasil and Banco Real ceased to exist as a separate legal
entity.
Business Overview
Our business consists of two operating segments: Commercial Banking and Global Wholesale Banking.
The following chart sets forth our operating segments and their main sectors:
Commercial Banking
• Retail banking
Global Wholesale Banking
• GB&M
•
–
Individuals
–
Small and Medium enterprises (“SMEs”)
(annual gross revenues up to R$80 million)
•
Corporate (annual gross revenues in excess of
R$80 million, other than global corporate clients)
•
Consumer finance
•
Asset Management
•
Insurance
95
Proprietary Trading
Commercial Banking
• Capitalization Products
Global Wholesale Banking
In our Commercial Banking segment, we focus on long-term relationships with our individual and corporate
customers (other than global enterprise customers that are serviced by our Global Wholesale Banking segment),
seeking to support all of their financial needs through our credit, banking services, financial products, asset
management and insurance products. We also offer special financing and credit opportunities for corporate
customers pursuing social and environmental improvement programs. Our business model and segmentation allows
us to provide a tailored approach to each client in order to address its specific needs.
Through our Global Wholesale Banking segment, we offer financial services and sophisticated and structured
solutions to our customers, in parallel with our proprietary trading activities. Our wholesale banking business
focuses on servicing local and multinational conglomerates, which we refer to as GB&M customers. Our wholesale
business provides our customers with a wide range of domestic and international services that are specifically
tailored to the needs of each client. Our customers benefit from the global services provided by the Santander
Group’s integrated wholesale banking network and local market expertise. Our proprietary trading desk is under
strict risk control oversight and has consistently shown positive results, even under volatile scenarios.
Our business is strongly committed to sustainability. Our sustainability strategy is based on three pillars
(i) social and financial inclusion, (ii) education, and (iii) sustainable businesses. In 2013, both the Financial Times
and the International Finance Corporation, or IFC, recognized Santander Brasil as the most sustainable bank of the
year in the Americas category.
The following table shows a managerial breakdown of our credit portfolio by client category at the dates
indicated:
Individuals ........................................................................
Consumer finance .............................................................
Small and Medium Enterprises(1) ......................................
Corporations(2) ..................................................................
Total .................................................................................
Change, December 31,
2014 vs. December 31,
As at December 31,
2013
2014 (*)
2013
2012
R$ million
%
(in millions of R$)
78,292.4
75,521.8
71,287.4
2,770.6
3.7%
36,756.1
37,849.2
36,806.1
(1,093.2)
(2.9%)
31,766.9
33,711.6
36,486.6
(1,944.7)
(5.8%)
98,698.6
80,399.8
67,378.6
18,298.8
22.4%
245,513.9
227,482.3
211,958.7
18,031.6
7.9%
__________________
(1)
(2)
Companies with annual gross revenue of up to R$80 million.
Companies with annual gross revenue exceeding R$80 million, including our global corporate clients.
(*) Including R$82 million related to the adjustment of fair value of loans that are hedged, registered under the article 5 of Circular Letter 3,624
of the Brazilian Central Bank, the loan portfolio amounted R$245,596 million.
The following table shows a managerial breakdown of our credit portfolio by type of customer loan at the dates
indicated:
Commercial, financial and Industrial ................................
Real Estate ........................................................................
Individuals ........................................................................
Leasing .............................................................................
Total .................................................................................
Change, December 31,
2014 vs. December 31,
As at December 31,
2013
2014
2013
2012
R$ million
%
(in millions of R$)
122,241.7 107,552.2
99,757.7
14,689.5
13.7%
31,601.5
25,198.8
19,601.2
6,402.7
25.4%
88,296.7
90,587.9
86,857.8
(2,291.2)
(2.5%)
3,374.0
4,143.4
5,742.0
(769.4)
(18.6%)
7.9%
245,513.9 227,482.3
211,958.7
18,031.6
96
Our total loan portfolio increased 7.9% to R$245,514 million as of December 31, 2014, compared to
R$227,482 million as of December 31, 2013. Including R$82 million related to the adjustment of fair value of loans
that are hedged, registered under the article 5 of Circular Letter 3,624 of the Brazilian Central Bank, the loan
portfolio amounted R$245,596 million.
Commercial Banking
Our Commercial Banking business includes products and services for retail customers, enterprises and
corporations (other than global corporate clients who are served by our Global Wholesale Banking segment), our
consumer finance business and our asset management and insurance services.
We serve clients throughout Brazil, primarily through our branch network, which as of December 31, 2014,
consisted of 2,252 branches, 1,160 mini branches (postos de atendimento bancário or “PABs” located at our
corporate customers’ premises), and 14, 856 ATMs.
Retail Banking
Individuals
We have revised our segmentation in order to better align with and serve our customer base and the changing
socioeconomic landscape of Brazil.
The individual segmentation model includes the following categories:
•
Private Banking Business: serves a select group of clients with a minimum of R$3.0 million in assets
available for investment. Our objective is to provide our clients a comprehensive range of financial
products, banking services, tax planning and advisory services related to investments and asset allocation.
•
Santander Select: serves customers who earn more than R$10,000 per month or have investments above
R$200,000. Our objective is to provide a differentiated value proposal focused on advisory services for
asset management. The segment has 85 exclusive agencies and plans to open another 15 during 2015.
•
Santander Van Gogh: serves customers who earn over R$4,000 per month or have investments above
R$40,000. Our objective is to understand the needs of our clients at each stage of their lives and provide
them with financial advice and solutions, such as credit lines or investment alternatives, to meet their
needs; and
•
Santander Individual: customers who earn less than R$4,000 per month. Our business model offers simple
and efficient solutions with options to improve the cost-benefit of the services we provided to these
customers. These services are provided primarily through electronic channels.
Retail Lending
We offer our retail lending products to customers through our extensive branch network and on-site service
units. See “—Distribution Network.”
The following table sets forth our managerial individual customer loan portfolio at the dates indicated:
2014
Leasing/Auto Loans(1) ...........................
Credit cards...........................................
Payroll loans(2) ......................................
Mortgages .............................................
Agricultural Loans ................................
3,228.7
18,340.7
11,342.2
21,318.3
3,383.0
As at December 31,
2013
2012
(in millions of R$)
3,192.8
2,744.3
17,220.7
16,174.4
13,718.5
14,772.0
15,702.0
11,812.4
2,740.1
2,162.9
97
Change, December 31, 2014 vs.
December 31, 2013
R$ million
%
35.9
1,120.0
(2,376.3)
5,616.3
642.9
1.1%
6.5%
(17.3%)
35.8%
23.5%
2014
Personal loans/Other .............................
Total .....................................................
_____________________
(1)
(2)
20,679.4
78,292.4
As at December 31,
2013
2012
(in millions of R$)
22,947.6
23,621.4
75,521.8
71,287.4
Change, December 31, 2014 vs.
December 31, 2013
R$ million
%
(2,268.2)
2,770.6
(9.9%)
3.7%
Including the loans to individuals in the consumer finance segment, the auto loan portfolio totaled R$33,552 million at December 31, 2014,
R$33,732 million at December 31, 2013 and R$32,765 million at December 31, 2012.
Including the Payroll Loan acquired portfolio. Excluding the acquired portfolio, there was a decrease of 13.9% in twelve months.
Payroll Loans
Payroll loans are typical retail products with differentiated methods of payment. Monthly installments are
deducted directly from the customer’s payroll by their employer and then credited to us, significantly reducing our
credit risk. Our customers are typically employees from the public sector, private sector and state pension holders.
On July 30, 2014, we entered into an investment agreement with Banco Bonsucesso S.A, whereby we agreed to
form a partnership to perform activities in the payroll loan and payroll credit card loan segment. On February 10,
2015, all of the closing conditions and typical regulatory approvals were satisfied and, as a result, Banco Bonsucesso
transferred its payroll loan and payroll credit card loan business to the partnership and we subscribed to and paid for
shares of R$460 million in the partnership, representing a 60% interest in the partnership’s capital. Banco
Bonsucesso retains the remaining 40% of the partnership’s capital.
The partnership will be the exclusive vehicle for Banco Bonsucesso S.A. and its subsidiaries to offer payroll
loans in Brazil. We will continue to originate payroll loan transactions independently through our own channels. The
partnership will create a structured external channel and a specialized platform and is aligned with our strategy of
growth in the payroll loan segment.
Credit Cards
We participate in the credit card market, issuing cards from the Visa and MasterCard brands to our customers
(including both account and non-account holders). Our revenues from credit cards include administration fees,
interest on unpaid balances, annuities and withdrawal fees.
The total credit card portfolio in 2014 presented an increase of 6.5% compared to the same period in 2013,
reaching R$18.3 billion. In 2014, our average base of credit card customers increased 7.2% in comparison to 2013,
reaching 6.2 million of active credit cards, and our debit card customer base increased 10.7% from 2013, reaching
41.5 million debit cards.
In 2014, we maintained our partnerships with Vivo, a leading mobile phone operator in Brazil, and the Raízen
group, a Brazilian energy company operating more than 4,700 service stations under the Shell brand.
Merchant Acquiring Market
In 2010, one of the leaders among the independent companies in the Brazilian payment services market,
GetNet, partnered with Santander Brazil, when it began to provide services to the Cards sector of the Bank. On July
31, 2014, we and our controlled company Santander Getnet Serviços para Meios de Pagamento Sociedade Anônima,
or “SGS,” concluded the acquisition of 100% of the voting and total corporate capital of Getnet Tecnologia em
Captura e Processamento de Transações H.U.A.H. S.A. , or “GetNet.” The purchase price was R$1,156 million.
Through this acquisition, we consolidated and strengthened our activities in this growing segment and achieved
greater synergies.
We believe the transaction has helped to reinforce the strategy and the potential growth of our acquiring
business, enabling (a) greater flexibility in managing our clients’ business, especially in terms of the necessary
investments and defining the characteristics of the commercial strategy we plan to adopt; and (b) gains related to
improvements in scale, reduction of costs per transaction and additional synergies expected from the integration of
operational and commercial structures.
98
Additionally, with the consolidation of the vertical business acquired from GetNet, we have adopted a more
complete commercial approach towards our clients’ business and enhance the differentiation of our services, thereby
improving our customer loyalty and retention.
During the second quarter of 2014, we launched Santander ‘Conta Conecta’ to micro entrepreneurs,
independent professionals, individuals or small companies. The product (i) includes the benefits of a current account
service package appropriate for the profile and customer segment and (ii) implements the iZettle card reader, which
allows individuals and small businesses to accept card payments on their smartphones and tablets.
Mortgages
We offer long-term loans to our customers for the purchase of real estate, secured by deeds of trust, which we
consider a strategic product due to its lower risk and tendency to increase customer loyalty. Mortgages were the
credit product with the highest growth in our portfolio in 2014. In addition to financing for individuals, we also offer
credit lines to corporate customers in the real estate construction industry for the financing of up to 80% of the
project cost.
As of December 31, 2014, we had a 6.34% market share in Brazil in terms of amounts outstanding under
mortgage products, according to the Brazilian Central Bank. As of December 31, 2014, our mortgage loans
portfolio, including construction loans, was R$31.6 billion. Within the individual sector, mortgage loans increased
35.8%, reaching R$21.3 billion.
On average, the loan-to-value ratio of our housing loans is 58.8%. We do not offer mortgage loans that do not
meet prime lending standards. That is (i) we do not make any loans for more than 80% of the value of the property
to be purchased; (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll
information and tax returns to confirm their employment or other types of revenue which allows us to evaluate their
credit risk profile; and (iii) payments may not exceed 35% of the borrowers’ monthly income.
Small and Medium Enterprises
Our current SMEs classification model is as follows:
•
Business 3: companies with annual revenue over R$10 million and up to R$80 million. Our focus is to
strengthen relationships with our customers in this segment through a complete and sophisticated range of
products and services, with dedicated and qualified managers, customer service centers, a dedicated line in
the call center, and the support of product experts.
•
Business 2: companies with annual revenue over R$1 million and up to R$10 million. Our focus is to
strengthen relationships with our customers through products and services tailored to the needs of each
client, with emphasis on cash flow management solutions and adequate credit offering; and
•
Business 1: companies with annual revenue up to R$1 million. Our focus is on providing a differentiated
service, integrating financial solutions, both for the business and for its owners, with simplicity and
efficiency for their day-to-day operations, mainly through our merchant acquiring services.
During 2014, we focused on providing our integrated service to our Business 1 clients and expanding product
offerings in the various service channels. The integrated service simplifies all stages of a company, combining
services from both individual and business accounts and brings simplicity to our customers’ day-to-day operations.
For Business 2 customers, we improved the value proposition by focusing on cash management products. Lastly, we
have focused on providing a complete range of Business 3 type banking services.
99
Corporate Lending
The table sets forth our managerial SME loan portfolio at the dates indicated.
2014
Agricultural lending .............................
Working capital loans ..........................
Buyer financing....................................
Vendor financing .................................
Discounted receivables ........................
Comex ..................................................
Overdraft facility..................................
Refinancing ..........................................
Resolution 2,770 ..................................
Account overdraft loans .......................
CDC/leasing(1) ......................................
Other(2)
Total(3) .................................................
173.6
15,108.0
20.9
1.4
1,040.3
740.8
2,780.3
3,494.4
47.3
2,056.5
1,615.1
4,688.1
31,766.9
As at December 31,
2013
2012
(in millions of R$)
167.0
155.4
18,643.1
19,858.3
18.9
29.7
6.3
5.5
779.4
1,175.3
471.4
322.5
3,189.0
3,926.7
2,915.9
3,649.6
13.2
10.3
2,683.0
2,746.2
1,996.8
2,279.4
2,827.6
2,327.7
33,711.6
36,486.6
Change, December 31, 2014 vs.
December 31, 2013
R$ million
%
6.6
(3,535.1)
2.0
(4.9)
260.9
269.4
(408.7)
578.5
34.1
(626.5)
(381.7)
1,860.5
(1,944.7)
4.0%
(19.0%)
10.6%
(77.8%)
33.5%
57.1%
(12.8%)
19.8%
258.3%
(23.4%)
(19.1%)
65.8%
(5.8%)
______________________
(1) Does not include Consumer Finance.
(2) Includes credit cards, mortgage finance products and other products.
(3) Includes small and medium companies with annual gross revenues of up to R$80 million.
Corporate
Our corporate segment is comprised of large companies that have annual gross revenues greater than R$80
million (other than global corporate clients). We focus on fostering a close relationship with our corporate customers
by providing them with customer-tailored services. To that end, we offer a wide range of specialized products and
services that are compatible with the products and services we offer to our GB&M customers. In 2014, our team
comprised 200 bankers and more than 100 product specialists dedicated exclusively to our corporate sector.
Consumer Finance
Aymoré Crédito, Financiamento e Investimento S.A, or “Santander Financiamentos,” is our main channel for
consumer finance with expertise in providing consumer credit directly to borrowers or through intermediate
agencies. Our consumer finance operations are based on four pillars: (i) vehicle financing, (ii) commercial
partnerships (particularly with automakers such as Nissan, Renault, Hyundai and Volvo); (iii) Webmotors (our
online vehicle trading platform); and (iv) consumer credit, which includes opportunities in sectors such as furniture,
tourism, nautical, health and technology, accessibility equipment, renewable energies and cleaner processes, among
others.
As of December 2014, we had over 10,000 business partners, a sales team composed of 1,700 employees
(operators and businesses managers) and 130 branches of Santander Financiamentos throughout Brazil dedicated to
consumer finance.
Asset Management
Since the sale of our asset management operations in 2013 and 2014, we offer asset management services
through Santander Asset Management, or “SAM,” an independent company 50% owned by Santander Group and
50% owned by Warburg Pincus (WP) - General Atlantic. SAM’s global business has presence in eleven countries
around the globe (Brazil, Germany, Argentina, Chile, Mexico, Puerto Rico, Portugal, the United Kingdom, Poland
and Spain) with €167.5 billion in assets under management as of November 30, 2014.
SAM in Brazil has reached BRL 142.1 billion in assets under management as of December 31, 2014 according
to ANBIMA. SAM has gained one position in the ranking to become the 5th largest Brazilian asset manager with a
5.3% market share.
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In 2014, SAM continued to focus on launching products that provide Brazilian investors with access to
international markets. Drawing on its global expertise, SAM locally manages a group of funds that invest in global
equities. We believe that the sale of our asset management business in 2014 allows us to better cater to our
customers’ growing needs for global diversification.
We believe SAM’s rigorous governance, disciplined investment management process, wide range of products
and prudent risk management contributed to the maximum investment grade rating, MQ1, assigned to the asset
management business by Moody’s.
Insurance Brokerage Services
We aim to provide our customers with streamlined and customized products focused on the retail segment. As a
result of the sale of Santander Seguros in 2011, we operate exclusively with insurance products offered by the joint
venture that was formed in connection with the sale of Santander Seguros, particularly in our insurance and private
pension plan portfolio. Taking advantage of the benefits of this alliance, we created an insurance platform leveraged
by a wide range of personal, property and financial insurance products which aims to meet the particular needs of
our different retail segments
We also independently sell automobile insurance policies from the major providers in Brazil, which allows us to
provide a variety of insurance solutions to our customers.
Capitalization Products
Targeted toward medium and large customers, as well as SMEs, capitalization products are savings account
products that generally require customers to deposit a fixed amount with us to be returned at the end of an agreed
upon term, with accrued interest. In addition, the customer is automatically entered into periodic drawings for the
opportunity to win cash prizes. Thus, capitalization products are similar to certificates of deposits, except that, along
with purchasing a product that receives a return on principal, the customer has a chance of receiving cash prizes
during the term of the product based on random drawings.
Our Capitalization Products transactions are carried out through our subsidiary, Santander Capitalização S.A.,
and are focused on bank assurance products.
Global Wholesale Banking
Global Banking & Markets
GB&M is a global business unit that covers those clients that, due to their size and complexity, require tailored
services or high value added wholesale products. In this segment, we provide a wide range of domestic and
international financial services to large Brazilian and multinational companies in parallel to our proprietary trading
activities. Our customers in the GB&M segment benefit from the global structure of services provided by the
Santander Group with its worldwide integrated wholesale banking network and global services solutions, combined
with its local market expertise and provision of integrated services.
In 2014, GB&M focused on its customer relationship model and on building partnerships with other sectors of
Santander Brasil. To do so, it sought to improve the sales of products in the GB&M portfolio to other segments of
the Bank such as corporate, private banking, retail clients and SME customers. In addition, GB&M maintained its
sustainable growth objective, diversifying and distributing our results across Tier II and III clients, increasing active
asset portfolio management, and increasing its operational capacity through investments in process redesigns and
enhancements in technological platforms.
We offer a range of services from core products to highly complex customized solutions in the following key
areas:
•
Global transaction banking, development and management products area and specialized sales such as
cash management, local loans and bank guarantees, trade finance, global custody, securities services,
guarantees (both trade and non-trade) and trade services;
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•
Credit markets, which is responsible for project financing and advising, debt capital markets, acquisition
financing and loan syndication, FI distribution, and asset and capital structuring;
•
Corporate finance, which includes mergers and acquisitions and equity capital markets operations;
•
Equities, which includes cash equities services for individuals and institutional clients, exchange traded
derivatives and equity research;
•
Rates, which is responsible for offering treasury products such as foreign exchange transactions,
derivatives (including equity derivatives), deposits and other financial and structured products; and
•
Market making, which is responsible for the pricing of client deals originated by the sales force from our
corporate, institutional, private banking and retail operations.
Our GB&M team is dedicated to client coverage comprising a range of industries, including
telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural
resources, food, agribusiness and financial institutions.
We are one of the leading banks in capital markets and financial advisory services in the Brazilian and
international markets, as evidenced by the league tables for the industry.
Our mergers and acquisitions team ranked third in the Bloomberg league tables for Brazil in terms of
announced transactions in 2014, compared to eight in 2013, with a total of 24 transactions, which amounted to
U.S.$14.5 billion. In Latin America we ranked eighth in 2014 compared to ninth in 2013.
Our Brazilian equity capital markets division participated as bookrunner in numerous offerings in recent years.
In 2014, we ranked seventh in equity issuances according to Bloomberg, with a total of two transactions, which
amounted to U.S.$400 million.
In 2014, we also played an important role in the international and domestic debt capital markets for Brazilian
issuers. In the international debt capital markets, we consolidated our leadership in euro-denominated issues, by
acting as coordinator in four out of five transactions of this type involving Brazilian issuers in 2014. On a
consolidated basis, we participated in the coordination of sixteen bonds, being seven pure liability management
transactions, totaling U.S.$2.4 billion, representing an increase of 41% over the volume coordinated in 2013. In the
domestic market, we participated in twenty transactions, which raised a total of R$8.11 billion in funding for
companies. Among the long-term fixed income issues, we achieved a 6.7% market share in 2014, ranking sixth in
the relevant ANBIMA rankings.
Our project finance team has advised and structured the most important projects in recent years in several
sectors of the economy. The Santander Group is one of the main players in project finance around the world and is
one of the leaders in the Brazilian market, as evidenced by ANBIMA’s financial advisors ranking in recent years. In
Latin America, and also in the Americas, we are positioned among the top three banks in project finance, according
to Dealogic rankings for 2014.
In 2014, we advised the winners of some of the key auctions organized by the Brazilian National Electric
Energy Agency (“ANEEL”) in the energy sector. We assisted our clients in securing 823MW of capacity, which
makes us the leader in advising clients with regard to the Brazilian wind farm, sector with a market share of 41%.
In 2014, we have also offered, through our structured lending division, and our asset and capital structuring
division, several structured financing solutions, allowing our clients to execute their strategic investment plans.
Similarly, in 2014, we performed strongly in transactions involving the BNDES, as shown by the fact that the
BNDES disbursed R$5.3 billion to our wholesale clients. Further, we achieved a 11.9% of market share and third
place in the BNDES rankings, a stronger position than in 2013 (during which we were fourth).
Through our equities department, we provide advisory and trading execution services to individuals and
institutional investors. We also manage hedge funds throughout Latin America, the United States, Europe and Asia.
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Our equity sales team and traders rely on the proprietary research produced by our in-house research teams to make
equity strategy recommendations.
In the Santander brokerage house division, the recommended strategies performed significantly well during the
year. While the Bovespa index fell 2.91% during the course of 2014, our recommended portfolio reached a positive
return of 12.38% in the same period. Our recommended dividend portfolio is more defensive than traditional
portfolios because it is composed only of companies that combine reliable free cash flow generation, inelastic
demand and revenues indexed to inflation and high payout. In addition, during 2014, the short-term strategies (longs
or shorts) showed an even better performance, achieving a positive return of 54%.
We also offer, through our treasury sales team, foreign exchange products, derivatives and deposits to all of our
clients, including corporate clients in large, middle and small enterprises, institutional investors and individuals. We
have an effective coverage, based on teams, which are specialized in each of these segments, as well as structuring
and products teams that work to create and maintain a portfolio that allows us to offer our customers the most
innovative solutions available in the market.
Our treasury sales team launched several new products during 2014. For our private banking and Santander
Select segments customers, we launched the “COE - Retail Structured Products,” now available in 12 modalities.
The COE or Certificate of Structured Transaction is an investment product the return on which is based on the
variation of an underlying asset (it is also commonly known worldwide as a structured note). In order to ensure
greater flexibility and convenience for our SME customers, we have launched a new call center that SME customers
can access in order to close foreign exchange operations. For the large corporate customers, we made available an
electronic trading platform for currency forward contracts. We have also introduced improvements in the digital
signature process and a new suitability tool for derivatives.
Proprietary Trading
Our proprietary trading division is responsible for the management of our proprietary books and the
establishment of a relevant presence as a leading liquidity provider across local and foreign markets.
Distribution Network
Our distribution network provides integrated financial services and products to our customers through a variety of
channels, including branches and mini-branches (or PABs), ATMs, call centers, Internet and Mobile banking. The
following table presents our principal distribution network at December 31, 2014:
Branches ............................................................................................................................................
PABs ..................................................................................................................................................
ATMs .................................................................................................................................................
At December 31, 2014
2,252
1,160
14,856
Branch Network
Our branch network offers all of our products and services to our customers. As of December 31, 2014, we had a
network of 2,252 full service branches throughout Brazil, 86% of which were concentrated in the Southeast and
South regions. The table below shows the geographic distribution of our network throughout Brazil, as of December
31, 2014.
Central West ..............................................................................
Northeast ...................................................................................
North..........................................................................................
Southeast ...................................................................................
South..........................................................................................
Total(1) .......................................................................................
______________________
(1) Physical location.
103
Branches
100
186
38
1,624
304
2,252
At December 31, 2014
PABs
71
109
36
814
130
1,160
ATMs
607
1,349
324
10,839
1,737
14,856
The following map shows the geographic distribution of our branch network, each region’s share of 2012 GDP
and our market share as of December 31, 2014, according to the Brazilian Central Bank. Market share is calculated
by dividing the number of our branches in the region by the number of branches for all principal banks in such
region:
North: 5.3 % GDP
Market share : 4.0 %
Northeast : 13 .6% GDP
Market share : 5.8 %
Center -West : 9 .8 % GDP
Market share : 6.1 %
Southeast : 5 5 . 2% GDP
Market share : 14.8 %
South: 16. 2% GDP
Market share : 8.3 %
______________________
Source for GDP: IBGE 2012
PABs
We offer daily banking services to our small and medium companies and corporate clients and their employees
through our PABs located on their sites as well as in hospitals and universities. Our PABs are generally exclusive
points of sales at our customers’ sites. We believe that the presence of PABs in the offices of our customers
strengthens our relationship and builds loyalty with those individual customers who benefit from the convenience of
conducting their banking transactions at their workplace.
Client Service Channels
We also distribute our products and services through ATMs, Internet and Mobile Banking and call centers,
which contribute significantly to our product sales and revenue, strengthening customer relationship and satisfaction.
ATMs
We operate an extensive network of 14,856 ATMs, including those located in our branches and PABs. In
addition, our customers have access to the “Banco 24 Horas” network which has more than 18,203 units. Through
this network our customers are able to access their accounts and conduct banking transactions as well as having
access to main products and services offered by us. In 2014 we introduced digital biometrics technology in our
ATMs, allowing customers to make their transactions faster and safer, without need for cards or passwords.
Call Centers
Our call centers are used by our clients for financial advice, banking transactions, products and services request,
such as personal loans.
The following table presents summarized operating statistics for our call centers:
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Number of individual customers (in thousands) .......................
PAS(1) ........................................................................................
Head count ................................................................................
Percentage of using customers per month .................................
Change, December 31,
2014 vs. December 31,
At December 31,
2013
2014
2013
2012
Change
%
2,155
2,333
2,452
(178)
(7.6)%
3,278
3,567
3,563
(289)
(8.1)%
5,194
5,831
5,705
(637)
(10.9)%
24%
25%
28%
(1.5) p.p.
-
______________________
(1) Work stations set up for call center activities.
Internet Banking
Internet Banking enables customers to conduct banking transactions, such as obtaining account information,
handling financial transfers, contracting products and making payments.
The following table presents summarized operating statistics for our Internet banking:
Number of individual customers (in thousands) ......................
Percentage of using customers ................................................
2014
3,098
37%
At December 31,
2013
2012
2,743
2,588
33%
29%
Change, December 31,
2014 vs. December 31,
2013
Change
%
355
13%
4%
-
Technology and Infrastructure
In order to serve our customers effectively, improve our profitability and grow our business, we continuously
invest in new technology and renewal of equipment and infrastructure. We believe that proper management of
technology is key to the efficient management of our business. Our technology platform focuses on our customers
and supports our business model. We operate a modern global technology platform that is interconnected with the
platform of the Santander Group, which allows us to serve our customers on a global scale, under a platform that is
uniquely customer-centered. See “Related Party Transactions—Information Technology Platform.”
In 2014, we opened and concluded the migration of our operation to the new data center located in Campinas,
which we believe to be the largest technology center in Latin America, with 800,000 square-meters. Our objectives
are: (i) maintain our systems with a high security level; (ii) optimize our technology activities; and (iii) operate
efficiently through the best use of energy and natural resources. The data center was designed in order to be an
example of sustainable construction and consumes 87.5% less water and 41.6% less energy than our other data
centers. Our new data center is the only data center in Latin America to have received the maximum classification
level in capacity and availability (Tier IV, with 99.99% availability), within the design and implementation phases,
according to the Up Time Institute.
In 2014, we also launched a new application for smartphones as well as a new internet banking platform, both
of which are more intuitive, focused on our customers’ user experience and outfitted with enhanced usability and
more advanced electronic channels. In addition, we expanded our biometric authentication technology to our offices
nationwide.
In 2010, we initiated a partnership with iZettle, a Swedish mobile payments company, to offer credit and debit
card readers that allow individuals and small businesses to accept card payments on their smartphones and tablets.
On June 3, 2014, the Brazilian Central Bank authorized our capital contribution of R$17 million to iZettle do Brasil
Meios de Pagamento S.A. ("iZettle do Brasil”), which represented 50% of the total share capital of iZettle do Brasil.
On July 31, 2014, we transferred our participation in iZettle do Brasil to SGS through an increase in its corporate
capital.
On October 3, 2014, we entered into an investment agreement with Super Pagamentos Administração de Meios
Eletrônicos Ltda., or “Super”, whereby we agreed to suscribe and pay shares issued by Super in the amount of
R$31.1 million, representing 50% of its total and voting capital. The transaction was approved by the Brazilian
105
Central Bank on December 2, 2014, and closed on December 12, 2014. Pursuant to this transaction, we became the
controlling shareholder of Super. Super is a Brazilian digital service provider that offers online payment accounts,
prepaid cards and access to simplified financial services. The transactions strengthens Santander’s presence in the
electronic payment market.
Communications and Marketing
Our strategy, which emphasizes close and transparent customer relations, has ensured communication and
marketing a vital role in our business. Tools such as advertising, social networks, sponsorships, events and
institutional publications provide opportunities for the promotion of different forms of interaction with our
audiences, each of which has a different purpose. These objectives include the presentation of our activities,
products and services, and the strategies for the promotion of sustainable business.
Marketing
In addition to supporting our business strategy, marketing expresses our corporate position. Our marketing
activities throughout 2014 were based on the slogan: “We have a deal for you. It’s worth listening.” This idea of
Santander Brasil listening to its customers was used as a basis for the introduction of new products and services such
as “Conta Conecta” (a combination of a current account and an iZettle reader) and others already in existence such
as “Contas Combinadas” (“Combined Accounts”), which allows our clients to choose among various types of
accounts according to their profile. We made available a webpage for prospective clients to express their interest in
opening an account. We recorded more than 70,000 requests to open an account over an eight-month period, 12,000
of which were successfully processed, a very positive conversion rate.
Sponsorships and Culture
We were heavily involved in sports marketing in 2014, backing three major Latin American football
tournaments (Copa Libertadores da America, Copa Sulamericana and Recopa), in addition to the Ferrari Formula
One racing team. With regard to cultural investment, we incentivize projects that encourage creativity and
innovation, knowledge transfer, conscientious consumption and entrepreneurism. Among the highlights of the year
are the exhibits “Narrativas Poéticas – Coleção Santander” (a travelling exposition from the Bank´s archives) and
the expositions at Santander Cultural Centre in Porto Alegre by Vik Muniz – “O Tamanho do Mundo”, and the
author Moacyr Scliar – “O Centauro do Bom Fim”.
Communication and Events
We engage with customers, journalists, shareholders and university students via the different platforms
available to us. We utilize social networks to continuously establish dialog in connection with issues of common
interest as a means of increasing the engagement and involvement of the followers of our brand. In accordance with
this strategy, we amassed around 2.5 million fans on Facebook and 139,500 followers on Twitter in 2014. The
Annual Report, drawn up in accordance with Global Reporting Initiative (“GRI”) standards, is another important
communication tool for our different stakeholders. Furthermore, we communicate with interested parties by means
of quarterly market reports, regular meetings with minority shareholders, letters to shareholders, internal
communication channels, an institutional site, a shareholders’ portal, press releases and events.
Sustainability
Santander Brasil’s strategy of sustainability is based on three pillars, aligned with the business strategy of the
Bank and with Brazil’s development priorities: (i) social and financial inclusion; (ii) education; and (iii) socioenvironmental businesses.
Social and Financial Inclusion
Santander Brasil is the largest microcredit private-owned bank in Brazil, based on market participation and
portfolio value, with a total of R$534.8 million in financing in 2014 to more than 130,000 clients. Since 2002, R$2.6
billion in financing was provided to more than 312,000 entrepreneurs served.
106
Our social investment programs promote entrepreneurship, income generation and children, adolescents and
senior citizens’ rights throughout Brazil. The Programa Amigo de Valor, for instance, allows Santander’s employees
and customers to transfer part of their income tax to the Child and Adolescent’s Rights Funds, reinforcing local
social welfare laws. In 2014, this program collected directed R$8.4 million, which has been directed to 42 cities in
Brazil.
Education
Through Santander Universidades is a global program that supports higher education. We are the most active
private institution in the country in this segment, and have partnerships with universities and their value chains
(students, young professionals, teachers and administrative employees). As of December 31, 2014, we had
partnerships with 455 universities and had nearly two million clients.
Since its creation, in 1996, Santander Universidades has granted over 100,000 scholarships. In 2014, one of the
highlights of Santander Universidades was the Prêmios Santander Universidades, which received approximately
20,000 projects, and granted more than R$2.0 million in awards, international scholarships and on-line
entrepreneurship courses.
We also promote the Programa Escola Brasil (PEB), a corporate volunteer program that contributes to the
improvement of public education in schools. PEB is present in 280 partner schools and counts with the participation
of over 7,000 employees, relatives, customers and suppliers.
Socio-environmental Businesses
We offer products, services and programs that promote the development of our customers’ businesses in more
sustainable ways. For individuals, we offer products related to accessibility, renewable energies and cleaner
processes.
We help business customers to reduce their social and environmental impact through (i) reducing water and/or
energy consumption, (ii) adoption of renewable energy sources (iii) enhancement of waste management; (iv)
sustainable construction and renovation; (v) corporate governance. In 2014, socio-environmental business financing
amounted R$2.5 billion, 26% more than 2013, with 8,055 contracts.
Recognition
As a result of our sustainability practices, for the fifth consecutive year, we have been included in the Índice de
Sustentabilidade Empresarial - “ISE”(Business Sustainability Index), of the BM&FBOVESPA. The Bank is also
among the “Global Compact 100,” a stock index comprised of companies committed to the United Nations Global
Compact’s ten principles.
Other recognitions in 2014 included (i) the Beyond Banking Award, received from the Inter-American
Development Bank with the Programa Reduza e Compense CO2 (Reduce and Compensate CO2 Program); (ii) the
5th Annual Responsible Business Awards, granted by Ethical Corporation; (iii) and the first place ranking among
financial institutions of BRICS countries and the top score in the Responsible Lending subcategory, both awarded in
the Banks & Responsible Finance report, which is written by Sustainalytics Consulting.
Socio-environmental Responsibility Policy
In 2014, we developed our a new Social and Environmental Responsibility Policy, which is based on the
guidelines established by the CMN for Brazilian financial institutions. The implementation of this new policy will
take place during 2015, expanding the inclusion of sustainability criteria in the analysis and decision making
processes of the organization.
Intellectual Property
In Brazil, ownership of trademarks can be acquired only through a validly approved registration with the
National Institute of Intellectual Property (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency
107
responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive use
of the trademark throughout Brazil for a ten-year period that can be successively renewed for equally long periods.
The major trademarks we use, including the “Santander” and “Banco Santander” brands, among others, are
owned by the Santander Group. One of the Santander Group’s affiliates granted us a license to use such brands. All
material trademarks for our business are registered or have been submitted to INPI by us or by the Santander Group.
We own the principal domain names used in our business which include:
(1) www.santanderbrasil.com.br;
(2) www.bancosantander.com.br;
(3) www.bsantander.com.br;
(4) www.corretorasantander.com.br;
(5) www.realsantander.com.br; and
(6) www.santander.com.br.
Employees
On December 31, 2014, we had 49,309 full-time, permanent employees. The following table presents the
breakdown of our full-time, permanent employees at the date indicated.
Administrative employees ...................................
Commercial area employees ................................
Total ....................................................................
2014
8,976
40,333
49,309
At December 31,
2013
6,776
42,845
49,621
2012
7,271
46,721
53,992
We provide a competitive benefits package, which contributes to the engagement, attraction and retention of our
employees. To ensure competitiveness, we compare our annual benefit package to market trends. Policies are
developed and offered contemplating the needs of our employees. We also have a policy of providing continuous
training to our employees, allowing them to hone their skills and create a more effective team, committed to the
values of the group.
We have a profit sharing plan with our employees based on predetermined goals for our annual operating and
financial results. As a result, if we meet or exceed certain goals, our employees can share in our financial
performance. For further information on our variable compensation, see “Management—Compensation.”
We also offer our employees a defined contribution pension plan where employees can choose to contribute part
of their wages and to which we can also make contributions on behalf of such employees. This plan provides
retirement benefits and disability and death benefits. SantanderPrevi is the only pension plan currently open for new
membership. Most of our current employees are registered with the SantanderPrevi plan. At December 31, 2014,
42,374 participants were enrolled in that plan, making the total amount under management approximately R$2.3
billion. For additional information on our pension plans, see note 23 of our audited consolidated financial statements
as of and for the year ended December 31, 2014.
The Brazilian Banking Employees’ Union represents most of our employees. In the event of a potential conflict
with our banking employees and/or the banking union, negotiations are conducted by the FENABAN. Each year,
generally in September, all Brazilian banks have a collective negotiation period in which they revise salary
structures. During this period, the Brazilian Banking Employees’ Union negotiates bank employees’ salaries within
the scope of the Brazilian Banking Collective Agreement with the FENABAN. Since the acquisition of our
predecessor banks by our indirect shareholder Santander Spain, we have not suffered significant losses through
strikes and our management believes it has good relations with our employees.
108
Property, Plant and Equipment
We operate four major administrative operational centers, each of which we own. Additionally, we own 430
properties for the activities of our banking network and rent 1,650 properties for the same purpose. Furthermore, in
2013, we concluded the construction of our new data center in Campinas, which also is an owned property. For
further information on the geographic distribution of our branches, see “—Distribution Network—Branch
Network.”
Our headquarters is located at Torre São Paulo, at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 –
Bloco A, Vila Olímpia, São Paulo, SP, Brazil.
Insurance Coverage
We maintain insurance policies that we renew annually in order to protect our assets. All of our branches and
administrative buildings are insured against loss caused by fire, lightning, explosions and other “all risks” policy
coverage. Such coverage establishes reimbursement for the asset replacement value.
We also maintain an insurance policy against third party damages to our properties.
Additionally, we maintain a directors and officers, or “D&O” insurance policy for our management against
third parties complaints regarding management acts. There are insurance policies against crimes, employee
dishonesty and damages arising out of public offerings.
Organizational Structure
Santander Group controls Santander Brasil directly and indirectly through Sterrebeeck B.V., or “Sterrebeeck,”
Grupo Empresarial Santander, S.L., or “GES,” and Santander Insurance Holding, S.L., which are controlled
subsidiaries. As of December 31, 2014, Santander Spain held, directly and indirectly, 88.30% of our voting stock
(not including the shares held by Banco Madesant - Sociedade Unipessoal). See “Principal Stockholders”.
Santander Spain ended December 2014 as the largest bank in the euro zone, with market capitalization, of
€88,041 million. As of December 31, 2014, Santander Spain’s attributable profit totaled €5,816 million, 39.3%
higher than the previous year, and shareholder dividends were €0.60 per share. The Santander Group operates
principally in Spain, the United Kingdom, and other European countries, Brazil and other Latin American countries
and the United States, offering a wide range of financial products. In Latin America, the Santander Group has
majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay.
As of December 31, 2014, Santander Brasil contributed 19.0% of the profit attributable to the Santander Group.
For a detailed description of the name, country of incorporation or residence and proportion of ownership
interest of our main subsidiaries, see note 15 to our consolidated financial statements as of and for the year ended
December 31, 2014.
Legal Proceedings
We are a party to lawsuits and administrative proceedings incidental to the normal course of our business. The
main categories of lawsuits and administrative proceedings to which we are subject include:
•
administrative and judicial actions relating to taxes;
•
administrative and indemnification suits for damages related to consumer rights, in particular with respect
to credit cards, checking accounts, collection and loan disputes;
•
lawsuits involving disputes related to contracts and instruments to which we are a party, including claims
related to breach of contracts and foreign currency indexation;
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•
civil lawsuits mainly from depositors and civil associations, including individual lawsuits and class actions,
challenging monetary adjustments determined by government economic plans instituted to combat inflation
during the 1980’s and 1990’s;
•
lawsuits relating to the privatization of Banespa;
•
class actions involving agreements and settlement of debts with the public sector; and
•
suits brought by employees, former employees, associations and unions relating to alleged labor rights
violations.
In accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, we record provisions for
administrative and judicial proceedings in which we assess the risk of loss to be probable and we do not record
provisions when the risk of loss is possible or remote. In cases where there is ongoing litigation, we record a
provision for our estimate of the probable loss based on historical data for similar claims. In addition, we record
provisions (1) on a case-by-case basis based on the analysis and legal opinion of internal and external counsel and
external auditors or (2) by considering the historical average amount of loss of such category of lawsuits. Due to the
established provisions and the legal opinions provided by our counsel, we believe that any liabilities related to
lawsuits or proceedings to which we are a party, both individually and in the aggregate, will not have a material
adverse effect on our financial condition or results of operations.
As of December 31, 2014, our judicial and administrative proceedings classified as probable loss risk (tax, labor
and civil) and legal obligation amounted to approximately R$18.0 billion and have been provisioned. Our judicial
and administrative proceedings classified as possible loss risk (tax, labor and civil) amounted to approximately
R$13.2 billion.
Tax Litigation
We are a party to several tax-related lawsuits and judicial and administrative proceedings. As of December 31,
2014, our probable loss risk for tax litigation amounted to approximately R$14.2 billion, which has been fully
provisioned and our possible loss risk for tax litigation amounted to approximately R$12.4 billion.
The main lawsuits related to our tax obligations fully provisioned as obligations are:
•
PIS/COFINS. We filed lawsuits seeking to invalidate the provisions of Law 9,718/98, pursuant to which
PIS and COFINS taxes must be levied on all revenues of legal entities. Prior to the enactment of such
provisions, which have been overruled by Supreme Court decisions for non-financial institutions, PIS and
COFINS were levied only on revenues from services and sale of goods. On April 23, 2015, the Supreme
Court issued a decision, applicable solely to Santander Brasil, accepting jurisdiction over the appeal
brought by the Federal Government regarding PIS and rejecting jurisdiction over the appeal brought by the
Federal Prosecution Service related to both PIS and COFINS. The Federal Prosecution Service appealed
against such decision. On May 28, 2015, the Supreme Court has unanimously dismissed the appeal lodged
by the Federal Prosecution Service. As of December 31, 2014, these claims amounted to R$10,502 million,
which are fully provisioned. In light of the recent ruling by the Supreme Court, the provisions related to
COFINS will be fully reverted at the amount of R$4.8 billion after taxes. We will also allocate
complementary provisions in the net amount of R$1.6 billion with the purpose of strengthening our balance
sheet. These accounting effects will be reflected in our financial statements as of June 30, 2015. The
Supreme Court’s final decision in connection with PIS is still pending.
•
Tax rate increase of CSLL. We filed for an injunction to avoid the increase in the Social Contribution on
Net Income (Contribuição Social sobre o Lucro Líquido), or “CSLL,” tax rate established by Law
11,727/2008. Financial institutions were formerly subject to a CSLL tax rate of 9.0%; however, this Law
established a 15.0% CSLL tax rate as from April 2008. Judicial proceedings are pending judgment. As of
December 31, 2014, the amount related to this injunction totaled R$1,466 million, which is fully
provisioned.
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The main judicial and administrative proceedings related to tax obligations which have a probable loss risk
assessment are:
•
Equal tax treatment. We filed a lawsuit challenging the application of an increased CSLL rate of 18.0% for
financial institutions, applicable until 1998, compared to the CSLL rate of 8.0% for non-financial
institutions on the basis of the constitutional principle of equal tax treatment. As of December 31, 2014, the
amount related to this claim totaled R$54 million, which are fully provisioned.
•
Tax on services for financial institutions. Certain municipalities levy Service Tax (Imposto Sobre
Serviços), or “ISS,” on certain revenues derived from transactions not usually classified as the rendering of
services. In such cases, we have argued in administrative and judicial proceedings against the payment of
ISS. As of December 31, 2014, amounts related to these proceedings totaled R$723 million, which are fully
provisioned.
•
Social security contribution. We are involved in administrative and judicial proceedings regarding the
collection of income tax on social security and education allowance contributions as we believe that these
benefits do not constitute salary. As of December 31, 2014, amounts related to these proceedings totaled
R$442 million, which are fully provisioned.
Our main judicial and administrative proceedings related to tax obligations which have a possible loss risk are:
•
Taxes on banking transactions. In May 2003, the Brazilian Federal Revenue Service issued a tax
assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (“DTVM”) and another
tax assessment against Santander Brasil. The tax assessments refer to the collection of a CPMF tax on
transactions conducted by DTVM in the management of its customers’ funds and clearance services
provided by our predecessor to DTVM in 2000, 2001 and 2002. Based on our tax advisors opinion, the
procedures adopted by DTVM were correct. DTVM succeeded in the first instance in its proceeding before
the tax appeals board, but this decision was reversed in the Superior Chamber of Tax Appeals, while
Santander Brasil was found liable for the tax assessment. Both decisions were appealed and the
proceedings are pending final judgment of the respective appeals in a non-appealable proceeding before the
Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais) or “CARF.” As of December 31,
2014, amounts related to these claims are approximately R$629 million each.
•
Losses on loans. We have challenged the tax assessments issued by the Brazilian Federal Revenue Service
claiming that our deduction of losses on loans from our corporate income tax (Imposto de Renda das
Pessoas Jurídicas – IRPJ) and CSLL bases have not met the relevant requirements under applicable law. As
of December 31, 2014, the amount related to this challenge is approximately R$668 million.
•
Social Security Contribution – Profit Sharing Payments (Participação nos Lucros e Resultados), or
“PLR.” We are involved in administrative and judicial proceedings arising from infraction notices with
respect to the collection of social security contributions on profit sharing payments. The tax authorities
claim that payments by us were not made in accordance with law. We have appealed against these charges,
since we consider the tax treatment to be appropriate based on applicable law and the nature of the
payments. As of December 31, 2014, amounts related to these proceedings totaled approximately R$1,099
million.
•
IRPJ and CSLL – Capital Gain. The Brazilian Federal Revenue Service issued a tax assessment against
Santander Seguros (legal successor of ABN AMRO Brasil Dois Participações S.A., or “AAB Dois Par”)
charging income tax and social contribution related to the 2005 tax year. The Brazilian Federal Revenue
Service claims that the capital gain on the sale of Real Seguros S.A. and Real Vida e Previdência S.A. by
AAB Dois Par should be paid at a 34.0% tax rate instead of 15.0%. The assessment was appealed at the
administrative level based on our understanding that the tax treatment adopted in the transaction was in
compliance with tax law and the capital gain was properly taxed. The administrative process is set for trial.
We are responsible for any adverse outcome in this process as a former controller of Zurich Santander
Brasil Seguros e Previdência S.A. As of December 31, 2014, the amount related to this proceeding is
approximately R$246 million.
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•
Goodwill amortization of the acquisition of Banco Real: In October 2014, the Brazilian Revenue Service
issued a tax assessment against the Bank in the amount of R$1,063 million claiming income tax and social
contribution related to the 2009 tax year. The argument of the Brazilian Federal Revenue Service is that the
amortization of goodwill done before our merger with Banco Real cannot be deducted. We have appealed
to the CARF in September 2014 and no decision has been issued yet.
•
Goodwill amortization of the acquisition of Banco Sudameris: In November 2014, we received a tax
assessment of R$196 million related to the deduction of goodwill amortization related to the acquisition of
Banco Sudameris. In December 2012, we received a similar tax assessment in the amount of R$239 million
related to the August 2007 to April 2009 tax years. We have appealed in both cases to the CARF and no
decision has been issued yet.
Refis 2013
In December 2013, the Bank and its affiliates joined a government amnesty program established by Law
12,865/13 (“Refis 2013”). The main lawsuit included in the program was on behalf of Banco ABN AMRO Real,
succeeded by us, claiming the removal of the application of Law 9,718/98 relating to deduction of the reserves of
PIS and COFINS. The referred dispute covered debts of PIS and COFINS generated from September 2006 to April
2009 and had an unfavorable decision in Federal Court. This lawsuit has already been paid in full due to the
inclusion in Refis 2013. The accounting effects of the inclusion of lawsuits in Refis 2013 were registered at the time
of joining the program. As a consequence, contingent tax liabilities were settled in the amount of R$2,054 million,
through payment (R$1,390 million) and conversion of judicial deposits into payments to the Brazilian Government
(R$155 million). The gain recorded in 2014 was R$509.0 million, before taxes.
Refis 2014
In June and November of 2014, we joined another government amnesty program (“Refis 2014”). We have
included several administrative and judicial cases in Refis 2014. The more relevant cases included in Refis 2014
relate to the discussion about the deductibility of tax contingencies and the correct interpretation of Law 8,981/95
and Law 8,541/92 relating to corporate income tax (IRPJ) and social contribution (CSLL). The accounting effects of
the cases included in Refis 2014 were registered at the time of joining the program through the tax payments. The
amount involved was R$412.6 million in the consolidated balance sheet. The effects on an after tax basis were not
material.
Labor Litigation
Similar to many other Brazilian banks, we are party to lawsuits brought by labor unions, associations and
individual employees seeking, in general, compensation for overtime work, lost wages and retiree complaints about
pension benefits and other labor rights. We believe we have either paid or adequately provisioned for all such
potential liabilities. In addition, we are defendants in labor lawsuits filed by third-party employees that rendered or
render services to us through service providers. Brazilian courts understand that if a third-party service provider fails
to pay its employee, the employee has the right to demand payment directly from the company to which it rendered
its services. As of December 31, 2014, our probable risk of loss in labor-related litigation amounted to R$2.0 billion,
which has been provisioned and our possible risk of loss in labor-related litigation amounted to R$0.1 billion.
Former employees of BANESPA: a claim was filed in 1998 by the association of retired Banespa employees
(AFABESP) on behalf of its members, requesting the payment of a half-yearly bonus initially envisaged in the
entity’s Bylaws in the event that the entity obtained a profit and that the distribution of this profit was approved by
the board of directors. The bonus was not paid in 1994 and 1995 since the bank did not make a profit during those
years. Partial payments were made from 1996 to 2000, as agreed upon by the board of directors. The relevant clause
was eliminated in 2001. The Regional Employment Court (Tribunal Regional do Trabalho) ordered the bank to pay
this half-yearly bonus in September 2005 and the bank filed an appeal against the decision at the High Employment
Court (Tribunal Superio do Trabalho), or “TST,” and, subsequently, at the Supreme Federal Court (Supremo
Tribunal Federal), “or STF.” The TST confirmed the judgment against the bank, whereas the STF rejected the
extraordinary appeal filed by the bank in a decision adopted by only one of the Court members, thereby also
upholding the order issued to the bank. This decision was appealed by the bank and the association. Only the appeal
lodged by the bank has been allowed to proceed and will be decided upon by the STF in plenary session.
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Civil Litigation
We are a party to civil lawsuits claiming damages and other civil remedies. These disputes normally fall within
one of the following categories typical for Brazilian banks: (1) actions requesting the review of contractual terms
and conditions or seeking monetary adjustments, including the alleged effects of implementation of certain
economic government plans (as described below); (2) actions arising from loan agreements; (3) execution actions;
and (4) actions seeking damages. As of December 31, 2014, our probable loss risk in connection with civil litigation
liabilities amounted to R$1.8 billion, which has been provisioned in full and our possible loss risk in connection
with civil litigation liabilities amounted to R$0.6 billion. For civil lawsuits considered to be common and similar in
nature, the provisions are recorded based on statistical average previous payments, and on the legal counsel’s
evaluation of success. Provisions for other lawsuits are determined individually on a case-by-case basis.
Economic plans
Like the rest of the banking system, Santander Brazil has been the subject of claims from customers, mostly
depositors, and of class actions brought for a common reason, arising from a series of legislative changes relating to
the calculation of inflation in the 1980’s and 1990’s (“planos economicos”). The claimants considered that their
vested rights had been impaired due to the immediate application of these adjustments. In April 2010, the High
Court of Justice (“STJ”) set the limitation period for these class actions at five years, as claimed by the banks, rather
than twenty years, as sought by the claimants, which we believe should significantly reduce the number of actions
brought and the amounts claimed in this connection. As regards the substance of the matter, the decisions issued to
date have been adverse for the banks, although some proceedings have been brought at the STJ and the Supreme
Federal Court (“STF”) with which the matter is expected to be definitively settled. In August 2010, STJ handed
down a decision finding for the plaintiffs in terms of substance, but excluding one of the “planos” from the claim,
thereby reducing the amount thereof, and once again confirming the five-year statute of limitations period. Shortly
thereafter, the STF issued an injunctive relief order whereby the proceedings in progress in this connection were
stayed until this court issues a final decision on the matter. In spite of the fact that STF initiated judgment in
November 2013, a formal ruling has not been handed down as of the date hereof and we cannot predict as to when a
formal ruling will be handed down by either the STJ or the STF.
Other Litigation
In addition to the matters described above, we are from time to time subject to certain claims and party to
certain legal proceedings incidental to the normal course of our business, including in connection with our lending
activities, relationships with our employees and other commercial or tax matters. In view of the inherent difficulty of
predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages,
or where the cases present novel legal theories, involve a large number of parties or are in the early stages of
discovery, we cannot state with confidence what the eventual outcome of these pending matters will be, what the
timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each
pending matter may be. We believe that we have made adequate provisions related to the costs anticipated to be
incurred in connection with these various claims and legal proceedings and believe that liabilities related to such
claims and proceedings should not have, in the aggregate, a material adverse effect on our business, financial
condition, or results of operations. However, in light of the uncertainties involved in such claims and proceedings,
there is no assurance that the ultimate resolution of these matters will not significantly exceed the provisions
currently accrued by us; as a result, the outcome of a particular matter may be material to our operating results for a
particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of
income for that period.
Contingent liabilities classified as having a remote risk of loss refer to judicial and administrative proceedings
involving other matters assessed by legal counsels as remote losses, which were not accounted for. The main
lawsuits include:
In December 2008, the Brazilian Federal Revenue Service issued an infraction notice against us in the total
amount of R$3.9 billion with respect to IRPJ and CSLL related to 2002 to 2004. The tax authorities assert that
Santander Brasil did not meet the legal requirements for deducting amortization of the goodwill arising from the
acquisition of Banespa. On October 21, 2011, a unanimous decision of CARF was handed down to cancel the tax
assessments corresponding to tax years 2002 to 2004. The Brazilian Federal Revenue Service appealed to the
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Câmara Superior de Recursos Fiscais with respect to the merits but not due to the fine, and the 2002 tax year which
was already being prescribed Because of these two items, the assessment was reduced to R$1.8 billion. In June
2010, the Brazilian Federal Revenue Service issued other infraction notices in the total amount of R$1.4 billion,
based on the same concepts as the previous notice, with respect to IRPJ and CSSL related to 2005 to 2007. In these
cases, the Bank was not granted a favorable decision, and it has been appealed on its merits, though there was a
reduction in the fine of R$367 million, and the assessment was reduced to R$984 million. In December 2013, the
Brazilian Federal Revenue Service issued another infraction notice, in the total amount of R$344 million with
respect to income tax and social contribution related to 2008. The Bank has already appealed. In accordance with the
advice of our external legal counsel, we believe that the Brazilian Federal Revenue Service’s position is incorrect,
and that the risk of loss is remote. Therefore, we did not record any provision since this issue should not have an
impact on our consolidated financial statements.
Taxes on reimbursements arising from contractual guarantees. The Brazilian Federal Revenue Service issued
infraction notices against Santander Brasil with respect to the collection of IRPJ, and CSLL taxes for tax years 2002
to 2006 on amounts reimbursed by the previous controlling shareholder as reimbursement obligations for payments
made by us and our controlled entities as a result of contingent liabilities arising from the activities of our previous
controlling shareholder. The Brazilian Federal Revenue Service deemed the amounts to be “taxable income” rather
than reimbursements. In November 2011, a public hearing was held before CARF and a unanimous decision was
handed down to cancel the tax assessments corresponding to the 2002 tax year. In February 2012, this decision was
declared non-appealable, so there is no potential tax liability related to this claim for the 2002 tax year. In relation to
the 2004 tax year, we received a new favorable decision in the CARF. This resolution can be appealed by the
Brazilian tax administration. Proceedings related to tax years 2003 to 2006 are ongoing. As of December 31, 2014,
amounts related to this infraction were approximately R$150 million. We consider the risk of loss remote.
In addition to the abovementioned proceedings, in June 2013, the Brazilian tax authorities issued an infraction
notice against us as the responsible party liable for the tax on the capital gain allegedly obtained in Brazil by an
entity not resident in Brazil, Sterrebeeck B.V., as a result of the “incorporação de ações” (a shares merger)
transaction carried out in August 2008. As a result of the aforementioned transaction, we acquired all the shares of
Banco Real and AAB Dois Par through the delivery to these entities’ shareholders of shares newly issued through a
capital increase carried out for that purpose. The Brazilian tax authorities take the view that in the aforementioned
transaction, Sterrebeeck B.V. obtained income subject to tax in Brazil consisting of the difference between the
issuance value of our shares that were received and the acquisition cost of the shares delivered in the exchange. We
filed an appeal against the infraction notice at the Federal Tax Office and consider, based on the advice of our
external legal counsel, that the position taken by the Brazilian tax authorities is not correct, that there are arguments
to appeal against the infraction notice and that, as a result, the risk of loss is remote. Consequently, we have not
recognized any provisions in connection with these proceedings.
Grand Cayman Branch
We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander S.A. –
Cayman Islands branch is licensed under The Banks and Trust Companies Law (2013 Revision), or the “Banks and
Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of
Companies in Grand Cayman, Cayman Islands. The branch, therefore, is duly authorized to carry on banking
business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office
and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, Grand Cayman, Cayman
Islands, P.O. Box 10444 - KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.
Our Cayman Islands branch is currently engaged in the business of sourcing funds in the international banking
and capital markets to provide credit lines for us, which are then extended to our customers for working capital and
trade-related financings. It also takes deposits in foreign currency from corporate and individual clients and extends
credit to Brazilian and non-Brazilian clients, mainly to support trade transactions with Brazil. The results of the
operations of the Cayman Islands branch are consolidated in our consolidated financial statements.
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REGULATORY OVERVIEW
The basic institutional framework of the Brazilian financial system was established by Law 4,595, of
December 31, 1964, as amended (the “Banking Reform Law”). The Banking Reform Law created the CMN,
responsible for establishing the general guidelines of the monetary, foreign currency and credit policies as well as
regulating the institutions that are part of the national financial system.
Principal Regulatory Agencies
CMN
The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The CMN is
formed by the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance and is
chaired by the Minister of Finance. Pursuant to the Banking Reform Law, the CMN is authorized to regulate the
credit operations of the Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s
reserves of gold and foreign exchange, to determine Brazilian savings and investment policies and to regulate the
Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this
regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.
Brazilian Central Bank
The Brazilian Central Bank is responsible for the implementation of the CMN policies related to foreign
currency and credit control, regulation of the Brazilian financial institutions, including with respect to the minimum
capital and compulsory deposit requirements, publication of transactions carried out by financial institutions, as well
as their financial information and the monitoring and regulation of foreign investments in Brazil. The Brazilian
Central Bank has committees to address specific issues, including the Monetary Policy Committee, or “Copom,”
which is responsible for establishing monetary policy guidelines and adopting measures to fulfill the inflation targets
defined by the CMN. Copom’s control of inflation targets activities, which include (i) the definition of the target for
the SELIC Rate and (ii) the publication of reports on the Brazilian economic and financial environment and of
projections for the inflation rate.
CVM
The CVM is responsible for the implementation of the policies established by the CMN related to securities,
with the purpose of regulating, developing, controlling and inspecting the securities market and its participants
(companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of
instruments and securities, assets managers, independent auditors, consultants and instruments and securities
analysts).
Self-regulating entities
The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are
divided by field of activity. The self-regulating entities include, among others, the National Association of
Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the
Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA
and the BM&FBOVESPA.
Principal Limitations and Obligations on Financial Institutions
In line with leading international standards of regulation, Brazilian financial institutions are subject to a series
of limitations and obligations. In general such limitations and obligations concern the offering of credit, the
concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the
administration of third party funds and micro-credit. The restrictions and requirements for the banking activities
established by applicable legislation and regulations include the following:
•
no financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In
addition, foreign banks must be expressly authorized by a presidential decree to operate in Brazil.
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•
a financial institution may not hold direct or indirect equity interests in any company located in Brazil or
abroad without prior approval of the Brazilian Central Bank. In addition, the corporate purpose of the
company in which the financial institutions invest shall be complementary or subsidiary to the activities
carried out by the financial institution. The following do not depend on such prior approval: (i) equity
interests typically held in the investment portfolios of investment banks, development banks, development
agencies (agências de fomento) and full-service banks with investment or development portfolios and (ii)
temporary equity interests not registered as permanent assets of the financial institution.
•
financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents
that govern their organization and operation, including but not limited to those related to capital increases,
transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of
the members of the statutory bodies, as well as any corporate restructuring or alteration in the composition
of their equity control.
•
financial institutions must fulfill minimum capital and compulsory deposit requirements, as well as observe
certain operational limits.
•
a financial institution may not own real estate, except for properties it occupies and subject to certain
limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction
of a debt, such property must be sold within one year, unless if otherwise authorized by the Brazilian
Central Bank.
•
financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk
diversification.
•
a financial institution cannot lend more than 25% of its Regulatory Capital (Patrimônio de Referência) to a
single person or group.
•
a financial institution cannot grant loans or advances to companies in which it participates with more than
10% of the company’s capital, to companies that it controls directly or indirectly, and that are subject to
common control of the financial institution in question or to individuals or companies which participate
with more than 10% of the financial institution’s capital. Also, loans or advances may not be granted to the
executive officers, members of the board of directors and/or the fiscal council and to certain members of
the families of such individuals, as well as to companies in which said individuals hold an interest of more
than 10%.
•
the activities of management of third party assets must be segregated from other activities and must observe
the regulations issued by the CVM.
•
the total amount of the funds applied in permanent assets of the financial institutions cannot exceed 50% of
their adjusted stockholders’ equity.
•
financial institutions must comply with anti-money laundering and anti-corruption regulation.
•
financial institutions must implement policies and internal procedures to control their systems of financial,
operating and management information, as well as their conformity to all applicable regulations.
•
financial institutions must implement a policy for remuneration of board members and executive officers
that is compatible with their risk management policies. At least 50% of the variable remuneration must be
paid in stock or instruments based on stock, and at least 40% of the variable remuneration must be deferred
for payment at least 3 years in the future.
•
the Law of Banking Reform and specific regulations enacted by the CMN provides for the imposition of
penalties on financial institutions in certain situations where applicable requirements, controls and
requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial
institution’s authorization to operate if the Brazilian Central Bank identifies at any time, in relation to a
given financial institution: (1) habitual non-performance of the transactions considered to be essential for
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financial institutions; (2) operational inactivity; (3) non-establishment at the address informed to the
Brazilian Central Bank; (4) non-remittance to the Brazilian Central Bank for a period of more than four
months, without acceptable justification, of the consolidated financial statements required by the applicable
regulations; and (5) non-accomplishment of the business plan. The cancellation of an authorization for
operation of a financial institution may only occur upon the establishment and processing of the appropriate
administrative proceeding by the Brazilian Central Bank.
Additionally, being part of the Santander Group and due to the global nature of our organization, we are also
subject to international rules.
Capital Adequacy and Leverage
Current Requirements
The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee
on Banking Supervision (“Basel Committee”) guidelines and other applicable regulations, including the Basel II
Accord (“Basel II”), which was recently implemented in Brazil, and the Basel III Accord (“Basel III”), which
supplements and amends Basel II and is in the process of being implemented. For this purpose, banks provide the
Brazilian Central Bank with the information necessary for it to perform its supervisory functions, which include
supervising the movements in the solvency and the capital adequacy of banks.
The main principle that guides the directives set forth in Basel II and Basel III is that a bank’s own resources
must cover its principal risks, including credit risk, market risk and operational risk.
Brazilian financial institutions are subject to capital measurement and standards based on a weighted risk-asset
ratio. The parameters of this methodology resemble the international framework for minimum capital measurements
adopted by Basel II, except for certain differences (for instance, Basel II requires banks to have a capital to riskweighted assets ratio of at least 8.0%, while Brazilian current rules require minimum capital of 11.0% of risk
weighted assets). Brazilian financial institutions’ regulatory capital is composed of two tiers. Tier I capital is
represented by stockholders’ equity plus certain reserves, earned income and hybrid debt and capital instruments
authorized by the Brazilian Central Bank. Tier II capital is represented by revaluation reserves, contingency
reserves, special profit reserves related to mandatory dividends not yet distributed, preferred cumulative stock,
certain subordinated debt and hybrid instruments and non-realized earnings related to available-for-sale securities
market value adjustments.
Basel III
On December 16, 2010, the Basel Committee issued the Basel III framework which supplements and amends
Basel II. Basel III includes higher minimum capital requirements and new conservation and countercyclical buffers
capital requirements, revised risk-based capital measures, and the introduction of a new leverage ratio and two
liquidity standards. As with other Basel directives, the Basel III framework will not be self-effectuating, but will be
implemented gradually by each country through legislation or regulation to be imposed upon that country’s home
banks. Basel III is currently being implemented in Brazil and its implementation is expected to conclude on January
1, 2022, according to the agreed international timeframe.
The Regulatory Capital will continue to be composed of two tiers.
The Tier I capital will have to reach a minimum index of 6.0%, (according to the schedule established by the
Brazilian Central Bank), divided into two portions: (1) Principal Capital consisting mainly of corporate capital and
profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5%; and (2) Supplementary
Capital (certain reserves, revenue earned and hybrid securities and instruments capital authorized by the Brazilian
Central Bank). To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of
financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of
assets that in certain situations could jeopardize the financial institution’s capital value due to their low liquidity,
dependence on future profits for realization or difficulty of value measurement.
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Current hybrid instruments and subordinated debt approved by the Brazilian Central Bank as additional capital
or Tier II are expected to be maintained if they also comply with requirements introduced by the Basel III, including
the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in
the regulations. The instruments that do not comply with Basel III rules shall be gradually reduced until January
2022.
In accordance with the Basel III standards, the Brazilian Central Bank created the Premium Principal Capital
(Adicional de Capital Principal), which corresponds to the following additional capital requirements (buffers): (1)
conservative (fixed) capital to assist in the absorption of losses; and (2) countercyclical (variable) capital, to deal
with the risks of the macro-economic environment. The conservative and countercyclical capital creates additional
capital reserves to be used in periods of stress. In accordance with CMN regulation, the Brazilian Central Bank is
entitled to establish the percentage of the Premium Principal Capital within certain minimum and maximum limits
previously set forth by the CMN, the final minimum and maximum limits being 2.5% and 5%, respectively, of the
weighted risk-asset ratio. On December 29, 2014, the Brazilian Central Bank established that the amount of the
Premium Principal Capital shall start at 0.625% of the weighted risk-asset ratio as of January 1, 2016, and shall
increase to 1.25% on January 1, 2017, 1.875% on January 1, 2018, and 2.5% on January 1, 2019.
The Basel III minimum capital index will increase from the current 11% to a maximum of 13%. The total index
will be calculated by the sum of two parts: the Regulatory Capital and the Premium Principal Capital (consisting of
the conservative capital and the countercyclical capital).
The Basel III rules also provide for the implementation of a leverage ratio calculated by the division of the Tier
I capital by a bank’s total exposure. In early 2015, the Brazilian Central Bank issued the regulation for calculation
and reporting of the leverage ratio of local financial institutions in line with the Basel III rules which will become
effective in October 2015.
CMN and the Brazilian Central Bank also issued a set of rules in 2015 for the implementation of the Liquidity
Coverage Ratio or “LCR” in Brazil, a short-term liquidity index. The purpose of LCR is to demonstrate that
financial institutions have liquid assets to withstand a stress scenario lasting one month. According to the recently
enacted rules, the largest Brazilian banks shall maintain a LCR of at least 60% as from October 2015. This ratio will
increase 10% annually, until it reaches 100% in 2019.
In accordance with the international “phase-in” schedule for implementaiton of Basel III, the Brazilian Central
Bank shall also establish a long-term liquidity index aiming to further control banks’ cash position during 2015.
The following table presents an estimate of the implementation schedule of the main changes related to capital
adequacy and leverage expected as a result of Basel III, as established by the Brazilian Central Bank:
Parameters
Common Equity.............................
Tier I ..............................................
Regulatory Capital .........................
Conservative Capital......................
Countercyclical Capital .................
2013
2014
2015
2016
2017
2018
As from
2019
4.5%
5.5%
11.0%
-
4.5%
5.5%
11.0%
up to
0.6%
4.5%
6.0%
11.0%
up to
1.3%
4.5%
6.0%
9.9%
0.6%
up to
1.9%
4.5%
6.0%
9.3%
1.3%
up to
2.5%
4.5%
6.0%
8.6%
1.9%
up to
2.5%
4.5%
6.0%
8.0%
2.5%
Up to
2.5%
-
In addition, in order to enable the implementation of the Basel III framework in Brazil certain legislative
changes were made. Among others, Law No 12,838 enacted on July 9, 2013 granted powers to the Brazilian Central
Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential
capital requirements defined by the CMN.
Consolidated Enterprise Level (conglomerado prudencial)
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Since January 2014, financial institutions must submit to the Brazilian Central Bank, with monthly and semiannual periodicity, consolidated financial statements based on the “consolidated enterprise level” (conglomerado
prudencial) of which the financial institution is a member, which serves as the basis for calculation of the required
regulatory capital of the Brazilian institutions. The concept of “consolidated enterprise level” (conglomerado
prudencial) includes the data relative to the financial institutions and other institutions authorized to operate by the
Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including
real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific
purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have as
their exclusive business purpose the equity participation in the mentioned entities.
Compulsory Reserve Requirements
Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial
institutions must deposit these reserves with the Brazilian Central Bank. BACEN uses such reserve requirements as
a mechanism to control the liquidity of the Brazilian financial system. Reserves imposed on time deposits, demand
deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian
Central Bank.
Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 20.0% in relation to time
deposits. Financial institutions must deposit an amount equivalent to the surplus of (1) R$3 billion for financial
institutions with consolidated Tier 1 capital under R$2 billion; (2) R$2 billion for financial institutions with
consolidated Tier 1 capital between R$2 billion and R$5 billion; (3) R$1 billion for financial institutions with
consolidated Tier 1 capital between R$5 billion and R$15 billion; and (4) zero for financial institutions with
Regulatory Capital higher than R$15 billion.
Demand Deposits. As a general rule the Brazilian Central Bank imposes a reserve requirement of 45% in
relation to demand deposits.
Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to savings
deposits, except for rural savings deposits in connection with which the reserve requirement is 13%. In addition, a
minimum of 65.0% of the total amount of deposits in savings accounts must be used to finance the housing sector.
Additional Reserve Requirements. The Brazilian Central Bank also stipulates an additional reserve requirement
on deposits raised by full service banks, investment banks, commercial banks, development banks, finance, credit
and investment companies, real estate credit companies and savings and loan associations. These institutions are
required to deposit on a weekly basis the total sum of the following amounts: (1) 11% of the mathematical average
of funds from time deposits and other specific amount subject to the reserve requirement; and (2) 10% of the
mathematical average of funds from savings accounts subject to the reserve requirement. These amounts must be
discounted by: (1) R$3 billion for financial institutions with consolidated Tier 1 capital under R$2 billion; (2) R$2
billion for financial institutions with consolidated Tier 1 capital between R$2 billion and R$5 billion; (3) R$1 billion
for financial institutions with consolidated Tier 1 capital between R$5 billion and R$15 billion, and (4) zero for
financial institutions with Regulatory Capital higher than R$15 billion. At the close of each day, the balance of such
account should be equivalent to 100% of the additional reserve requirement.
On May 28, 2015, the Brazilian Central Bank enacted new rules on compulsory reserve requirements which will
become effective in June 2015. According to the new rules, the reserve requirement in relation to time deposits will
increase from 20.0% to 25.0%. The reserve requirement in relation to savings deposits will increase from 20% to
24.5% (18% of this requirement can be fulfilled through mortgage loans), except for rural savings deposits in
connection with which the reserve requirement will increase from 13% to 15.5%. Moreover, the additional reserve
requirement mentioned in item (2) of the paragraph above will decrease from 10.0% to 5.5%.
New Rules for Real Estate Credit and Rural Credit
On May 28, 2015, the CMN and the Brazilian Central Bank enacted new rules regarding real estate credit. New
conditions were established for issuance of LCI (Real Estate Credit Notes) and LCA (Agribusiness Credit Notes),
including a new minimum 90-day term for redemption of these notes. In addition, the rules related to the allocation
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of deposits in savings accounts to the housing sector were changed, restricting the type of real estate investments
than the banks can make in order to comply with the allocation requirement.
On June 2, 2015, the CMN enacted a new Resolution establishing a mandatory allocation to rural credit
transactions of funds raised by financial institutions through LCAs, whenever the LCAs are backed by credit rights
derived from rural loans funded with demand deposit funds or rural savings deposit funds. The minimum mandatory
allocation will be of 50% for LCAs issued between June 2, 2015 and May 31, 2016. For LCAs issued as of June 1,
2016, the minimum mandatory allocation will be of 100%. In order to comply with this mandatory allocation, the
financial institutions are also allowed to allocate part of such funds, up to 50%, to finance the trading, processing
and industrialization of agricultural products and inputs used in this activity.
Asset Composition Requirements
Permanent assets (defined as property and equipment other than commercial leasing operations, unconsolidated
investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net
equity, calculated in accordance with the criteria established by the Brazilian Central Bank.
The Brazilian financial institutions may not have more than 25.0% of their Regulatory Capital allocated to
credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or
representing the same economic interest. In addition, the Brazilian financial institutions must comply with an
exposure limit of 25.0% of their Regulatory Capital in connection with underwriting for or investments in securities
of the same entity, its affiliates, controlled or controlling companies. Repurchase transactions executed in Brazil are
subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance
with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount
of up to thirty times its Regulatory Capital. Within that limit, repurchase transactions involving private securities
may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by
Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the
perceived risk of the issuer as established by the Brazilian Central Bank.
The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities
and derivative financial instruments—including government securities—owned by financial institutions, based on
the investment strategy of the financial institution, determined that securities and derivatives are to be classified into
three categories: (1) trading; (2) available for sale; and (3) held to maturity.
“Trading” and “available for sale” securities are to be marked-to-market with effects in income and
stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost.
Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market
value of the derivatives are generally recognized in income with certain modifications, if these are designated as
hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and
derivatives in the “held to maturity” portfolio may be hedged for accounting purposes, but their increase or decrease
in value derived from the marked-to-market accounting method should not be taken into account.
Brazilian Payment and Settlement System
The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of
International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema Brasileiro
de Pagamentos e Compensação, the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with
securities) have the power to regulate and supervise this system. SPB is composed by the systems of clearing of
checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets,
clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in
commodities and futures, and others, collectively designated Financial Market Infrastructures, or “IMF”, as well as
the payment arrangements and institutions.
Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System (STR) and the
Special Settlement and Custody System (SELIC). STR is a system of transfer of funds with real-time gross
settlement, which means that transfers are made at the processing time, one by one, and subject to the existence of
outstanding balance in the account. STR is comprised of financial institutions, clearing and settlement houses and
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the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the
National Treasury Office as well as for the registration and settlement of transactions involving such securities.
The interbank transfers of funds are not only settled by STR but also by the Funds Transfer System (Sitraf), the
Deferred Settlement System for Interbank Credit Orders (Siloc) and the Centralizer Clearance for Checks (Compe),
which are also part of SPB.
Treatment of Overdue Debts
The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their
level of credit risk—as one of AA, A, B, C, D, E, F, G or H—and make provisions according to the level attributed
to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to
time by the Brazilian Central Bank, relating to the condition of the debtor and the guarantor and the transaction
terms. Where there are several credit transactions involving the same customer, economic group or group of
companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or
group which represents the greatest credit risk to the financial institution.
Credit transactions of up to R$50 thousand may be classified either by the financial institution’s own evaluation
method or according to the number of days such transaction is past due, whichever is the more stringent.
Credit classifications are required to be reviewed:
•
monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance
with the maximum risk classifications;
•
every six months, in the case of transactions involving the same customer, economic group or group of
companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in
question; and
•
once every twelve months, in all circumstances, except in the case of credit transactions with a customer
whose total liability is lower than R$50 thousand, the classification of which may be reviewed as provided
in above. Such R$50 thousand limit may be amended by the Brazilian Central Bank from time to time.
Credit loss provisions must be made monthly by each financial institution as follows:
Classification AA
Provision %
0%
Delay (in days) 0
A
0.5%
1 to 14
B
1.0%
15 to 30
C
3.0%
31 to 60
D
10.0%
61 to 90
E
30.0%
91 to 120
F
G
H
50.0%
70.0%
100.0%
121 to 150 151 to 180 More than
180
Failure to comply with the requirements established by the Brazilian Central Bank will result in the
reclassification of any transaction to risk level H.
The allowances for credit losses reflected in our IFRS consolidated financial statements are not based on the
above criteria but rather on the criteria described under “ Management’s Discussion And Analysis Of Financial
Condition And Results Of Operations—Critical Accounting Policies.”
Credit Performance Information – Positive Registration
Brazilian law regulates databases containing credit performance information of individuals and legal entities.
Dissemination of information from these databases is conditioned on an express request or authorization of the
financial institution’s clients.
Rules about the Collection of Bank Fees
The collection of bank fees and commissions is extensively regulated. According to these rules, bank services to
individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special
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services; and (iv) specific or differentiated services. Banks are not allowed to collect fees in exchange for supplying
essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying
ten checks per month to accountholders who meet the requirements to use checks, as per the applicable rules;
(iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank);
(iv) allowing up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM
terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through
ATM terminals; (vi) furnishing inquiries over the internet; (vii) allowing up to two transfers of funds between
accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing
checks and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the
preceding year with regard to checking accounts and savings accounts.
Certain services rendered to individuals with regard to savings accounts also fall under the category of essential
services and, therefore, are exempt from the payment of fees. CMN Resolution 3,919 prohibits banks from
collecting fees for supplying essential services in connection with deposit and savings accounts where clients agree
to access and use their accounts by electronic means only. In the case of these exclusively electronic deposit and
savings accounts, banks are only authorized to collect fees for supplying essential services when the client
voluntarily elects to obtain personal service at the banks’ branches or client service locations.
Priority services rendered to individuals with regard to checking accounts, transfers of funds, credit
transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of
foreign currency in respect of international travel and records are subject to the collection of fees by the financial
institutions only if the service and its nomenclature are listed in the regulations. Commercial banks must also offer
to their individual clients the option of adhering to a “standardized package” of priority services, whose content is
defined, as well as the option to acquire individual services, instead of adhering to the package.
The collection of fees in exchange for the supply of special services, including, among others, services relating
to rural credit, currency exchange market and on-lending of funds from the real estate financial system, are still
governed by specific provisions found in the laws and regulations relating to such services. The regulation
authorizes financial institutions to collect fees for the performance of specific services, provided that the user is
informed of the conditions for use and payment or the fee and charging methods are defined in the user’s contract.
Some of the specific services include, among others (i) approval of signatures; (ii) management of investment funds;
(iii) rental of safe deposit boxes; (iv) courier services; (v) custody and brokerage services; (vi) endorsement of
clients debts (guarantee); and (vii) foreign currency exchange.
Other changes included in such regulation are: (i) prohibition from charging fees for amending adhesion
contracts, except in the case of asset replacement in leasing transactions and early liquidation or amortization,
cancelation or termination; (ii) prohibition from including services related to credit cards and other services not
subject to fees in service packages that include priority, special or differentiated services; (iii) subscription to service
packages must be through a separate contract; (iv) information given to the customer with respect to a service
package must include the value of each service included in the package, the number of times that each service may
be utilized per month, and the total price of the package; (v) a customer’s annual banking statement must separately
identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) registration fees
cannot be cumulatively charged; and (vii) overdraft fees can be charged, at most, once during any 30 day period.
In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank
account only if there are sufficient funds to cover such debits in such account thus forbidding overdrafts caused by
the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of
fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to
priority services and the “standardized package” can be increased only after 180 days from the date of the last
increase (except if related to credit card services, when a minimum of 365 days’ notice is required) (whereas
reductions can take place at any time).
Credit Cards
Banking regulations also have specific rules related to the charges of credit card fees, as well as publication of
information in the card invoices and the obligation to provide a package of basic services upon offering credit cards
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to their clients. Credit card holders must pay at least 15% of the outstanding credit card balances monthly, except for
credit cards whose payment is directly deducted from payroll.
Payment Agents and Payment Arrangements
In 2013, a legal and regulatory framework for the payment industry was established in Brazil, pursuant to which
the CMN and the Brazilian Central Bank now have powers to regulate payment mechanisms, players and
transactions.
The regulation issued by the Brazilian Central Bank, which became effective on May 5, 2014, establishes,
among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that
should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization,
authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian
Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and
(v) rules related to payment accounts, which are divided into prepaid and post-paid accounts and require the
allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in
government bonds.
Portability of Credit Transactions
In 2013, the Brazilian Central Bank regulated the possibility of financial institutions’ customers transferring
their credit transactions from one institution to another. The regulation, which became effective on May 5, 2014,
establishes specific rules for such transfers, including, among others, prohibiting the amount and contracts term of
the financial institution receiving the transaction from being higher than the amount and contractual terms of the
original financial institution. Amending the interest fee on the transaction is permitted.
Anti-Money Laundering Regulations
Brazilian anti-money laundering laws establish that it is a crime to conceal or dissimulate the nature, origin,
location, disposal, movement or ownership of assets, rights or valuables deriving directly or indirectly from a
criminal violation, as well as their use in economic or financial activity and the participation in a group, association
or office while being aware that its principal or secondary activities is directed towards the practice of such acts.
Brazilian anti-money laundering laws also created the Council of Control of Financial Activities (Conselho de
Controle de Atividades Financeiras), or “COAF,” which operates under the Ministry of Finance. The purpose of the
COAF is to investigate, examine, identify and impose administrative penalties in respect of, any suspicious or
unlawful activities related to money laundering in Brazil. The COAF is composed of a president nominated by the
Ministry of Finance and appointed by the President and eight members of the council, one of whom is appointed by
each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the Ministry of Foreign Affairs;
(iv) the SUSEP; (v) the Brazilian Federal Revenue Service; (vi) the Office of the Attorney-General of the National
Treasury; (vii) the Federal Police Department; and (viii) the Federal Intelligence Agency. The term of office of each
of the president and the other members of the council is three years.
Brazilian anti-money laundering legislation establishes that financial institutions must, among others:
•
keep up-to-date records regarding their permanent customers (including registration data, statements of
purpose and nature of transactions, their financial capacity, as well as the verification of characterization of
customers as politically-exposed individuals);
•
adopt preventive and internal policies, proceedings and controls;
•
record transactions involving Brazilian and foreign currency, securities, metals or any other asset which
may be converted into money, including specific registries of issuances or recharging of prepaid cards;
•
keep records of transactions or groups of turnover of funds carried out by individuals or entities belonging
to the same group or financial conglomerate in a total amount that exceeds R$10,000 in a calendar month
or which reveal a pattern of activity that suggests a scheme to avoid identification, control and registration;
123
•
review transactions or proposals the features of which may indicate criminal intentions;
•
keep records of every transfer of funds related to, among others (a) deposits, wire transfers and checks, and
(b) the issuance of checks and order of payments, in amounts that exceed R$1 thousand; and
•
notify the relevant authority within time frames ranging from one business day from a proposed transaction
to five business days from the end of the calendar month of any transaction that is considered suspect by
the financial institution.
The financial institutions must inform COAF in the manner established by the Brazilian Central Bank upon
occurrence of any of the following transactions (or proposal thereof):
•
transactions carried out or services provided, which amount is equal to or greater than R$10,000 and that,
considering the parties involved, the amounts, the forms of conduction, the instrument used or the lack of
economic or legal bases, could characterize the existence of evidence of the crimes provided for in
Brazilian anti-money laundering laws;
•
the transactions carried out or the services rendered that, based on their frequency, amount or form, could
be aimed at deceiving the identification, control and record mechanisms;
•
the transactions carried out or the services rendered, regardless of their amount, the persons that
recognizably have perpetrated or attempted to perpetrate terrorist acts or participated in them or facilitated
their practice, as well as the existence of funds that belong or are directly or indirectly controlled by them
or by entities that belong or are directly or indirectly controlled by such persons, as well as by persons and
entities acting in their behalf or under their command; and
•
any acts that are believed to be financing terrorism.
These communications must be made without providing knowledge thereof to the parties involved.
The records referred to above must be kept for five to ten years, depending on the nature of the information,
from the end of the relationship with the customer.
Failure to comply with any of the obligations indicated above may subject the financial institution and its
officers and directors to penalties that range from fines (not above 200% of the transaction amount or the real profit
obtained or that would be obtained by carrying out the transaction or the amount of R$20 million) to the declaration
of its officers and directors as ineligible to exercise any position at a financial institution and/or the cancellation of
the financial institution’s operating license.
Government and auditors from the Brazilian Federal Revenue Service may also inspect an institution’s
documents, books and financial registry in certain circumstances.
The financial institutions must also maintain specific records of the transactions in cash (deposit, withdrawal,
withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a
deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for
withdrawal, of an amount equal to or greater than R$100,000 or that presents evidence of concealment or
dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of
assets, rights and valuables, as well as issuance of banker’s checks, TED (Readily Available Electronic Transfer) or
of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than
R$100,000.
Brazilian Anti-Corruption Law
Brazil’s new Anti-Corruption Law (Law No. 12,846 of August 1, 2013) entered into force on January 29, 2014.
This law aims at fulfilling international commitments assumed by Brazil as a result of ratification of various anticorruption treaties, as well as at meeting the population’s demands for the creation of more effective mechanisms to
fight corruption at public administration level. The Brazilian Anti-Corruption Law establishes that legal entities will
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have strict liability, regardless of fault or willful misconduct, for acts against the public administration carried out in
their interest or for their benefit. Although known as the Anti-Corruption Law, this Law encompasses not only
performance of acts of corruption, but also performance of other injurious acts contrary to the Brazilian or foreign
public administration.
Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties,
some of which may be imposed through administrative proceedings and others solely through judicial channels. The
Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and
cooperation by corporations may result in the reduction of fines and other sanctions.
Politically Exposed Individuals
Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must take
certain actions and controls to establish business relationships with and to follow up financial transaction of
customers who are deemed to be politically exposed individuals. The internal procedures developed and
implemented by such financial institutions must be structured in such a way as to enable the identification of
politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One
option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s
file.
Politically exposed individuals are public agents and their immediate family members, spouses, life partners and
stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or
other countries, territories and foreign jurisdictions.
Bank Secrecy
Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and
services provided to their customers. The only circumstances in which information about customers, services or
transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:
•
the disclosure of information with the express consent of the interested parties;
•
the exchange of information between financial institutions for record purposes;
•
the supply to credit reference agencies of information based on data from the records of issuers of bank
checks drawn on accounts without sufficient funds and defaulting debtors; and
•
as to the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which
case the financial institutions and the credit card companies may provide the competent authorities with
information relating to such criminal acts when necessary for the investigation of such acts.
Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with
foreign governmental authorities, provided that a specific treaty has previously been executed.
Auditing Requirements
The legislation and regulations issued by the CMN, CVM and BM&FBOVESPA require that the periodic
financial statements of financial institutions be audited by independent auditors (individuals or legal entities)
registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that
these financial statements be presented together with an independent auditor’s report.
As a result of the auditing work, the independent auditor must elaborate the following reports: (i) an auditing
report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including
regarding the adequacy to accounting regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal
control system quality and adequacy evaluation report, including regarding electronic data processing and risk
management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance
report, regarding those which have, or may have, relevant impacts in the accounting statements or in the audited
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financial institution’s operations; (iv) limited assurance report, analyzing Santander Brasil’s Annual and
Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative; and (v) any
other reports required by the Brazilian Central Bank, CVM and BM&FBovespa. The reports made by independent
auditors must be available for consultation upon request by the overseeing authorities.
Independent auditors and the fiscal council when established, individually or jointly, must formally notify the
Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification
of the respective occurrence, including:
•
non-compliance with legal rules and regulations that place the continuity of the audited entity at risk;
•
frauds of any amount perpetrated by the management of the institution;
•
material frauds perpetrated by the institution’s employees or third parties; and
•
errors that result in significantly incorrect information in the accounting statements of the audited entity.
The executive office of the financial institution must inform the independent auditor and the fiscal council,
when established, in case any of the abovementioned situations occur.
CMN Regulation also requires that financial institutions and certain other entities holding regulatory capital
equal to or greater than R$1 billion to create a corporate body designated as “audit committee.” For more
information concerning the audit committee, see “Management—Board Advisory Committees—Audit Committee.”
Socio-environmental Responsibility Policy
On April, 28, 2014, the CMN enacted a new regulation establishing the guidelines for the implementation of a
socio-environmental responsibility policy applicable to financial institutions (the “Responsibility Policy”). The
Responsibility Policy must take into account the level of exposure of the activities of the financial institution to
socio-environmental risks and be compatible with the nature of the financial institution and the complexity of its
activities, services and products.
The Responsibility Policy guides the socio-environmental actions of financial institutions in regard to their
businesses and their relationships with clients and users of their products and services. In addition, it directs the
financial institution’s relationship with its personnel and with any others affected by the financial institution’s
activities. Finally, it provides for the management of socio-environmental risks, which will be one of the several
categories of risks that financial institutions are exposed to, according to Brazilian regulation. Financial institutions
are required to have a Responsibility Policy and an action plan to guide its implementation in place by February 28,
2015, for financial institutions required to implement the Internal Process for the Assessment of Capital Adequacy
(Processo Interno de Avaliação da Adequação de Capital, or “Icaap”), or July 31, 2015, for the remaining financial
institutions.
We, as a financial institution required to implement the Icaap, have already developed our new SocioEnvironmental Responsibility Policy in accordance with the guidelines established by the CMN for Brazilian
financial institutions..
Consumer Protection
Relationships between consumers and financial institutions are governed by Law 8078, dated September 11,
1990, or the “Brazilian Consumer Protection Code,” which grants consumers certain rights and sets forth measures
to be observed by suppliers, which must by complied with by financial institutions. The Consumer Protection Code
sets forth consumer rights, among others, the assistance/facilitation in the defense of consumer’s rights, including
through reverse burden of proof in their favor, and the possibility of judicial review of contractual provisions
deemed abusive.
Furthermore, banking regulation establishes procedures that financial institutions must observe when
contracting with and rendering services to consumers. For example, financial institutions are required:
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•
to provide the necessary information to facilitate client choices, including rights, duties, responsibilities,
costs or advantages, penalties and possible risks existent when carrying out a transaction or rendering a
service;
•
to provide, to the client, agreements, receipts, statements, slips and other documents related to the
transactions and services, as well as the possibility to forfeit of the agreements;
•
to set forth the rights and obligations for opening, using and maintaining a post-paid payment account;
•
to forward payment instrument to client’s residence or to enable the respective instrument only upon
express request or authorization; and
•
identification of final users’ beneficiaries of payments or transfer in statements and bills of the payer,
including situations in which the payment service involves institutions participating in different payment
arrangements.
Ombudsman
Financial institutions and other entities which are authorized to operate by the Brazilian Central Bank must have
an ombudsman office to facilitate communication between the institutions and their customers, and in order to
observe consumer defense legislation as well as the improvement of products and customer service. Institutions that
are part of a financial group are allowed to establish one ombudsman department to service the whole group. The
officer in charge of the ombudsman must prepare a report every six months and whenever a material event is
identified pursuant to the instructions of the Brazilian Central Bank.
Investment Funds Industry Regulation
Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific
matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks,
savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies
within certain operational limits.
Investment funds may invest in any type of financial instrument available in the financial and capital markets,
including for example, fixed income instruments, stocks, debentures and derivative products, provided that, in
addition to the denomination of the fund, a reference to the relevant type of fund is included.
Investment funds may not:
•
have more than 10% of their net worth invested in securities of a single publicly-held company that is
not a financial institution, its controlling shareholders, subsidiaries and affiliates or of another
investment fund; and
•
have more than 20% of their net worth invested in securities issued by a financial institution (including
the fund manager), its controlling shareholders, subsidiaries and affiliates.
Broker-Dealer Regulation
Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central
Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and
are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as
underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange
market.
Broker and dealer firms may not execute operations that may be qualified as the granting of loans to their
customers, including the assignment of rights with limited exceptions; collect commissions from their customers
related to transactions of securities during the primary distribution; acquire real estate which is not for their own use;
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or obtain loans from financial institutions, except for (1) loans for the acquisition of goods for use in connection
with the firm’s corporate purpose; or (2) loans not exceeding two times the relevant firm’s net worth.
Foreign Exchange Market
Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by
institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no
current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the
foreign exchange market. Other institutions within the national financial system are not allowed to have short
positions in foreign currency, although there are no limits with respect to foreign exchange long positions.
The Brazilian Central Bank imposes a limit on the net exposure of Brazilian financial institutions and their
affiliates to assets and debt subject to foreign currency and gold fluctuation. The limit is currently equivalent to
30.0% of the institution’s adjusted shareholders’ equity.
Penalties for non-compliance with foreign currency position limits range from compulsory sale of foreign
currency to revocation of authorization to operate in the foreign exchange market.
On December 16, 2013, the Brazilian Central Bank issued a series of rules that replaced the Regulation of Foreign
Exchange Market and International Capitals (Regulamento do Mercado de Câmbio e Capitais Internacionais), or
“RMCCI,” of the Brazilian Central Bank as of February 3, 2014. These rules are intended to optimize and simplify
regulation involving the foreign exchange market, Brazilian capital abroad and foreign capital in Brazil previously
contemplated by the RMCCI. The new foreign exchange rules also aim to cover situations that were not
contemplated in the prior regulations.
Foreign Investment in Brazilian Financial Institutions
The Brazilian constitution permits foreign individuals or companies to invest in the voting shares of Brazilian
financial institutions only if they have specific authorization by the President of Brazil based on national interest or
reciprocity. A decree issued on November 13, 1997, in respect of Banco Meridional do Brasil S.A. (our legal
predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued
by the Bank as a result of this decree. In addition, foreign investors may acquire publicly traded non-voting shares of
Brazilian financial institutions negotiated on a stock exchange or securities depositary receipts offered abroad
representing shares without specific authorization.
In addition, Brazilian constitution prohibits foreign financial institutions from establishing new branches or
subsidiaries in Brazil except when duly authorized by the President of Brazil and by the Brazilian Central Bank. A
foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the
same rules, regulations and requirements that are applicable to any Brazilian financial institution.
Banking Correspondents
Financial institutions are allowed to provide specific services to clients, including customer services, through
other entities. These entities are called “bank correspondents” and the relationship between the financial institution
and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of
the Brazilian Central Bank.
Regulation of Branches
Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian
financial institutions, upon the compliance of certain term, capital and equity requirements, as well as the
submission of an economic and financial feasibility analysis.
The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches
or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, to subsidiaries abroad; (iii) increase
equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly,
subsidiaries abroad.
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The Brazilian Central Bank determines that the following financial institutions can install the following physical
locations in Brazil: (i) branches; (ii) teller booths; (iii) automatic teller machines; and (iv) segregated administrative
units, provided that, for items (i) to (iii) the conformity to requirements of minimum capital and operating limits are
necessary.
Cayman Islands Banking Regulation
Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by
the Cayman Islands Monetary Authority under the Banks and Trust Companies Law (2009 Revision) (the “Banks
and Trust Companies Law”), independent if the business is to be actually conducted in the Cayman Islands.
Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A”
license, which permits unrestricted domestic and off-shore banking business, and a category “B” license, which
permits principally off-shore banking business. The holder of a category “B” license may have an office in the
Cayman Islands and conduct business with other licensees and offshore companies but, except in limited
circumstances, may not do banking business locally with the public or residents in the Cayman Islands. We have an
unrestricted category “B” license.
There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law applicable to
us, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks
and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400 thousand (or,
in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20 thousand).
U.S. Banking Regulation - Volcker Rule
On July 21, 2010, the United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd Frank Act”), which provides a broad framework for significant regulatory changes that extend to almost
every area of U.S. financial regulation. The Volcker Rule, a statutory provision of the Dodd-Frank Act, prohibits
“banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in certain
covered funds, in each case subject to certain limited exceptions. The Volcker Rule became effective on July 21,
2012 and on December 10, 2013, U.S. regulators issued final rules implementing the Volcker Rule. The final rules
limit the ability of banking entities and their affiliates to enter into certain transactions with covered funds with
which they or their affiliates have certain relationships. The final rules also contain exclusions and certain
exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations as well as
certain foreign government obligations, trading solely outside the United States, and also permits certain ownership
interests in certain types of funds to be retained. The final rules implementing the Volcker Rule extended the period
for all banking entities to conform with the Volcker Rule and implement a compliance program until July 21, 2015.
In December 2014, the Board of Governors of the U.S. Federal Reserve issued an order extending the Volcker
Rule’s general conformance period until July 21, 2016 for investments in and relationships with covered funds and
certain foreign funds that were in place on or prior to December 31, 2013 (“legacy covered funds”), and stated its
intention to grant a final one-year extension of the general conformance period, to July 21, 2017, for banking entities
to conform ownership interests in and relationships with legacy covered funds. This extension of the conformance
period does not apply to the Volcker Rule’s prohibitions on proprietary trading or to any investments in and
relationships with covered funds made or entered into after December 31, 2013. Banking entities such as Santander
Spain must bring their activities and investments worldwide into compliance with the requirements of the Volcker
Rule by the end of the conformance period. Santander Spain is assessing how the final rules implementing the
Volcker Rule will affect its businesses, including Santander Brasil, and is developing and implementing plans to
bring affected businesses into compliance.
Antitrust Regulation
According to the Brazilian antitrust law, actions which concentrate market share must be previously submitted
to CADE for approval if the following criteria are met: (1) at least one of the groups involved in the deal has posted
annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the
transaction; and (2) at least another group has posted annual gross revenues or volume of business equal to or over
R$75 million, in Brazil, in the year prior to the transaction. Closing a transaction without CADE’s approval will
subject the parties to fines ranging from R$60,000 to R$60 million.
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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or
more financial institutions not only considering their potential effects on the financial system and its stability but
also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the
Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an
agreement in market concentration control, pursuant to which the terms and conditions of the sharing of the
efficiency gain resulting from the act shall be set forth.
Insolvency Laws Concerning Financial Institutions
Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974 (“Law No.
6024”), which establishes the applicable provisions in the event of intervention or extra-judicial liquidation by the
Brazilian Central Bank as well as to bankruptcy proceedings.
Intervention and extra-judicial liquidation occur when the Brazilian Central Bank has determined that the
financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’
situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.
Intervention
An intervention may be carried out at the discretion of the Brazilian Central Bank in the following cases:
•
risk to the creditors due to mismanagement;
•
consistent violation of Brazilian banking laws or regulations; or
•
if the intervention is a feasible alternative to the liquidation of the financial institution.
As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the
payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze
deposits existing on the date on which the intervention is decreed.
The intervention will cease if interested parties undertake to continue the economic activities of the financial
institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank when the situation
of the entity is regularized as determined by the Brazilian Central Bank; or when extra-judicial liquidation or
bankruptcy of the entity is ordered.
Intervention may also be ordered upon the request of a financial institution’s management.
Extra-judicial Liquidation
Extra-judicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it
is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a
liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of
the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy.
The Brazilian Central Bank will extra-judicially liquidate a financial institution if:
•
the institution’s economic or financial situation is at risk, particularly when the institution ceases to
meet its obligations as they become due, or upon the occurrence of an event that could indicate a state
of insolvency under the rules of the Bankruptcy Law;
•
management seriously violates Brazilian banking laws, regulations or rulings;
•
the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk;
and/or
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•
upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation
proceedings within ninety days or, if initiated, the Brazilian Central Bank determines that the pace of
the liquidation may harm the institution’s creditors.
A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective
financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.
The decree of extra-judicial liquidation will: (1) suspend the actions or foreclose on rights and interests relating
to the estate of the entity being liquidated, while no other actions or executions may be brought during the
liquidation; (2) accelerate the obligations of the entity; and (3) interrupt the statute of limitations with regard to the
obligations assumed by the institution.
Extra-judicial liquidation procedures may be terminated:
•
by discretionary decision of the Brazilian Central Bank if the parties involved undertake the
administration of the financial institution after having provided the necessary guarantees; or
•
when the final accounts of the receiver are delivered and approved and subsequently registered in the
relevant public records; or
•
when converted into ordinary liquidation; or
•
when a financial institution is declared bankrupt.
Temporary Special Administration Regime (Regime de Administração Especial Temporária, or “RAET”)
In addition to the intervention procedures described above, the Brazilian Central Bank may also establish
RAET, under Law 9447, dated March 14, 1997 combined with Law 6024/74, which is a less severe form of the
Brazilian Central Bank intervention in private and non-federal public financial institutions that allows institutions to
continue to operate normally. The RAET may be ordered in the case of an institution which:
•
continually enters into recurrent operations which are against economic or financial policies set forth in
federal law;
•
faces a shortage of assets;
•
fails to comply with the compulsory reserves rules;
•
reveals the existence of hidden liabilities;
•
experiences the occurrence of situations that cause receivership pursuant to current legislation;
•
has reckless or fraudulent management; or
•
carries out activities which call for an intervention.
The main objective of a RAET is to assist the recovery of the financial condition of the institution under special
administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day
business, operations, liabilities or rights of the financial institution, which continues to operate in ordinary course.
There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events:
(1) acquisition by the Brazilian federal government of control of the financial institution, (2) corporate restructuring,
merger, spin-off, amalgamation or transfer of the controlling interest of the financial institution, (3) decision by the
Brazilian Central Bank, or (4) declaration of extra-judicial liquidation of the financial institution.
Bankruptcy Law
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The Law No. 11,101 (“Bankruptcy Law”) regulates judicial reorganizations, out-of-court reorganizations and
the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions
only with respect to the matters not specifically regulated by the intervention and extra-judicial liquidation regimes
described above.
Repayment of Creditors in a Liquidation or Bankruptcy
In the event of extra-judicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to
their priorities and privileges. Pre-petition claims are paid on a ratable basis in the following order: labor credits;
secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits;
contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax
nature; and subordinated credits.
The current law confers immunity from attachment on compulsory deposits maintained by financial institutions
with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the
repayment of debts. The law also requires that the assets of any insolvent bank funded by loans made by foreign
banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts
owing to the general creditors of such insolvent bank.
Deposit Insurance - FGC
The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of
intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the
financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts
corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such
contributions is subject to a penalty of 2% over the amount of the contribution.
The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained
in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of
services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate
credit bills and repurchase and resale agreements which object are instruments issued after March 8, 2012 by a
company of the same group due to each customer by a financial institution (or by financial institutions of the same
financial group) will be guaranteed by the FGC for up to a maximum of R$70 thousand per customer. When the
assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the
contribution of financial institutions to the FGC. The volume of deposits that financial institutions can accept with
the guarantee granted by FGC will be reduced by 20% every year from January 2012 to January 2016, thereby
ending such insurance by 2016.
Taxation
Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)
The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% and the CSLL is calculated at a rate of 15.0%
for financial institutions and 9.0% for companies, after adjustments determined by the tax legislation.
Deferred tax assets and liabilities are computed based on temporary differences between the book basis and tax
basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.
According to the requirements in the current regulations, the expected realization of deferred tax assets is based
on projections of future results and a technical study approved by the Directors of Santander Brasil.
The changes introduced by Law 11,638/2007 and by Law 11,941/2009 (articles 37 and 38), which modified the
criteria for recognizing revenues, costs and expenses computed in the determination of net income, have no effect
for purposes of determining the fiscal profit for a legal person who opted for the Transitional Tax Regime (RTT),
being used for tax purposes the current regulations on December 31, 2007. The tax effects on the adoption of such
rules are recorded, for accounting purposes, in the corresponding deferred assets and liabilities.
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Law 12,973, however, provides that the RTT expires in 2014 or 2015, depending on the election made by each
taxpayer. Law 12,973 also regulates the tax effects arising from the adoption of IFRS in Brazil.
On May 22, 2015, the Executive Branch enacted Provisional Measure No 675 (“MP 675”), which increased the
tax rate of the Social Contribution on Net Profits (“CSL”) payable by Brazilian financial institutions and equivalent
entities (as defined in the current regulations) from 15% to 20%. MP 675 will enter into force as from September 1,
2015, and could be definitely converted into law if approved by the Brazilian Congress.
PIS and COFINS Tax Rates
PIS and COFINS payable by financial institutions and similar entities, as defined by law, are due at the rate of
0.65% and 4% respectively. They are levied cumulatively on gross revenue billed, understood as the total revenues
earned by the legal entity, net of certain expenses, such as funding costs.
The non-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS respectively, and are
subject to non-cumulative incidence, that briefly consists of deduction of certain expenses from the tax base as
allowed by law.
Recent Amendments to the Brazilian Federal Tax Legislation
On May 14, 2014, Law No. 12,973 was published, amending the federal tax legislation with respect to IRPJ,
CSLL, PIS and COFINS. This law governs the following matters, among others:
•
tax effects connected with IFRS;
•
revocation of the Transitory Tax Regime – RTT, which was implemented to temporarily neutralize the
tax effects related IFRS until Law No. 12,973 was published;
•
valuation of controlled companies by the equity accounting method, including new provisions for the
tax treatment applicable to goodwill or to the discount paid upon the investment in those entities;
•
tax regime applicable to profits, dividends and interest on net equity paid by Brazilian companies;
•
institution of a new regime for controlled foreign companies – CFC rules – and the consequent tax
effects arising from income earned abroad by Brazilian subsidiaries or affiliates; and
•
new tax base for PIS and COFINS for financial institutions that includes the revenues from core
activities of these companies.
Tax on Services (ISS)
The ISS, which is a Municipal and Federal tax, is charged on services according to different rates in each of the
municipalities in which the Group has branches or administrative centers. The rates vary from 2.0% to 5.0% and
depend on the nature of the service.
Tax on Financial Transactions (IOF)
CPMF, a provisory contribution levied on certain financial transactions, such as customer’s account operations,
has not been in force in Brazil since December 31, 2007. Since 2008, the Brazilian government has enacted several
decrees which amended certain rules regarding the IOF tax, the Financial Transactions tax (Impostos Sobre
Operações), or IOF tax Decree 6306/07, thus modifying, among other provisions, the rates for the IOF in view of
monetary, foreign currency and credit policies pursued by the Brazilian government. IOF is a tax levied on credit,
currency exchange, insurance and securities transactions.
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Generally, the IOF is imposed on the following transactions and at the following rates:
Transaction(1)
Maximum Legal Rate
Credit extended by financial institutions and non1.5% per day
financial entities ..............................................................
Present Rate
Up to 0.0041% per day for loans
contracted by legal entities and 0.0082%
per day for individuals. An additional
0.38% rate is applicable.
Transactions relating to securities(2) ....................................
0.5% per day for certain investment
funds
0% on transactions with equity securities
and certain debt securities, such as
debentures and real estate receivables
notes (CRIs)
1% per day on transactions with fixed
income derived from federal, state, or
municipal bonds, and fixed income
investment funds limited to certain
percentages of the income raised from
investment. This rate is reduced to zero
from the 30th day
following the
acquisition date of the investment.
0% on the assignment of securities to
permit the issuance of Depositary
Receipts abroad
1.5% per day
Transactions relating to derivatives .....................................
25%
0% on the notional value of the adjusted
purchase sale or maturity of financial
derivative contract in the country that
individually result in an increased
foreign exchange exposure on a short
position
0% on derivative contracts to hedge risks
inherent to the price fluctuation of
foreign exchange resulting from export
contracts signed by an individual or legal
entity resident or domiciled in the
country
0% other transactions with derivative
contracts not expressly mentioned by the
tax law
Insurance transactions entered into by insurance
companies .......................................................................
25%
2.38% for health insurance
0.38% for life insurance
7.38% for other types of insurance
Foreign exchange transactions(2) .........................................
25%
0.38% (general rule)
6.38% on credit card transactions as
from April 27, 2011
6.38% on withdrawals abroad using
credit or debit cards as from
December 28, 2013
6.38% on purchase of travelers cheque or
loading of international prepaid card as
from December 28, 2013
0% for outflow of funds related to loans
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Transaction(1)
Maximum Legal Rate
Present Rate
obtained from abroad (irrespective of the
term) and for inflow of funds related to
loans obtained from abroad for a period
greater than 180 days.
6% for the inflow of funds into Brazil
related to foreign loans subject to
registration before the Central Bank
whose average maturity term is equal or
lower than 180 days.
0% for the inflow of funds into Brazil
related to foreign loans subject to
registration before the Central Bank
whose average maturity term is higher
than 180 days.
0% for interbank transactions
0% for exchange transactions in
connection with the outflow of proceeds
from Brazil for the remittance of interest
on net equity and dividends to be
received by foreign investors
0% for exchange transactions, including
by means of simultaneous foreign
exchange transactions, for the inflow of
funds by foreign investors in the
Brazilian financial and capital markets.
0% for exchange transactions, including
by means of simultaneous foreign
exchange transactions, for the inflow of
funds by foreign investors for purposes
of initial or additional margin
requirements in connection with
transactions in stock exchanges
0% for exchange transactions for the
outflow of funds invested by foreign
investors in the Brazilian financial and
capital markets
0.38% for exchange transactions for the
inflow and outflow of funds invested by
foreign investors, including by means of
simultaneous
foreign
exchange
transactions, in certificates of deposit of
securities,
known
as
Brazilian
Depositary Receipts, or “BDRs”.
0.38% for simultaneous exchange
transactions, for the outflow of derived
from the conversion of direct
investments in Brazil made by foreign
investors pursuant to Law 4,131/62 into
investments in stock tradable in stock
exchanges
0% for revenues related to the export of
goods and services transactions
___________________
(1)
(2)
The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.
There are some exemptions or specific cases in which the applicable rate is zero.
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Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added
Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable,
whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or
with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even
where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to affiliates of Santander Brasil
within the Santander Group. During the period covered by this annual report:
(a) Santander UK plc (“Santander UK”) holds frozen savings and current accounts for three customers resident
in the United Kingdom who are currently designated by the United States for terrorism. The accounts held by each
customer were blocked after the customer’s designation and have remained blocked and dormant throughout 2014.
No revenue has been generated by Santander UK on these accounts. The bank account held for one of these
customers was closed in the fourth quarter of 2014.
(b) An Iranian national, resident in the United Kingdom who is currently designated by the United States under
the Iranian Financial Sanctions Regulations and the Non-Proliferation of Weapons of Mass Destruction
(“NPWMD”) designation, holds a mortgage with Santander UK that was issued prior to any such designation. No
further drawdown has been made (or would be allowed) under this mortgage although we continue to receive
repayment instalments. In 2014, total revenue in connection with the mortgage was approximately £2,580 whilst net
profits were negligible relative to the overall profits of Santander UK. Santander UK does not intend to enter into
any new relationships with this customer, and any disbursements will only be made in accordance with applicable
sanctions. The same Iranian national also holds two investment accounts with Santander Asset Management UK
Limited. The accounts have remained frozen throughout 2014. The investment returns are being automatically
reinvested, and no disbursements have been made to the customer. Total revenue for the Santander Group in
connection with the investment accounts was approximately £250 whilst net profits in 2014 were negligible relative
to the overall profits of Santander Spain.
(c) In addition, during the third quarter 2014, Santander UK identified two additional customers. A United
Kingdom national designated by the United States under the NPWMD sanctions program held a business account.
No transactions were made and the account was closed in the fourth quarter of 2014. No revenue or profit has been
generated. A second United Kingdom national designated by the United States for terrorism held a personal current
account and a personal credit card account, both of which were closed in the third quarter. Although transactions
took place on the current account during the third quarter of 2014, revenue and profits generated were negligible. No
transactions took place on the credit card.
In addition, the Santander Group has certain legacy export credits and performance guarantees with Bank
Mellat, which are included in the U.S. Department of the Treasury’s Office of Foreign Assets Control’s Specially
Designated Nationals and Blocked Persons List. Santander Spain entered into two bilateral credit facilities in
February 2000 in an aggregate principal amount of €25.9 million. Both credit facilities matured in 2012. In addition,
in 2005 Santander Spain participated in a syndicated credit facility for Bank Mellat of €15.5 million, which matures
on July 6, 2015. As of December 31, 2014, the Santander Group was owed €2.3 million under this credit facility.
Bank Mellat has been in default under all of these agreements in recent years and Santander Spain has been and
expects to continue to be repaid any amounts due by official export credit agencies, which insure between 95% and
99% of the outstanding amounts under these credit facilities. No funds have been extended by Santander Spain
under these facilities since they were granted.
The Santander Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank
Mellat (stand-by letters of credit to guarantee the obligations – either under tender documents or under contracting
agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.
However, should any of the contractors default in their obligations under the public bids, the Santander Group would
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not be able to pay any amounts due to Bank Sepah or Bank Mellat because any such payments would be frozen
pursuant to Council Regulation (EU) No. 961/2010.
In the aggregate, all of the transactions described above resulted in approximately €41,000 gross revenues and
approximately €80,500 net loss to the Santander Group in the year ended December 31, 2014, all of which resulted
from the performance of export credit agencies rather than any Iranian entity. The Santander Group has undertaken
significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all
banking activities therein, including correspondent relationships, deposit taking from Iranian entities and issuing
export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually
permitted to cancel these arrangements without either (i) paying the guaranteed amount – which payment would be
frozen as explained above (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due
to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees
and hold these assets in accordance with company policy and applicable laws.
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MANAGEMENT
Board of Directors
According to our by-laws, we are managed by a board of directors (conselho de administração) and a board of
executive officers (diretoria executiva). The board of directors is our supervisory board as set out in our by-laws and
in applicable legislation. Our board of executive officers is responsible for our day-to-day management.
Our board of directors is comprised of a minimum of five members and a maximum of twelve members. Under
BM&FBOVESPA rules, a minimum of 20.0% of the members of the board of directors must be independent
directors. The board of directors has a Chairman and a Vice Chairman each elected at the general shareholders’
meeting by majority vote.
Our board of executive officers is comprised of a minimum of two members and a maximum of seventy-five
members, one of them being appointed as the chief executive officer, and the others may be appointed as senior vice
president executive officers, vice president executive officers, investor relations officer, executive officers and
officers without specific designation. Certain of our executive officers are also members of the boards of executive
officers and/or boards of directors of our subsidiaries.
Pursuant to Brazilian law, the election of each member of the board of directors and board of executive officers
must be approved by the Brazilian Central Bank.
The following table presents the names, positions and dates of birth of the current members of our board of
directors and board of executive officers as of the date of this information memorandum.
Members of the Board of Directors:
Name
Position
Sergio Agapito Lires Rial ........................................................ Chairman, Independent Member
Jesús Maria Zabalza Lotina......................................................
Vice-Chairman
Conrado Engel .........................................................................
Member
José Antonio Alvarez Alvarez .................................................
Member
José Maria Nus Badia (*) .........................................................
Member
José de Paiva Ferreira ..............................................................
Member
Álvaro Antonio Cardoso de Souza ...........................................
Independent Member
Celso Clemente Giacometti .....................................................
Independent Member
Marília Artimonte Rocca .........................................................
Independent Member
Viviane Senna Lalli..................................................................
Independent Member
(*) Pending Brazilian Central Bank’s approval
Date of Birth
July 28, 1960
April 16, 1958
May 30, 1957
January 6, 1960
February 9, 1950
March 1, 1959
September 5, 1948
October 13, 1943
January 31, 1973
June 14, 1957
Members of the Board of Executive Officers:
Name
Position
Date of Birth
Jesús Maria Zabalza Lotina..............................................
Conrado Engel .................................................................
José de Paiva Ferreira ......................................................
Chief Executive Officer
Senior Vice President Executive Officer
Senior Vice President Executive Officer
Vice President Executive Officer and
Investors Relations Officer
Vice President Executive Officer
Vice president Executive Officer
Vice President Executive Officer
April 16, 1958
May 30, 1957
March 1, 1959
November 16, 1965
November 5, 1971
February 20, 1974
August 20, 1968
Vice President Executive Officer
Vice President Executive Officer
Vice President Executive Officer
Vice President Executive Officer
Vice President Executive Officer
Executive Officer
December 7, 1968
December 17, 1964
December 30, 1951
October 4, 1971
December 24, 1968
October 7,1965
Angel Santodomingo Martell ...........................................
Antonio Pardo de Santayana Montes ...............................
Carlos Rey de Vicente .....................................................
Ignacio Dominguez-Adame Bozzano ..............................
João Guilherme de Andrade
So Consiglio
Juan Sebastián Moreno Blanco ........................................
Manoel Marcos Madureira ...............................................
Oscar Rodriguez Herrero .................................................
Vanessa de Souza Lobato Barbosa(1) ...............................
Fernando Diaz Roldán .....................................................
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Name
Position
Date of Birth
Jose Alberto Zamorano Hernandez ..................................
José Roberto Machado Filho............................................
Maria Eugênia Andrade Lopez Santos .............................
Amancio Acúrcio Gouveia...............................................
Ana Paula Nader Alfaya ..................................................
Cassio Schmitt .................................................................
Cassius Schymura ............................................................
Ede Ilson Viani ................................................................
Eduardo Müller Borges ....................................................
Flávio Tavares Valadão ...................................................
Gilberto Duarte de Abreu Filho .......................................
Javier Rodríguez de Colmenares Álvarez ........................
Jamil Habibe Hannouche .................................................
Jean Pierre Dupui .............................................................
Luiz Felipe Taunay Ferreira .............................................
Mara Regina Lima Alves Garcia......................................
Marcelo Zerbinatti ...........................................................
Marcio Aurelio de Nobrega .............................................
Mário Adolfo Libert Westphalen .....................................
Mauro Cavalcanti de Albuquerque ..................................
Mauro Siequeroli .............................................................
Nilton Sergio S. Carvalho ................................................
Ramón Sanchez Díez .......................................................
Reginaldo Antonio Ribeiro ..............................................
Roberto de Oliveira Campos Neto ...................................
Ronaldo Yassuyuki Morimoto .........................................
Sergio Antonio Borriello..................................................
Sergio Gonçalves .............................................................
Thomas Gregor Ilg ...........................................................
Executive Officer
Executive Officer
Executive Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
May 9, 1962
August 25, 1968
January 23, 1966
March 31, 1963
August 7, 1971
April 23, 1971
February 19, 1965
September 5, 1967
September 12, 1967
July 1, 1963
August 7, 1973
April 1,1977
June 23, 1960
September 23, 1968
March 18, 1967
December 28, 1966
February 5, 1974
August 23, 1967
July 9, 1968
October 3, 1969
March 24, 1957
January 1, 1957
October 29, 1968
May 19, 1969
June 28, 1969
May 5, 1977
April 15, 1964
August 7, 1956
September 12, 1968
______________________
(1) Member whose appointment is subject to Brazilian Central Bank approval.
Below are the biographies of the members of our board of directors and board of executive officers.
Members of the Board of Directors:
Sergio Agapito Lires Rial. Mr. Rial is Brazilian and was born on July 28, 1960. He was Chief Executive
Officer of Marfrig Global Foods S.A., and is a member of the board of directors of Cyrela Brazil Realty S.A. His
professional career includes the posts of Vice-President, Executive Officer and World Chief Financial Officer of
Cargill. He was also a member of the board of directors of Cargill for nine years. He was a Managing Director of
Bear Stearns & Co., in New York, Officer of ABN AMRO Bank and a member of the board of directors of ABN
AMRO Bank in the Netherlands, as well as a member of the board of directors of Mosaic Fertilizers. He has a
degree in Law for the Universidade Federal do Rio de Janeiro and in Economics for Universidade Gama Filho, and
also has MBA from IBMEC (now Insper) in São Paulo, as well as specializations from the Harvard Business
School, Wharton University and INSEAD, in France.
Jesús Maria Zabalza Lotina. Mr. Zabalza is Spanish and was born on April 16, 1958. He graduated with a
degree in Industrial Engineering and has always worked in the financial markets. In 1982, he started his career at
Banco Vizcaya, where he occupied the position of Officer at various locations in Cádiz, Granada, Sevilla and
Zaragoza. Six years later, he served as an Officer in the Burgos Region, with BBVA. He followed his career always
occupying the highest positions at BBV and right after that at Banco Hipotecário and Caixa Postal, where he
occupied the position of General Officer in both entities, which were already part of Argentaria. Starting in 1996, he
worked for six years at La Caixa, in Madrid, as Assistant Officer, where he was responsible for the expansion
process starting from Cataluña, and where he was also member of the Directive Board. In 2002, he was General
Officer of Banco Santander and of the Latin America Division. He also occupied the position of First Vice president
of the board of directors of Banco Santander Chile and was a member of the board of directors of Santander Mexico.
From 2002 to 2010, he occupied the positions of President of the board of directors of Santander Colombia and of
Bancorp, in Porto Rico. He is also Vice president of the Spanish Association of Executives of Finance (also known
139
as AEEF). Today, he occupies the post of our Chief Executive Officer and he is also the Vice-Chairman of our
board of directors of Santander Brasil; Chairman of the board of directors of GetNet Adquirência e Serviços para
Meios de Pagamento S.A.; and a member of the board of directors of Universia Brasil S.A.
Conrado Engel. Mr. Engel is Brazilian and was born on May 30, 1957. He holds a degree in Aeronautical
Engineering from the Instituto Tecnológico de Aeronáutica. He started his career in 1981 as management trainee of
Citibank S.A., where he worked for seven years. From 1992 to 1997 he was the responsible Officer for the business
related to credit cards for Banco Nacional-Unibanco. In 1998 he was elected Chief Executive Officer of Financeira
Losango. In October 2003 he became responsible for the retail business of HSBC in Brazil and was a member of its
executive committee until the end of 2006. From January 2007 to May 2009 he was responsible for the retail
business of HSBC in the Asian-Pacific region, in Hong Kong and was also member of HSBC’s steering committee.
In May 2008 he was appointed group general manager and took office as Chief Executive Officer of HSBC Brasil in
June 2009, where he remained until March 2012. At Santander Brasil he is a Senior Vice President Executive
Officer, responsible for our retail business. He is also a member of the risk committee of Santander Brasil, Chief
Executive Officer and a member of the board of directors of Santander Leasing S.A. Arrendamento Mercantil, Chief
Executive Officer of Aymoré CFI and a member of the board of directors of Getnet Adquirência e Serviços para
Meios de Pagamento S.A.
José Antonio Alvarez Alvarez. Mr. Alvarez is Spanish and was born on January 6, 1960. He holds a bachelor’s
degree in Administration and Business Economics from Universidad Santiago de Compostela in Spain and a MBA
from the University of Chicago’s Graduate School of Business. He started at Santander Spain in 2002 as the head of
finance management and in November 2004 he was elected as Chief Financial Officer. He served as Head of the
Finance Division of Banco Bilbao Vizcaya Argentaria, S.A. in Spain from 1999 to 2002 and as Financial Officer of
Corporación Bancaria de España, S.A. (Argentaria) from 1995 to 1999. He was also Chief Financial Officer for
Banco Hipotecario de España, S.A. in Spain from 1993 to 1995 and vice president of Finanpostal Gestión Fondos de
Inversión y Pensiones from 1990 to 1993, and held roles at Banco de Crédito industrial and Instituto Nacional de
Industria. He was a member of the board of directors of Banco de Crédito Local S.A. from 2000 to 2002 and
Chairman of the European Banking Federation´s Banking Supervision Committee from 2009 to 2012. Today he is
the Chief Executive Officer of the Santander Group, a member of the board of directors of Santander Brasil,
Santander Consumer Finance, S.A., a member of the Supervisory Board of Bank Zachodni WBK S.A., a member of
the Supervisory Board of Santander Consumer Bank AG and Santander Consumer Holding GmbH, and a member of
the Supervisory Board of Santander Holdings USA, Inc up to January, 2015.
José Maria Nus Badía. Mr. Badía is Spanish and was born on February 9, 1950. He serves as Chief Risk
Officer at Banco Santander, S.A. and has been its Senior Executive Vice-President since January 19, 2015. Mr. Nus
Badía served as an Executive Vice President of Risk, Head of Strategic Planning of Risk Division and Executive
Director at Banco Santander, S.A. since March 2014 to January 19, 2015. He also served as Executive Vice
President of Santander UK Operations at Banco Santander, S.A. and as the Chief Risk Officer and Executive
Director at Santander UK plc from March 17, 2011 to March 1, 2014. He has also been Executive Vice President,
Risk in Argentaria and Bankinter, and member of the board of directors in Banco de Vitoria, Banco de Negocios
Argentaria, Banco de Credito Local and Banco de Alicante. He joined Santander UK in 2010 as Executive Director
and Chief Risk Officer. He served as an Executive Director and Chief Risk Officer of Banesto. Previously, he was
Chief Risk Officer at Banco Espanñol de Credito, S.A., where he was a member of the Board and member of the
Executive Committee. He has been an Executive Director at Alliance & Leicester plc since March 17, 2011. He is
also a member of the board of Societat Catalana d'Economia.
José de Paiva Ferreira. Mr. Paiva is Portuguese and was born on March 1, 1959. He has a specialization degree
in Business Administration from the Fundação Getúlio Vargas, and an MBA from the Wharton School of Business
at the University of Pennsylvania. He has worked in the financial markets for more than 40 years. He started to work
at Banco Bradesco in 1973 and occupied many different positions. Afterwards, he joined Banco Geral do Comércio,
Noroeste and Santander Brasil, where he was Vice president Executive Officer, responsible for the Business, Human
Resources, Operations, Technology, Property, Products, Marketing, Credit Cards, Insurance, Leasing and Branch
Network. From 2000 to 2001 he occupied the position of e-Business Officer for Latin America, for the American
Division of Santander Central Hispano. At the end of 2001, he came back to Brazil in order to work at Banco
Banespa as Vice president Executive Officer, responsible for the Operational Resources department. From 2003, he
became Vice president Executive Officer responsible for Marketing, Products, and Retail Business for Santander
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Brasil. In 2008, he became the Chief Executive Officer of Santander Brasil, a position that he occupied until the
merger with Banco Real, when he became Senior Vice president Executive Officer, responsible for the Retail
Business. In March 2011 he became Director of the Santander’s board of directors, and joined the Board business
group based in Los Angeles, California, USA, where his main activities involved technological innovations, and he
also acted as Senior Executive Vice President Officer, being responsible for different businesses of the Group.
Currently, he is a member of our board of directors, and since July 2013 he also acted as Senior Vice president
Executive Officer, being responsible for the Human Resources, Organization, Property, Proceedings, Operations,
Technology and Costs. He is also an Officer of CRV DTVM; Chairman of the board of directors of Santander
Leasing S.A. Arrendamento Mercantil; and a member of the boards of directors of GetNet Adquirência e Serviços
para Meios de Pagamento S.A., and of Mantiq Investimentos Ltda.
Álvaro Antonio Cardoso de Souza. Mr. Souza is Portuguese and was born on September 5, 1948. He holds a
degree in Economics and Business Administration from the Pontifícia Universidade Católica de São Paulo, and
attended several specialization courses from a number of American universities, such as the University of Pittsburgh
and The Wharton Business School of the University of Pennsylvania. Currently, he is Officer of AdS – Gestão,
Consultoria e Investimentos Ltda.; Chairman of the board of directors of Fundo Brasileiro para a Biodiversidade
(FUNBIO) and a member of the boards of directors of the following companies and organizations: WWF
International Board of Trustees, WWF-Brasil, Duratex S.A., AMBEV and Grupo Libra. He is Certified Officer,
accreditation granted to him by Instituto Brasileiro de Governança Corporativa. He was General Officer of Banco de
Investimentos Crefisul and Chief Executive Officer of Citibank / Brazil. In the United States, he was globally
responsible for Citibank’s Private Banking. Mr. Souza was also Chief Executive Officer of Citibank in Switzerland,
Chairman of the board of directors of Banco Crefisul and Credicard in Brazil, besides participating in the board of
directors of Citibank Equity Investments (Argentina). He also worked as Senior Advisor for Latin America at
Citibank until his retirement in September 2003. He was President of Banco ABC-Roma, an affiliate to Grupo
Globo and was on the board of directors of several Brazilian companies, such as Celbrás, Ultraquímica, SPCI
Computadores, Signature Lazard, Banco Triângulo, CSU Cardsystems and Gol Linhas Aéreas. He was also member
of the board of directors of MasterCard International and President of the American Chamber of Commerce in São
Paulo.
Celso Clemente Giacometti. Mr. Giacometti is Brazilian and was born on October 13, 1943. He holds a degree
in Business Administration from Faculdade de Economia São Luís and graduated with an Accounting degree from
Faculdade de Ciências Econômicas de Ribeirão Preto. He has also completed various other advanced and
specialization courses at Yale, INSEAD and IMD. He started his career in 1960 as a trainee and reviewer at
Citibank. From 1963 to 2001 he worked at Arthur Andersen, becoming a Partner in 1974 and acting as Chief
Executive Officer of Brazilian operations from 1985 to 2000. He served on the boards of directors and audit
committees of Lojas Marisa S.A., Tarpon Investments, TIM Participações, Sabó Autopeças and Votorantim
Indústrias. He was also the Chief Executive Officer of Souto Vidigal, a holding company and family office, from
2004 to 2006. On February 3, 2010 he was elected as an independent member of the board of directors of Santander
Brasil and in October 2011, he was appointed as our Chairman. In 2013, he was elected to the position of Chairman
of our board of directors, where he worked until June, 2013, when he became Vice President of this body. On
August 28, 2013 he was reappointed to the position of Chairman of our board of directors. Currently, he is an
Independent Member of the board of directors and a member of the audit committee, Coordinator of the
compensation and nominating committee and Coordinator of the corporate governance and sustainability committee.
He is the Managing Partner of Giacometti Serviços Profissionais Ltda. He is also one of the co-founders and former
board member of Brazilian Institute Corporate Governance “IBGC” a and current member of its Commission
Governance and Nomination. He is a member of the CAF (Comitê de Aquisições e Fusões).
Marília Artimonte Rocca. Mrs. Marília Rocca is Brazilian and was born on January 31, 1973. She holds a
degree in Business Administration from Fundação Getúlio Vargas of São Paulo and an MBA in management from
Columbia Business School, New York. She attended the Executive Program – Family in Business at Harvard
Business School, in Boston. She began her career in the operations department of Wal-Mart Brasil, serving the
company from the beginning of its operations in Brazil until 1998. She managed third-sector organizations for six
years and was also the co-founder and general director of Endeavor Brasil, a NGO leader of high-impact
entrepreneurship and Fundação Brava, an organization focused on the promotion of public management. She started
and developed part of the Family Office of the Lemann, Sicupira and Telles families. She is currently a Vice
president at TOTVS and a partner at Mãe Terra and Fibraxx, companies in the natural and organic products
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segment, where she worked from 2007 until 2012. She was a member of the board of directors of TOTVS from
2001 until 2012, and of Endeavor Brasil from 2005 until 2012. She was also a member of the board of directors of
Grupo IBMEC (now Insper) from 2004 to 2008, having been appointed as a member of Insper’s external assessment
committee. She was selected for the program Henry Crown Fellowship of Aspen Institute, in which she participated
from 2006. In 2011 she was granted the Cláudia Award in the business category. She has been a member of our
board of directors since 2012, and, since 2013 she is also a member of our corporate governance and sustainability
committee.
Viviane Senna Lalli. Ms. Senna is Brazilian and was born on June 14, 1957. She holds a degree in Psychology
from the Pontifícia Universidade Católica in São Paulo and she is specialist in Depth Psychology. From 1981 to
1996, she worked as a psychotherapist for adults and children, and as a trainer of therapists in Depth Psychology. In
1994 she founded the Ayrton Senna Institute, the mission of which is the production and application of a wide range
of knowledge and innovation for the complete education of children and youth. Ms. Senna is also a member of the
following boards of directors and committees: Council for Economic and Social Development (CDES); and
Advisory Councils of FEBRABAN; Board of Education of CNI and FIESP; EDP Energias do Brasil S.A., ADVB,
World Trade Center (WTC) and “Todos pela Educação;” compensation and nomination committee of Santander
Brasil; guidance and social investment committees of Bank Itaú-Unibanco.
Members of the Board of Executive Officers:
Jesús Maria Zabalza Lotina. See “—Members of the Board of Directors.”
Conrado Engel. See “—Members of the Board of Directors.”
José de Paiva Ferreira. See “—Members of the Board of Directors.”
Angel Santodomingo Martell. Mr. Santodomingo is Spanish and was born on November 16, 1965. He holds a
degree in Economics and Business with specialization in Finance from the ICADE business school of the
Universidad Pontificia Comillas in Madrid and a CFA (Chartered Financial Analyst) from the CFA Society of the
United States. As one a Vice President Executive Officer, he will hold the position of Chief Financial Officer and
Investor Relations Officer. He started at the Santander Group at 2005 as Head of the International Developments
and Asset Management and then has become globally responsible for the investor relations area. He has worked as
Officer of Grupo Fortis and Banesto Bolsa. He has also worked at Usera y Morenés S.V.B. - Sociedade de Valores y
Bolsa and Arthur Andersen (now Deloitte). From 1996 to 2008, he occupied the position of Chief Executive Officer
of CFA Society in Spain, where he acted as funding member of a nonprofit organization focused on serving the
holders of financial analyst accreditation (CFA) and from 2009 to 2014 was Vice President of AERI (Asociación
Española de Relaciones con Inversores).
Antonio Pardo de Santayana Montes. Mr. Pardo is Spanish and was born on November 5, 1971. He holds a
degree in Economics and a Law degree from the ICADE school of the Universidade Pontifícia Comillas. As one of
our Vice-President Executive Officers, he is responsible for risk management department, having held before the
post of Officer responsible for the Risk Credit Recovery area, and Officer of Wholesale Risks and Santander
Financiamentos. He was a consultant at PricewaterhouseCoopers from 1995 to 1998, senior risk analyst for
Santander Central Hispano/Santander Investment from 1998 to 2000 and senior manager of Monitor Company from
2000 to 2005 and returned to the Santander Group in 2005 as Associate Officer in the Wholesale Risks area, where
he remained until 2009, when he came to work in Brazil. He is also Executive Officer of Atual Companhia
Securitizadora de Créditos Financeiros.
Carlos Rey de Vicente. Mr. Rey de Vicente is Spanish and was born on February 20, 1974. He graduated in
Law from the Universidad Complutense de Madrid, and he became a member of the Colégio de Abogados de
Madrid since 1997. In 2010 he started to work at Banco Santander Spain, where he was responsible for the strategy
and planning of the banks Santander México, Chile, Argentina, Puerto Rico, Uruguay, Peru and Colombia. Besides
that, he served as member of the directive committee in the Americas Division. From 2001 to May, 2010, He was a
partner of McKinsey & Co., where he was responsible for heading several projects on strategic consulting. His
activities were always concentrated on banking matters and insurance, besides acting on team management. Before,
he worked as a lawyer in two different offices, where at one of them he was partner and founder, dealing mainly
with insurance and civil responsibility. Today, He is our Vice President Executive Officer ,responsible for the
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Strategy and Corporate Matters department. He is also a member of the board of directors of Santander Leasing S.A.
Arrendamento Mercantil.
Ignacio Domínguez-Adame Bozzano. Mr. Bozzano is Spanish and was born on August 20, 1968. He holds a
degree in Economics and Business Sciences with specialization in Finance from Universidad Complutense de
Madrid. He also holds an MBA from the University of Houston. He joined the Santander Group in 1994, initially
developing activities in the area of GB&M and with a focus on M&A, Project Finance and Leveraged Finance
teams. From August 2006 to February 2007 he served as a Managing Officer at Banco Santander Central Hispano,
SCH Investment (Spain), where he was responsible for the area of structured transactions. From February 2007 to
April 2009 he served as a Managing Officer at Banco Santander Central Hispano. From 1991 to 1992, he worked in
the department of investment analysis of Dragados y Construcciones S.A. (Spain). As an Executive Vice President
Officer, he is responsible for our global wholesale banking operations, including GB&M. He is also an Executive
Officer of Santander Securities Services Brasil DTVM S.A. and Officer of Santander Participações S.A.
João Guilherme de Andrade So Consiglio. Mr. Consiglio was born in São Paulo, on December 7, 1968. He
holds a degree in Economics from Universidade de São Paulo and a Post Laurea from Universitá Degli Studi di
Genova, Italy, Facoltá di Economia e Commercio. As an Executive Vice President Officer, he is responsible for the
corporate clients. He was an economist at Bunge (Serfina S.A. Adm. e Participações) from 1990 to 1994, a manager
of the economics department of Santista Corretora S.A. CVM from 1994 to 1995 and has been with Santander Brasil
(ABN AMRO/Banco Real) since 1995. He started as a corporate banking manager, then assumed corporate
development and private equity functions until 2005, when he became responsible for product management and
development in Brazil. He became head of global transaction products in Brazil in 2008, and in 2010 assumed his
current responsibilities. He served as a member of the board of directors at CBSS (Visa Vale) until 2008, and as a
member of the board of directors of Câmara Interbancária de Pagamentos and a member of the Conselho Superior of
FUNCEX until 2010. He is also a member of the board of directors of Companhia de Arrendamento Mercantil RCI
Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil and representative of Banco Santander
on the board of directors and consultative council of Associação BRAIN – Brasil Investimentos & Negócios.
Juan Sebastian Moreno Blanco. Mr. Blanco was born on December 17, 1964, in Spain. He graduated in
Business Administration from the University of Houston in Houston, Texas. From 1987 to 1994 he worked at
Bankinter as Commercial Officer, responsible for the commercial area as well as for the Enterprises segment in
Santander. From 1994 to 1997 he worked as Project Officer in the financial system of Mexico and Brazil, for Booz,
Allen & Hamilton in Mexico. He joined the Santander Group in 1997, where he served as Executive Officer of
Companies and Institutions, after which he became Executive Officer of Business Development at Banco Santander
Mexico, with responsibility for activities in the area of products of the bank. In 2006, he became responsible for the
segments of Large Enterprises, Corporate, Institutional and High Income in Latin America, in addition to leading the
product areas for the countries of Latin America (Comex, Cash Management, Payroll etc.). From 2008 to 2010, he
performed the role of Chief Executive Officer of Banco Santander – Puerto Rico. As of 2010, he occupied the
position of Vice president of the Commercial area of Banco Santander Mexico, with responsibility for the business
areas. At that time, he was also: a member of the management committee; steering committee, ALCO, finance
committee and risk committee. As a Vice President Executive Officer, he is responsible for the commercial area.
Manoel Marcos Madureira. Mr. Madureira is Brazilian and was born on December 30, 1951. He holds a
Bachelor’s Degree in Mechanical Engineering from the Taubaté University in São Paulo and a Degree in
Administration from the Tokyo International Center in Japan. From 1976 to 2005 he worked in the automobile
sector, as Institutional Relations and Communication Officer at Fiat Automóveis and Mercedes Benz do Brasil.
From 1998 to 2005 he was also Vice President of the Associação de Fabricantes de Veículos Automotores and
President of the Associação de Engenharia Automotora. In 2006 he was elected as Vice president of Corporate
Affairs of Santander Brasil and in 2007 he was put in charge of the Vice Presidency of the Federação Brasileira de
Bancos. In 2008 he was transferred to Santander Spain, as Communication and Public Policy Officer for Latin
America, where he remained until September 2012. In October 2012 he returned to Brazil as Executive Officer to be
in charge of the Corporate Communication and Institutional Relations Departments of Santander Brasil, and he is
currently the Vice President Executive Officer of Communication, Marketing, Institutional Relations and
Sustainability. He is also an Officer of Universia Brasil S.A.
Oscar Rodriguez Herrero. Mr. Rodriguez is Spanish and was born on October 4, 1971. He holds a Bachelor’s
Degree in Business Administration from the Colégio Universitário de Estúdios Financieros in Madrid, Spain and an
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MBA from Northwestern University’s Kellogg School of Management in Chicago, Illinois. As one of our Vice
President Executive Officers, he is the head of the new business department, including the joint-venture with Banco
Bonsucesso to develop the payroll business through an out-of-company solution, agribusiness and private equity. In
between years 2006 and 2014, he was an Executive Vice President Officer of risk management of Santander Brasil
responsible for management and control of credit risks for retail and wholesale, as well as market and operational
risks. He served as an analyst of credit risk for the Santander Investment business in Brazil, Chile and Argentina
based in Spain from 1994 to 1998. He was a consultant at McKinsey & Co in the United States and Spain from 2000
to 2004. He also served as Credit Risk Officer of the wholesale banking and corporate areas of Santander Brasil
from 2004 to 2006. Currently, he is the Chief Executive Officer of Atual Companhia Securitizadora de Créditos
Financeiros, an Executive Officer of Banco Bandepe S.A., Aymoré CFI and officer of Santander Participações S.A.,
Santander Leasing S.A. Arrendamento Mercantil and Santander Brasil Advisory Services S.A. He is also a member
of the board of directors of Companhia de Arrendamento Mercantil RCI Brasil, Companhia de Crédito,
Financiamento e Investimento RCI Brasil, Light Serviços de Eletricidade S.A. and Chairman of the board of
directors of Mantiq Investimentos Ltda.
Fernando Díaz Roldán. Mr. Roldán is Spanish and was born on October 7, 1965. He holds a Bachelor’s Degree
in Physics and a specialization degree in Applied Physics from Universidad Autónoma de Madrid. He also holds a
postgraduate degree in Business Management from IESE Business School, Universidad de Navarra. He started his
career working in Hewlett Packard. From 1996 to 2001 he worked for IT companies such as: British Life SAE and
Ibéria SA SITEL Teleservices. In 2001 he joined Grupo Endesa, where he worked as General Officer/Operations
Officer of Mundívia and Corporate Infrastructure Officer, of the telecommunication and systems division. In 2006
he was invited to join the Santander Group, as Corporate Services Officer of Produban Serviços de Informática S.A.,
where he managed production services for business global units of the Group (GB&M, Asset Management,
Insurance and Credit Cards), as well as corporate projects and competency centers. In 2008, he began to direct
Produban’s operations, in Brazil, as Executive Officer for the Santander Group. He actively participated in the
integration of Santander and ABN Real and he was also responsible for the technological infrastructure operation of
Santander Group in Brazil, Chile and Argentina. Since the end of 2012, he has been responsible for the Technology
department in Santander Brasil, acting as CIO – Chief Information Officer.
José Alberto Zamorano Hernandez. Mr. Zamorano is Spanish and was born on May 9, 1962. He holds a
degree in Business Administration from the Universidad Complutense de Madrid. In 1991, He began his career in
Santander Group as manager of the internal audit area from 1995 to 2002, where he was responsible for the credit
risk audit in regional units of Galícia, Alicante and Castilla La Mancha. From 2002 to 2005, he was superintendent
of internal audit of Santander Brasil and from 2005 to 2010, he was an Executive Officer of internal audit in Grupo
Financeiro Santander México. As one of our Executive Officers, he has been responsible for our internal audit area
since 2011.
José Roberto Machado Filho. Mr. Machado is Brazilian and was born on August 25, 1968. He holds a degree
in Electrical Engineering from Faculdade de Engenharia Industrial in São Paulo and has a master’s degree in
business, economics and finance from the Universidade de São Paulo. He was an engineer for Keumkang Limited
from 1990 through 1991, a foreign exchange manager from 1992 through 1995 and a manager of emerging markets
trading desk from 1992 through 1996 of Banco CCF Brasil S.A. He was also an Executive Officer of Banco
Rabobank Internacional Brasil S.A. from 1998 through 2003 and was an Executive Officer of Banco Real from 2003
to 2009. Currently, he is responsible for the commercial network of Rio de Janeiro and Espírito Santo. He is also an
Executive Officer of Banco Bandepe S.A. and Santander Securities Services Brasil DTVM S.A., as well as an
Officer of CETIP.
Maria Eugênia Andrade Lopez Santos. Ms. Santos is Brazilian and was born on January 23, 1966. She holds a
degree in Economics from the Universidade Federal da Bahia and a specialization degree from Fundação Getúlio
Vargas. As one of our Officers, she is responsible for Private Segments (Private Banking, Select, Van Gogh and
Individual), Investments and Insurance (Equity Management). She also serves as a Chief Executive Officer of
Santander Brasil Advisory Services S.A. and of SANCAP Investimentos e Participações S.A.
Amancio Acúrcio Gouveia. Mr. Gouveia is Brazilian and was born on March 31, 1963. He holds a degree in
Accounting from the Universidade Santa Úrsula. As one of our Officers, he has been acting as a controller working
in accounting and fiscal management of our companies since 2001. He was an audit manager for KPMG until 1991,
accounting manager of Unibanco – União de Bancos Brasileiros S.A. from 1991 to 1999, deputy superintendent of
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BankBoston Banco Múltiplo S.A. from 1999 to 2001. He is also an Officer of Santander Leasing S.A.
Arrendamento Mercantil, an Executive Officer of Atual Companhia Securitizadora de Créditos Financeiros,
Santander Capitalização S.A., Aymoré CFI, Banco Bandepe S.A., Evidence Previdência S.A e da SANCAP
Investimentos e Participações S.A. He is also administrator of Santander Brasil Administradora de Consórcio Ltda.
member of the Fiscal Council of Companhia Energética de São Paulo and an effective member of the Fiscal Council
of Redentor Energia S.A.
Ana Paula Nader Alfaya. Ms. Nader is Brazilian and was born on August 7, 1971. She holds a degree in
Publicity and Advertising from the Universidade Paulista in São Paulo and a specialization degree in
communications from the Escola Superior de Propaganda e Marketing. From 1996 to 1997, she served as Marketing
and Internal Communication Manager, at Unibanco. She served as Credit Card’s Communication Manager from
1997 to 1998 at BankBoston and after that, as Strategy and Planning Marketing Manager, from 1998 to 2000, still at
BankBoston. She served as Planning Marketing and Research Manager, from 2000 to 2003 at ABN AMRO, and as
Retail Marketing Manager, from 2003 to 2004, and in the same year she became a superintendent of Strategy
Marketing Department for retail. From 2005 to 2010 she served as Executive Superintendent of the Brand, Research
and Marketing Department and, since 2011 as Senior Executive Superintendent of Brand and Marketing department
and since 2012 as Director of Brand and Marketing department.
Cassio Schmitt. Mr. Schmitt is Brazilian and was born on April 23, 1971. He holds a degree in Economics from
the Universidade Federal do Rio Grande do Sul, a Master’s Degree in Corporate Economics from the Fundação
Getúlio Vargas in São Paulo and a MBA from the Sloan School of Business, Massachusetts Institute of Technology
(MIT). He was treasury economist of Banco de Crédito Nacional S.A. from 1995 to 1996, and senior economist for
UNIBANCO – União de Bancos Brasileiros S.A. from 1996 to 1999. He was an associate of the leveraged finance
team of UBS Warburg in 2000, project finance superintendent of UNIBANCO from 2001 to 2003 and corporate
banking superintendent of UNIBANCO Representative Office in New York from 2003 to 2004. He was a
superintendent in the M&A/Project Finance team of Santander Brasil in 2004, and became responsible for project
finance in Brazil in 2005 and also for the areas of acquisition finance and syndicated lending in 2010. From 2011 to
2012, he became responsible for the GB&M clients Risk Department, and up to 2014 he was responsible for the
Global Transaction Banking. Today he is the Officer responsible for Credit Recovery Business.
Cassius Schymura. Mr. Schymura is Brazilian and was born on February 19, 1965. He holds a degree in
Electrical Engineering from the Pontifícia Universidade Católica in Rio de Janeiro and an MBA from the Fundação
Dom Cabral. As one of our Officers, he is responsible for the Cards and Loans Products and Services area. He was
the investment products analyst for Banco Nacional S.A. from 1989 to 1991, products and marketing manager of
Cardway Processamento from 1991 to 1994, products manager of Cartão Nacional from 1994 to 1996, marketing
and products supervisory manager of Unicard Banco Múltiplo S.A. from 1996 to 1999, a senior associate at Booz
Allen & Hamilton in 1999, he was Chief Executive Officer of Ideiasnet S.A. in 2000, a member of the board of
directors from 2000 to 2001, the general manager of SOFTCORP from 2001 to 2004 and has been part of Santander
Group since 2004. He is also an Officer representing ABECS, Chief Executive Officer of Santander Securities
Services Brasil Participações S.A and a member of the board of directors of Super Pagamentos e Administração de
Meios Eletrônicos S.A.
Ede Ilson Viani. Mr. Viani is Brazilian and was born on September 5, 1967. He holds a degree in Accounting
and a MBA from Insper. He was an auditor at Banco Itaú S.A. from 1986 to 1990, and a senior auditor at
BankBoston S.A, as well. He worked for 17 years at BankBoston acting in sequence as Officer of Loans and
Products and Officer for the banking sector aimed at small and medium companies. He joined Santander Brasil in
2007 as Officer for Small and Medium Business Banking. He was the Officer responsible for Retail Banking Risk
Management from July 2010 to 2014. As one of our Officers, he is currently responsible for the Corporate Business,
in Segments Companies and Institutions, with responsibilities for: segmentation, products and customer
management and commercial activity.
Eduardo Müller Borges. Mr. Borges is Brazilian and was born on September 12, 1967. He holds a degree in
Business Administration from the Pontifícia Universidade Católica of São Paulo. He joined the Santander Group in
2005, and is responsible for the Credit Markets Group, which includes Financing of Projects, Acquisitions,
Syndicated Lending, debt capital markets and investment of our equity in renewable energy projects, within the
GB&M. He was an International Trade Manager and then an International Capital Markets Senior Manager of the
First National Bank of Boston, São Paulo from 1993 to 1996, Vice President in emerging markets syndicated loans
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of BancBoston Robertson Stephens Inc. in Boston, Massachusetts from 1996 to 1999, a Director of BankBoston
Banco Múltiplo S.A. from 1999 to 2000, Capital Markets Vice President of Banco JP Morgan S.A. from 2000 to
2002, Capital Markets Vice President of Santander Brasil from 2002 to 2004, an Officer of ING Bank N.V. São
Paulo from 2004 to 2005 and has been working at Santander Brasil again since 2005. Currently he is a member of
the executive committee of the GB&M Division in Brasil.
Flávio Tavares Valadão. Mr. Valadão is Brazilian and was born on July 1, 1963. He holds a degree in
Electrical Engineering from the Escola de Engenharia Mauá, an Accounting and Finance Degree from IBMEC (now
Insper) and a Master’s Degree in Electrical Engineering from the University of Lille in France. As one of our
Officers, he is responsible for the Corporate Finance area at Santander. He was a Corporate Finance Officer for
Banco Paribas from 1990 to 1998 and joined Banco ABN AMRO Real in 1998.
Gilberto Duarte de Abreu Filho. Mr. Abreu is Brazilian and was born on August 7, 1973. He holds a degree in
Production Engineering from the Universidade de São Paulo and an MBA from the Massachusetts Institute of
Technology, in Massachusetts. As one of our Officers, he is responsible for the Mortgage Financing. Before joining
Santander Brasil, He was a Senior Manager at McKinsey & Company, leading projects in both the financial and
retail areas. He is also the Chief Executive Officer of Webcasas S.A., Vice President of ABECIP, and a member of
the board of directors of CIBRASEC.
Javier Rodriguez de Colmenares y Alvarez. Mr. Rodriguez de Colmenares is a Spanish citizen, born on April 1,
1977. He graduated in Law and Economics & Business Administration at the ICADE business school of the
Universidad Pontificia Comillas in Madrid and obtained a Master’s Degree in Investment Banking & Financial
Markets from the School of Finance of Banco Bilbao Vizcaya Argentaria (“BBVA”). He joined the Project Finance
Department at BBVA in 2001 and in 2005 joined the Santander Group to hold the position globally responsible
(Europe and the Americas) for TMTs and Logistics within the Structured Finance Unit at the Investment Bank
(Santander Investment and later GB&M). He was later named to lead the infrastructure sector at the same business
unit and then promoted as Global Officer of Project & Acquisition Finance for the whole Santander Group, based in
Madrid. In November 2009 he was named Chief Credit Officer for Specialized Finance & Structured Products
(Derivatives) in the Risk Management Division, acting as a permanent member of the global wholesale risk
committee and the structured products risk committee as well as the global sustainability committee chaired by the
Santander Group’s Chief Executive Officer. As one of our Officers, he is responsible for the GB&M Risk
(Santander Global Banking & Markets) and Corporate (Wholesale) units.
Jamil Habibe Hannouche. Mr. Hannouche is Brazilian and was born on June 23, 1960. He holds a degree in
Mechanical Engineering from the Universidade Mogi das Cruzes. He holds a specialization degree in Finance from
Faculdade Dom Cabral, and a Master’s Degree in Business Management from IBMEC (now Insper), as well as a
Master’s Degree in Pedagogy from Dom Domenico. As one of our Officers, he is responsible for the Universities
area, including Universia Brasil S.A.’s management. He was an Officer of Banco Nacional S.A. from 1983 to 1995,
and an Officer of Unibanco - União de Bancos Brasileiros S.A. from 1995 to 2000.
Jean Pierre Dupui. Mr. Dupui is Brazilian and was born on September 23, 1968. He holds a Bachelor’s Degree
in Economics and a specialization degree from the University of Boston, USA. Today he is responsible for the
Corporate & Investment Bank unit of Santander Brasil. From 1992 to 1998 he worked at the structured finance and
trade finance department of Lloyds TSB Group in São Paulo and London. From 1998 to 2001 he worked at the
structured finance department of Citigroup Brasil. From 2001 to 2004 he worked for BBVA Brasil in the debt
capital markets department. From 2004 to 2006 he was a Corporate Finance Officer at Citigroup New York and São
Paulo. He started his career in Santander Group in 2006, where he took charge of the Credit Markets department of
Santander Brasil. From 2009 to 2012 he was responsible for Global Transaction Banking of Santander in Madrid.
Luiz Felipe Taunay Ferreira. Mr. Taunay Ferreira is Brazilian and was born on March 18, 1967. He holds a
degree in Business Administration from the Fundação Getúlio Vargas, a degree in economics from the Universidade
de São Paulo and a Master’s Degree in Economics from the Universidade de São Paulo. He is also a CFA charter
holder. As one of our Officers, he works in the investors relations department. He was a trader for Banco ING Brasil
from 1994 to 1996 and Head of Equity Derivatives Market Risk Management at ING Barings, London from 1996 to
1998. He joined Banco Real in 1998 and has been with Santander Group ever since. During this period, he was
primarily responsible for the market risk area, in Brazil and Latin America and later responsible for the "Asset &
Liability Management" department. He is also Executive Officer of Aymoré CFI and Banco Bandepe S.A.
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Mara Regina Lima Alves Garcia. Ms. Garcia is Brazilian and was born on December 28, 1966. She holds a
Bachelor’s Degree in Law from the Centro Universitário das Faculdades Metropolitanas Unidas, a specialization
degree in Financial Law from the IBMEC (now Insper), and has a Master’s Degree in International Economic Law
from the Pontifícia Universidade Católica de São Paulo. She was Legal Manager of Banco Inter-Atlântico S.A. from
1996 to 2000 and a Senior Lawyer of Banco Itaú BBA S.A. from 2000 to 2006. She joined Santander Brasil in 2006
as Executive Superintendent of the Legal Wholesale area. As one of our Officers, she is responsible for the
corporate affairs, legal and compliance area. She is also an Executive Officer of Banco Bandepe S.A., a member of
the legal committee of FEBRABAN and ABBI.
Marcelo Zerbinatti. Mr. Zerbinatti is Brazilian and was born on February 5, 1974. He holds a degree in
Business Administration from Centro Universitário das Faculdades Metropolitanas Unidas, a specialization degree
in Negotiation from Fundação Getúlio Vargas and holds a master’s degree in Planning from Pontifícia Universidade
Católica de São Paulo. He worked at Banco Bradesco S.A. from 1988 to 1992 as Head of Service, at Bank Boston
from 1992 to 1994 as Coordinator of Foreign Exchange, and at Banco Real from 1994 to 2006 as Project
Superintendent. From 2006 to 2008 he served as our Senior Organization Executive Superintendent responsible for
Process, Projects and Management of Changes. From 2008 he became responsible for the coordination of the
Integration Office, and from 2011, he became an Officer, responsible for the Organization, Technology and
Processes Department, called Organization and Efficiency Department, from 2012. From October 2013, he became
responsible for the Strategic Department. From 2015, he became responsible for the Quality and Customer
Experience Department.
Marcio Aurelio de Nobrega. Mr. Nobrega is Brazilian and was born on August 23, 1967. He holds a degree in
Business Administration and economics from the Faculdade Santana and business extension at IESE Business
School. As one of our Officers, he is responsible for the technology and operations for Global Businesses and Asset
Management Back Office. He joined Banco Real in 1982 and has been working for Santander Brasil ever since. He
is an Officer of Santander Securities Services Brasil DTVM S.A. and Santander Securities Services Brasil
Participações S.A.
Mario Adolfo Libert Westphalen. Mr. Westphalen holds Brazilian and German citizenship, and was born in
July 9, 1968. He graduated in Electrical Engineering from the University of Brasilia in 1992. He started his career at
Telecommunications Market where he served for more than five years as Director of Autotrac SA, Qualcomm Inc
and Piquet Participations. In 1998, he served as a Special Advisor to the Ministry of Development, Industry and
Trade of Brazil. From 1999 to 2001, he held the role of Senior Consultant at K2 Achievements Consulting. From
2001 to 2003 he served as Executive Director and partner of Concrete Solutions, a company which provides IT
services. In 2004, he joined Santander Brasil, where he served as Superintendent of the Property and Facilities area
until 2007, and then and until 2009 as Senior Executive Superintendent of corporate resources. From 2010 to 2013
he served as Officer of Operations at Santander Global Facilities, in the U.S., being responsible for the
implementation and operation of that company in the U.S. As one of our Officers he is responsible for cost
management, organization and efficiency.
Mauro Cavalcanti de Albuquerque. Mr. Cavalcanti is Brazilian and was born on October 3, 1969. He
graduated with a BSc Engineering from the University of Exeter, in England, in 1991, and a Masters’ Degree in
Business Administration from IMD in Lausanne, Switzerland, in 2003. He began his career in BankBoston, passing
through the positions of Trainee, Hedging Operations Manager and Correspondent Banking Manager, from 1992 to
1994. In 1995 and 1996, he was a trader and served on the sale of structured derivatives at JP Morgan in São Paulo
and New York. He was hired in 1997 and 1998 by BankBoston Securities, Inc., in Boston (MA, United States), to
perform loan structured activities in Latin America. He has been a part of Santander Brasil since 1999, having
served as an executive in corporate sales, treasury, international division, Project Finance and Global Transaction
Banking departments. As one of our Officers, he is responsible for the Global Transaction Banking area. He is a
Director of CIP (Câmara Interbancária de Pagamentos).
Mauro Siequeroli. Mr. Siequeroli is Brazilian and was born on March 24, 1957. He holds a degree in Business
Administration from Fundação Getúlio Vargas and a specialization degree in Industrial Resources and General
Administration also from Fundação Getúlio Vargas. As one of our Officers, he is responsible for the corporate
resources area. He was an Operations Officer for Banco Crefisul S.A. from 1985 through 1994, an Operations
Officer and subsequently a Products Officer for Banco BMC from 1995 to 1998, an Operations Officer for Banco
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Bandeirantes S.A. from 1999 to 2000 and joined Santander Brasil in 2001. He is also an Executive Officer of
Santander S.A. - Serviços Técnicos, Administrativos e de Corretagem de Seguros.
Nilton Sergio Silveira Carvalho. Mr. Nilton Carvalho is Brazilian and was born on January 1, 1957. He holds a
Bachelor’s Degree in Electric Production Engineering from the Faculdade de Engenharia Industrial. He has been
engaged in the banking business since 1981. From 1981 to 2005 he worked at Unibanco in several different
departments. From 2005 to 2008, he served as Operations Officer at Olé Financiamentos. From 2008 to September,
2009, he was responsible for the Organization department at Santander Brasil. From October 2009 to October, 2012
he was responsible for the operation structure at Aymoré CFI. Today, as an Officer of Santander Brasil, he is
responsible for the Operations department of Banco Santander, and he is also Executive Officer of Aymoré CFI,
Santander Capitalização S.A. and Evidence Previdência S.A., member of the board of directors of TecBan, Deputy
Director of Companhia de Arrendamento Mercantil RCI CFI and for Companhia de Crédito, Financiamento e
Investimento RCI Brasil, and he is a Director on the board of directors of Webmotors and Officer of Santander
Brasil Administradora de Consórcio Ltda.
Ramón Sanchez Díez. Mr. Sánchez is Spanish and was born on October 29, 1968. He holds a degree in
Economics from the Universidad Autónoma de Madrid and has completed an Advanced Management Program at
The University of Pennsylvania Wharton School. As one of our Officers, he is responsible for our Payroll Customers
business. He served as a Financial Analyst and Portfolio Manager for Santander Brasil’s New York branch from
1992 to 1997 and as an Officer for Strategy and Analysis for Latin American banks at Santander in Madrid from
1997 to 2003. He was an Officer for Strategy and Investor Relations for Santander Brasil from 2004 to 2006, Head
of Customer Acquisition from 2007 to 2009, was in charge of our retail banking channels (call center, internet,
mobile and ATM)) from 2009 until 2011 and before his current position was the Head of Retail Commercial
Planning and Communication. He was President of the Spanish Chamber of Commerce of Brazil, between 2006 and
2009.
Reginaldo Antonio Ribeiro. Mr. Ribeiro is Brazilian and was born on May 19, 1969. He holds a degree in
Economics from the Universidade Estadual de Campinas, an Accounting degree from the Universidade Paulista and
an MBA from the FIPECAFI of the Universidade de São Paulo. As one of our Officers, he is responsible for tax
issues and Accounting Standards. He served as a manager for Arthur Andersen Consultoria Fiscal Financeira S/C
Ltda. from 1990 to 2001. He was also a member of the Fiscal Council of Companhia Energética de São Paulo and
AES Tietê from 2002 to 2006. He is member of the management of the following companies: Santander S.A. –
Serviços Técnicos, Administrativos e de Corretagem de Seguros; Aquanima Brasil Ltda.; Atual Companhia
Securitizadora de Créditos Financeiros; Santander Participações S.A.; Santander Securities Services Brasil
Participações S.A.; Santander Brasil Advisory Services S.A and Norchem Participações e Consultoria S.A.
Roberto de Oliveira Campos Neto. Mr. Neto is Brazilian and was born on June 28, 1969. He holds a Bachelor’s
Degree in Economics and a specialization degree in Economics with a focus on Finance from the University of
California, Los Angeles (“UCLA”). He worked at Banco Bozano Simonsen from 1996 to 1999, where he served as
Operator of Derivatives of Interest and Foreign Exchange (1996), Operator of External Debt (1997), Operator of the
Area of Stock Exchanges (1998) and Head of the Area of International Fixed Income (1999). From 2000 to 2003 he
worked as Head of the International Area and Fixed Income at Santander Brasil. In 2004 he served as Portfolio
Manager of Claritas. He joined us in 2005 as Operator and in 2006 he was Head of the Trading Desk. In 2010, he
became responsible for the Proprietary Trading and Market Making Local & International. He is currently also
responsible for our treasury function.
Ronaldo Yassuyuki Morimoto. Mr. Morimoto is Brazilian and was born on May 5, 1977. He holds a Bachelor’s
Degree in Economics from the School of Economics of the Universidade de São Paulo. He has been responsible for
the area of Assets and Liabilities Management (“ALM”) / Financial Management. He is also Vice president of
Banco Bandepe and Executive Officer of Aymoré CFI. He joined Santander Brasil in 2001, working in different
areas such as Governments & Institutions, Products, Finance & Accounting, Basel II Project and Wholesale
Financial Control. He began his career at Banco América do Sul in the area of Credit Risk in 1998, then worked at
Citibank S.A. from 1998 to 2000 and AT&T Latin America from 2000 to 2001.
Sergio Antonio Borriello. Mr. Borriello is Brazilian and was born on April 15, 1964. He holds a Bachelor’s
Degree in Accounting Sciences, from the Pontifícia Universidade Católica –SP. Graduation currently in progress in
Finance from FGV and in Philosophy. He started his career in 1982, at KPMG Peat Marwick, where he worked for 5
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years, until reaching the position of Senior Auditor. From 1987 to 1998 he worked at Citibank N.A., where he
served in many financial areas, such as Fiscal, Accounting Policies and Management Information. From 1993 to
1996 he served in Treasury Risk, and from 1996 to 1998 in the Financial area, as Controller. From 1998 to 2002 he
worked at Citibank – Colombia, as Chief Financial Officer, where he had additional responsibilities related to
Internal Audit, Compliance and Market/Liquidity Risks. From 2002 to 2004 he worked at ABN AMRO, where he
served as Chief Financial Officer, being responsible for all the businesses units. Besides that, he was responsible for
the Accounting Policies, and for the implementation of the IFRS Project and U.S. GAAP. After, from 2005 to 2008,
he worked at Banco IBI, where he acted as Chief Financial Officer, in addition, he occupied a statutory position,
approved by SUSEP. From 2012 to 2013, he served as Officer appointed pursuant to the bylaws, at Tecnisa S.A.,
where he was responsible for the implantation of the Shared Services Center. Currently, He is our Officer with
responsibility for the Technology and Operational Means for the Financial Area and Risks, in addition to performing
the functions of Chief Data Officer.
Sérgio Gonçalves. Mr. Gonçalves is Brazilian and was born on August 7, 1956. He holds a degree in
Economics from Fundação Armando Álvares Penteado, São Paulo, with an International Executive MBA degree
from the Universidade de São Paulo. Since November 2000, he has been one of our Officers, and he is currently
responsible for the Government & Institutions departments. He worked as Corporate Banking Officer for 16 years
(from 1979 to 1994) at Banco Crefisul, associate of Citibank. From 1995 to 2000, he was Products Officer at Banco
Nossa Caixa (now, Banco do Brasil S.A.).
Thomas Gregor Ilg. Mr. Ilg is Brazilian, and was born on September 12, 1968. He holds a Bachelor’s Degree in
Agricultural Engineering from the Universidade Estadual de Campinas, and a postgraduate diploma in Business
Administration from the Fundação Getúlio Vargas. He has been engaged in the financial markets for almost 25
years, including 14 years with Santander Brasil and 10 years with The First National Bank of Boston, where he first
joined as a Trainee in the Risks and Business areas. At Santander Brasil he was responsible for the Corporate
Banking Business until the beginning of 2007 when he joined our Treasury Division to develop an area designed to
distribute derivatives to the Middle Market, Private Banking and Retail Business in general. At the end of 2008 he
moved to the Credit Division to manage the Corporate Banking Risk Area, and now, as an Officer, he is responsible
for our retail risks function.
Vanessa de Souza Lobato Barbosa. Ms. Barbosa is Brazilian, and was born on December 24, 1968. She holds a
Bachelor’s Degree in Business Administration from Pontifícia Universidade Católica de Minas Gerais, and a
specialization degree in Marketing at Universidade Federal de Minas Gerais. From 1992 to 1995 she served as
Marketing Local Manager at Banco Nacional. She also worked at Unibanco, in Recife (Brazil), from 1995 to 1999.
In 1999 she started to work for Banco Santander, where she worked as General Manager of the Recife branch office.
From 2001 to 2006 she served as Local Superintendent, where she was responsible for one of the Retail’s Locals,
with head office in Belo Horizonte, covering the states of Minas Gerais, and Goiás, as well as Brasília, and the states
of the Northeast. From 2006 to 2013, Ms. Barbosa became Executive Superintendent of branch network, with
responsibility for important cities such as: Campinas, Jundiaí, Sorocaba, Piracicaba, Limeira and Americana. As one
of our Officers, she is currently responsible for the Human Resources area.
We have no knowledge of any arrangement or understanding with major shareholders, customers, suppliers or
any other person pursuant to which any person was selected as a director or executive officer.
Compensation
Compensation of Directors, Executive Officers and Members of Audit Committee
Our shareholders establish the maximum annual aggregate compensation of our directors and officers at the
annual shareholders’ meeting. Compensation of the members of our audit committee is established by our board of
directors. Under Brazilian law, companies are required to disclose the highest, lowest and average compensation of
our directors, members of the audit committee and officers without indicating any individual name. However, as
members of the Brazilian Institute of Finance Executives (Instituto Brasileiro de Executivos de Finanças – IBEF) we
were granted an injunction on March 2, 2010, allowing us not to disclose this information.
Shareholders at the general shareholders meeting held on April 30, 2014 set compensation for our directors and
executive officers at a total of up to R$300 million. The meeting of the board of directors held on February 26, 2014
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approved compensation for the audit committee in the amount of R$3.0 million for a twelve-month period beginning
on March 18, 2014. For the above mentioned twelve-month periods, members of our board of directors and
executive officers received a total of approximately R$178.8 million and members of our audit committee received a
total of approximately R$2.3 million. The total amount of contributions for pension plans of our board of executive
officers in 2014 was R$3.2 million.
The criteria for granting and paying variable compensation vary according to the activities performed by the
different areas and, therefore, payment of the variable compensation may differ depending on the department and
activities performed by each member. Pursuant to Brazilian law, variable compensation is required to be compatible
with the financial institution’s own risk management policies. At least 50.0% of variable compensation must be paid
in stock or stock-based instruments and at least 40% of variable compensation must be deferred for future payment
by at least 3 years. These rules are effective as from January 1, 2012.
As approved by our board of directors at the meeting held on December 23, 2009, we indemnify our directors
and executive officers and members of the audit committee from claims arising during the time they occupy their
respective offices, exclusively related to court or administrative costs and attorneys’ fees, except in cases of bad
faith, gross negligence, willful misconduct or mismanagement by our directors or executive officers. This indemnity
was also granted to the members of the audit committee and the compensation and nomination committee.
Compensation Plan Overview
We have three programs for long-term compensation: the Deferral Program, the Local Long-Term Incentive
Program (the Stock Option Plan, or “SOP,” and the Performance Share Plan, or “PSP”) and the Global Long-Term
Incentive Program (PI09, PI10/PI11/PI12 / PI13 and Pl14).
Executive officers and executives in key positions are eligible to participate in these plans. The plans last three
years, promoting our executive officers and executives’ commitment to our long-term results. Members of the board
of directors can participate in these plans only if they are executive officers, otherwise, the board members are not
eligible to participate in any of these plans.
Deferral Program
Our Deferral Program is available to our statutory officers, officers in positions of management and certain
other eligible employees. As part of the Deferral Program, we defer a part of these employees’ variable
compensation over a period of three years.
Our Deferral Program aims to: (i) align the program with the principles of the Financial Stability Board, or
“FSB,” agreed upon at the G20; (ii) align our interests with those of the plan’s participants (to achieve sustainable
and recurring growth and profitability of our businesses and to recognize the participants’ contributions); (iii) allow
the retention of participants; and (iv) improve our performance and protect the interests of shareholders via a longterm commitment.
Pursuant to Brazilian Law, payments made under the Deferral Program are subject to total or partial
cancellation, or claw back, in cases of: (i) our unsatisfactory financial performance (financial results audited lower
than defined in our business plan or loss in the period); (ii) failure to comply with internal policies, especially
policies for risk management (with the need for reclassification of operations or revision of provisions), (iii)
substantial change in our financial condition, unless arising from changes in accounting standards (damages,
financial loss); or (iv) significant changes in our capital base.
We renew and update our Deferral Program every year. As of 2014, we had three plans outstanding: one for
each fiscal year: 2011, 2012, 2013 and 2014. As of December 31, 2014, we recorded total expenses of R$91.9
million in connection with our Deferral Program compared to total expenses of R$81.2 million in 2013.
Deferral Program – 2014
Our 2014 plan is divided among two programs:
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•
Collective Identified. Statutory Officers and Executives who take significant risks in the Bank and are in
charge of the control areas. Deferred compensation will be paid 50% in cash, indexed to 100.0% (hundred
percent) of the CDI, and 50% (fifty percent) in Units.
•
Collective Unidentified – Employees. Individuals eligible for this program include manager employees and
certain of our employees. Deferred compensation will be paid 100.0% (hundred percent) in cash, indexed
to 100.0% (hundred percent) of the CDI.
Deferral Program — 2012 and 2013
Our 2012 and 2013 plans are divided among two programs:
•
Statutory Officers and Executives – Statutory Officers and Executives who take significant risks in the
Bank and are in charge of the control areas. Deferred compensation will be paid 50% in cash, indexed to
100.0% of the CDI, and 50% in Units.
•
Collective Unsupervised – Employees – Individuals eligible for this program include manager employees
and certain of our employees of the Bank. Deferred compensation will be paid 100.0% in cash, indexed
to110.0% of the CDI.
Deferral Program—2011
Our 2011 plan is divided among three programs:
•
Supervised Collective. The program is for members of our executive committee and other executives who
manage significant risks for us and are responsible for internal control. Deferred compensation will be
paid 50.0% in cash, indexed to 100.0% of the CDI, and 50.0% in Units.
•
Collective Unsupervised – Statutory Directors. Eligible officers for this program include statutory officers
that are not participants in the Supervised Collective program. Deferred compensation will be paid 100.0%
in our Units.
•
Collective Unsupervised – Employees. Individuals eligible for this program include manager employees
and certain other of our employees. Deferred compensation will be paid 100.0% in cash, indexed to
120.0% of the CDI.
Local Long-Term Incentive Program
In the Local Long-Term Incentive Program, we have two plans for different beneficiaries, SOP, and PSP. The
SOP is an option plan to purchase our Units for our top management, and the PSP is an incentive plan to compensate
executives from all our areas. The objective of these plans is to retain our employees’ commitment to long-term
results.
As of December 31, 2014, we incurred expenses of R$86.0 million, with respect to the SOP plan and R$2.7
million with respect to the PSP plan. During the period, we recorded a gain under personnel expenses due to
fluctuations in the market value of the PSP share plan in the amount of R$1.5 million on a consolidated basis.
Stock Option Plan
Our SOP consist of three-year stock option plans to purchase our Units. The period for exercising the options is
within two years of the vesting period. The volume equivalent to one third of the Units resulting from the exercise of
options cannot be sold by the participant during a period of one year from the exercise date. Plan participants must
remain with us during the term of the plan in order to be eligible to exercise their options on their corresponding
Units.
Incentive Plan Long Term – SOP 2012
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On February 3, 2010, our shareholders approved the grant of the SOP 2012 plan, with an exercise period
between June 30, 2012 and June 30, 2014. The number of Units exercisable by the participants under this plan were
determined (i) 50% based on total shareholder return, or “TSR,” and (ii) 50% based on the comparison between
realized and budgeted net income. The options issued under the plan have an option price of R$23.50 per Unit. On
December 31, 2013, there were outstanding options under the plan corresponding to a maximum of 4,903,768 Units.
Incentive Plan Long Term – SOP 2014
On October 25, 2011, our shareholders approved the grant of the SOP 2014 plan, with an exercise period
between June 30, 2014 and June 30, 2016. The number of Units exercisable by the participants will be determined
according to the TSR. The amount of Units that can be exercised may be reduced if our goals of return on riskadjusted capital, or “RORAC,” are not achieved based on a yearly comparison between realized and budgeted
performance. The options issued under the plan have an option price of R$14.31 per Unit. On December 31, 2014,
there were outstanding options under the plan corresponding to a maximum of 1,028,425 Units.
Incentive Plan Long Term – SOP 2016
On April 29, 2013, our shareholders approved the grant of the SOP 2013 plan, with an exercise period between
June 30, 2016 and June 30, 2018. The number of Units exercisable by the participants will be determined according
to the TSR. The amount of Units that can be exercised may be reduced if our goals of return on risk-weighted assets,
or “RoRWA,” are not achieved based on a yearly comparison between realized and budgeted performance. The
options issued under the plan have an option price of R$14.43 per Unit. On December 31, 2014, there were
outstanding options under the plan corresponding to a maximum of 10,238,623 Units.
Performance Share Plan
Our PSP consists of share-based compensation, launched in three-year cycle.
PSP - Pl14
On February 3, 2010, our shareholders approved the PSP Pl14 plan. Under this compensation plans, participants
receive 50% of the plan’s compensation based on shares but settled in cash and 50% in Units, based on RTA and
RoRWA indicators. On December 31, 2014, there were no outstanding Units under P114.
PSP - 2013
On April 29, 2013, our shareholders approved the PSP 2013 plan. Under this compensation plan, participants
receive 100% of the plan’s compensation in Units. The amount of Units received may be reduced if our goals of
return on RoRWA are not achieved based on a comparison between realized and budgeted performance in each
year, as determined by the board of directors. On December 31, 2014, there were 2,563,416 outstanding Units under
this plan.
Fair Value and Performance Parameters of SOP and PSP Plans
For the accounting of the local program’s plans, simulations were performed by an independent consultant,
using the Monte Carlo methodology, using the performance parameters used to calculate the shares to be granted.
These parameters are associated with their respective probabilities of occurrence, which are updated at the closing of
each period.
TSR Ranking – SOP
TSR Ranking
SOP (1)
(% of Shares exercisable)
SOP delivery 2014 (2) (% of
Shares exercisable)
SOP 2013 (3)
(% of Shares exercisable)
1
2
3
4
50%
35%
25%
0%
100%
75%
50%
25%
100%
75%
50%
0%
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______________________
(1) Associated with the TSR, the remaining 50% of shares exercisable refer to the realization of net income versus budgeted profit.
(2) The percentage of shares determined at the position of TSR is subject to reduction in accordance with the implementation of the RORAC.
(3) The percentage of shares determined at the position of TSR is subject to reduction in accordance with the implementation of the reduction
of RoRWA.
TSR Ranking – PSP
TSR Ranking
PSP (Pl12, Pl13 e Pl14) (1)
% Shares
PSP 2013 (2)
% Shares
1
2
3
4
50%
35%
25%
0%
100%
75%
50%
0%
______________________
(1) Associated with the TSR, the remaining 50% of shares exercisable refer to realization of net income versus budgeted profit.
(2) The percentage of shares determined at the position of TSR is subject to reduction in accordance with the implementation of the reduction
of RoRWA.
Method of Assessment - SOP
Method of Assessment .....................
Volatility...........................................
Dividend Rate ...................................
Period of “Vesting” ..........................
Moment “Medium” Exercise ............
Risk-Free Rate ..................................
Likelihood of Occurrence .................
Fair Value for Stock .........................
SOP
SOP delivery 2014
Black-Scholes
40.00%
3.00%
2 years
5 years
11.80%
60.27%
R$5.96
Black-Scholes
40.00%
3.00%
2 years
5 years
10.50%
71.26%
R$6.45
SOP 2013
Binomial
57.37%
5.43%
2.7 years
3.7 years
11.18%
43.11%
R$7.19
Method of Assessment - PSP
Method of Assessment
Volatility.....................................
Likelihood of Occurrence ...........
Risk-Free Rate ............................
PSP 2013
PI14 - PSP
PI13 - PSP
PI12 - PSP
Binomial
40.00%
60.27%
11.80%
Binomial
57.37%
37.59%
10.50%
Binomial
57.37%
26.97%
10.50%
Binomial
57.37%
43.11%
11.18%
Global Long-Term Incentive Program
In the Global Program, we have six plans, four of which have already been executed. For each cycle, a
maximum number of Santander Spain shares of Santander Brasil are determined in Spain according to the
achievement of performance indicators set out in the plan regulation.
Long-term incentive policy
The board of directors of Santander Spain, at a meeting held on March 26, 2008, approved the long-term
incentive policy intended for the executives of Santander Spain and the Santander Group (except Banesto). This
policy provides for compensation tied to the performance of the stock of Santander Spain, as established at the
annual shareholders’ meeting.
This multiannual incentive plan is payable in shares of Santander Spain. The beneficiaries of the plan are the
executive officers and other members of senior management, together with any other of our executives determined
by the board of directors or, when delegated to it, the executive committee.
The plan involves three-year cycles for the delivery of shares to the beneficiaries. The goal is to establish a
proper sequence between the end of the incentive program, linked to the previous I-06, and successive cycles of the
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plan. Thus, the first two cycles began in July 2007 with a duration of two years for the first cycle (PI09) and the
other cycles having an average duration of three years (PI10, PI11, PI12, Pl13 and PI14).
For each cycle, a maximum number of shares is established for each beneficiary who remains as our employee
for the duration of the plan. The targets, which, if met, will determine the number of shares to be delivered, are
defined by comparing Santander Spain’s performance with that of a benchmark group of financial institutions and
are linked to two parameters, namely TSR and growth in earnings per share (“EPS”).
The ultimate number of shares to be delivered will be determined in each of the cycles by the degree of
achievement of the targets on the third anniversary of commencement of each cycle (with the exception of the first
cycle, for which the second anniversary will be considered), and the shares will be delivered within a maximum
period of seven months from the end of the cycle.
At the end of each cycle, the TSR and the EPS growth will be calculated for Santander Spain and each of the
benchmark entities and the results will be ranked from first to last. Each of the two criteria (TSR and EPS growth)
will be weighted at 50.0% in the calculation of the percentage of shares to be delivered, based on the following scale
and in accordance with Santander Spain’s relative position among benchmark entities.
Santander Spain’s Place
in the
TSR Ranking
1st to 5th
6th
7th
8th
9th
10th and below
Percentage of
Maximum Shares to
Be Delivered
100.0%
82.0%
65.0%
47.5%
30.0%
0.0%
Santander Spain’s
Place in the EPS
Growth Ranking
Percentage of
Maximum Shares to
Be Delivered
1st to 5th
6th
7th
8th
9th
10th and below
100.0%
82.0%
65.0%
47.5%
30.0%
0.0%
Any benchmark group entity that is acquired by another company, whose shares cease trading or that ceases to
exist, will be excluded from the benchmark group and certain adjustments to the ranking criteria and award criteria
are made. In an event of this or any similar nature, the comparison with the benchmark group will be performed in
such a way that, for each of the measures considered (TSR and EPS growth) the maximum percentage of shares will
be delivered if Santander Spain ranks within the first quartile (including the 25th percentile) of the benchmark
group; no shares will be delivered if Santander Spain ranks below the average (50th percentile); 30.0% of the
maximum amount of shares will be delivered if Santander Spain is placed at the median (50th percentile). The linear
interpolation method will be used for calculating the corresponding percentage for positions between the median and
the first quartile (25th percentile) (neither included).
Beginning with plan Pl12, the number of actions to be awarded are related to only one performance parameter,
TSR which is fully weighted in the percentage of shares to be distributed.
In 2014, a long-term incentive plan was created for the overall group of executives included in the Collective
Identified (Global Plan or “CRDIV”). The indicator is used to measure the achievement of targets which will form a
basis for comparison of the TSR of the Santander Group with the TSR of the top 15 global competitors. The
indicator is calculated in two stages: initially for program verification (2015) and a second time in the annual
payment of each installment (2015, 2016 and 2017).
For program verification, in order to apply for 100% of the plan, the Santander Group must be positioned above
the average of global competitors, as shown below. This measurement will be calculated considering the RTA
between January and December, 2014.
TSR Position
1st to 8th ............................................................................................................................
9th to 12nd ........................................................................................................................
13rd to 16th ......................................................................................................................
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% Applied
100.0%
50.0%
0.0%
For payment of the installment of 1/3 of the determined value, the RTA will be determined as shown below.
The cumulative position of the Santander Group in the ranking of RTA, will be measured considering the
accumulate until the year before each payment.
TSR Position
1st to 4th ...................................................................................................
5th .............................................................................................................
6th ............................................................................................................
7th ............................................................................................................
8th ............................................................................................................
9th to 16th .................................................................................................
% To Distribute
100.0%
87.5%
75.0%
62.5%
50.0%
0.0%
Each Santander Brasil executive has a target in reais. If the indicators are reached, the target will be converted
to Santander Group shares awarded in installments in the years 2016, 2017 and 2018, with a lock up lasting one year
following each delivery.
Fair Value
The fair value of the Performance Share Plans (PI10, PI11, PI12, PI13 and PI14) was calculated as follows:
•
It was assumed that the beneficiaries will not terminate the employment with us during the term of each
plan.
•
The fair value of the 50.0% linked to Santander Spain’s relative TSR position was calculated, on the grant
date, on the basis of the report provided by external valuators whose assessment was carried out using a
Monte Carlo valuation model, performing 10,000 simulations to determine the TSR of each of the
companies in the benchmark group, taking into account the variables set forth below. The results (each of
which represents the delivery of a number of shares) are classified in decreasing order by calculating the
weighted average and discounting the amount at the risk-free interest rate.
PI10
Expected volatility(1) ................................................................
Annual dividend yield based on last few years ........................
Risk-free interest rate (Treasury Bond yield – zero coupon)
over the period of the plan........................................................
PI11
PI12
PI13
PI14
15.7%
3.2%
19.3%
3.5%
42.4%
4.9%
49.6%
6.3%
51.3%
6.1%
4.5%
4.8%
2.0%
3.3%
4.1%
______________________
(1) Calculated on the basis of historical volatility over the corresponding period (two or three years).
The application of the simulation model results in percentage values of 42.7% for PI09, 42.3% for PI10, 44.9%
for PI11 and 52.4% for PI12, which are applied to 50.0% of the value of the options granted, in order to determine
the cost per books of the TSR-based portion of the incentive. Since this valuation refers to a market condition, it
cannot be adjusted after the grant date.
The estimate of achievement for a grant under CRDIV is 36.3%, using the Monte Carlo simulation method. To
reach this result the following assumptions were used:
Future Dividend Income ...........................................................
Santander Volatility ..................................................................
Volatility comparison ...............................................................
Risk free interest rate ................................................................
Correlation ................................................................................
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2 years
11.1%
32.7%
12% - 52%
1.7%
55%
3 years
10.8%
34.7%
16% - 56%
2.1%
55%
4 years
9.5%
36.9%
16% - 52%
2.5%
55%
In 2014, there were pro rata daily expenses of R$7.490 million (seven million, four hundred and ninety
thousand )for costs on the respective dates of the cycles of the global program. Expenses related to the plans are
recognized against other liabilities – provision for share-based payments.
The PI14 plan was terminated in June 2014. The targets were not met, and consequently there was no exercise.
Contract termination
Employment contracts with our executives have an undefined period. The termination of the employment
relationship for non-fulfillment of obligations or voluntarily does not entitle executives to any financial
compensation.
Board Practices
Our shareholders elect members of our board of directors at the annual general shareholders’ meeting for twoyear terms (members may be reelected). The board of directors appoints our executive officers for two-year terms,
who can also be reelected.
The current members of the board of directors were appointed during the Ordinary and Extraordinary
Shareholders’ Meeting held on April 30, 2015 to serve until the Ordinary Shareholders’ Meeting to be held in 2017.
The current executive officers were elected at the board of directors meetings held on May 28, 2015, with terms
of office until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in
2017.
The board of directors meets regularly four times a year and extraordinarily as often as required. The Executive
Officers meet as often as required by the Chief Executive Officer or by the officer designated by him.
On December 23, 2009, our board of directors approved its code of regulations. Shareholders may access such
code on the websites www.santander.com.br/ri and www.santander.com.br/acionistas, section “Corporate
Governance—Management—Regulations of the Board of Directors.”
Fiscal Council
According to Brazilian Corporate Law, the adoption of a permanent fiscal council by us as a publicly held
company is voluntary. Our by-laws provide for a nonpermanent fiscal council, which can be installed at the request
of shareholders representing at least one-tenth of the voting shares or five per cent of the nonvoting shares. Currently
our fiscal council is not installed. The fiscal council is an independent body elected by shareholders to supervise the
activities of managers and independent auditors. The responsibilities of the fiscal council are established by
Brazilian Corporate Law and include oversight of management’s compliance with laws and by-laws, the issuance of
a report on the company’s annual and quarterly reports, certain matters submitted for shareholders’ approval, calling
of shareholders’ meetings in some cases and reporting on specific adverse matters arising at those meetings.
Board Advisory Committees
Audit Committee
According to Brazilian Central Bank regulations (Resolution 3,198/2004 of the CMN, as amended), an audit
committee is a statutory board, separate from the board of directors, created by a shareholders’ resolution. The
members of the audit committee may be members of the board of directors, provided that they meet certain
independence requirements. All members of our audit committee meet such independence requirements. In addition,
under Brazilian law, the function of hiring independent auditors is reserved for the board of directors. As a result, as
specified in Section 3(a)(58) of the Exchange Act, our board of directors functions as our audit committee for the
purpose of approving any engagement of our independent auditors for audit and non-audit services provided to our
subsidiaries or to us. Except in these respects, our audit committee performs the functions of audit committees of
U.S. companies.
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Our audit committee is composed of three to six members, elected by our board of directors, among persons,
members of the board of directors and others, who meet all statutory and regulatory requirements for the exercise of
their office, including any requirements to ensure their independent judgment, one of them with a demonstrable
knowledge of the accounting and audit practice, which shall serve for a one-year term and may be reelected pursuant
to applicable legislation for up to four consecutive times to a maximum five-year term of office. One of the
members shall be designated as the audit committee’s coordinator, and at least one member must have proven
knowledge in the areas of accounting and auditing (financial expert).
Our audit committee has as main functions:
•
advises the board of directors on the engagement or replacement of the external auditor;
•
assesses the quality of the financial statements, of the senior management reports, of the explanatory notes
and of the independent auditor’s report, as well as of other material financial information disclosed and sent
to the regulatory bodies;
•
evaluates the effectiveness of the normative provisions applicable to us, in addition to internal regulation
and codes;
•
evaluates the fulfillment by our management of the recommendations made by the external or internal
auditors;
•
prepares, at the end of the six-month period ended on June 30 and December 31 every year, the report of
the audit committee, meeting the applicable legal and regulatory provisions; and
•
receives and reviews the reports required by the regulatory bodies concerning the activities of the
ombudsman, on the base dates of June 30 and December 31 or when a material event is identified.
The current members of the audit committee are Celso Clemente Giacometti, Elidie Palma Bifano, Graham
Charles Nye, who act as our financial experts, and René Luiz Grande, who acts as a coordinator, all with a term of
office of one year as of March 18, 2014.
Set forth below are biographies of the members of our audit committee.
Celso Clemente Giacometti. See “—Members of the Board of Directors.”
René Luiz Grande. Mr. Grande is a Brazilian citizen and was born on April 19, 1953. He holds a degree in
Economics from Pontificia Universidade Católica de São Paulo, and a specialization degree in National Financial
System from Fundação Instituto de Administração as (FIA). He was an employee of the Brazilian Central Bank,
qualified by the public examination since June, 1975, and worked in the Supervision and Inspection Department of
the National Financial System. During his career in the Brazilian Central Bank he served in various functions,
including officer responsible for standards and organization matters of the financial system from 1975 to 1978;
technical assistant from 1978 to 1989; supervisor from 1989 to 1995; inspection supervisor from 1995 to 1999; head
of the Banking Supervisory and Technical Department from 1999 to 2003, and deputy head of the Banking
Supervisory and Financial Conglomerates department from 2003 to 2011. Before working with the Brazilian Central
Bank, he occupied the position of head of Human Resources with the Companhia Brasileira de Embalagens
Metálicas BRASILATA from 1973 to 1975.
Elidie Palma Bifano. Mrs. Bifano is Brazilian, born on May 16, 1947. She holds a bachelor’s degree in Law
and Social Sciences from the Faculdade de Direito da Universidade de São Paulo – USP, in 1969. She holds a
specialization degree in Tax Law from USP and, a master’s degree and a doctorate in Tax Law from Pontifícia
Universidade Católica de São Paulo – PUC-SP. From 1974 to 2012 she worked at PricewaterhouseCoopers – PwC,
where she served as a partner in the tax advisory department for more than 20 years. In June 2012, she became a
partner at Mariz Oliveira e Siqueira Campos Advogados. Mrs. Bifano is also a professor of postgraduate studies at
USP, PUC, FGV, Instituto Brasileiro de Estudos Tributários and Instituto Brasileiro de Direito Tributário, or
“IBDT.” For over 18 years she has been serving as Financial Vice President (CFO) at the Brazil-Canada Chamber of
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Commerce. She is also a member of the IBDT’s Council and the International Tax Law Magazine’s Editorial
Council, at Quartier Latin Publishing.
Graham Charles Nye. Mr. Nye is Brazilian, born on April 30, 1960. He holds a bachelor´s degree in Business
Studies and Accounting from the University of Edinburgh, Scotland. He is a Chartered Accountant, member of The
Institute of Chartered Accountants of Scotland. From 1982 to 2013 he worked at PricewaterhouseCoopers – PwC,
where he served as a partner in the financial services assurance and transaction support practices for 17 years, of
which 15 years were in São Paulo, Brazil. During his career at PwC, he also worked and was resident in Budapest
(Hungary), Lisbon (Portugal), London (United Kingdom) and Aberdeen (Scotland).
Compensation Committee
In order to comply with the Brazilian Central Bank regulations (CMN Resolution 3,921/2010 of November 25,
2010) on February 7, 2012, our shareholders established the compensation committee in our by-laws, which also
acts as the compensation committee for all our affiliates and subsidiaries.
Our compensation committee is composed of three to five members, appointed by the board of directors from
among persons who meet all statutory and regulatory requirements for the exercise of their office. At least one of the
members cannot be an executive officer and the others may or may not be members of our board of directors, and at
least two members shall be independent, pursuant to paragraph 3 of article 14, of our by-laws. The compensation
committee shall have in its composition qualified members with the experience required for the exercise of
judgment, which includes requirements to ensure their independent judgment about our internal compensation
policy and the repercussion of this internal compensation policy on the risk management. Such persons shall serve
for a term of two years and may be reelected for up to four consecutive times, pursuant to applicable legislation.
Our compensation and nomination committee has as main functions:
•
to develop internal compensation policies applicable to our executive officers and makes proposals to
our board of directors regarding policies for variable and fixed compensation, benefits, and special
programs for recruiting and terminations;
•
to propose to the board of directors the aggregate compensation of the Executive Officers and members
of the audit committee to be submitted to the general meeting, pursuant to Article 152 of Brazilian
Corporate Law;
•
to propose to the board of directors the aggregate and individual variable compensation to the Chief
Executive Officer and Executive Vice Presidents;
•
to analyze our internal officer and board compensation policies and procedures in comparison with
market practice, and recommends changes to align our policies with market practice if significant
differences from market practice are identified;
•
to prepare annually, within ninety days as from December 31 of each year, the compensation and
nomination committee report, in accordance with applicable statutory and regulatory provisions; and
•
to ensure that the internal officer compensation policy is compatible with our risk management rules,
with performance targets and with our current and expected financial condition, and pursuant to the
applicable regulatory provisions and regulations published by the Brazilian Central Bank.
The current members of the compensation committee are Álvaro Antonio Cardoso de Souza, who acts as
Coordinator, Marilia Artimonte Rocca and Eduardo Nunes Gianini, with term of office until the first board of
directors meeting occurring after the ordinary shareholders meeting to be held on 2017.
Marilia Artimonte Rocca. See “Members of the Board of Directors.”
Álvaro Antonio Cardoso de Souza. See “Members of the Board of Directors.”
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Eduardo Nunes Gianini. Mr. Gianini is Brazilian and holds a bachelor’s degree in sociology and politics from
Fundação Escola de Sociologia e Política de São Paulo, or “FESPSP.” He has been engaged as executive and
consultant in matters related to human resources management for more than 30 years. He started his career at
Serprofit Ltda., a company which provided outsourcing services between 1970 and 1979. From 1979 to 1990 he was
human resources manager and total quality manager at Union Carbide do Brasil S.A. He was a partner officer at
Hays do Brasil Consultores Ltda., where he worked from 1991 to 2009. Currently he is a partner officer of Gobbet
& Gianini Consultores Ltda., with expertise in executive compensation and organizational development.
Risk Committee
The risk committee is a consultative body which has the responsibility of advising the board of directors on
subjects related to the policies, operational directions and methodologies of capital allocation, risk management and
exposure edges, according to the applicable law.
The risk committee is composed of three to five members, and at least two of these members must be
independent. The term of office is of two years, re-election permitted, and the members may be removed at any
time. The risk committee meetings are held at least four times a year or when extraordinarily convened by its
coordinator.
The current members of the risk committee are Álvaro Antônio Cardoso de Souza - Coordinator; Conrado
Engel, Sergio Agapito Lires Rial and René Luiz Grande, with term of office until the first board of directors meeting
occurring after the ordinary shareholders’ meeting to be held in 2017.
Álvaro Antônio Cardoso de Souza. See “Member of the Board of Directors.”
Conrado Engel. See “Member of the Board of Directors.”
Sergio Agapito Lires Rial. See “Members of the Board of Directors.”
René Luiz Grande. See “Audit Committee.”
Corporate Governance, Nomination and Sustainability Committee
The corporate governance, nomination and sustainability committee is a consultative body which is responsible
for advising the board of directors on subjects related to the corporate governance and sustainability practices, that
enhance the management of Banco Santander, regarding the transparency and respect and the promotion of the
sustainable development of the company.
The corporate governance and sustainability committee is composed of three to five members, and at least two
of these members must be independent. The term of office is of two years, re-election permitted, and the members
may be removed at any time. The corporate governance and sustainability committee meetings are held at least four
times a year or when extraordinarily convened by its coordinator.
The current members of the corporate governance and sustainability committee are Sergio Agapito Lires Rial
(who also act as coordinator), Viviane Senna Lalli, Gilberto Mifano and José Luciano Duarte Penido, with term of
office until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in 2017.
Sergio Agapito Lires Rial. See “—Members of the Board of Directors.”
Viviane Senna Lalli. See “—Members of the Board of Directors.”
Gilberto Mifano. Mr. Mifano is Brazilian and was born on November 11, 1949. He has a degree in Business
Administration, from the School of Business Administration of São Paulo of FGV. He is Independent Director of
Cielo S.A. and Ambar S.A., and he is an independent member of TOTVS’s Audit Committee, as well as
independent member of our corporate governance and sustainability committee. He is also external consultant of the
audit committee, Risk Management and Finance of Natura S.A. and partner counselor of PRAGMA Patrimônio
Ltda. From 2006 to 2012 he was a Director, Vice-Chairman and Chairman of the board of directors of IBGC –
Brazilian Institute of Corporate Governance. From 1994 to 2008, he was General Officer of BOVESPA – Bolsa de
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Valores de São Paulo and CBLC – Brazilian Clearing and Depository Company. During this period he was
responsible, among other functions, for the creation of the New Market, the integration of the Brazilian stock
exchanges, demutualization and IPO of BOVESPA. He then organized the merger of Bovespa and BM&F when he
was elected as the first Chairman of BM&F BOVESPA S.A. – Securities, Commodities and Futures Exchange. At
international level, for about 8 years, he was part of the Executive Committees of WFE – World Federation of
Exchanges and FIAB – Ibero-American Federation of Exchanges. Previously, he was executive and officer in banks
and financial companies in Brazil in the areas of credit, engineering, products and marketing.
José Luciano Duarte Penido. Mr. Penido is Brazilian and was born on March 8, 1948. He holds a degree in
Mining Engineering from the School of Engineering of the Federal University of Minas Gerais. He began his career
in ICOMI – Indústria e Comércio de Minérios, at a manganese mine in the Serra do Navio in the Brazilian state of
Amapá, where he worked until August 1973. From September 1973 to 1988 he worked at SAMITRI, a mining
company of the Belgo Mineira Group, responsible for several managerial functions of mineral research, mining and
industrial projects. From 1989 to 2003 he worked at SAMARCO, where he served as Development Officer and as
Chief Executive Officer for 12 years. From 2004 to 2009 he was Chief Executive Officer of VCP – Votorantim
Celulose e Papel. Since 2009, He has chaired the board of directors of Fibria Celulose. He is also an independent
member of the board of Copersucar and directors of COPERSUCAR, Química Amparo YPÊ, where he also
coordinates the Personnel and Compensation Committees. Since 2012 He has been a member of our corporate
governance and sustainability committee. Since January 2014 he has been a member of the Executive Committee of
the WBCSD – World Business Council for Sustainable Development. In their socio-environmental activities, He is a
member of the Council for Economic and Social Development of the Presidency of the Republic, the Council for
Economic and Social Development of Bahia, Chairman of the Deliberative Council of the Ecological Corridor
Association of Vale do Paraiba, and he is also a counselor founder of the NGO Citizen Network.
Executive Committee
The Chief Executive Officer, Senior Vice President Executive Officers and Vice President Executive Officers
make up the executive committee which examines policies for business management, operational support, human
resources and capital allocation. It also deliberates on the main technological, infrastructure and services projects.
Disclosure Committee
The Disclosure Committee is an executive body which advises the company on communications with external
and internal audiences, including material facts, notices to the market, notices to shareholders, resolutions of the
board of directors, internal communications, press inquiries and press releases. The committee shall consist of five
members: the investor relations officer, who acts at its chairman, the executive vice president responsible for
corporate affairs, the executive vice president responsible for Brand, Marketing, Communication and Interactivity;
the Corporate Affairs Officer and the Officer Responsible for the Investor Relations.
Share Ownership
The following table provides the names of our directors and executive officers who owned shares of Santander
Brasil as of December 31, 2014.
Shareholder
Amancio Acurcio Gouveia
Ana Paula Nader Alfaya
Antonio Pardo de Santayana Montes
Carlos Alberto López Galán
Carlos Alberto Seiji Nomoto (2)
Carlos Rey de Vicente
Cassio Schmitt
Cassius Schymura
Celso Clemente Giacometti
Common Shares
26,229
10,998
35,388
64,968
7,665
28,135
35,278
23,774
1
160
Percentage of
Outstanding
Common
Shares
Preferred Shares
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
26,229
10,999
35,388
64,968
7,665
28,135
35,278
23,774
0
Percentage of
Outstanding Percentage of
Preferred
Total Share
Shares
Capital
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Shareholder
Conrado Engel
Ede Ilson Viani
Eduardo Müller Borges
Fernando Diaz Roldan
Flavio Tavares Valadão
Gilberto Duarte de Abreu Filho
Ignacio Dominguez Adame Bozzano
Jamil Habibe Hannouche
Javier Rodriguez De Colmenares Alvarez
Jean Pierre Dupui
Jesus Maria Zabalza Lotina
João Guilherme de Andrade So Consiglio
Jose Alberto Zamorano Hernandez
José Antonio Alvarez Alvarez
José de Paiva Ferreira
José Manuel Tejon Borrajo (3)
José Roberto Machado Filho
Luiz Felipe Taunay Ferreira
Manoel Marcos Madureira
Mara Regina Lima Alves Garcia
Marcelo Zerbinatti
Marcio Aurelio de Nobrega
Maria Eugênia Andrade Lopez Santos
Mario Adolfo Libert Westphalen
Mauro Siequeroli
Nilton Sergio Silveira Carvalho
Oscar Rodriguez Herrero
Ramón Sanchez Díez
Reginaldo Antonio Ribeiro
Roberto de Oliveira Campos Neto
Ronaldo Yassuyuki Morimoto
Sérgio Antônio Borrielo
Sergio Gonçalves
Thomas Gregor ILG
Vanessa de Souza Lobato Barbosa
Viviane Senna Lalli
Other Employees
Common Shares
124,659
45,151
60,863
9,995
83,868
45,041
76,778
20,720
17,596
36,799
121,759
133,278
25,033
1
39,078
1
63,932
36,510
32,987
16,951
18,380
45,803
45,011
990
18,648
13,646
45,749
14,236
30,310
281,946
75,103
14,291
17,651
21,434
15,183
1
2,215,730
Percentage of
Outstanding
Common
Shares
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
0.06%
Preferred Shares
124,659
45,151
60,863
9,995
83,868
45,041
76,778
20,720
17,596
36,799
121,759
133,278
25,033
0
39,077
0
63,932
36,510
32,987
16,951
18,380
45,803
45,011
990
18,648
13,646
45,749
14,236
30,310
281,946
75,103
14,291
17,651
21,434
15,183
0
2,239,079
Percentage of
Outstanding Percentage of
Preferred
Total Share
Shares
Capital
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
0.06%
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
0.06%
______________________
(1) Owns less than 0.01%.
(2) No longer an officer.
(3) No longer a director.
Shares held by members of our board of directors and our executive officers do not have special voting rights as
opposed to shares held by our other shareholders
Principal Differences between Brazilian and U.S. Corporate Governance Practices
We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards
applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE
rules, we are required only to: (1) have an audit committee or audit board, pursuant to an applicable exemption
available to foreign private issuers, that meets certain requirements, as discussed below, (2) provide prompt
certification by our chief executive officer of any material non-compliance with any applicable NYSE corporate
governance rules (3) submit an executed written affirmation annually to the NYSE and submit an interim written
affirmation each time a change occurs to the board or any of the committees subject to Section 303A of the NYSE
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rules, and (4) provide a brief description of the significant differences between our corporate governance practices
and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of
the significant differences between our corporate governance practices and those required of U.S. listed companies
follows below, as required for foreign private issuers by NYSE Rule 303A.11
Majority of Independent Directors
The NYSE rules require that a majority of the board must consist of independent directors, although because we
are a company for which the majority of our voting shares are beneficially owned by another entity (Santander
Spain), we are not required to comply with this rule. Independence is defined by various criteria, including the
absence of a material relationship between the director and the listed company. Currently, four members of our
board of directors are deemed independent, pursuant to Article 14 of our by-laws. Also, Brazilian corporate law, the
Brazilian Central Bank and the CVM have established rules that require directors to meet certain qualification
requirements and that address the compensation and duties and responsibilities of, as well as the restrictions
applicable to, a company’s executive officers and directors. While we believe that these rules provide adequate
assurances that our directors are independent and meet the requisite qualification requirements under Brazilian law,
we believe such rules would permit us to have directors that would not otherwise pass the test for director
independence established by the NYSE. Brazilian corporate law requires that our directors be elected by our
shareholders at an annual shareholders’ meeting. Currently, all of our directors are elected by our shareholders after
recommendation of the Compensation and Nomination Committee.
Executive Sessions
NYSE rules require that the non-management directors meet at regularly scheduled executive sessions without
management present. Brazilian corporate law does not have a similar provision. According to Brazilian corporate
law, up to one-third of the members of the board of directors can be elected from management. Our president,
Marcial Portela Alvarez, is a member of our board of directors. There is no requirement that our non-management
directors meet regularly without management. As a result, the non-management directors on our board do not
typically meet in executive sessions.
Committees
NYSE rules require that listed companies have a nominating/corporate governance committee and a
remuneration committee composed entirely of independent directors and governed by a written charter addressing
the committee’s required purpose and detailing its required responsibilities, although as a company the majority of
whose voting shares are held by another group, we would not be required to comply with this rule. The
responsibilities of the nominating/corporate governance committee include, among other things, identifying and
selecting qualified board member nominees and developing a set of corporate governance principles applicable to
the company. The responsibilities of the remuneration committee, in turn, include, among other things, reviewing
corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s
performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief
executive officer compensation, incentive-compensation and equity-based plans.
Brazilian Central Bank regulation requires us to have a compensation committee of at least three members. We
have created the compensation and nomination committee, an advisory body whose function is to advise our board
of directors on matters in connection with (i) election of members for our board of directors, audit committee, and
executive office, (ii) the succession plan, (iii) fixed and variable remuneration policies and benefits and (iv) the
long-term incentive plan.
The compensation and nomination committee shall be composed of at least three (3) and not more than five
(5) members, it being understood that at least one of the members may not be director of the company and the others
may or may not be members of the Board of Directors of the company, and at least two members shall be
independent pursuant to the provision under art. 14 Paragraph 3 of our by-laws. The compensation of the
compensation and appointment committee’s members is established by our board of directors. See “Management—
Board Practices.”
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Pursuant to Brazilian corporate law the aggregate compensation for our directors and executive officers is
established by our shareholders.
Audit Committee and Audit Committee Additional Requirements
NYSE rules require that listed companies have an audit committee that (1) is composed of a minimum of three
independent directors who are all financially literate, (2) meets the SEC rules regarding audit committees for listed
companies, (3) has at least one member who has accounting or financial management expertise and (4) is governed
by a written charter addressing the committee’s required purpose and detailing its required responsibilities.
Brazilian Central Bank regulation requires us to have an audit committee of at least three independent members.
The audit committee is elected by the board of directors. In April 2003, the SEC stated that the listing of securities
of foreign private issuers will be exempt from the audit committee requirements if the issuer meets certain
requirements. Our audit committee, as established according to Brazilian Central Bank regulation, allows us to meet
the requirements set forth by the SEC.
Shareholder Approval of Equity Compensation Plans
NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and
material revisions thereto, with limited exceptions. Under Brazilian corporate law, shareholders must approve all
stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to
shareholder approval. Our shareholders do not have the opportunity to vote on all equity compensation plans.
Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with
the corporate governance guidelines under applicable Brazilian law. The corporate governance guidelines applicable
to us under Brazilian law are consistent with the guidelines established by the NYSE.
Pursuant to better practices of corporate governance guidelines, on September 22, 2010, our board of directors
approved a policy that regulates related-party transactions, which was reviewed on September 26, 2012. This policy
provides rules which aim to ensure that all decisions, in particular those involving related parties and other situations
with potential conflict of interests will be aligned with our interests and our shareholders. The policy applies to all
employees and directors and executive officers of Santander Brasil.
Code of Business Conduct and Ethics
NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors,
officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
Applicable Brazilian law does not have a similar requirement. We adopted a Code of Ethics on February 27, 2009,
last reviewed on June 26, 2012, which regulates the conduct of our managers, officers and directors in connection
with the disclosure and control of financial and accounting information and their access to privileged and non-public
information. Our Code of Ethics complies with the requirements of the Sarbanes-Oxley Act and the NYSE rules.
Internal Audit Function
NYSE rules require that listed companies maintain an internal audit function to provide management and the
audit committee with ongoing assessments of the company’s risk management processes and system of internal
control.
Our internal audit department works independently to conduct methodologically structured examinations,
analysis, surveys and fact finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the
information systems processes and internal controls related to our risk management. The Internal Audit department
reports continually to be audit committee. In carrying out its duties, the Internal Audit department has access to all
documents, records, systems, locations and professionals involved with the activities under review.
Website
163
Codes are available to the public on our website in Portuguese and English, which do not form part of this
information memorandum, at www.santander.com.br under the heading “Investor Relations – Corporate
Governance.”
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PRINCIPAL STOCKHOLDERS
The Santander Group is the largest financial group in Spain. Through expansion and acquisitions in Chile,
Mexico, Colombia, Argentina and Brazil, among other countries, the Santander Group has grown to become the
largest bank in Latin America, measured by assets. As a result of its voting control over us, the Santander Group is
in a position to cause the election of a majority of the members of our management and to determine substantially all
matters to be decided by a vote of shareholders.
As of December 31, 2014, Santander Spain directly and indirectly through its subsidiaries, GES, Sterrebeeck
and Santander Insurance Holding, S.L., owned approximately 88.30% of our total capital stock (not including the
shares held by Banco Madesant - Sociedade Unipessoal). The Santander Group has a strong influence on our
strategies and operations. Our relationship with the Santander Group has provided us with access to the expertise of
the Santander Group in areas such as technology, product innovation, human resources and internal audit control
systems. In addition, the Santander Group requires us to follow its banking policies, procedures and standards,
especially with respect to credit approval and risk management. Such policies and expertise have been successfully
used by the Santander Group in the Spanish and other banking markets, and we believe that such policies and
expertise have had and will continue to have a beneficial effect upon our operations.
The following table presents the beneficial ownership of our common and preferred shares as at December 31,
2014.
Principal Shareholders
Common Shares
Percentage of
Outstanding
Common
Shares
Preferred Shares
Percentage of
Outstanding
Preferred
Shares
Percentage of
Total Share
Capital
(in thousands of units, except percentages)
Grupo Empresarial Santander SL .
Sterrebeeck B.V. ...........................
Santander Insurance Holding SL ..
Banco Santander, S.A. . ................
Qatar Holding, LLC ......................
Treasury Shares.............................
Employees(1) ...................................................
Other minority shareholders .........
Total(2) ..........................................
1,107,673
1,809,583
3,758
518,207
207,812
29,612
4,098
189,108
3,869,850
28.6%
46.8%
0.1%
13.4%
5.4%
0.7%
0.1%
4.9%
100.00%
1,019,645
1,733,644
179
519,089
207,812
29,612
4,121
216,889
3,730,990
27.3%
46.5%
0.0%
13.9%
5.6%
0.7%
0.1%
5.8%
100.00%
28.0%
46.6%
0.1%
13.6%
5.5%
0.7%
0.1%
5.3%
100.00%
__________________
(1)
(2)
Includes members of senior management. See “Management—Share Ownership.”
Includes 950 common shares and 950 preferred shares (a total of 1,900 shares) held by Banco Madesant – Sociedade Unipessoal, an affiliate
of Santander Spain engaged in market making activities.
The total number of ADSs held by U.S. investors at December 31, 2014, is 37,776,564, not including
individuals and legal entities with portfolios of less than U.S.$100 million, information to which we do not have
access.
Significant Changes in Percentage Ownership of Principal Shareholders
On January 9, 2012, Grupo Empresarial Santander, S.L. transferred to Santander Spain ADRs representing
approximately 5.18% of our capital stock, as part of an internal reorganization in the Santander Group, to the
transfer of approximately 4.41% of our capital stock to a third party, which should deliver such interest to the
investors of the exchangeable bonds issued by Santander Spain in October 2010, in the total amount of USD
2,718,800,000, acquired by QHL. The issuance of such exchangeable bonds by Santander Spain was object of a
Material Fact dated October 29, 2010. On October 29, 2013 QHL exercised its exchange rights related to such
exchangeable bonds in the total amount of U.S.$2,719 million, and as a result, on November 7, 2013, Qatar Holding,
LLC received from Santander Spain 190,030,195 ADS issued by us. Therefore, and considering the 6,431,575 ADS
issued by us already held directly or indirectly by Qatar group, it held a total of 196,461,770 ADS as of that date,
165
which represented 5.08% of the common shares and 5.28% of the preferred shares of our capital stock at that time.
For further information, see note 24 of our audited consolidated financial statements.
During 2012 and 2013, Grupo Empresarial Santander, S.L. and Santander Spain performed a series of ADR sale
transactions. As a result Santander Spain, directly or indirectly, held at December 31, 2013 approximately 75.68% of
our voting capital stock and approximately 74.86% of our total capital stock and our free float was approximately
24.61% of the total stock.
Subscription of Tier 1 and Tier 2 notes
In accordance with our equity optimization plan, our shareholders approved on November 1, 2013, a capital
decrease of Santander Brasil of R$6,000 million, from R$62,828 million to R$56,828 million, without diluting the
percentage of ownership held by our shareholders.
On January 29, 2014, we issued U.S. dollar denominated notes in an amount equivalent to R$6 billion. Banco
Santander S.A. agreed to use its entire cash distribution to subscribe to the notes and agreed to subscribe to any
notes from the total issuance that were not subscribed by our other shareholders. The notes constitute Tier 1 and Tier
2 regulatory capital. For further information, see “–Plan to Optimize Our Capital Structure.”
Voluntary Exchange Offer
On April 29, 2014, Santander Spain, our direct and indirect controlling shareholder, announced its intention to
launch voluntary exchange offers in Brazil and in the United States to acquire up to all of our shares that were not
held by the Santander Group, which represented approximately 25% of our share capital, with payment in Brazilian
or American Depositary Receipts (BDRs or ADRs) representative of Santander Spain’s common shares.
On October 30, 2014, the voluntary offers in Brazil and in the United States were concluded. As a result of
these offers, Santander Spain acquired 13.65% of our share capital and the Santander Group’s shareholding
increased to 88.30% of our total share capital (not including the shares held by Banco Madesant - Sociedade
Unipessoal). Also as a result of the offer in Brazil, our units were delisted from Level 2 of BM&FBOVESPA and
are now traded at the traditional segment of BM&FBOVESPA.
Voting Rights of Principal Shareholders
Our principal shareholders do not have voting rights distinct from those of our other shareholders.
Buyback Program
On November 3, 2014, our board of directors approved the buyback programme of our units or ADRs, by us or
by our agency in the Cayman Islands, to be held in treasury or subsequently sold, in continuation of the buyback
program that expired on August 24, 2014.
The buyback program will cover the acquisition up to 44,253,662 units, representing 44,253,662 common
shares and 44,253,662 preferred shares, or the ADRs which, on October 31, 2014, corresponded to approximately
1.16% of our share capital. On October 31, 2014, there were 403,565,369 of our common shares and 431,369,785 of
our preferred shares in circulation. The term of the buyback program is 365 days starting from the approval date of
November 3, 2014.
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RELATED PARTY TRANSACTIONS
We have a documented policy relating to related-party transactions approved by the board of directors, which is
intended to ensure that all transactions covered by the policy are conducted based on our interest and our
shareholders. The policy defines the power to approve certain transactions by the board of directors. The rules are
also applied to all our directors, senior management, employees and subsidiaries. Additionally, related party
transactions are also included in the regular auditing program developed by our internal audit, as well as subject to
the supervision of our independent auditors.
We currently engage in, and expect from time to time in the future to engage in, financial and commercial
transactions with our subsidiaries and affiliates and those of the Santander Group. We have credit lines outstanding
with the Santander Group and its affiliated financial institutions around the world. At December 31, 2014,
borrowing and deposits from the Santander Group represented approximately 1.9% of our total funding. In addition,
from time to time, we enter into certain transactions with the Santander Group and other related parties for the
provision of advisory and advertising services. Such transactions are conducted at arm’s-length, based on terms that
would have been applied for transactions with third parties.
The transactions and remuneration of services with related parties are made in the ordinary course of business
on an arms’-length basis under similar conditions, including interest rates, terms and guarantees, and involve no
greater risk than transactions with unrelated parties carried out in the ordinary course and have no other
disadvantages. The following discussion describes all of our material related party transactions.
In the second quarter of 2012 we, through our subsidiary in Spain, acquired from Banco Santander S.A.’s New
York and London Branches a portfolio of contracts, including financing and export credit and import-related
operations contracted with Brazilian clients or their affiliates abroad, totaling U.S.$119 million equivalent to
R$181 million (using the exchange rate of the days when there were operations). Such operations were concluded,
according to our policy for related-party transactions, including obtaining the approval of our board of directors.
On December 17, 2013, we concluded the sale of our asset management business to an affiliate of Santander
Spain, by way of disposal of all shares of DTVM. The sales price was R$2,243 million, generating a post-tax capital
gain of R$1,205 million (after deducting costs).
Information Technology Platform
We enter into certain agreements with some affiliates of the Santander Group (Ingeniería de Software Bancário
S.L. (Spain), ISBAN S.A. (Chile), Produban Servicios Informáticos Generales S.L. (Spain), ISBAN S.A. (Brazil)
and Produban Serviços de Informática S.A. (Brazil)) for the outsourcing of certain products and services relating to
our information technology platform, including software development, hosting and information processing. We
believe the provision of these services is provided on an arm’s-length basis with terms substantially similar to those
available from other providers in the market. In each of 2014 and 2013, affiliates of the Santander Group received
R$676 million and R$673 million, respectively, for the provision of such products and services. Additionally, these
affiliates are responsible for managing all third party technology contracts. See “Business – Technology and
Infrastructure.”
Procurement Services
We have entered into agreements with Aquanima Brasil Ltda., an affiliate of the Santander Group, which offers
procurement services (sourcing, e-procurement, outsourcing and consultancy) to Santander Brasil. Volume
aggregation between Santander Brasil and other client companies allow for joint purchases for groups of different
clients. The agreements entered into with Aquanima Brasil Ltda. were on an arm’s-length basis. We paid Aquanima
Brasil Ltda. approximately R$23 million in each of 2014 and 2013.
Other Related Party Transactions
From time to time, we engage in lending and borrowing transactions to fund our operations and other
miscellaneous transactions with various companies of the Santander Group, in compliance with restrictions on loans
or advances imposed by Brazilian law. The following table shows the balances owed to us by such companies
167
(assets) at each of December 31, 2014 and December 31, 2013 and the amounts owed by us to such companies
(liabilities) at the same dates. The table also sets forth amounts received (income) or paid (expenses) to such
companies for the year ended December 31, 2014 and December 31, 2013. All such transactions with Santander
Group companies were conducted on an arm’s-length basis on terms substantially similar to those available from
other providers in the market.
At December 31, 2014
Assets
Income
(Liabilities)
(Expenses)
Cash
Banco Santander Espanha(2)
Banco Santander (México),S.A.(4)
Banco Santander Totta,S.A.(4)
Interbank Investments
Banco Santander Espanha(1)(2)
Derivatives Financial Instruments-Net
Santander Benelux(4)
Fundo de Investimento Santillana(4)
Abbey National Treasury(4)
Banco Santander Espanha(2)
Trading Account
Banco Santander Espanha(2)
Abbey National Treasury(4)
Santander Benelux(4)
Foreign Exchange Portfolio-Net
Banco Santander Espanha(2)
Santander Benelux(4)
Receivables from Affiliates
Zurich Santander Brasil Segurose Previdência S.A.(6)
Zurich Santander Brasil Seguros S.A.(6)
Santander Brasil Asset(6)
Others
Non-Operating Result
Capital Riesgo Global(10)(Nota15,33e37.h)
Santander Brasil Gestão de Recursos Ltda(6)(Nota15,33e37.g)
Other Receivables-Others
Banco Santander Espanha(2)
Zurich Santander Brasil Segurose Previdência S.A.(6)
Others
Deposits
Banco Santander Espanha(2)
Zurich Santander Brasil Seguros S.A.(6)
Zurich Santander Brasil Seguros e Previdência S.A.(6)
Isban Brasil S.A.(4)
Produban Serviços de Informática S.A.(4)
Santander Brasil Gestão de Recursos Ltda.(6)
Fundo de Investimento Santillana(4)
Santander Brasil Asset(6)
Others
Repurchase Commitments
Produban Serviços de Informática S.A.(4)
Isban Brasil S.A.(4)
Santander Brasil Gestão de Recursos Ltda.(6)
REB Empreendimentos e Administradora de Bens S.A.(4)
SAM Brasil Participações S.A.(6)
Universia Brasil S.A.(4)
Others
Borrowings and Onlendings
Banco Santander Espanha(2)
Banco Santander S.A.-Chile(4)
Banco Santander S.A.(Uruguay)(4)
413.0
410.2
2.8
10,503.7
10,503.7
(755.6)
292.0
(468.2)
(0.9)
(578.5)
570.2
480.2
90.0
616.5
616.0
0.5
232.4
217.6
14.7
(446.3)
(10.7)
(2.2)
(34.2)
(34.9)
(21.1)
(58.6)
(261.9)
(16.7)
(6.1)
(96.8)
(20.6)
(35.6)
(31.3)
(6.2)
(1.9)
(1.3)
(414.0)
(406.3)
(7.7)
168
12.1
12.1
90.1
389.0
(15.4)
16.1
(299.7)
(635.7)
(635.7)
0.0
0.0
52.7
(31.8)
84.5
67.5
23.5
36.7
5.0
2.3
130.9
11.8
116.1
2.9
(80.3)
(6.0)
(2.4)
(8.5)
(51.3)
(11.1)
(1.0)
(2.1)
(0.6)
(1.4)
(0.1)
(0.7)
(0.7)
-
At December 31, 2013
Assets
Income
(Liabilities)
(Expenses)
189.6
188.5
0.0
1.2
11,625.5
11,625.5
(171.8)
(92.0)
(117.7)
(61.9)
99.7
159.3
121.2
19.0
19.2
(174.2)
(174.2)
449.5
402.5
43.9
3.1
9.3
9.1
0.2
(685.3)
(1.7)
(4.7)
(68.8)
(98.8)
(47.5)
(27.1)
(258.5)
(170.9)
(7.3)
(3.0)
(0.2)
(2.6)
(0.2)
(163.8)
(149.1)
(0.7)
(14.0)
16.8
16.8
277.4
319.7
(16.1)
4.0
(30.2)
48.7
48.4
0.0
0.2
(270.4)
(270.4)
98.6
54.2
31.1
13.4
2,055.0
47.2
2,007.8
103.3
9.0
93.7
0.7
(35.0)
(0.0)
(3.8)
(2.7)
(0.7)
(19.7)
(7.5)
(0.7)
(0.9)
(0.2)
(0.6)
(0.1)
0.0
(0.0)
(1.6)
(1.6)
-
Dividends and Bonuses Payables
Sterrebeeck B.V.(2)
GES(4)
Santusa Holding, S.L.(4)
SIH(4)
Banco Santander Espanha(2)
Banco Madesant(4)
Payables from Affiliates
Banco Santander Espanha(2)
Produban Servicios(4)
Isban Brasil S.A.(4)
Produban Serviços de Informática S.A.(4)
Ingeniería(4)
Konecta Brazil Outsourcing Ltda.(4)
Santander Brasil Asset(6)
Others
Debt Instruments Eligible to Compose Capital
Banco Santander Espanha(2)(8)
Donations
Santander Cultural
Fundação Sudameris
Fundação Santander
Instituto Escola Brasil
Other Payables-Other
Banco Santander Espanha(2)
Isban BrasilS.A.(4)
Produban Serviços de Informática S.A.(4)
Ingeniería(4)
Produban Servicios(4)
Aquanima Brasil Ltda.(4)
Zurich Santander Brasil Seguros e Previdência S.A.(6)
Zurich Santander Brasil Seguros S.A.(6)
Others
(585.9)
(378.7)
(134.4)
(47.2)
(0.4)
(25.1)
(0.1)
(15.0)
(7.7)
(0.4)
(6.8)
(0.0)
(6,411.8)
(6,411.8)
-
(520.9)
(1.3)
(4.6)
(170.6)
(279.3)
(4.2)
(51.0)
(1.7)
(8.1)
62.7
62.7
(21.9)
(4.9)
(12.0)
(3.4)
(1.5)
(515.7)
(53.8)
(301.9)
(62.7)
(45.6)
(21.6)
(24.1)
(2.2)
(0.1)
(3.8)
(1,095.1)
(679.0)
(410.3)
(4.6)
(0.7)
(0.4)
(3.6)
(2.7)
(0.6)
(0.2)
(0.1)
(0.0)
(16.5)
(15.3)
(1.1)
(0.0)
(301.0)
(0.7)
(5.6)
(101.1)
(153.0)
(8.0)
(14.4)
(1.6)
(16.6)
(20.2)
(1.8)
(12.0)
(4.1)
(2.3)
(421.6)
(63.8)
(256.9)
(56.5)
(23.9)
(18.5)
(1.4)
(0.1)
(0.6)
_________________
(1) On December 31, 2014, refers to investments in foreign currency (overnight) with maturity on January 02, 2015 and interest rates of 0.17%
p.a. maintained by the Bank's Santander Brasil and its Grand Cayman Branch.
(2) Controller - Banco Santander is indirectly controlled by Banco Santander Spain (Note 1 and 26.d), through its subsidiary GES and
Sterrebeeck B.V.
(3) Controlled - Banco Santander.
(4) Controlled - Banco Santander Spain.
(5) Jointly Controlled - Banco Santander.
(6) Associated Company - Banco Santander Spain.
(7) Jointly Controlled - Santander Serviços.
(8) Refers to the portion acquired by the Parent Due to Regulatory Capital Optimization Plan held in the first half of 2014 (Note 24.f).
(9)The approved on Shareholders’ Meeting of June 6, 2014, the name change has been approved of the CRV Distributor Securities S.A. (CRV
DTVM) was approved for Santander Securities Services Brazil DTVM S.A. (Notes 15 and 37.f).
(10) Indirectly Controlled - Banco Santander Spain.
169
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions (the “Conditions”) which, subject to completion and
amendment and as supplemented or varied in accordance with the provisions of the applicable Final Terms, will
apply to the Notes referred to in such Final Terms. All capitalised terms that are not defined in these terms and
conditions will have the meanings given to them in the relevant Final Terms.
The Notes (as defined in Condition 1(a)) are constituted by a trust deed (as amended, restated and/or
supplemented from time to time, the “Trust Deed”) dated April 12, 2013 and made between, inter alia, Banco
Santander (Brasil) S.A., acting through its principal office in Brazil, or through its Grand Cayman branch (the
“Issuer”) and The Bank of New York Mellon (the “Trustee”), which expression shall include all persons for the time
being the trustee or trustees under the Trust Deed) as trustee for the Noteholders (as defined in Condition 1(c)).
These Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes
the form of the Notes and the coupons (if any) relating to them (the “Coupons”). Copies of the Trust Deed and of the
agency agreement dated April 12, 2013 and made between the Issuer, the Trustee and the Agents (as defined below)
(as amended from time to time, the “Agency Agreement”) are available for inspection during usual business hours at
the specified offices of each of the Trustee and the European issuing and paying agent, the paying agents, the
calculation agent, the registrar, the exchange agent and the transfer agents for the time being. Such persons are
referred to below respectively as the “European Issuing and Paying Agent”, the “Paying Agents” (which expression
shall include the European Issuing and Paying Agent, the Paying Agent in New York (the “New York Paying
Agent”), the Paying Agent in Luxembourg (the “Luxembourg Paying Agent”) and the principal paying agent (the
“Principal Paying Agent”)), the “Calculation Agent”, the “Registrar”, the “Exchange Agent” and the “Transfer
Agents” and together as the “Agents.” The Noteholders and the holders of the Coupons (if any) (the
“Couponholders”) and, where applicable in the case of interest-bearing Notes in bearer form, talons for further
Coupons (the “Talons”) are entitled to the benefit of, are bound by and are deemed to have notice of all of the
provisions of the Trust Deed and of the relevant Final Terms (as defined in Condition 1(e)) and are deemed to have
notice of those applicable to them of the Agency Agreement.
1.
Form, Denomination, Title, Specified Currency and Final Terms
(a) Form: Each Series (as defined in Condition 1(c)) of Notes of which the Note to which these Conditions are
attached forms part (in these Conditions, the “Notes”) is issued either in bearer form (“Bearer Notes”) or in
registered form (“Registered Notes”), and Notes comprising each such Series will be issued in each case in the
nominal amount of a Specified Denomination (as defined in Condition 1(b)). These Conditions must be read
accordingly.
Registered Notes and Bearer Notes may be Fixed Rate Notes, Floating Rate Notes, Index Linked Interest Notes,
Zero Coupon Notes, Dual Currency Notes and other types of Notes, depending upon the interest, redemption and
paying conditions specified in the Final Terms and in the Notes. In addition, Foreign Currency Constraint
Provisions, Sovereign Event Provisions and Credit Event Provisions may apply to the Notes if specified in the Final
Terms.
A definitive Note will be issued to each holder of Registered Note(s) in respect of its registered holding or
holdings (each, a “Definitive Registered Note”). Each Definitive Registered Note will be numbered serially with an
identifying number which will be recorded in the register (the “Register”) which the Issuer shall procure to be kept
by the Registrar.
Bearer Notes are serially numbered and are issued with Coupons (and, where appropriate, a Talon) attached,
save in the case of Zero Coupon Notes, in which case references to interest (other than in relation to interest due
after the Maturity Date), Coupons and Talons in these Conditions are not applicable. U.S. federal income tax law
imposes significant limitations on a U.S. person holding debt instruments issued in bearer form. In general, such
limitations could include taxation of gains recognised on the sale, retirement or other disposition of Bearer Notes at
the rates applicable to ordinary income (rather than capital gains) and the disallowance of a deduction for loss
recognized on such a disposition of Bearer Notes. Prospective purchasers are urged to consult their own tax advisors
regarding the purchase, ownership and disposition of Bearer Notes.
170
Registered Notes may not be exchanged for Bearer Notes and Bearer Notes may not be exchanged for
Registered Notes.
(b) Denomination: “Specified Denomination” means the denomination or denominations specified on such
Note, provided that in the case of any Notes which are to be admitted to trading on a regulated market within the
European Economic Area or offered to the public in a Member State of the European Economic Area in
circumstances which would otherwise require the publication of a prospectus under Directive 2003/71/EC of the
European Parliament and of the Council (as amended from time to time, including pursuant to Directive 2010/73/EU
(to the extent implemented in a relevant Member State)), the minimum Specified Denomination shall be at least
€100,000 (or its equivalent in any other currency as at the date of issue of the relevant Notes) and provided further
that in respect of Notes offered in the United Kingdom with a maturity of less than one year, the minimum Specified
Denomination shall be at least £100,000 (or its equivalent in any other currency as at the date of issue of the relevant
Notes). In addition, in the case of any Registered Notes which are resold pursuant to Rule 144A under the United
States Securities Act of 1933, as amended, the minimum Specified Denomination shall be at least U.S.$150,000 and
integral multiples of U.S.$1,000 in excess thereof or, in respect of Notes denominated in a Specified Currency other
than U.S. dollars, its approximate U.S. dollar equivalent. Bearer Notes of one Specified Denomination may not be
exchanged for Bearer Notes of another Specified Denomination (if any).
So long as the Notes are represented by a Temporary Global Note, Permanent Global Note, DTC Global Note
or International Global Note Certificate (each as defined in the Trust Deed) and the relevant clearing system(s) so
permit, the Notes shall be tradable only in principal amounts of at least the Specified Denomination (or if more than
one Specified Denomination, the lowest Specified Denomination) provided hereon and integral multiples of the
Tradable Amount provided hereon.
(c) Title: Title to the Bearer Notes, the Coupons relating thereto and, where applicable, the Talons relating
thereto shall pass by delivery. Title to the Registered Notes shall pass by registration in the Register. Except as
ordered by a court of competent jurisdiction or as required by law, the holder of any Note, Coupon or Talon shall be
deemed to be and may be treated as the absolute owner of such Note, Coupon or Talon, as the case may be, for the
purpose of receiving payment thereof or on account thereof and for all other purposes, whether or not such Note,
Coupon or Talon shall be overdue and notwithstanding any notice of ownership, theft or loss thereof or any writing
thereon made by anyone.
In these Conditions, “Noteholder” and, in relation to a Note, Coupon or Talon, “holder”, means the bearer of
any Bearer Note, Coupon or Talon or the person in whose name a Registered Note is registered (as the case may be);
“Series” means Notes which have identical terms and conditions, other than in respect of the Issue Date (as defined
in Condition 5(III)), the date on which interest commences to accrue and related matters; and “Tranche” means, in
relation to a Series, those Notes of such Series which have the same Issue Date.
(d) Specified Currency: The Specified Currency of any Note and, if different, any Specified Principal Payment
Currency and/or Specified Interest Payment Currency, are as specified on such Note. Subject to the provisions of
Condition 15(a), all payments of principal in respect of a Note shall be made in the Specified Currency or, if
applicable, the Specified Principal Payment Currency and all payments of interest in respect of a Note shall be made
in the Specified Currency or, if applicable, the Specified Interest Payment Currency.
(e) Final Terms and Additional Terms: References in these Conditions to terms specified on a Note shall be
deemed to include references to terms specified in the applicable Final Terms issued in respect of a Tranche which
includes such Note (each, a “Final Terms”). Capitalised terms used in these Conditions in respect of a Note, and not
specifically defined in these Conditions, have the meanings given to them in the applicable Final Terms issued in
respect of a Tranche which includes such Note. Additional provisions relating to the Notes may be contained in the
Final Terms or specified on the Note and will take effect as if originally specified in these Conditions. The Final
Terms in respect of Index Linked Interest Notes, Installment Notes, Dual Currency Notes and other types of Notes
the terms of which are not specifically provided for herein, shall set out in full all terms applicable to such Notes.
171
2.
Transfers of Registered Notes and Issue of Definitive Registered Notes
(a) Transfer of Registered Notes: A Registered Note may be transferred in whole or in part in a Specified
Denomination upon the surrender of the Definitive Registered Note issued in respect of the Registered Note to be
transferred, together with the form of transfer endorsed on it duly completed and executed, at the specified office of
the Registrar or any Transfer Agent. In the case of a transfer of part only of a Registered Note, a new Definitive
Registered Note in respect of the balance not transferred will be issued to the transferor. Each new Definitive
Registered Note to be issued upon transfer of such Registered Note will, within three business days of receipt of
such form of transfer, be mailed at the risk of the holder entitled to the new Definitive Registered Note to such
address as may be specified in such form of transfer.
(b) Transfer Free of Charge: Registration of transfer will be effected without charge by or on behalf of the
Issuer, the Registrar or the Transfer Agents, but upon payment (or the giving of such indemnity as the Registrar or
the relevant Transfer Agent may require) in respect of any tax or other governmental charges which may be imposed
in relation to such registration or transfer.
(c) Closed Periods: No Noteholder may require the transfer of a Registered Note to be registered: (i) during
the period of 15 days ending on the due date for any payment of principal (being, for the purposes of these
Conditions, unless the context otherwise requires, the amount payable on redemption of a Note) of that Note;
(ii) during the period of 60 days prior to any date on which Notes of the relevant Series may be redeemed by the
Issuer at its option pursuant to Condition 6(e); or (iii) after any such Note has been called for redemption in whole or
in part in accordance with Condition 6.
(d) Regulations: All transfers of Registered Notes and entries on the Register will be made subject to the
detailed regulations concerning transfers of Registered Notes scheduled to the Agency Agreement. The regulations
may be changed by the Issuer, with the prior written approval of the Trustee and the Registrar. A copy of the current
regulations will be made available by the Registrar to any holder of a Registered Note upon request.
3.
Status
The Notes and Coupons of all Series constitute (subject to Condition 4) direct, unconditional, unsecured and
unsubordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among
themselves. The payment obligations of the Issuer under the Notes and the Coupons of all Series shall, save for such
exceptions as may be provided by applicable legislation and subject to Condition 4, and at all times rank at least
equally with all its other present and future unsecured and unsubordinated obligations of the Issuer subject to certain
limitations on payments if there is a Foreign Currency Constraint Event, a Sovereign Event or a Credit Event as
provided for in Conditions 15(a), 15(b) and 15(c), respectively.
Subject to Conditions 15(b) or 15(c) (if applicable), the Noteholder will have no rights, title or interest in any
Governmental Obligations or any Credit Obligations, respectively.
4.
Negative Pledge and Covenants
(a) Negative Pledge: So long as any Note remains outstanding (as defined in the Trust Deed) the Issuer will
not, and will procure that none of its Material Subsidiaries will, create or permit to subsist any Security upon the
whole or any part of their respective undertaking or assets, present or future (including any uncalled capital) to
secure: (i) any of their respective Public External Indebtedness; (ii) any of their respective Guarantees in respect of
Public External Indebtedness; or (iii) the Public External Indebtedness or Guarantees in respect of the Public
External Indebtedness of any other person; without at the same time or prior thereto securing the Notes equally and
rateably therewith or providing such other security for the Notes as shall be approved by an Extraordinary
Resolution (as defined in the Trust Deed) of Noteholders. The Issuer or any Material Subsidiary shall not be
required to equally and rateably secure the Notes if the Security consists of any of the following:
(A) in existence on date hereof to the extent that it secures Public External Indebtedness outstanding
on such date, and any extension, renewal or replacement hereof, provided that the aggregate
amount of Public External Indebtedness permitted to be secured under this Condition 4 (a) shall
not exceed the amount so secured on the date hereof;
172
(B) granted in connection with any financing related to (1) any payment rights or other receivables of
the Issuer or any Material Subsidiary or (2) amounts paid or payable pursuant to payment
instructions (including interbank payment instructions or advice of payment) received or to be
received by the Issuer or any Material Subsidiary; or
(C) granted by means of any payment made to a trustee of amounts due under any Public External
Indebtedness which has the benefit of an insurance policy (or other arrangement having similar
effect including, without limitation, any Security granted in connection with a letter of credit) to
provide for payments to holders of such Public External Indebtedness during any period in respect
of which the trustee must wait before making a claim or receiving payment in respect thereof
under any such insurance policy (or arrangement having similar effect) in circumstances where the
Issuer (or any Material Subsidiary) is subject to restrictions on its or their ability to convert reais
into the currency specified for scheduled payments in respect of such Public External Indebtedness
or to use, transfer, control or access funds designated for such scheduled payments due to actions
or measures taken or approved (or the failure to take or approve actions or measures) by the
Brazilian government.
(b) Transactions with Affiliates: The Issuer will not, and will procure that none of its Material Subsidiaries,
makes any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an “Affiliate
Transaction”), unless such Affiliate Transaction is on terms that are no less favourable to the Issuer or such Material
Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or the Material
Subsidiary with an unrelated Person. Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions: (i) any employment agreement entered into by the Issuer or any of its Material Subsidiaries in
the ordinary course of business and consistent with, the past practice of the Issuer or such Material Subsidiary;
(ii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Issuer; and (iii) any
transactions between the Issuer and its wholly-owned Material Subsidiaries.
(c) Consolidation, Merger or Sales of Assets: The Issuer shall not, without the consent of the holders of the
outstanding Notes of each Series in each case, given by way of an Extraordinary Resolution, consolidate with or
merge into any other corporation or convey or transfer, in one transaction or a series of transactions, all or
substantially all of its properties or assets to any other Person unless:
(i) the corporation formed by such consolidation or into which the Issuer is merged or the Person
which acquires by conveyance or transfer all or substantially all of the properties and assets of the
Issuer (the “Successor Corporation”) shall agree in writing to assume the due and punctual
payment of the principal of and interest on all the Notes and all other obligations of the Issuer
under the Trust Deed and the Notes;
(ii) immediately after giving effect to such transaction, no Event of Default with respect to any Note
shall have happened and be continuing;
(iii) the Issuer has delivered to the Trustee: (A) a certificate signed by an executive officer of the Issuer
stating that such consolidation, merger, conveyance or transfer complies with this Condition 4(c)
and that all conditions precedent herein provided for relating to such transaction have been
complied with; and (B) opinions addressed to and in a form satisfactory to the Trustee of
independent counsel of recognized standing as to such laws as may be reasonably requested by the
Trustee to the effect that the Successor Corporation has validly assumed the obligations to be
assumed by it pursuant to clause (i) above and that the Trust Deed and each Series of Notes
constitute legal, valid and binding obligations of the Successor Corporation, enforceable in
accordance with their terms, subject to bankruptcy, insolvency, reorganisation or other laws of
general applicability relating to or affecting the enforcement of creditors’ rights and to general
principles of equity; and
173
(iv) the Successor Corporation shall expressly agree: (A) to indemnify a Noteholder or a holder of a
Coupon or Talon against any tax, assessment or governmental charge thereafter imposed on such
holder as a consequence of such consolidation, merger, conveyance or transfer; and (B) to pay any
additional amounts as may be necessary in order that the net amounts received by the Noteholders
(and holders of Coupons or Talons, if any) after any withholding or deduction of any such tax,
assessment or other governmental charge imposed by any authority having power to tax to which
the Successor Corporation is subject shall equal the respective amounts of principal and interest (if
any) or other amount which would have been receivable in respect of the Notes (and Coupons and
Talons, if any) in the absence of such consolidation, merger, conveyance or transfer.
(d) Redemption: No Successor Corporation shall have the right to redeem any Series of Notes unless the Issuer
would have been entitled to redeem the Notes in similar circumstances.
(e) Consolidation and Merger: Upon any consolidation, merger, conveyance or transfer in accordance with
Condition 4(c), the Successor Corporation shall succeed to, and be substituted for, and may exercise every right and
power of, and shall assume all of the obligations of the Issuer under the Notes and the Trust Deed, with the same
effect as if the Successor Corporation had been party to the Trust Deed at the date of its execution and named herein
as the Issuer of the Notes.
(f) Definitions: For the purposes of these Conditions:
“Affiliate” in respect of a specified Person means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control of such specified Person. For the purpose of
Condition 4(c) only, “Affiliate” shall also mean any beneficial owner of share capital representing 10 per
cent or more of the total voting share capital (on a fully diluted basis) of the Issuer or of warrants or
similar instruments issued by the Issuer entitling the holder to purchase 10 per cent or more of such
voting share capital (if such warrants or instruments are exercisable at the time of such transaction) and
any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
“Consolidated Assets” means, as at any date of determination the aggregate of all the assets of the Issuer
and its Subsidiaries, determined on a consolidated basis in accordance with accounting principles
generally accepted in, and pursuant to the relevant laws of, Brazil.
“Consolidated Revenues” means, as at any date of determination, all revenue of the Issuer and its
Subsidiaries determined on a consolidated basis in accordance with accounting principles generally
accepted in, and pursuant to the relevant laws of, Brazil.
“controlled” in relation to a company by another person means that that other person (whether directly or
indirectly and whether by the ownership of share capital, the possession of voting power, contract or
otherwise), has the power to appoint and/or remove the majority of the members of the Board of
Directors or other governing body of that company or otherwise controls or has the power to control the
affairs and policies of that company.
“External Indebtedness” means Indebtedness which is payable (or may be paid): (i) in a currency or by
reference to a currency other than the currency of the Federative Republic of Brazil (“Brazil”); and (ii) to
a person resident or having its principal place of business outside Brazil.
“Guarantee” means any obligation of a person to pay the Indebtedness of another person including
without limitation:—
(i) an obligation to pay or purchase such Indebtedness;
(ii) an obligation to lend money or to purchase or subscribe shares or other securities or to purchase
assets or services in order to provide funds for the payment of such Indebtedness;
(iii) an indemnity against the consequences of a default in the payment of such Indebtedness; or
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(iv) any other agreement to be responsible for such Indebtedness.
“Indebtedness” means any obligation (whether present or future, actual or contingent) for the payment or
repayment of money which has been borrowed or raised (including money raised by acceptances and
leasing).
“Material Subsidiary” means, at the date of determination, any Subsidiary of the Issuer that, together with
its Subsidiaries, on a consolidated basis: (i) had total assets (exclusive of assets owed to such Subsidiary
by the Issuer or other Subsidiaries of the Issuer) in excess of 5 per cent of Consolidated Assets; or
(ii) accounted for more than 5 per cent of Consolidated Revenues, in each case determined by reference
to the consolidated financial statements of the Issuer and its Subsidiaries for the most recently completed
fiscal quarter prior to the date of determination.
“Person” means any individual, corporation, firm, partnership, joint venture, association, organisation,
state or agency of a state or other entity, whether or not having a separate legal personality.
“Public External Indebtedness” means any External Indebtedness which is in the form of, or represented
by, bonds, notes or other securities which are for the time being or are capable of being or intended to be
quoted, listed or ordinarily dealt in on any stock exchange, automated trading system, over-the-counter or
other securities market.
“Security” means any mortgage, pledge, lien, hypothecation, security interest or other charge or
encumbrance including, without limitation, any equivalent created or arising under the laws of Brazil.
“Subsidiary” of any company or corporation means, at any particular time, any company or corporation:
(i) more than 50 per cent of the issued share equity capital of which, or more than 50 per cent of the
issued share capital carrying voting rights of which, is beneficially owned, directly or indirectly,
by the first-mentioned company or corporation; or
(ii) which is a Subsidiary of another Subsidiary of the first-mentioned company or corporation.
5.
Interest
One or more of the following provisions apply to each Note, as specified on such Note.
(I) Fixed Rate Notes
This Condition 5(I) applies to a Note in respect of which the Fixed Rate Note Provisions are specified on such
Note as being applicable (a “Fixed Rate Note”).
(a) Interest Rate and Accrual: Each Note bears interest on its nominal amount from (and including) the Interest
Commencement Date (as defined in Condition 5(III)) in respect thereof to (but excluding) the next succeeding
Interest Payment Date specified on such Note at the rate per annum (expressed as a percentage) equal to the Rate of
Interest specified on such Note. Such interest is payable in arrear unless otherwise specified in the applicable Final
Terms on each Interest Payment Date in each year and on the Maturity Date specified on such Note if that date does
not fall on an Interest Payment Date. The amount(s) of interest payable in respect of such Note may be specified on
such Note as the Fixed Coupon Amount(s) or, if so specified, the Broken Amount.
The first payment of interest on a Note will be made on the Interest Payment Date next following the relevant
Interest Commencement Date. If the period between the Interest Commencement Date and the first Interest Payment
Date is less or greater than the period between Interest Payment Dates, as the case may be, the first payment of
interest on a Note will be the amount specified on the relevant Note as being the initial Broken Amount. If the
Maturity Date is not an Interest Payment Date, interest from (and including) the preceding Interest Payment Date (or
from (and including) the Interest Commencement Date, as the case may be) to (but excluding) the Maturity Date
will be the amount specified on the relevant Note as being the final Broken Amount.
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Interest will cease to accrue on each Note on the due date for redemption unless, upon due presentation or
surrender, payment of principal is improperly withheld or refused. In such event interest will continue to accrue at
the rate and in the manner provided in this Condition 5(I) (both before and after judgment) until the Relevant Date
(as defined in Condition 8) (except to the extent that there is failure in the subsequent payment to the relevant
holders under these Conditions).
(b) Calculations: Interest in respect of a period of less or greater than the period between Interest Payment
Dates, as the case may be, (or, in the case of the first interest period, the period between the Interest Commencement
Date and the first Interest Payment Date) will be calculated using the applicable Day Count Fraction (as defined in
Condition 5(III)).
(II) Floating Rate Notes or Index Linked Interest Notes
This Condition 5(II) applies to a Note in respect of which the Floating Rate Note Provisions or Index Linked
Interest Note Provisions are specified on such Note as being applicable (a “Floating Rate Note” or “Index Linked
Interest Note”, respectively).
(a) Specified Interest Payment Dates: Each Note bears interest on its nominal amount from (and including) the
Interest Commencement Date (as defined in Condition 5(III)) in respect thereof and such interest will be payable in
arrear on each Specified Interest Payment Date (as defined in Condition 5(III)).
(b) Rate of Interest: Each Note bears interest at a floating or variable rate which may be based on one or more
interest rate or exchange rate indices, formulae or as otherwise specified on such Note. The dates on which interest
shall be payable on a Note and the basis for calculation of each amount of interest payable in respect of such Note
on each such date and on any other date on which interest becomes payable in respect of such Note and the rate (or
the basis of calculation of such rate) at which interest will accrue in respect of any amount due but unpaid in respect
of such Note shall be as set out below, unless otherwise specified on such Note. Subject to Condition 5(II)(c), the
Rate of Interest payable from time to time will, unless otherwise specified on such Note, be determined by the
Calculation Agent on the basis of the following provisions:
(i) In the case of a Note which specifies that the Rate of Interest is to be determined from a specified
page, section or other part of a particular information service (each as specified on such Note), the
relevant Rate of Interest in respect of each Interest Period (as defined in Condition 5(III)) will,
subject as provided below, be either:
(A) (x) the offered quotation; or
(y) the arithmetic mean of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate (as defined in Condition
5(III)) which appears or appear, as the case may be, on that page, section or other part of such
information service as at either 11.00 a.m. (London time in the case of LIBOR or Brussels
time in the case of EURIBOR) on the Interest Determination Date in question as determined
by the Calculation Agent. If five or more of such offered quotations are available on that
page, section or other part of such information service, the highest (or, if there is more than
one such highest quotation, one only of such quotations) and the lowest (or, if there is more
than one such lowest quotation, one only of such quotations) shall be disregarded by the
Calculation Agent for the purpose of determining the arithmetic mean of such offered
quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes is specified in the
applicable Final Terms as being other than LIBOR or EURIBOR, the Rate of Interest in
respect of such Notes will be determined as provided in the applicable Final Terms.
(B) if that page, section or other part of such information service is not available or if, Condition
5(II)(b)(i)(A)(x) applies and no such offered quotation appears on that page, section or other
part of such information service or if Condition 5(II)(b)(i)(A)(y) above applies and fewer than
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three such offered quotations appear on that page, section or other part of such information
service in each case as at the time specified above, subject as provided below, the Calculation
Agent shall request, if the Reference Rate is LIBOR, the principal London office of each of
the Reference Banks (as defined in Condition 5(III)) or, if the Reference Rate is EURIBOR,
the principal Euro-zone office of each of the Reference Banks, to provide the Calculation
Agent with its offered quotation (expressed as a percentage rate per annum) for the Reference
Rate if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London time), or if the
Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time) on the Interest
Determination Date in question. If two or more of the Reference Banks provide the
Calculation Agent with such offered quotations, the Rate of Interest for such Interest Period
shall be the arithmetic mean of such offered quotations as determined by the Calculation
Agent; and
(C) if Condition 5(II)(b)(i)(B) above applies and the Calculation Agent determines that fewer than
two Reference Banks are providing offered quotations, subject as provided below, the Rate of
Interest shall be the arithmetic mean of the rates per annum (expressed as a percentage) as
communicated to (and at the request of) the Calculation Agent by the Reference Banks or any
two or more of them, at which such banks were offered, if the Reference Rate is LIBOR, at
approximately 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR, at
approximately 11.00 a.m. (Brussels time) on the relevant Interest Determination Date,
deposits in the Specified Currency for a period equal to that which would have been used for
the Reference Rate by leading banks in, if the Reference Rate is LIBOR, the London
inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as
the case may be, or, if fewer than two of the Reference Banks provide the Calculation Agent
with such offered rates, the offered rate for deposits in the Specified Currency for a period
equal to that which would have been used for the Reference Rate, or the arithmetic mean of
the offered rates for deposits in the Specified Currency for a period equal to that which would
have been used for the Reference Rate, at which, if the Reference Rate is LIBOR, at
approximately 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR, at
approximately 11.00 a.m. (Brussels time), on the relevant Interest Determination Date, any
one or more banks (which bank or banks is or are in the opinion of the Trustee and the Issuer
suitable for such purpose) informs the Calculation Agent it is quoting to leading banks in, if
the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is
EURIBOR, the Euro-zone inter-bank market, as the case may be, provided that, if the Rate of
Interest cannot be determined in accordance with the foregoing provisions of this paragraph,
the Rate of Interest shall be determined as at the last preceding Interest Determination Date
(though substituting, where a different Margin or Maximum or Minimum Rate of Interest is
to be applied to the relevant Interest Period from that which applied to the last preceding
Interest Period, the Margin or Maximum or Minimum Rate of Interest relating to the relevant
Interest Period, in place of the Margin or Maximum or Minimum Rate of Interest relating to
that last preceding Interest Period).
(ii) In the case of a Note which specifies that the manner in which the Rate of Interest is to be
determined shall be ISDA Determination, the Rate of Interest for each Interest Period shall be
determined by the Calculation Agent as a rate equal to the relevant ISDA Rate plus or minus (as
specified on such Note) the Margin (if any). For the purposes of this sub-paragraph (ii), “ISDA
Rate” for an Interest Period means a rate equal to the Floating Rate that would be determined by
the Calculation Agent under a Swap Transaction under the terms of an agreement incorporating
the ISDA Definitions and under which:
(A) the Floating Rate Option is as specified on such Note;
(B) the Designated Maturity is a period specified on such Note; and
(C) the relevant Reset Date is the first day of that Interest Period unless otherwise specified on
such Note.
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For the purposes of this sub-paragraph (ii), “Floating Rate”, “Calculation Agent”, “Floating Rate Option”,
“Designated Maturity”, “Reset Date” and “Swap Transaction” have the meanings given to those terms in the ISDA
Definitions.
(e) Minimum/Maximum Rates: If a Minimum Rate of Interest is specified on a Note, then the Rate of Interest
applicable to that Note shall in no event be less than it and if a Maximum Rate of Interest is specified on a Note,
then the Rate of Interest applicable to that Note shall in no event exceed it.
(f) Determination of Rate of Interest and Calculation of Interest Amounts: The Calculation Agent will, as soon
as practicable on each Interest Determination Date, determine the Rate of Interest in the manner provided for in this
Condition 5 and calculate the amount of interest payable (the “Interest Amounts”) in respect of each Specified
Denomination of the relevant Notes (in the case of Bearer Notes) and the minimum Specified Denomination (in the
case of Registered Notes) for the relevant Interest Period. The Interest Amounts shall be calculated by applying the
Rate of Interest adjusted, if necessary, by any Margin (as defined in Condition 5(III)) to each Specified
Denomination (in the case of Bearer Notes) and the minimum Specified Denomination (in the case of Registered
Notes), and multiplying such product by the applicable Day Count Fraction (as defined in Condition 5(III))
rounding, if necessary, the resultant figure to the nearest unit of the relevant currency (half of such unit being
rounded upwards or, in the case of Yen, downwards). The determination of the Rate of Interest and the Interest
Amounts by the Calculation Agent shall (in the absence of manifest or proven error) be final and binding upon all
parties.
(g) Notification of Rate of Interest and Interest Amounts: The Calculation Agent will cause the Rate of Interest
and the Interest Amounts for each Interest Period and the relevant Specified Interest Payment Date to be notified to
the Trustee, the Issuer, each of the Agents, the Noteholders (in accordance with Condition 18) and if the relevant
Notes are for the time being listed on any stock exchange (each, an “Exchange”) and the rules of that Exchange so
require, the Exchange as soon as possible after their determination but in no event later than two Relevant Business
Days (as defined in Condition 5(III)) after their determination. The Interest Amounts and the Specified Interest
Payment Date so notified may subsequently be amended by the Calculation Agent (or appropriate alternative
arrangements made by way of adjustment) without notice in the event of an extension or shortening of the Interest
Period.
(h) Interest Accrual: Interest will cease to accrue on each Note on the due date for redemption unless, upon due
presentation or surrender, payment of principal is improperly withheld or refused. In such event interest will
continue to accrue at the rate and in the manner provided in this Condition 5(II) (both before and after judgment)
until the Relevant Date (as defined in Condition 8) (except to the extent that there is failure in the subsequent
payment to the relevant holders under these Conditions).
(i) Determination or Calculation by the Trustee: If the Calculation Agent does not at any time for any reason
determine the Rate of Interest or calculate the Interest Amounts for an Interest Period, subject to being indemnified
and/or secured and/or prefunded to its reasonable satisfaction, the Trustee or any person appointed by it for the
purpose may do so and such determination or calculation shall be deemed to have been made by the Calculation
Agent. In doing so, the Trustee shall apply the foregoing provisions of this Condition 5(II), with any necessary
consequential amendments, to the extent that, in its opinion, it can do so, and in all other respects it shall do so in
such manner as it shall deem fair and reasonable in all the circumstances.
(j) Calculation Agent: The Issuer will procure that, so long as any Note to which this Condition 5(II) applies
remains outstanding, there shall at all times be a Calculation Agent for such Note. If the Calculation Agent is unable
or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest for any Interest
Period or to calculate the Interest Amounts, the Issuer will appoint the London office of a leading bank engaged in
the London and international interbank markets to act as such in its place. The Calculation Agent may not resign its
duties without a successor having been appointed as aforesaid.
(III) Definitions
As used in these Conditions:
“Business Day Convention” means either:
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(A) the “Floating Rate Business Day Convention”, in which case interest on a Note shall be
payable on each Specified Interest Payment Date which numerically corresponds to its
Interest Commencement Date or, as the case may be, the preceding Specified Interest
Payment Date in the calendar month which is the Interest Period specified on such Note after
the calendar month in which such Interest Commencement Date or, as the case may be, the
preceding Specified Interest Payment Date occurred, provided that:
(1) if there is no such numerically corresponding day in the calendar month in which a
Specified Interest Payment Date should occur, then the relevant Specified Interest
Payment Date will be the last day which is a Relevant Business Day (as defined below) in
that calendar month;
(2) if a Specified Interest Payment Date would otherwise fall on a day which is not a
Relevant Business Day, then the relevant Specified Interest Payment Date will be the first
following day which is a Relevant Business Day unless that day falls in the next calendar
month, in which case it will be the first preceding day which is a Relevant Business Day;
and
(3) if such Interest Commencement Date or the preceding Specified Interest Payment Date
occurred on the last day in a calendar month which was a Relevant Business Day, then all
subsequent Specified Interest Payment Dates in respect of such Note will be the last day
which is a Relevant Business Day in the calendar month which is the Interest Period
specified on such Note after the calendar month in which such Interest Commencement
Date or, as the case may be, the preceding Specified Interest Payment Date occurred; or
(B) the “Modified Following Business Day Convention”, in which case interest on a Note shall be
payable on such Interest Payment Dates or Specified Interest Payment Dates as may be
specified on such Note, provided that, if any Interest Payment Date or Specified Interest
Payment Date would otherwise fall on a date which is not a Relevant Business Day, the
relevant Interest Payment Date or Specified Interest Payment Date will be the first following
day which is a Relevant Business Day unless that day falls in the next calendar month, in
which case the relevant Interest Payment Date or Specified Interest Payment Date will be the
first preceding day which is a Relevant Business Day; or
(C) the “Following Business Day Convention”, in which case interest on a Note shall be payable
on such Interest Payment Dates or Specified Interest Payment Dates as may be specified on
such Note, provided that, if any Interest Payment Date or Specified Interest Payment Date
would otherwise fall on a date which is not a Relevant Business Day, the relevant Interest
Payment Date or Specified Interest Payment Date will be the first following day which is a
Relevant Business Day; or
(D) the “Preceding Business Day Convention”, in which case interest on a Note shall be payable
on such Interest Payment Dates or Specified Interest Payment Dates as may be specified on
such Note, provided that, if any Interest Payment Date or Specified Interest Payment Date
would otherwise fall on a date which is not a Relevant Business Day, the relevant Interest
Payment Date or Specified Interest Payment Date will be the first preceding day which is a
Relevant Business Day; or
(E) such other Business Day Convention as may be specified on the relevant Note.
“Consolidated Net Worth” of a Person is the sum of paid-in capital, reserves and retained earnings of such
person, determined on a consolidated basis in accordance with Brazilian GAAP.
“Day Count Fraction” means, in respect of the calculation of an amount of interest on any Note for any period
of time (from and including the first day of such period to but excluding the last) (whether or not constituting an
Interest Period, the “Calculation Period”):
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(i) if “Actual/Actual” or “Actual/Actual-ISDA” is specified on such Note, the actual number of days
in the Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a
leap year, the sum of: (A) the actual number of days in that portion of the Calculation Period
falling in a leap year divided by 366; and (B) the actual number of days in that portion of the
Calculation Period falling in a non-leap year divided by 365);
(ii) if “Actual/365 (Fixed)” is specified on such Note, the actual number of days in the Calculation
Period divided by 365;
(iii) if “Actual/360” is specified on such Note, the actual number of days in the Calculation Period
divided by 360;
(iv) if “30/360”, “360/360” or “Bond Basis” is specified hereon, the number of days in the Calculation
Period divided by 360 calculated on a formula basis as follows:
Day Count Fraction =
[360 x (Y 2 -Y 1 )] + [30 x (M 2 -M 1 )]+ (D 2 -D 1 )
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;
“M2” is the calendar month, expressed as number, in which the day immediately following the last
day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless such
number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless such number would be 31 and D1 is greater than 29, in which case
D2 will be 30;
(v) if “30E/360” or “Eurobond Basis” is specified on such Note, the number of days in the Calculation
Period divided by 360 calculated on a formula basis as follows:
Day Count Fraction =
[360 x (Y 2 -Y 1 )] + [30 x (M 2 -M 1 )]+ (D 2 -D 1 )
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;”M2” is the calendar month, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
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“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless such
number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless such number would be 31, in which case D2 will be 30;
(vi) if “30E/360 (ISDA)” is specified hereon the number of days in the Calculation Period divided by
360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x (Y 2 -Y 1 )] + [30 x (M 2 -M 1 )]+ (D 2 -D 1 )
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless: (A) that
day is the last day of February; or (B) such number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless: (A) that day is the last day of February but not the Maturity Date;
or (B) such number would be 31, in which case D2 will be 30; and
(vii) “Actual/Actual-ICMA” is specified on such Note: (A) if the Calculation Period is equal to or
shorter than the Determination Period during which it falls, the number of days in the Calculation
Period divided by the product of: (x) the number of days in such Determination Period; and (y) the
number of Determination Periods normally ending in any year; and (B) if the Calculation Period is
longer than one Determination Period, the sum of: (x) the number of days in such Calculation
Period falling in the Determination Period in which it begins divided by the product of: (1) the
number of days in such Determination Period; and (2) the number of Determination Periods
normally ending in any year; and (y) the number of days in such Calculation Period falling in the
next Determination Period divided by the product of: (1) the number of days in such
Determination Period; and (2) the number of Determination Periods normally ending in any year.
For the purposes of this definition of Day Count Fraction:
“Determination Date” means the date specified as such on the relevant Note or, if none is so specified, the
Interest Payment Date;
“Determination Period” means the period from and including a Determination Date in any year to but excluding
the next Determination Date;
“Interest Commencement Date” means, in the case of the first issue of a Note or Notes of a Series, the Issue
Date or such other date as may be specified as the Interest Commencement Date on such Note.
“Interest Determination Date” means, in respect of any Interest Period, the date which falls that number of days
specified on the relevant Note on which banks and foreign exchange markets are open for business in the
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Relevant Banking Centre prior to the first day of such Interest Period or, if none is so specified, the day falling
two Relevant Business Days prior to the first day of such Interest Period.
“Interest Period” means the period beginning on (and including) the Interest Commencement Date to (but
excluding) the first Specified Interest Payment Date and each successive period beginning on (and including) a
Specified Interest Payment Date to (but excluding) the next succeeding Specified Interest Payment Date.
“ISDA Definitions” means the 2006 ISDA Definitions as published by the International Swaps and Derivatives
Association, Inc., unless otherwise specified on the relevant Note.
“Issue Date” means, in respect of any Note or Notes, the date of issue of such Note or Notes.
“Margin” means the percentage rate per annum specified on the relevant Note.
“Reference Banks” means, in the case of a determination of LIBOR, the principal London office of four major
banks in the London inter-bank market and, in the case of a determination of EURIBOR, the principal
Euro-zone office of four major banks in the Euro-zone inter-bank market, in each case selected by the
Calculation Agent or as specified hereon.
“Reference Rate” means, for any Note, the bid, offered or mean of bid and offered rate, as specified on such
Note, for the floating rate specified on such Note.
“Relevant Banking Centre” means, for any Note, the Relevant Banking Centre specified on such Note or, if
none is so specified, the banking centre with which the relevant Benchmark is most closely connected (which,
in the case of EURIBOR shall be Europe) or, if none is so connected, London.
“Relevant Business Day” means:
(A) in the case of a currency other than euro, a day (other than a Saturday or a Sunday) on which
banks and foreign exchange markets are open for business in the Relevant Financial Centre; or
(B) in the case of euro, a TARGET Business Day; and
(C) in the case of any currency, a day (other than a Saturday or a Sunday) on which banks and foreign
exchange markets are open for business in the Additional Business Centre(s) specified on the
relevant Note.
“Relevant Financial Centre” means the principal financial centre for the relevant currency (which in the case of
euro, shall be Europe).
“Specified Interest Payment Date” means each date which falls the Interest Period specified on the relevant
Note after the preceding Specified Interest Payment Date or, in the case of the first Specified Interest Payment
Date, after the Interest Commencement Date or as is otherwise specified as such on the relevant Note, in each
case as adjusted by the Business Day Convention specified on such Note.
“TARGET Business Day” means a day on which the TARGET System is operating.
“TARGET System” means the Trans-European Automated Real-Time Gross Settlement Express Transfer
(known as TARGET2) System which was launched on November 19, 2007 or any successor thereto.
(IV) Zero Coupon
This Condition 5(IV) applies to a Note in respect of which the Zero Coupon Note Provisions are specified on
such Note as being applicable (a “Zero Coupon Note”).
References to the amount of interest payable (other than as provided below), Coupons and Talons in these
Conditions are not applicable. Where a Note becomes repayable prior to its Maturity Date and is not paid when due,
the amount due and payable in respect of such Note shall be the Amortised Face Amount (as defined in Condition
6(d)(iii)) of such Note as determined in accordance with Condition 6(d)(iii). Where a Note is to be redeemed on its
Maturity Date, any overdue principal of such Note shall bear interest at a rate per annum (expressed as a percentage)
182
equal to the Amortisation Yield specified on such Note. Such interest shall continue to accrue (on the same basis as
referred to in Condition 5(I)) (both before and after judgment) to the Relevant Date.
(V) Dual Currency Notes
This Condition 5(V) applies to a Note in respect of which the Dual Currency Provisions are specified on such
Note as being applicable (a “Dual Currency Note”).
If the rate or amount of interest falls to be determined by reference to a Rate of Exchange or a method of
calculating Rate of Exchange, the rate or amount of interest payable shall be determined in the manner specified
hereon.
6.
Redemption and Purchase
(a) Final Redemption: Unless previously redeemed or purchased and cancelled, each Note will be redeemed at
its redemption amount (“Final Redemption Amount”) being its nominal amount or such other amount as is specified
on such Note (which may be based on one or more specified indices or formulae) on the applicable Maturity Date
or, if such Note has applicable to it on the Maturity Date an interest basis which is specified on such Note as
Floating Rate, on the applicable Specified Interest Payment Date falling in the applicable Redemption Month
specified on such Note.
(b) Purchases: The Issuer and any of its Subsidiaries may at any time purchase Notes at any price (provided
that in the case of Bearer Notes they are purchased together with all unmatured Coupons and unexchanged Talons
relating to them) in the open market or otherwise, provided that in any such case such purchase or purchases are in
compliance with all relevant laws, regulations and directives. The Notes so purchased, including Notes purchased
under Conditions 6(e) and 6(f), while held by or on behalf of the Issuer or any of its Subsidiaries, shall not entitle the
holder to vote at any meetings of Noteholders and shall not be deemed to be outstanding for the purposes of
calculating quorums at meetings of the Noteholders or for the purposes of Conditions 11 and 12.
(c) Redemption for Taxation Reasons: Notes of any Series may be redeemed at the option of the Issuer in
whole, but not in part, at any time (in the case of a Fixed Rate Note or a Zero Coupon Note) or on any Interest
Payment Date (in the case of a Floating Rate Note), on giving not less than 30 nor more than 60 days’ notice to the
Noteholders in accordance with Condition 18 (which notice shall be irrevocable), at their Early Redemption
Amount, (together with interest accrued to the date fixed for redemption) or (in the case of Zero Coupon Notes) at
their Amortised Face Amount (as determined in accordance with Condition 6(d)(ii)), if: (i) the Issuer certifies to the
Trustee (in the manner described below) immediately prior to the giving of such notice that it has or will become
obliged to pay additional amounts as provided or referred to in Condition 8 in excess of the additional amounts
which would be payable in respect of deductions or withholdings made at the rate of the Original Withholding
Level, if any, specified on such Notes as a result of any change in, or amendment to, the laws or regulations of
Brazil, the Cayman Islands or any political subdivision or any authority thereof or therein or any other jurisdiction
having power to tax in which the Issuer is organised, doing business or otherwise subject to the power to tax (any of
the aforementioned being a “Taxing Jurisdiction”), or any change in the application or official interpretation of such
laws or regulations, which change or amendment becomes effective on or after the Issue Date in respect of the
relevant Series; and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it,
provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the
Issuer would be obliged to pay such additional amounts were a payment in respect of such Notes then due. Prior to
the publication of any notice of redemption pursuant to this Condition 6(c), the Issuer shall deliver to the Trustee a
certificate signed by two Directors of the Issuer stating that the obligation referred to in (i) above has arisen and
cannot be avoided by the Issuer taking reasonable measures available to it and the Trustee shall be entitled to accept
such certificate as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above, without
liability to any persons, in which event it shall be conclusive and binding on the Noteholders and the
Couponholders.
(d) Early Redemption of Zero Coupon Notes: This Condition 6(d) applies to Zero Coupon Notes.
(i) The amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon
Note pursuant to Condition 6(c), (e) or (f), if applicable, or upon it becoming due and payable as
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provided in Condition 9, shall be the Amortised Face Amount (calculated as provided below) of
such Zero Coupon Note.
(ii) Subject to Condition 6(d)(iii), the “Amortised Face Amount” of any Zero Coupon Note shall be
the sum of (A) the Reference Price specified on such Zero Coupon Note and (B) the aggregate
amortisation of the difference between the Reference Price and the nominal amount of such Zero
Coupon Note from the Issue Date to the date on which the Zero Coupon Note becomes due and
payable calculated at a rate per annum (expressed as a percentage) equal to the Amortisation Yield
specified on such Zero Coupon Note applied to the Reference Price in the manner specified on
such Zero Coupon Note. Where the specified calculation is to be made for a period of less than
one year, it shall be made using the applicable Day Count Fraction.
(iii) If the amount payable in respect of any Note upon redemption of such Zero Coupon Note pursuant
to Condition 6(c), (e) or (f), if applicable, or upon it becoming due and payable as provided in
Condition 9, is not paid when due, the amount due and payable in respect of such Note shall be the
Amortised Face Amount of such Zero Coupon Note as defined in Condition 6(d)(ii), except that
Condition 6 shall have effect as though the reference therein to the date on which the Zero Coupon
Note becomes due and payable were replaced by a reference to the Relevant Date (as defined in
Condition 8). The calculation of the Amortised Face Amount in accordance with this Condition
6(d)(iii) will continue to be made (both before and after judgment) until the Relevant Date unless
the Relevant Date falls on or after the Maturity Date, in which case the amount due and payable
shall be the nominal amount of such Note together with any interest which may accrue on such
Zero Coupon Note in accordance with Condition 5(IV).
(e) Redemption at the Option of the Issuer (Call Option): Subject to the provisions of Conditions 15(b)(i) and
15(c)(i), if so provided on a Note, the Issuer may, subject to compliance with all relevant laws, regulations and
directives, on giving to the Noteholder irrevocable notice in accordance with Condition 18 of not less than 30 nor
more than 45 days (or such other notice period as specified on such Note) redeem all or, if so specified on such
Note, some of the Series of Notes of which such Note forms part, on the Optional Redemption Date(s) specified on
such Notes (which shall, in the case of a Note which has applicable to it at the time of redemption an interest basis
which is specified on such Note as Floating Rate, be a Specified Interest Payment Date) at the amount specified on
such Note as the Optional Redemption Amount together with interest accrued to (but excluding) the date fixed for
redemption; provided however that if the Issuer so elects, the Issuer may, in lieu of redeeming such Notes, procure
that any person designated by the Issuer may purchase such Notes on the Optional Redemption Date(s) specified in
the Final Terms at the Optional Redemption Amount, together with an amount equal to interest accrued to (but
excluding) the date fixed for redemption. All Notes in respect of which any such notice is given shall be redeemed
on the Optional Redemption Date(s) specified in such notice in accordance with this Condition 6(e). If only some of
the Notes of a Series are to be redeemed at any time, the Notes to be redeemed shall be determined by the drawing
of lots. In the case of a partial redemption by way of lot, the notice to Noteholders shall also contain the serial
numbers and nominal amount of the Notes to be redeemed, which shall have been drawn in such place as the Trustee
may approve and in such manner as it deems appropriate, subject to compliance with any applicable laws, clearing
system and stock exchange requirements.
(f) Redemption at the Option of Noteholders (Put Option): If so provided on a Note, the Issuer shall, subject to
compliance with all relevant laws, regulations and directives, at the option of the holder of such Note, redeem such
Note on the Optional Redemption Date(s) specified on such Note (which shall, in the case of a Note which has
applicable to it at the time of redemption an interest basis which is specified on such Note as Floating Rate, be a
Specified Interest Payment Date) at the amount specified on such Note as the Optional Redemption Amount together
with interest accrued to (but excluding) the date fixed for redemption; provided however that if the Issuer so elects,
the Issuer may, in lieu of redeeming such Notes, procure that any person designated by the Issuer may purchase such
Notes on the Optional Redemption Date(s) specified in the Final Terms at the Optional Redemption Amount,
together with an amount equal to interest accrued to (but excluding) the date fixed for redemption. To exercise such
option the holder must deposit such Note with any Paying Agent (in the case of Bearer Notes) or the Registrar or any
Transfer Agent (in the case of Registered Notes) at their respective specified offices, together with a duly completed
notice of redemption (“Redemption Notice”) in the form obtainable from any Agent not more than 60 nor less than
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46 days (or such other deposit period as may be specified on such Note) prior to the relevant date for redemption.
No Note (or Redemption Notice) so deposited may be withdrawn (except as provided in the Agency Agreement)
without the prior consent of the Issuer. Notice of not more nor less than the number of days specified on such Note
of the commencement of any period for the deposit of Notes for redemption pursuant to this Condition 6(f) shall be
given by the Issuer to Noteholders in accordance with Condition 18.
(g) Redemption Resulting From a Sovereign Event or a Credit Event: If Sovereign Event Provisions or Credit
Event Provisions are specified in the relevant Final Terms, the Issuer may, at its discretion, redeem all of the Series
of the Notes pursuant to the applicable mechanisms and procedures set forth in Condition 15 below. Any further
provisions relating to the redemption of Notes subject to a Sovereign Event or a Credit Event will be set out in the
relevant Final Terms.
(h) Cancellation: All Notes redeemed in accordance with this Condition 6, and any unmatured Coupons or
Talons attached to them, will be cancelled forthwith. Any Notes purchased in accordance with this Condition 6, and
any unmatured Coupons or Talons purchased with them, may at the option of the Issuer be cancelled or may be
resold. Notes which are cancelled following any redemption or purchase made in accordance with this Condition 6
may at the option of the Issuer be re-issued together with any unmatured Coupons or Talons. Any resale or re-issue
pursuant to this Condition 6(h) shall only be made in compliance with all relevant laws, regulations and directives.
7.
Payments
(a) Bearer Notes:
(i) Payments of Principal and Interest
Payments of principal and interest in respect of Bearer Notes will, subject as mentioned below, be
made against presentation and surrender of the relevant Bearer Notes or Coupons, as the case may
be, at the specified office of any Paying Agent outside the United States and its possessions:
(A) in respect of payments denominated in a Specified Currency other than U.S. dollars, at the
option of the holder either by a cheque in such Specified Currency drawn on, or by transfer to
an account in such Specified Currency maintained by the payee with a bank in the Relevant
Financial Centre of such Specified Currency, or in the case of euro, in a city in which banks
have access to the TARGET System;
(B) in respect of payments denominated in U.S. dollars, subject to Condition 7(a)(ii), at the option
of the holder either by a U.S. dollar cheque drawn on a bank in New York City or by transfer
to a U.S. dollar account maintained by the payee with a bank outside the United States; or
(C) as may otherwise be specified on such Notes as an Alternative Payment Mechanism.
(ii) Payments in the United States
Notwithstanding the foregoing, payments in respect of Bearer Notes denominated in U.S. dollars
may be made at the specified office of the New York Paying Agent in New York City in the same
manner as aforesaid if: (1) the Maturity Date of such Bearer Notes is not more than one year from
the Issue Date for such Bearer Notes; or (2): (A) the Issuer has appointed Paying Agents with
specified offices outside the United States with the reasonable expectation that such Paying Agents
will be able to make payment of the amounts on the Bearer Notes in the manner provided above
when due; (B) payment in full of such amounts at all such offices is illegal or effectively precluded
by exchange controls or other similar restrictions on payment or receipt of such amounts; and
(C) such payment is then permitted by United States law. If, under such circumstances, a Bearer
Note is presented for payment of principal at the specified office of the New York Paying Agent
(or at the specified office of any other paying agent in the United States or its possessions) in
circumstances where interest (if any is payable against presentation of the Bearer Note) is not to be
paid there, the relevant Paying Agent will annotate the Bearer Note with the record of the principal
paid and return it to the holder for the payment of interest elsewhere.
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(iii) Payments on Business Days
Subject as provided on a Note, if any date for payment in respect of any Bearer Note or Coupon
comprising all or part of a Tranche is not a business day, the holder shall not be entitled to
payment until the next following business day nor to any interest or other sum in respect of such
postponed payment. In this Condition 7(a), “business day” means a day on which banks are open
for business in the relevant place of presentation, in such jurisdictions as are specified on such
Note as “Additional Financial Centres” and:
(A) (in the case of a payment in a currency other than euro) where payment is to be made by
transfer to an account maintained with a bank in the relevant Specified Currency, a day on
which dealings may be carried on in the Relevant Financial Centre of such Specified
Currency; or
(B) in the case of payment in euro, a day which is a TARGET Business Day.
If the due date for redemption or repayment of any Bearer Note is not a due date for payment of
interest, interest accrued from the preceding due date for payment of interest or the Interest
Commencement Date, as the case may be, shall only be payable against presentation (and surrender if
appropriate) of the relevant Bearer Note. Interest accrued on a Bearer Note the interest basis for which
is specified on such Note as Zero Coupon from its Maturity Date shall be payable on repayment of
such Bearer Note against presentation thereof.
(b) Registered Notes:
(i) Payments of Principal and Interest
Payments of principal and interest in respect of Registered Notes will be made or procured to be
made by the European Issuing and Paying Agent to the person shown on the Register at the close
of business on: (1) in the case of a Series of Registered Notes where some or all of the Registered
Notes of such Series are registered in the name of or in the name of a nominee for The Depository
Trust Company (“DTC”), the DTC business day (as defined below) (subject to Condition 7(b)(iii))
before the due date for payment thereof; or (2) in the case of a Series of Registered Notes where
such Registered Notes are registered in the name of, or in the name of a nominee of any clearing
system or any other entity or person other than DTC, the business day before the due date for
payment thereof (in each case, the “Record Date”):
(A) by cheque drawn on, or by transfer to an account in such Specified Currency maintained by
the payee with, a bank in the Relevant Financial Centre of such Specified Currency or, in the
case of euro, in a city in which banks have access to the TARGET System; or
(B) as may otherwise be specified on such Notes as an Alternative Payment Mechanism.
Payments of principal in respect of Registered Notes will only be made against surrender of the
relevant Definitive Registered Note at the specified office of any Transfer Agent. Upon application
by the holder to the specified office of any Transfer Agent not less than 15 days before the due
date for any payment in respect of a Note, such payment will be made by transfer to an account
maintained by the payee with a bank in the Relevant Financial Centre or, in the case of euro, in a
city in which banks have access to the TARGET System. Details of the account to which a
registered holder’s payments will be made should be notified by the holder to the specified office
of the European Issuing and Paying Agent before the Record Date preceding the relevant date for
payment. If the amount of principal being paid is less than the nominal amount of the relevant
Definitive Registered Note, the Registrar will annotate the Register with the amount of principal
so paid and will (if so requested by the Issuer or a Noteholder) issue a new Definitive Registered
Note with a nominal amount equal to the remaining unpaid nominal amount. In these Conditions,
“DTC business day” means any day on which DTC is open for business.
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(ii) Payment Initiation
Where payment is to be made by transfer to an account in the relevant Specified Currency,
payment instructions (for value the due date, or if that is not a Relevant Business Day, for value
the first following day which is a Relevant Business Day) will be initiated on the last day on
which the European Issuing and Paying Agent is open for business preceding the due date for
payment or, in the case of payments of principal where the relevant Definitive Registered Note has
not been surrendered at the specified office of any Transfer Agent, on a day on which the
European Issuing and Paying Agent is open for business and on which the relevant Definitive
Registered Note is surrendered.
(iii) Payments Through The Depository Trust Company
Registered Notes, if so specified on them, will be issued in the form of one or more Definitive
Registered Notes registered in the name of, or the name of a nominee for, DTC. Payments of
principal and interest in respect of Registered Notes denominated in U.S. dollars will be made in
accordance with Conditions 7(b)(i) and (ii). Payments of principal and interest in respect of
Registered Notes registered in the name of, or in the name of a nominee for, DTC and
denominated in a Specified Currency other than U.S. dollars will be made or procured to be made
by the European Issuing and Paying Agent in the relevant Specified Currency in accordance with
the following provisions. The amounts in such Specified Currency payable by the European
Issuing and Paying Agent or its agent to DTC with respect to Registered Notes held by DTC or its
nominee will be received from the Issuer by the European Issuing and Paying Agent who will
make payments in such Specified Currency by wire transfer of same day funds to the designated
bank account in such Specified Currency of those DTC participants entitled to receive the relevant
payment who have made an irrevocable election to DTC, in accordance with the then current DTC
procedures, to receive that payment in such Specified Currency. The European Issuing and Paying
Agent, after the Exchange Agent has converted amounts in such Specified Currency into U.S.
dollars, will deliver such U.S. dollar amount in same day funds to DTC for payment through its
settlement system to those DTC participants entitled to receive the relevant payment who did not
elect to receive such payment in such Specified Currency. The Agency Agreement sets out the
manner in which such conversions are to be made.
(iv) Delay in Payment
Noteholders will not be entitled to any interest or other payment for any delay after the due date in
receiving the amount due on a Note if the due date is not a Relevant Business Day or if the
Noteholder is late in surrendering or cannot surrender its Definitive Registered Note (if required to
do so).
(v) Payment Not Made in Full
If the amount of principal or interest which is due on any Registered Note is not paid in full, the
Registrar will annotate the Register with a record of the amount of principal or interest, if any, in
fact paid on such Registered Note.
(c) Payments Subject to Law, etc.: All payments are subject in all cases to any applicable laws, regulations and
directives in the place of payment, but without prejudice to the provisions of Condition 8. No commission or
expenses shall be charged to the Noteholders or Couponholders in respect of such payments.
(d) Appointment of Agents: The Paying Agents, the Registrar, the Calculation Agent, the Exchange Agent and
the Transfer Agents initially appointed by the Issuer and their respective specified offices are listed below. The
Issuer reserves the right at any time, with the prior approval of the Trustee, which shall not be unreasonably
withheld, conditioned or delayed, to vary or terminate the appointment of any Agent, to appoint another Registrar,
Exchange Agent or Calculation Agent and to appoint additional or other Paying Agents or Transfer Agents, provided
that the Issuer will at all times maintain: (i) a Principal Paying Agent; (ii) a Registrar, a Transfer Agent and a paying
agent in New York City; (iii) a European Issuing and Paying Agent; (iv) a Paying Agent and a Transfer Agent having
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a specified office in a European city which, so long as the Notes are admitted to listing on Official List of the
Luxembourg Stock Exchange and admitted to trading on the Euro MTF market of the Luxembourg Stock Exchange
and the rules of that exchange so require, shall be Luxembourg; (v) a Paying Agent having a specified office in a
Member State of the European Union, which Member State will not be obliged to withhold or deduct tax pursuant to
any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions
of the ECOFIN Council meeting of 26-27 November 2000; (vi) a Calculation Agent; and (vii) an Exchange Agent.
In addition, the Issuer shall forthwith appoint a Paying Agent in New York City in respect of any Bearer Notes
denominated in U.S. dollars in the circumstances described in Condition 7(a)(ii). Notice of any such change or any
change in the specified office of any Agent will promptly be given to the Noteholders in accordance with Condition
18.
(e) Unmatured Coupons and Unexchanged Talons:
(i) Bearer Notes the interest basis for which is specified on such Notes as being Fixed Rate, other
than Notes which are specified to be Long Maturity Notes (being Notes whose nominal amount is
less than the aggregate interest payable thereon on the relevant dates for payment of interest under
Condition 5(I)(a)), should be surrendered to the relevant Paying Agent for payment of principal
together with all unmatured Coupons (if any) appertaining thereto, failing which an amount equal
to the face value of each missing unmatured Coupon (or, in the case of payment not being made in
full, that proportion of the amount of such missing unmatured Coupon which the sum of principal
so paid bears to the total principal due) will be deducted from the nominal amount due for
payment on such Note. Any amount so deducted will be paid in the manner mentioned above
against surrender of such missing Coupon within a period of 10 years from the Relevant Date for
the payment of such principal (whether or not such Coupon has become void pursuant to
Condition 10). If the date for payment of principal is any date other than a date for payment of
interest, the accrued interest on such principal shall be paid only upon presentation of the relevant
Note.
(ii) Upon the due date for redemption of any Bearer Note either the interest basis for which is
specified on such Note as being Floating Rate at any time or which is a Long Maturity Note,
unmatured Coupons relating to such Note (whether or not attached) shall become void and no
payment shall be made in respect of such Coupons.
(iii) Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating to such
Note (whether or not attached) shall become void and no Coupon shall be delivered in respect of
such Talon.
(iv) Where any Bearer Note either the interest basis for which is specified on such Note as being
Floating Rate at any time or which is a Long Maturity Note, is presented for redemption without
all unmatured Coupons relating to it, and where any Bearer Note is presented for redemption
without any unexchanged Talon relating to it, redemption of such Bearer Note shall be made only
against the provisions of such indemnity as the Issuer may require.
(f) Talons: Except where such Talon has become void pursuant to Condition 7(e)(iii), on or after the Reference
Date or, as the case may be, the Interest Payment Date for the final Coupon forming part of a Coupon sheet issued in
respect of any Note, the Talon forming part of such Coupon sheet may be surrendered at the specified office of the
Principal Paying Agent in exchange for a further Coupon sheet (but excluding any Coupons which may have
become void pursuant to Condition 10).
(g) Indemnification: In the case of Notes and Coupons issued by the Issuer, every payment of any sum due in
respect of the Notes or Coupons made to the Principal Paying Agent as provided for herein shall, to such extent, be a
good discharge to the Issuer. The Issuer will indemnify each Noteholder and Couponholder against any failure on
the part of the Paying Agents to pay any sum due in respect of the Notes or Coupons within 15 days of receipt from
relevant Noteholder(s) or Couponholder(s) of notice of such failure on the part of the Paying Agents to pay such sum
due. These indemnities constitute a separate and independent obligation from the Issuer’s other obligations, shall
give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any
Noteholder or Couponholder and shall continue in full force and effect despite any judgment, order, claim or proof
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for a liquidated amount in respect of any sum due under any Note or Coupon or any judgment or order. No proof or
evidence of any actual loss may be required.
8.
Taxation
All payments by or on behalf of the Issuer in respect of the Notes and the Coupons will be made free and clear
of, and without withholding or deduction for, or on account of, any taxes, duties, assessments or governmental
charges (together, the “Taxes”) of whatever nature imposed, levied, collected, withheld or assessed by or within a
Taxing Jurisdiction, unless such withholding or deduction is required by law. In such event, the Issuer shall pay such
additional amounts as will result in receipt by the Noteholders or, as the case may be, the Couponholders of such
amounts as would have been received by them had no such withholding or deduction been required, except that no
such additional amounts shall be payable with respect to any Note or Coupon:
(a) to a holder (or to a third party on behalf of a holder) where such holder is liable for such Taxes in respect of
such Note or Coupon by reason of it having some connection with a Taxing Jurisdiction other than the mere holding
of such Note or Coupon or the receipt of the relevant payment in respect thereof; or
(b) to, or to a third party on behalf of, a holder who could lawfully avoid (but has not so avoided) such
deduction or withholding by complying or procuring that any third party complies with any statutory requirements
or by making or procuring that any third party makes a declaration of non-residence or other similar claim for
exemption to any tax authority in the place where the relevant Note (or the Definitive Registered Note representing
it) or Coupon is presented for payment; or
(c) presented for payment more than 30 days after the Relevant Date except to the extent that the holder
thereof would have been entitled to additional amounts on presenting the same for payment on the last day of such
period of 30 days; or
(d) where such withholding or deduction is imposed on a payment to an individual and is required to be made
pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the
ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or
complying with, or introduced in order to conform to, such Directive;
(e) (except in the case of Registered Notes) presented for payment by or on behalf of a Noteholder or a
Couponholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or
Coupon to another Paying Agent in a Member State of the European Union;
(f) any Taxes imposed by or required to be withheld under Sections 1471 through 1474 of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”);
(g) any Taxes required to be withheld as a result of payment on the Notes being treated as a “dividend
equivalent” within the meaning of Section 871(m) of the Code; or
(h) for Taxes imposed other than by way of withholding or deduction.
As used in these Conditions, “Relevant Date” in respect of any Note or Coupon means the date on which
payment in respect thereof first becomes due or (if the full amount of the money payable has not been received by
the Trustee or the Principal Paying Agent on or prior to such due date) the date on which notice is duly given to the
Noteholders in accordance with Condition 18 that such moneys have been so received and are available for
payment. References in these Conditions to “principal” shall be deemed to include “Amortised Face Amount”,
“Final Redemption Amount”, “Optional Redemption Amount” and “Early Redemption Amount” and any premium
payable in respect of the Notes and any reference to “principal” and/or “interest” shall be deemed to include any
additional amounts which may be payable under this Condition 8 or any undertaking given in addition to or in
substitution for it under the Trust Deed.
The Issuer shall be permitted to withhold or deduct any amounts required by the rules of U.S. Internal Revenue
Code Sections 1471 through 1474 (or any amended or successor provisions), pursuant to any legislation adopted by
another jurisdiction in connection with these provisions, or pursuant to any agreement with the U.S. Internal
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Revenue Service (“FATCA withholding”) as a result of a holder, beneficial owner or an intermediary that is not an
agent of the Issuer not being entitled to receive payments free of FATCA withholding. The Issuer shall not be liable
for, or otherwise obliged to pay, any FATCA withholding deducted or withheld by the Issuer, any paying agent or
any other party.
9.
Events of Default
If any of the events set out in this Condition 9 occurs the Trustee at its discretion may, in respect of the Notes of
any Series, and: (i) in the case of an event set forth in paragraphs (a), (d), (e), (f), (g) or (h) of this Condition 9, if so
requested by holders of at least 25 per cent. in nominal amount of the Notes of that Series then outstanding; and
(ii) in the case of an event set forth in paragraphs (c), (i), (j), (k), (l) or (m) of this Condition 9, if so requested by
holders of at least one-third, in nominal amount of the Notes of such Series then outstanding, or, in any case, if so
directed by an Extraordinary Resolution of Noteholders of such Series shall (subject in each case to it being
indemnified and/or secured and/or prefunded to its reasonable satisfaction), give notice to the Issuer that the Notes
of such Series are, and they shall immediately become, due and payable at the Early Redemption Amount specified
on such Notes or, if none is so specified, at the nominal amount specified on such Notes together with accrued
interest to the date of redemption or, in relation to Zero Coupon Notes, the Amortised Face Amount of such Zero
Coupon Notes:
(a) Non-payment: subject to the provisions of Conditions 15(a)(vi), 15(b) and 15(c), the Issuer fails to pay any
principal of, any premium on or interest on any of the Notes when due and payable and, in respect of any premium
or interest on any of the Notes such failure continues for a period of 7 days; or
(b) Breach of Other Obligations: the Issuer does not perform or breaches any covenant of the Issuer set out in
the Trust Deed (other than a covenant a default in whose performance or whose breach is specifically provided for
elsewhere in this Condition or which has been expressly included in the Trust Deed solely for the benefit of Notes
other than the Notes of such Series), and such default or breach continues for a period of 60 days after there has been
given, by registered or certified mail, to the Issuer by the Trustee or to the Issuer and the Trustee by the Noteholders
of at least 20 per cent in nominal amount of the outstanding Notes of such Series, a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
(c) Cross Default: the Issuer defaults under any note, bond, debenture, security or other evidence of
indebtedness for money borrowed by the Issuer (including a default with respect to the Notes of any Series other
than such Series) or any Subsidiary, having an aggregate principal amount outstanding of at least U.S.$40,000,000,
or under any mortgage, trust deed or instrument (including the Trust Deed) under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by the Issuer or any Subsidiary
having an aggregate principal amount outstanding of at least U.S.$40,000,000, whether such indebtedness now
exists or shall hereafter be created, which default: (i) shall constitute a failure to pay any portion of the principal of
such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto; or
(ii) shall have resulted in such indebtedness becoming or being declared due and payable, without, in the case of (ii),
such indebtedness having been discharged or such acceleration having been rescinded or annulled, in each such case
within a period of 10 days after there has been given, by registered or certified mail, to the Issuer by the Trustee or to
the Issuer and the Trustee by the Noteholders of at least 10 per cent in nominal amount of the outstanding Notes of
such Series, a written notice specifying such default and requiring the Issuer or any Subsidiary to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or annulled, as the case may be, and stating
that such notice is a “Notice of Default” hereunder; or
(d) Winding-up: a court of competent jurisdiction shall appoint a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Issuer or a Material Subsidiary for any material part of the property
of the Issuer taken as a whole with its Subsidiaries, or shall order the winding-up or liquidation of the affairs of the
Issuer or a Material Subsidiary; or a resolution is passed for the winding-up or dissolution of the Issuer or a Material
Subsidiary; or
(e) Bankruptcy: the Issuer or a Material Subsidiary shall commence a voluntary case under any applicable
bankruptcy, reorganisation, insolvency or other similar law now or hereafter in effect (otherwise than for the
purposes of a reconstruction or amalgamation while the Issuer or such Material Subsidiary is solvent if such
reconstruction or amalgamation is undertaken for purposes unrelated to seeking relief from creditors, the
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composition or readjustment of debts, and assignments for the benefit of creditors), or consent to the entry of an
order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Issuer or a Material
Subsidiary or for any material part of the property of the Issuer (taken as a whole with its Subsidiaries), or make any
general assignment for the benefit of the creditors of the Issuer or a Material Subsidiary; or
(f) Judgment: a final judgment or judgments for the payment of money has or have been entered by a court of
competent jurisdiction against the Issuer or any Subsidiary and remains undischarged for a period (during which
execution is not effectively stayed) of 60 days, provided that the aggregate amount of all such judgments at any time
outstanding (to the extent not paid or to be paid by insurance) exceeds U.S.$ 40,000,000 or the equivalent thereof in
any combination of currencies; or
(g) Enforcement Proceedings: a distress, attachment, execution, seizure before judgment or other legal process
is levied or enforced upon or sued out against all or a material part of the property of the Issuer (taken as a whole
with its Subsidiaries) and is not discharged or stayed within 30 days of having been so levied, enforced or sued out;
or
(h) Ownership: Banco Santander, S.A. ceases to own, directly or indirectly, any and all shares, interests, rights
to purchase, warrants, options, participation or other equivalents of or interests in (however designated) equity of the
Issuer (including any of any class or classes (however designated) which are preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation of the
Issuer, over shares of any other class of the Issuer, but excluding any debt securities convertible in such equity)
representing at least 51 per cent of the total voting power of all classes of shares or other interests (including
partnership interests) of the Issuer then outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustee thereof, of the Issuer; or
(i) Moratorium: an agreement upon or declaration of a moratorium in respect of the payment of any Relevant
Debt of the Issuer or any of its Material Subsidiaries is reached or made; or
(j) Nationalization: any step is taken by any person with a view to the seizure, compulsory acquisition,
expropriation or nationalisation of all or (in the reasonable opinion of the Trustee) a material part of the assets of the
Issuer (taken as a whole with its Subsidiaries); or
(k) Authorisations and Consents: any action, condition or thing (including the obtaining or effecting of any
necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time
required to be taken, fulfilled or done in order: (i) to enable the Issuer lawfully to enter into, exercise its rights and
perform and comply with its obligations under the Notes, the Coupons and the Trust Deed; (ii) to ensure that those
obligations are legally binding and enforceable; or (iii) to make the Notes, the Coupons and the Trust Deed
admissible in evidence in the courts of Brazil is not taken, fulfilled or done; or
(l) Illegality: it becomes unlawful for the Issuer to perform or comply with any one or more of its obligations
under any of the Notes or the Trust Deed; or
(m) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous
effect to any of the events referred to in paragraphs (d), (e), (f) or (g);
provided that in the case of paragraphs (b), (f), (g), (k) and (l) and, in the case of Subsidiaries only, paragraphs (d)
and (e), the Trustee has certified that in its opinion such event is materially prejudicial to the interests of the
Noteholders.
10. Prescription
Claims against the Issuer for payment in respect of the Notes and Coupons (which, for this purpose shall not
include Talons) shall be prescribed and become void unless made within 10 years (in the case of principal) and 5
years (in the case of interest) from the appropriate Relevant Date in respect thereof.
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11. Meetings of Noteholders, Modification and Waiver
(a) Meetings of Noteholders: The Trust Deed contains provisions for convening meetings of Noteholders of a
Series to consider any matter affecting their interests, including modification by Extraordinary Resolution of the
Notes of such Series (including these Conditions insofar as the same may apply to such Notes). Such a meeting may
be convened by the Issuer or the Trustee, and the Trustee (subject to being indemnified and/or secured and/or
prefunded to its satisfaction against all costs and expenses thereby occasioned) shall convene such a meeting upon
written request of Noteholders holding not less than 10 per cent in nominal amount of the Notes of the relevant
Series for the time being outstanding. The quorum for any meeting to consider an Extraordinary Resolution will be
two or more persons holding or representing in aggregate more than 50 per cent in nominal amount of the Notes of
the relevant Series for the time being outstanding, or at any adjourned meeting two or more persons holding or
representing Noteholders of the relevant Series whatever the nominal amount of the Notes of the relevant Series held
or represented, unless the business of such meeting includes consideration of proposals, inter alia: (i) to amend the
dates of maturity or redemption of the Notes of any Series or any date for payment of interest thereon; (ii) to reduce
or cancel the nominal amount, Final Redemption Amount, Optional Redemption Amount or Early Redemption
Amount (if any) of the Notes of any Series; (iii) to reduce the rate or rates of interest in respect of the Notes of any
Series or to vary the method or basis of calculating the rate or rates or amount of interest; (iv) if there is specified on
the Notes of any Series a Minimum Rate of Interest and/or a Maximum Rate of Interest, to reduce such Minimum
Rate of Interest and/or such Maximum Rate of Interest; (v) to change the method of calculating the Amortised Face
Amount (if any) of any Series; (vi) to change the currency or currencies of payment of the Notes of any Series; or
(vii) to modify the provisions concerning the quorum required at any meeting of Noteholders of any Series or the
majority required to pass an Extraordinary Resolution, in which case the necessary quorum will be two or more
persons holding or representing not less than 75 per cent in nominal amount of the Notes of the relevant Series for
the time being outstanding, or at any adjourned meeting not less than 25 per cent, in nominal amount of the Notes of
the relevant Series for the time being outstanding. An “Extraordinary Resolution” is defined in the Trust Deed to
mean a resolution passed at a meeting of Noteholders duly convened and held in accordance with the provisions of
the Trust Deed by a majority of at least 75 per cent of the votes cast. A written resolution of holders of not less than
90 per cent in nominal amount of the Notes of the relevant Series for the time being outstanding shall take effect as
an Extraordinary Resolution for all purposes. Any Extraordinary Resolution duly passed shall be binding on all
Noteholders of the relevant Series (whether or not they were present or represented at the meeting at which such
resolution was passed) and on all Couponholders (if any).
(b) Modification, Waiver and Determination: The Trustee and the Issuer may, without the consent of the
Noteholders or Couponholders: (i) agree to any modification of any of the provisions of the Trust Deed which is, in
the opinion of the Trustee, of a formal, minor or technical nature or is made to correct a manifest or proven error;
and (ii) agree to any other modification (except as mentioned in the Trust Deed), and any waiver or authorisation of
any breach or proposed breach, of any of the provisions of the Trust Deed and the Trustee may, without the consent
of the Noteholders or Couponholders, subject as provided in the Trust Deed, determine that any Event of Default or
Potential Event of Default (as defined in the Trust Deed) will not be treated as such, provided that any such
modification referred to in (ii) above or any waiver or determination is in the opinion of the Trustee not materially
prejudicial to the interests of the Noteholders. Any such modification, determination, authorisation or waiver shall
be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be
notified to the Noteholders in accordance with Condition 18 as soon as practicable.
(c) Entitlement of the Trustee: In connection with the exercise of its functions (including but not limited to
those referred to in this Condition 11) the Trustee shall have regard to the interests of the Noteholders as a class and
shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders, or the
Noteholders or Couponholders in respect of Notes of any particular Tranche or Series, and the Trustee shall not be
entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer any
indemnification or payment in respect of any tax consequences of any such exercise upon individual Noteholders or
Couponholders.
12. Enforcement
At any time after the Notes of any Series become due and payable, the Trustee may, at its discretion and without
further notice, institute such actions, steps or proceedings against the Issuer as it may think fit to enforce the terms of
the Trust Deed, the Notes and the Coupons, but it need not take any such proceedings unless: (a) it has been so
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directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least 20 per cent in
nominal amount of the Notes of such Series outstanding; and (b) it shall have been indemnified and/or secured
and/or prefunded to its reasonable satisfaction. No Noteholder or Couponholder may proceed directly against the
Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such
failure is continuing.
13. Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility.
The Trustee and its parent, subsidiaries and affiliates are entitled to enter into business transactions with the Issuer
and any entity related to the Issuer without accounting for any profit.
14. Replacement of Bearer Notes, Coupons, Talons and Definitive Registered Notes
If any Bearer Note, Coupon, Talon or Definitive Registered Note is lost, stolen, mutilated, defaced or destroyed
it may be replaced at the specified office of the Paying Agent in London or Luxembourg (in the case of Bearer
Notes, Coupons and Talons) or the Transfer Agent in New York City or Luxembourg (in the case of Definitive
Registered Notes) subject to all applicable laws and stock exchange requirements, upon payment by the claimant of
the taxes and expenses incurred in connection with such replacement and on such terms as to evidence, security,
indemnity and otherwise as the Issuer may require (provided that the requirement is reasonable in the light of
prevailing market practice). Mutilated or defaced Notes, Coupons, Talons or Definitive Registered Notes must be
surrendered before replacements will be issued.
15. Foreign Currency Constraint, Sovereign Event and Credit Event
(a) Foreign Currency Constraint: If Foreign Currency Constraint Provisions are specified in the relevant Final
Terms, then notwithstanding any provisions to the contrary contained herein, the following provisions will apply to
the Notes:
(i) if a Foreign Currency Constraint Event (as defined below) shall have occurred, the Issuer shall
give to the Trustee and the European Issuing and Paying Agent within five São Paulo Business
Days (as defined below) after such event, a certificate signed by two authorised signatories
certifying the existence of the Foreign Currency Constraint Event, upon which the Trustee shall be
entitled to rely without liability to any person. The Issuer shall, as soon as practicable thereafter,
give notice of such certification and its contents in accordance with Condition 18 and shall
immediately appoint a Paying Agent with a specified office in the city of São Paulo, Brazil
acceptable to the Trustee (for the purposes of this Condition 15, the “São Paulo Paying Agent”). In
this event, any Noteholder may, for a period of 30 days after the date of publication of such notice
(the “Election Period”), elect to exchange (“Exchange”) the Note (the “Original Note”) and the
related unmatured Coupons (if any) and unexchanged Talons (if any) for an equivalent nominal
amount in the Specified Currency of Exchanged Notes (as defined below) and related unmatured
Coupons (if any) and unexchanged Talons (if any). To make such election, the holder must deposit
the Original Note (together with all related unmatured Coupons (if any) and unexchanged Talons
(if any)) with any Paying Agent or, in the case of Registered Notes, any Transfer Agent, together
with a duly completed notice of election (“Election Notice”) in the form obtainable from any
Paying Agent or Transfer Agent, as the case may be, within the Election Period. No Original Note
so deposited and election made may be withdrawn without the prior consent of the Issuer. All duly
completed and valid Election Notices received by the Paying Agents or Transfer Agents, as the
case may be, within the Election Period shall, on receipt, be deemed to have been received on the
first day of the Election Period.
In these Conditions, unless the context otherwise requires, the following defined terms shall have
the meanings set out below:
“Exchanged Note” means a Note with terms and conditions identical to the terms and conditions
of the Original Note for which it was exchanged, save that:
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(A) all payments due in respect of such Exchanged Note shall be made by the Issuer, to the extent
permitted by Brazilian law, in the lawful currency of Brazil when due (a “Due Date”) or,
where a Due Date occurs before the date of Exchange (the “Exchange Date”), as soon as
practicable after the Exchange Date and without any additional amount in compensation for
late payment against presentation (and, if applicable, surrender) of such Exchanged Note or
related Coupon in accordance with Condition 7 in the case of Bearer Notes (subject to
paragraph (iii) below) and in the case of Registered Notes payment of principal and interest
will be made to the person shown on the Register in respect of the Exchanged Notes at the
close of business on the date of issue of such Exchanged Notes and in the case of payments of
principal, against surrender of the relevant Definitive Registered Note representing the
Exchanged Note at the specified office of any Transfer Agent and otherwise in accordance
with Condition 7 (subject to paragraph (iii) below);
(B) the amount of any payment due in respect of such Exchanged Note shall be that amount in the
lawful currency of Brazil, as determined by the São Paulo Paying Agent, having regard to the
provisions of this Condition 15(a), which would be required to purchase the amount of such
payment in the Specified Currency at the rate of exchange on the São Paulo Business Day
immediately prior to the Due Date (or, where the Due Date precedes the Exchange Date, on
the São Paulo Business Day immediately prior to the date of payment): (A) if the Specified
Currency is U.S. dollars, as shown on the Brazilian Central Bank computer information
system under the title “SISBACEN PTAX-800, Option 5-L”; or (B) if the Specified Currency
is a currency other than U.S. dollars, at the corresponding rate for the applicable Specified
Currency (the “Corresponding Rate”), the source of which Corresponding Rate will be
specified in the applicable Final Terms. If no such rate of exchange is available, the applicable
rate of exchange shall be an average of the Brazilian currency exchange rates on such São
Paulo Business Day for the purchase of the Specified Currency notified to the São Paulo
Paying Agent by three leading Brazilian banks selected by the São Paulo Paying Agent in its
discretion; and
(C) all payments in respect of the Exchanged Note shall be made by transfer to a Brazilian
currency account maintained by the payee with a branch in São Paulo, Brazil.
“Foreign Currency Constraint Event” means any law, regulation, directive or communication
imposed or issued by the Brazilian government or the Brazilian Central Bank or any other
competent authority in Brazil imposing foreign exchange controls or other restrictions or any
refusal to act or delay in acting by any such party, which has the effect of prohibiting, preventing
or delaying the remittance of the Specified Currency (whether in respect of principal, interest,
additional amounts payable pursuant to these Conditions or otherwise) to or by the Principal
Paying Agent in respect of the Original Notes when due.
“São Paulo Business Day” means a day, other than a Saturday or Sunday, on which commercial
banks and foreign exchange markets, are open for business in the city of São Paulo, Brazil.
(ii) on termination of the Foreign Currency Constraint Event, Exchanged Notes shall be exchanged for
an equivalent amount of Original Notes provided that, prior to such exchange, all payments due in
respect of the Original Notes and such Exchanged Notes shall have been made by the Issuer. Such
exchange shall be effected by the holders of Exchanged Notes presenting and surrendering such
Exchanged Notes (together with all unmatured Coupons and unexchanged Talons (if any)) at any
time after such termination at the specified office of any Paying Agent or Transfer Agent and, in
respect of Registered Notes, the Registrar making the relevant entries in the Register relating to
the Original Notes and the Exchanged Notes;
(iii) during the period in which a Foreign Currency Constraint Event is in effect, the Issuer shall take
such steps as are legal under the laws and regulations of Brazil to make payments in respect of
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Original Notes not exchanged for Exchanged Notes (if any) in the Specified Currency from Brazil
as promptly as such laws and regulations permit;
(iv) notwithstanding anything in this Condition 15(a) to the contrary, during the period in which a
Foreign Currency Constraint Event is in effect, any payments of principal of (but not interest on)
the Original Notes which are not paid by reason of the imposition of such Foreign Currency
Constraint Event shall bear interest in the Specified Currency at the rate of interest until the
Foreign Currency Constraint Event no longer exists or, if earlier, such sums are duly paid in full,
provided that the Issuer complies at all times with its obligations set forth in this Condition 15(a);
(v) notwithstanding anything in this Condition 15(a) to the contrary, no Noteholder or Couponholder
shall be precluded by this Condition 15(a) from presenting any Note or Coupon for payment at a
time when a Foreign Currency Constraint Event is in effect; and
(vi) it shall not be an Event of Default under these Conditions to the extent that any Event of Default
described in Condition 9(a) and 9(l) (but solely with respect to payment obligations) shall have
occurred with respect to the Issuer solely as a result of a Foreign Currency Constraint Event,
provided that the Issuer shall have fully complied with its obligations under this Condition 15(a).
The Issuer shall not be in breach of any payment obligation in the Specified Currency relating to
the Notes or the Coupons (if any) to the extent payment in the Specified Currency is not made by
reason solely of such Foreign Currency Constraint Event; and no Noteholder or Couponholder
shall be entitled to take action against the Issuer to enforce any rights against the Issuer which
such Noteholder or Couponholder would, but for the provisions of this Condition 15(a), have had
in respect of such payment.
(b) Sovereign Event: If Sovereign Event Provisions are specified in the relevant Final Terms, then
notwithstanding any provisions to the contrary contained herein, the following provisions will apply to the Notes:
(i) in the event that, on or prior to any Interest Payment Date, the Maturity Date, or earlier redemption
date, as the case may be, of any Note, the Government of Brazil, its agencies, instrumentalities or
entities (including the Brazilian Central Bank, the National Monetary Council of Brazil or any
other competent authority in Brazil) by means of any law, regulation, ruling, directive,
interpretation or communication, whether or not having the force of law, takes any action (a
“Governmental Action”) which legally or de facto: (x) modifies or changes, in the sole opinion of
the Issuer, any of the material terms of any of the Governmental Obligations (as defined below); or
(y) results in the non-payment of any of the Governmental Obligations when originally due (any
such occurrence in clauses (x) or (y) being a “Sovereign Event”), then the Issuer shall give to the
Trustee and the European Issuing and Paying Agent within five São Paulo Business Days of the
occurrence of a Sovereign Event on which certificate the Trustee may rely without liability to any
person, a certificate signed by two authorised signatories of the Issuer certifying the existence of
the Sovereign Event and which may, if the Issuer so specifies in such certificate, constitute
irrevocable notice of the Issuer’s intention to exercise its option to redeem all of the Series of the
Notes subject to the Sovereign Event provisions. The Issuer shall, as soon as practicable thereafter,
give notice of such certification and its contents in accordance with Condition 18. All Notes in
respect of which the Issuer exercises its option to redeem shall be redeemed in accordance with
sub-paragraph (ii)(A) below on the date specified in such notice which shall be not less than
14 days nor more than 45 days from the date such notice is given;
(ii) if a Governmental Action occurs on or prior to any Interest Payment Date, Maturity Date, or
earlier redemption date, as the case may be:
(A) the obligation of the Issuer to pay interest under Condition 5 falling due on such Interest
Payment Date, Maturity Date, or earlier redemption date, as the case may be, including
interest that is accrued prior to the Governmental Action, is terminated; and
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(B) the Issuer may, at its option, deliver to or to the order of the holders (to the extent and in the
manner permitted by applicable law) on the Maturity Date or earlier redemption date, as the
case may be, at the São Paulo Paying Agent (or such other bank in São Paulo, Brazil as the
Issuer shall determine or such other paying agent appointed for such purpose and specified in
the applicable Final Terms and notified to the holders): (x) the Governmental Obligations
specified in the applicable Final Terms or, if no Governmental Obligations are so specified, an
amount of Governmental Obligations selected by the Issuer in its sole discretion due and
payable as at or prior to the Maturity Date pursuant to terms and conditions in existence prior
to the Sovereign Event, in a face amount equivalent to the outstanding nominal amount or an
amount calculated in accordance with Condition 6(d), as the case may be, due in respect of
the Notes (provided, however, that if the Governmental Obligations are denominated in a
currency different than the Specified Currency, then for the purpose of determining the face
amount equivalent to the outstanding nominal amount, such amount will be determined as
follows: (i) if the Governmental Obligations are denominated in reais, the outstanding
nominal amount shall be converted to reais at the foreign exchange commercial rate based on
the sale rate for converting reais into the Specified Currency shown on the Brazilian Central
Bank computer information system under the title “SISBACEN PTAX-800, Option 5” on the
São Paulo Business Day prior to the Maturity Date, or earlier redemption date, as the case
may be (or, if no such rate is available, the rate determined by the Issuer in its sole discretion
on the São Paulo Business Day prior to the Maturity Date, or earlier redemption date, as the
case may be); and (ii) if the Governmental Obligations are denominated in a currency other
than reais, the outstanding nominal amount shall be converted to such currency at the foreign
exchange commercial rate specified in the applicable Final Terms); or (y) the Reais Amount
(as defined below); whereupon the Issuer’s obligations under the Notes shall be deemed fully
satisfied and discharged.
The Issuer shall notify the European Issuing and Paying Agent, the Principal Paying Agent, the
Trustee and the Noteholders of its decision to exercise its option to deliver Governmental
Obligations or reais, as the case may be, in accordance with this Condition 15(b). Failure by the
Issuer to deliver any such certificate or notice will not prejudice the rights and obligations of the
Issuer or the holders hereunder.
In this Condition 15(b), unless the context otherwise inquires, the following defined terms shall
have the meanings set out below:
“Governmental Obligations” means, in respect of a Note, the debt obligations specified in the
applicable Final Terms or if no Governmental Obligations are so specified, any one or more of the
following debt obligations selected by the Issuer in its sole discretion: “Letras do Tesouro
Nacional”, “Letras Financeira do Tesouro”, “Nota do Banco Central, Serie Especial” and “Nota do
Tesouro Nacional — Serie D”, in each case as such obligations may be replaced by other
obligations as determined by the Issuer in its sole discretion.
“Reais Amount” means the market value on the São Paulo Business Day prior to the Maturity
Date, or earlier redemption date, as the case may be, of the Governmental Obligations specified in
the applicable Final Terms or, if no Governmental Obligations are so specified, such
Governmental Obligations selected by the Issuer in its sole discretion which are due and payable
as at or prior to the Maturity Date, pursuant to terms and conditions in existence prior to the
Sovereign Event, in a face amount equivalent to the outstanding nominal amount or an amount
calculated in accordance with Condition 6(d), as the case may be, due in respect of the Notes
converted to reais at the foreign exchange commercial rate based on the sale rate for converting
reais into the Specified Currency shown on the Brazilian Central Bank computer information
system under the title “SISBACEN PTAX-800, Option 5” on the São Paulo Business Day prior to
the Maturity Date, or earlier redemption date, as the case may be (or, if no such rate is available,
the rate determined by the Issuer, in its sole discretion, on the São Paulo Business Day prior to the
Maturity Date, or earlier redemption date, as the case may be). The market value of the relevant
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Governmental Obligations shall be determined by the Issuer, in its sole discretion, having regard
to such factors as may be determined by the Issuer, in its sole discretion, including, but not limited
to, market valuation and settlement conventions and conditions prevailing at the time of its
determination, and shall be net of applicable commissions and taxes;
(iii) each Noteholder will be required to make such arrangements as it deems appropriate, at its own
cost and risk, in order to receive payments in reais or the delivery of the Governmental
Obligations, as the case may be. In order for the holder of a Note to receive payments in reais or
the delivery of the Governmental Obligations, such Noteholder must deposit (in the case of Bearer
Notes) such Note (together with all Coupons relating thereto) with any Paying Agent or (in the
case of Registered Notes) the Definitive Registered Note representing such Note with any Transfer
Agent, together with a duly completed transfer notice (a “Transfer Notice”) in the form obtainable
from any Paying Agent or any Transfer Agent, as the case may be, on or after the date of the
Issuer’s giving notice of certification of its decision to exercise its option to deliver Governmental
Obligations or reais, as the case may be, in accordance with this Condition 15(b) and at least three
São Paulo Business Days prior to the Maturity Date or earlier redemption date, as the case may be.
No Note or Definitive Registered Note and Transfer Notice so deposited may be withdrawn. The
provision of such information to the São Paulo Paying Agent less than three São Paulo Business
Days prior to the Maturity Date or earlier redemption date, as the case may be, may result in such
payment or delivery being made after the due date and the Noteholder shall not be entitled to any
interest in respect of such delayed payment;
(iv) if by reason of the imposition of a Sovereign Event (and notwithstanding the Issuer having elected
to deliver Governmental Obligations as provided herein) the Issuer is prevented legally or de facto
from delivering to the holders the Governmental Obligations to be delivered, or intended to be
delivered, in respect of the Notes, then the obligation of the Issuer to make such delivery shall be
suspended until the Issuer is no longer prevented from making such delivery. The holders will not
be entitled to receive payment of interest or any other amount in respect of any such suspension or
in respect of any delay in receiving the Governmental Obligations deliverable in respect of the
Notes (other than any interest that may have accrued and been paid with respect to such
Governmental Obligations during or with respect to the period of such suspension) or take any
other action;
(v) if Foreign Currency Constraint provisions are also specified in the relevant Final Terms, then the
provisions of Condition 15(a) shall continue to apply to amounts payable (if any) in respect of the
Notes in the Specified Currency;
(vi) in the event the Notes are not redeemed, the Issuer shall, as soon as practicable, notify the
European Issuing and Paying Agent, the Principal Paying Agent, the Trustee and the holders of
any termination of a Sovereign Event; and
(vii) upon the occurrence of a Sovereign Event and the delivery by the Issuer of Governmental
Obligations or reais in accordance with this Condition 15(b), the Issuer shall not be required to
gross up for any Taxes payable by the Issuer in respect of the transfer, holding, sale or redemption
of the relevant Governmental Obligations.
(c) Credit Event: If Credit Event Provisions are specified in the relevant Final Terms, then notwithstanding any
provisions to the contrary contained herein, the following provisions will apply to the Notes:
(i) in the event that, on or prior to any Interest Payment Date, the Maturity Date, or earlier redemption
date, as the case may be, of any Note: (x) a court of competent jurisdiction appoints a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or similar official) of any Reference
Obligor for any material part of the property or assets of such Reference Obligor, or orders the
winding-up or liquidation of the affairs of any Reference Obligor, or a resolution is passed for the
winding-up or dissolution of any Reference Obligor; (y) any Reference Obligor commences a
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voluntary case under any applicable bankruptcy, reorganisation, insolvency or other similar law
now or hereafter in effect (otherwise than for the purposes of a reconstruction or amalgamation
while the relevant Reference Obligor is solvent if such reconstruction or amalgamation is
undertaken for purposes unrelated to seeking relief from creditors, the composition or
readjustment of debts, and assignments for the benefit of creditors), or consent to the entry of an
order for relief in an involuntary case under any such law, or consent to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of the relevant Reference Obligor or for any material part of the property of the relevant
Reference Obligor (taken as a whole with its Subsidiaries), or make any general assignment for the
benefit of the creditors of a Reference Obligor; or (z) any Reference Obligor takes any action (any
such occurrence in clauses (x), (y) or (z) being a “Credit Action”) which legally or de facto results
in the non-payment of any of the Credit Obligations when originally due (any such occurrence
being a “Credit Event”), then the Issuer shall give to the Trustee and the European Issuing and
Paying Agent within five São Paulo Business Days of the occurrence of a Credit Event, a
certificate signed by two authorised signatories of the Issuer certifying the existence of the Credit
Event and which may, if the Issuer so specifies in such certificate, constitute irrevocable notice of
the Issuer’s intention to exercise its option to redeem all of the Series of the Notes subject to the
Credit Event provisions. The Issuer shall, as soon as practicable thereafter, give notice of such
certification and its contents in accordance with Condition 18. All Notes in respect of which the
Issuer exercises its option to redeem shall be redeemed in accordance with sub-paragraph (ii)
below on the date specified in such notice which shall be not less than 14 days nor more than
45 days from the date such notice is given;
(ii) if a Credit Action occurs on or prior to any Interest Payment Date, Maturity Date, or earlier
redemption date, as the case may be:
(A) the obligation of the Issuer to pay interest under Condition 5 falling due on such Interest
Payment Date, Maturity Date, or earlier redemption date, as the case may be, including
interest that is accrued prior to the Credit Action, shall be terminated; and
(B) the Issuer may, at its option, deliver to or to the order of the relevant Noteholders (to the
extent and in the manner permitted by applicable law) on the Interest Payment Date, Maturity
Date or earlier redemption date, as the case may be, at the São Paulo Paying Agent (or such
other bank in São Paulo, Brazil as the Issuer shall determine or such other paying agent
appointed for such purpose and specified in the applicable Final Terms) and notified to the
relevant Noteholders: (x) the Credit Obligations specified in the applicable Final Terms or, if
no Credit Obligations are so specified, an amount of Credit Obligations selected by the Issuer
in its sole discretion due and payable on or prior to the Maturity Date pursuant to terms and
conditions in existence prior to the Credit Event, in a face amount equivalent to the
outstanding nominal amount or an amount calculated in accordance with Condition 6(d), as
the case may be, due in respect of the Notes (provided, however, that if the Credit Obligations
are denominated in a currency different than the Specified Currency, then for the purpose of
determining the face amount equivalent to the outstanding nominal amount, such amount will
be determined as follows: (i) if the Credit Obligations are denominated in reais, the
outstanding nominal amount shall be converted to reais at the foreign exchange commercial
rate based on the sale rate for converting reais into the Specified Currency shown on the
Brazilian Central Bank computer information system under the title “SISBACEN PTAX-800,
Option 5” on the São Paulo Business Day prior to the Maturity Date, or earlier redemption
date, as the case may be (or, if no such rate is available, the rate determined by the Issuer in its
sole discretion on the São Paulo Business Day prior to the Interest Payment Date, Maturity
Date, or earlier redemption date, as the case may be); and (ii) if the Credit Obligations are
denominated in a currency other than reais, the outstanding nominal amount shall be
converted to such currency at the foreign exchange commercial rate specified in the
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applicable Final Terms); or (y) the Reais Amount (as defined below); whereupon the Issuer’s
obligations under the Note shall be deemed fully satisfied and discharged.
The Issuer shall notify the European Issuing and Paying Agent, the Principal Paying Agent, the
Trustee and the holders of the Notes of its decision to exercise its option to deliver Credit
Obligations or reais, as the case may be, in accordance with this Condition 15(c). Failure by the
Issuer to deliver any such certificate or notice will not prejudice the rights and obligations of the
Issuer or the holders hereunder.
In this Condition 15(c), unless the context otherwise inquires, the following defined terms shall
have the meanings set out below:
“Credit Obligations” means, in respect of a Note, the credit obligations specified in the applicable
Final Terms or if no Credit Obligations are so specified, any one or more of the credit obligations
of the Reference Obligor specified in the applicable Final Terms as selected by the Issuer in its
sole discretion, in each case as such obligation may be replaced by other obligations of the
Reference Obligor as determined by the Issuer in its sole discretion.
“Reais Amount” means the market value on the São Paulo Business Day prior to the Maturity
Date, or earlier redemption date, as the case may be, of the Credit Obligations specified in the
applicable Final Terms or, if no Credit Obligations are so specified, such Credit Obligations
selected by the Issuer in its sole discretion which are due and payable on or prior to the Maturity
Date, pursuant to terms and conditions in existence prior to the Credit Event, in a face amount
equivalent to the outstanding nominal amount or an amount calculated in accordance with
Condition 6(d), as the case may be, due in respect of the Notes converted to reais at the foreign
exchange commercial rate based on the sale rate for converting reais into the Specified Currency
shown on the Brazilian Central Bank computer information system under the title “SISBACEN
PTAX-800, Option 5” on the São Paulo Business Day prior to the relevant Interest Payment Date,
the Maturity Date, or earlier redemption date, as the case may be (or, if no such rate is available,
the rate determined by the Issuer, in its sole discretion, on the São Paulo Business Day prior to the
relevant Interest Payment Date, the Maturity Date or earlier redemption date, as the case may be).
The market value of the relevant Credit Obligations shall be determined by the Issuer, in its sole
discretion, having regard to such factors as may be determined by the Issuer, in its sole discretion,
including, but not limited to, market valuation and settlement conventions and conditions
prevailing at the time of its determination, and shall be net of applicable commissions and taxes.
“Reference Obligor” means, in respect of a Note, the reference obligor specified in the applicable
Final Terms;
(iii) each Noteholder will be required to make such arrangements as it deems appropriate, at its own
cost and risk, in order to receive payments in reais or the delivery of the Credit Obligations, as the
case may be. In order for the Noteholder to receive payments in reais or the delivery of the Credit
Obligations, such Noteholder must deposit (in the case of Bearer Notes) such Note (together with
all Coupons relating thereto) with any Paying Agent or (in the case of Registered Notes) the
Definitive Registered Note representing such Note with any Transfer Agent, together with a duly
completed transfer notice (a “Transfer Notice”) in the form obtainable from any Paying Agent or
any Transfer Agent, as the case may be, on or after the date of the Issuer’s giving notice of
certification of its decision to exercise its option to deliver Credit Obligations or reais, as the case
may be, in accordance with this Condition 15(c) and at least three São Paulo Business Days prior
to the Maturity Date or earlier redemption date, as the case may be. No Note or Definitive
Registered Note and Transfer Notice so deposited may be withdrawn. The provision of such
information to the São Paulo Paying Agent less than three São Paulo Business Days prior to the
Interest Payment Date, the Maturity Date or earlier redemption date, as the case may be, may
result in such payment or delivery being made after the due date and the Noteholder shall not be
entitled to any interest in respect of such delayed payment;
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(iv) if by reason of the imposition of a Credit Event (and notwithstanding the Issuer having elected to
deliver Credit Obligations as provided herein) the Issuer is prevented legally or de facto from
delivering to the holders the Credit Obligations to be delivered, or intended to be delivered, in
respect of the Notes, then the obligation of the Issuer to make such delivery shall be suspended
until the Issuer is no longer prevented from making such delivery. The relevant Noteholders will
not be entitled to receive payment of interest or any other amount in respect of any such
suspension or in respect of any delay in receiving the Credit Obligations deliverable in respect of
the Notes (other than any interest that may have accrued and been paid with respect to such Credit
Obligations during or with respect to the period of such suspension) or to take any other action;
(v) if Foreign Currency Constraint provisions are also specified in the relevant Final Terms, then the
provisions of Condition 15(a) shall continue to apply to amounts payable (if any) in respect of the
Notes in the Specified Currency;
(vi) in the event the Notes are not redeemed, the Issuer shall, as soon as practicable, notify the
European Issuing and Paying Agent, the Principal Paying Agent, the Trustee and the holders of
any termination of a Credit Event; and
(vii) upon the occurrence of a Credit Event and the delivery by the Issuer of Credit Obligations or reais
in accordance with this Condition 15(c), the Issuer shall not be required to gross up for any Taxes
payable by the Issuer in respect of the transfer, holding, sale or redemption of the relevant Credit
Obligations.
16. Further Issues
The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue
further securities having the same terms and conditions as the Notes of any Series in all respects (or in all respects
except for the first payment of interest on them, the issue date, the issue price, the first interest period and amortised
face amount (in the case of Zero Coupon Notes)) so that such further issue shall be consolidated and form a single
series with the outstanding securities of any series (including the Notes of any Series). References in these
Conditions to the Notes of any Series include (unless the context requires otherwise) any other securities issued
pursuant to this Condition 16 and forming a single series with the Notes of such Series. Any further securities
forming a single series with the outstanding securities of any series (including the Notes of any Series) constituted
under the Trust Deed, or any deed supplemental to it, shall be constituted under a deed supplemental to the Trust
Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders of a Series and the
holders of securities of other series (including the Notes of any other Series) where the Trustee so decides.
17. Agents
In acting under the Agency Agreement, the Agents act solely as agents of the Issuer and do not assume any
obligation or relationship of agency or trust for or with any Noteholders.
18. Notices
Notices to holders of Registered Notes will be mailed to them at their respective addresses in the Register and
shall be published (so long as the Notes are admitted to listing on Official List of the Luxembourg Stock Exchange
and admitted to trading on the Euro MTF market of the Luxembourg Stock Exchange and the rules of that exchange
so require), either on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in a daily newspaper with
general circulation in Luxembourg (which is expected to be Luxemburger Wort). Any such notice shall be deemed to
have been given on the later of the date of such publication and the fourth weekday (being a day other than a
Saturday or a Sunday) after the date of mailing. Notices to the holders of Bearer Notes will be valid if published in a
daily newspaper having general circulation in London and (so long as the Notes are admitted to listing on the
Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF market of the
Luxembourg Stock Exchange and the rules of that exchange so require) either on the website of the Luxembourg
Stock Exchange (www.bourse.lu) or in a daily newspaper with general circulation in Luxembourg or, if in the
opinion of the Trustee any such publication is not practicable, in another leading daily English language newspaper
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having general circulation in Europe approved by the Trustee). It is expected that such publication will be made in
the Financial Times in London and the Luxemburger Wort in Luxembourg. Notices will, if published more than once
in the same manner, be deemed to have been given on the date of the first publication in both such newspapers as
provided above and will, if published more than once on different dates or in a different manner, be deemed to have
been given on the date of the last publication in both such newspapers as provided above. So long as any Notes are
represented by a Global Note and such Global Note is held on behalf of one or more clearing systems, notices to the
Noteholders of that Series may be given by delivery of the relevant notice to that clearing system for communication
by it to entitled accountholders in substitution for publication by delivery of the relevant notice to the holder of the
Global Note, except that so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of that
exchange so require, notices shall also be published either on the website of the Luxembourg Stock Exchange or in a
leading newspaper having general circulation in Luxembourg or London.
Couponholders shall be deemed for all purposes to have notice of the contents of any notice to the
holders of Bearer Notes in accordance with this Condition 18.
19. Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of
Third Parties) Act 1999.
20. Governing Law and Jurisdiction
(a) Governing Law: The Trust Deed, the Notes, the Coupons and the Talons and any non-contractual
obligations arising out of or in connection with them are governed by, and shall be construed in accordance with,
English law.
(b) Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may arise out of or
in connection with the Notes, the Coupons, the Talons or the Trust Deed and accordingly any legal action or
proceedings arising out of or in connection with the Notes, the Coupons, the Talons or the Trust Deed (including a
dispute relating to any non-contractual obligations arising out of or in connection with the Notes, the Coupons, the
Talons or the Trust Deed) (“Proceedings”) may be brought in such courts. The Issuer has in the Trust Deed
irrevocably submitted to the jurisdiction of such courts.
(A) Agent for Service of Process: The Issuer has in the Trust Deed appointed Banco Santander S.A.,
London Branch at its present office at 2 Triton Square, Regent’s Place, London NW1 3AN, as its
agent in England to receive service of process in any Proceedings in England. If for any reason the
Issuer does not have such an agent in England, it will promptly appoint a substitute process agent
and notify the Noteholders of such appointment. Nothing herein shall affect the right to serve
process in any other manner permitted by law.
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BOOK-ENTRY; DELIVERY AND FORM
General
Unless otherwise specified in the applicable Final Terms, the Notes shall be represented initially by one or more
Notes in global form (collectively, the “Global Notes”).
Registered Notes shall be represented initially by one or more Global Notes in registered form, without
Coupons, which shall be either DTC Global Notes (as defined below) or an International Global Note Certificate (as
defined below), as specified in the applicable Final Terms. In the case of Notes represented by one or more DTC
Global Notes, the DTC Unrestricted Global Note (as defined below) and the DTC Restricted Global Note (as
defined below) will be registered in the name of DTC, as depositary, or a successor or nominee thereof, and
deposited on behalf of the purchasers thereof with a custodian for DTC. Beneficial interests in the DTC Restricted
Global Note and DTC Unrestricted Global Note shall be represented through book-entry accounts of financial
institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Purchasers of Notes
may elect to hold interests in the DTC Restricted Global Note and the DTC Unrestricted Global Note through any of
DTC (in the United States), Clearstream, Luxembourg, or Euroclear if they are participants in such systems or
indirectly through organizations which are participants in such systems. In the case of Notes represented by an
International Global Note Certificate, such International Global Note Certificate will be deposited with a Common
Depositary for and registered in the name of a common nominee of Euroclear and Clearstream, Luxembourg for
credit to the respective accounts of beneficial owners of the Notes represented thereby.
Bearer Notes shall be represented initially by a Temporary Global Note in bearer form, without Coupons (a
“Temporary Global Note”), which shall be deposited with a Common Depositary for Clearstream, Luxembourg, and
Euroclear, unless otherwise specified in the applicable Final Terms. Beneficial interests in such Temporary Global
Note shall be exchangeable for beneficial interests in a Permanent Global Note, in an equal aggregate nominal
amount, not earlier than 40 days after the applicable closing date upon certification of non-U.S. ownership, as set
forth in the Trust Deed, to the effect that the holder is: (i) not a U.S. person; (ii) (A) a non-U.S. branch of a
U.S. financial institution (as defined in U.S. Treasury regulations Section 1.165-12(c)(l)(iv)) purchasing for its own
account or for resale; or (B) a U.S. person who acquired Notes through a non-U.S. branch of a U.S. financial
institution and who holds the Notes through such financial institution on the date of such certification (and, in each
of such case (A) or (B), that the financial institution agrees to comply with the requirements of section 165(j)(3)(A),
(B) or (C) of the U.S. Internal Revenue Code and the U.S. Treasury regulations thereunder); or (iii) a financial
institution that acquired Notes for purposes of resale during the restricted period (as defined in U.S. Treasury
regulations Section 1.163-5(c)(2)(i)(D)(7)), and such financial institution certifies that it has not acquired the Notes
for purposes of resale directly or indirectly within the United States or its possessions or to a U.S. person. A financial
institution, whether or not described in (i) or (ii) above, that purchases Notes for purposes of resale during the
restricted period may only give the certification described in (iii) above.
Except in the limited circumstances described below or as otherwise set forth in the applicable Final Terms,
owners of beneficial interests in the Global Notes shall not be entitled to receive Notes in definitive form. See “—
Registered Global Notes—Book-Entry System.”
In the United States securities market, unless otherwise agreed between the Issuer and the relevant dealer or
dealers, settlement of all trades of Notes will occur on the basis of the trade date plus three days (“T+3”).
Registered Notes may be issued in the form of one or more Global Notes in an aggregate nominal amount equal
to the nominal amount of the Notes of such Series, which shall be exchangeable in the limited circumstances
described below for Notes in the form of Definitive Registered Notes (“Definitive Registered Notes”), see “—
Registered Global Notes—Book-Entry System.”
Bearer Notes will initially be issued in the form of a Temporary Global Note, without Coupons, in an initial
aggregate nominal amount equal to the principal amount of the Notes of such Series not initially sold to
U.S. persons, which shall be exchangeable as described below.
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Registered Global Notes
DTC Global Notes
Notes that are sold in reliance on Rule 144A will be represented by a DTC Restricted Global Note (a “DTC
Restricted Global Note”), unless otherwise specified in the applicable Final Terms. A DTC Restricted Global Note
(and any Notes issued in exchange therefor) will be subject to certain restrictions on transfer set forth therein and in
the Agency Agreement and will bear the legend regarding such restrictions described under “Transfer Restrictions.”
Registered Notes that are sold outside the United States in reliance on Regulation S will be represented by a
DTC Unrestricted Global Note (a “DTC Unrestricted Global Note”), unless otherwise specified in the applicable
Final Terms. On or prior to the 40th day after the later of the commencement of the offering and the date of delivery
of the Notes represented by a DTC Unrestricted Global Note, a beneficial interest therein may be transferred to a
person who takes delivery in the form of an interest in a DTC Restricted Global Note of the same Series, but only
upon receipt by the Registrar of a written certification from the transferor (in the form provided in the Agency
Agreement) to the effect that such transfer is being made to a person who the transferor reasonably believes is
purchasing for its own account or accounts as to which it exercises sole investment discretion and that such person
and each such account is a QIB within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A and in accordance with any applicable securities laws of any State of the United States or
any other jurisdiction. After such 40th day, such certification requirement will no longer apply to such transfers.
Beneficial interests in a DTC Restricted Global Note may be transferred to a person who takes delivery in the
form(s) of an interest in a DTC Unrestricted Global Note of the same Series, whether before, on or after such 40th
day, but only upon receipt by the Registrar of a written certification from the transferor (in the form provided in the
Agency Agreement) to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of
Regulation S or Rule 144 and that, if such transfer occurs on or prior to such 40th day, the interest transferred will be
held immediately thereafter through Euroclear or Clearstream, Luxembourg. Any beneficial interest in a DTC
Global Note that is transferred to a person who takes delivery in the form of an interest in another DTC Global Note
of the same Series will, upon transfer, cease to be an interest in the former DTC Global Note, will become an
interest in the latter DTC Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interests in the latter DTC Global Note for as long as it remains such an interest.
Book-Entry System
Upon the issuance of a DTC Global Note, DTC or its custodian will credit, on its internal system, the respective
nominal amount of the individual beneficial interests represented by such DTC Global Note to the accounts of
persons who have accounts with DTC. Ownership of beneficial interests in a DTC Global Note will be limited to
persons who have accounts with DTC (including Euroclear and Clearstream, Luxembourg, in the case of a DTC
Unrestricted Global Note), or persons who hold interests through participants. Ownership of beneficial interests in
the DTC Global Notes will be shown on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants), which may include Euroclear and Clearstream, Luxembourg,
in the case of a DTC Unrestricted Global Note, as described below.
So long as DTC or its nominee is the registered holder of a DTC Global Note, DTC or such nominee, as the
case may be, will be considered the sole owner and holder of the Notes represented by such DTC Global Note for all
purposes under the Trust Deed, the Agency Agreement and the Notes. Unless DTC notifies the Issuer that it is
unwilling or unable to continue as depositary for such Note, or ceases to be a “Clearing Agency” registered under
the Exchange Act, or an Event of Default has occurred and is continuing with respect to such Note, owners of
beneficial interests in such DTC Global Note will not be entitled to have any portions of such DTC Global Note
registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and
will not be considered the owners or holders of such DTC Global Note (or any Notes represented thereby) under the
Trust Deed, the Agency Agreement or the Notes. If DTC is at any time unwilling or unable to continue as a
depositary and a successor depositary is not appointed by the Issuer within 90 days, the Issuer will: (i) issue
Restricted Definitive Registered Notes in exchange for the relevant DTC Restricted Global Note; and/or (ii) issue an
International Global Note Certificate in exchange for the relevant DTC Unrestricted Global Note. In the case of
Restricted Definitive Registered Notes issued in exchange for a DTC Restricted Global Note, such Restricted
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Definitive Registered Notes will bear, and be subject to, the legend described under “Transfer Restrictions.” Except
in the limited circumstances described in this paragraph, owners of beneficial interests in a DTC Global Note will
not be entitled to receive physical delivery of Definitive Registered Notes. In addition, no beneficial owner of an
interest in a DTC Global Note will be able to transfer that interest except in accordance with DTC’s applicable
procedures (in addition to those under the Agency Agreement and, if applicable, those of Euroclear and Clearstream,
Luxembourg).
Investors may hold their interests in a DTC Unrestricted Global Note through Euroclear or Clearstream,
Luxembourg, if they are participants in such systems, or indirectly through organizations which are participants in
such systems. Beginning 40 days after the later of the commencement of the offering and the date of delivery of the
Notes represented by such DTC Unrestricted Global Note (but not earlier), investors may also hold such interests
through organizations other than Euroclear and Clearstream, Luxembourg that are participants in the DTC system.
Euroclear and Clearstream, Luxembourg will hold interests in a DTC Unrestricted Global Note on behalf of their
participants through customers’ securities accounts in their respective names on the books of their respective
depositaries, which in turn will hold such interests in customers’ securities accounts in the depositaries’ names on the
books of DTC. Unless otherwise indicated in the applicable Final Terms, Citibank, N.A. will initially act as
depositary for Clearstream, Luxembourg, and JPMorgan Chase Bank will initially act as depositary for Euroclear.
Investors may hold their interests in a DTC Restricted Global Note directly through DTC, if they are
participants in such system, or indirectly through organizations which are participants in such system.
Payments of the principal of and any premium, interest, and other amounts on any DTC Global Note will be
made to DTC or its nominee as the registered owner thereof. Neither the Issuer, the Trustee, the Registrar, the
Transfer Agent nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in a DTC Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment in respect of a DTC Global Note held
by it or its nominee, will immediately credit participants’ accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such DTC Global Note as shown on the records of DTC or
its nominee. The Issuer also expects that payments by participants to owners of beneficial interests in a DTC Global
Note held through such participants will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with DTC’s procedures and will be settled
in same day funds. The laws of some States of the United States require that certain persons take physical delivery
of securities in definitive form. Consequently, the ability to transfer beneficial interests in a DTC Global Note to
such persons may be limited. Because DTC can only act on behalf of participants, who in turn act on behalf of
indirect participants and certain banks, the ability of a person having a beneficial interest in a DTC Global Note to
pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in
respect of such interest, may be affected by the lack of a physical certificate of such interest. Transfers between
participants in Euroclear and Clearstream, Luxembourg will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes described above, cross-market
transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream, Luxembourg
participants, on the other hand, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, Luxembourg, as the case may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Clearstream, Luxembourg, as the case may be, by the
counterparty in such system in accordance with its rules and procedures and within its established deadlines.
Euroclear or Clearstream, Luxembourg, as the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or
receiving interests in any DTC Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to DTC. Euroclear participants and Clearstream, Luxembourg
participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream, Luxembourg.
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Because of time zone differences, the securities account of a Euroclear or Clearstream, Luxembourg participant
purchasing an interest in a DTC Global Note from a DTC participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Clearstream, Luxembourg, as the case may be)
immediately following the DTC settlement date and such credit of any transactions in interests in a DTC Global
Note settled during such processing day will be reported to the relevant Euroclear or Clearstream, Luxembourg
participant on such day. Cash received in Euroclear or Clearstream, Luxembourg as a result of sales of interests in a
DTC Global Note by or through a Euroclear or Clearstream, Luxembourg participant will be received for value on
the DTC settlement date but will be available in the relevant Euroclear or Clearstream, Luxembourg cash account
only on the business day following settlement in DTC.
DTC has advised the Issuer that it will take any action permitted to be taken by a holder of a DTC Global Note
(including the presentation of Notes for exchange as described below) only at the direction of one or more
participants to whose account with DTC interests in such DTC Global Note are credited and only in respect of such
portion of the aggregate principal amount of such DTC Global Note as to which such participant or participants has
or have given such direction. However, if there is an Event of Default under a DTC Global Note, DTC will
exchange such DTC Global Note for legended Notes in definitive form, which it will distribute to its participants.
DTC has advised the Issuer as follows: DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the
Uniform Commercial Code and a “Clearing Agency” registered pursuant to the provisions of Section 17A of the
Exchange Act DTC was created to hold securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry changes in accounts of its participants,
thereby eliminating the need for physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly or indirectly.
Although DTC, Clearstream, Luxembourg, and Euroclear have agreed to the foregoing procedures in order to
facilitate transfers of interests in the DTC Global Notes among participants of DTC, Clearstream, Luxembourg, and
Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may
be discontinued at any time. Neither the Issuer nor the Trustee will have any responsibility for the performance by
DTC, Clearstream, Luxembourg, or Euroclear or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their operations.
If any Series of Notes represented by one or more DTC Global Notes contains a foreign currency constraint
provision, as more fully set out in the Terms and Conditions of the Notes and in the applicable Final Terms, upon the
occurrence of a Foreign Currency Constraint Event (as defined in the Terms and Conditions of the Notes), notice of
such event shall be given to the Noteholders by the Registrar through DTC. Exchanges of interests in the DTC
Global Note(s) representing the original Notes for interests in the DTC Global Note(s) representing the Exchanged
Notes (as defined in the Terms and Conditions of the Notes) will be made in accordance with the Terms and
Conditions of the Notes. The Registrar will prepare one or more DTC Global Notes which will represent the
Exchanged Notes and will obtain a new CUSIP and/or CINS number for the Exchanged Notes. The DTC Global
Note(s) representing the original Notes and the DTC Global Note(s) representing the Exchanged Notes will be
marked down and up, respectively, upon exchange in accordance with the Terms and Conditions of the Notes.
Interests in the DTC Global Notes representing the Exchanged Notes will be held in the account of the DTC
Participant for the São Paulo Paying Agent on behalf of the Noteholders. Payments in respect of the Exchanged
Notes will be made by the São Paulo Paying Agent outside DTC in accordance with the Terms and Conditions of the
Notes. Holders of Exchanged Notes may not transfer their interest in such Exchanged Notes except in connection
with the termination of the foreign Currency Constraint Event.
On termination of the Foreign Currency Constraint Event, interests in the DTC Global Note(s) representing the
Exchanged Notes will be exchanged for interests in the DTC Global Note(s) representing the original Notes and
such interests in the DTC Global Note(s) representing the original Notes will be transferred back to the original
accounts in DTC from which they were originally transferred, all in accordance with the Terms and Conditions of
the Notes. The DTC Global Note(s) representing the Exchanged Notes will be marked down to zero and the DTC
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Global Note(s) representing the original Notes will be marked back up to the original aggregate nominal amount of
the Series.
International Global Note Certificates
If so specified in an applicable Final Terms, registered Notes sold outside the United States in reliance on
Regulation S, which are not part of a Series which is also offered in the United States, may be represented, in whole
or in part, by an International Global Note Certificate which will be deposited with a Common Depositary for and
registered in the name of a common nominee of Euroclear and Clearstream, Luxembourg for credit to the respective
accounts of beneficial owners of the Notes represented thereby.
Investors may hold their interests in an International Global Note Certificate through Euroclear or Clearstream,
Luxembourg if they are participants in such systems, or indirectly through organizations that are participants in such
systems. Euroclear and Clearstream, Luxembourg will hold interests in an International Global Note Certificate on
behalf of their participants through customers’ securities accounts in their respective names on the books of their
respective depositaries.
So long as a common nominee of Euroclear and Clearstream, Luxembourg, is the registered holder of an
International Global Note Certificate, such common nominee will be considered the sole owner and holder of the
Notes represented by such International Global Note Certificate for all purposes under the Notes and all other
relevant documents. Owners of beneficial interests in an International Global Note Certificate will not be entitled to
have any portion of such International Global Note Certificate registered in their names, will not receive or be
entitled to receive delivery of Definitive Registered Notes in exchange for their interests in an International Global
Note Certificate and will not be considered the owners or holders of such International Global Note Certificate (or
any Notes represented thereby) under the Trust Deed, the Agency Agreement or the Notes. In addition, no beneficial
owner of an interest in an International Global Note Certificate or any other relevant documents will be able to
transfer that interest except in accordance with applicable procedures of Euroclear and Clearstream, Luxembourg (in
addition to those under the Agency Agreement referred to herein).
Payments of the principal of and any premium, interest and other amounts on any International Global Note
Certificate will be made to the common nominee as the registered owner thereof. Neither the Issuer, the Trustee, the
Registrar, the Transfer Agent nor any Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership interests in an International Global Note
Certificate or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests.
The Issuer expects that each of Euroclear and Clearstream, Luxembourg, upon receipt of any such payment in
respect of an International Global Note Certificate held by a common nominee, will immediately credit participants’
accounts with payments in amounts proportionate to their respective beneficial interests in the nominal amount of
such International Global Note Certificate as shown on the records of Euroclear or Clearstream, Luxembourg, as the
case may be. The Issuer also expects that payments by participants to owners of beneficial interests in an
International Global Note Certificate held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such participants.
All Notes represented by an International Global Note Certificate will be offered and sold pursuant to
Regulation S, and the restrictions on and procedures for transfer of beneficial interests in such International Global
Note Certificate and any DTC Restricted Global Note of the same Series will be the procedures applicable to DTC
Unrestricted Global Notes and DTC Restricted Global Notes described above under “—Registered Global Notes—
DTC Global Notes,” with such modifications as may be specified in such Notes and the applicable Final Terms.
Bearer Notes
Bearer Notes shall initially be issued in the form of a Temporary Global Note, without Coupons, in an initial
aggregate nominal amount equal to the nominal amount of the Notes of such Series not initially sold to U.S. persons,
which shall be exchangeable, unless otherwise specified in the Final Terms: (i) for a Permanent Global Note,
without Coupons attached (together with Temporary Global Notes, “Global Bearer Notes”), which shall in turn be
exchangeable (in whole, but not in part) in limited circumstances in the form of Definitive Bearer Notes, with or
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without Coupons attached; or (ii) in whole but not in part, directly for Definitive Bearer Notes, with or without
Coupons attached. Purchasers in the United States (including its territories, its possessions and other areas subject to
its jurisdiction) will not be able to receive Bearer Notes.
The European Issuing and Paying Agent shall deliver each Temporary Global Note executed and authenticated
as provided in the Trust Deed to the Common Depositary for the benefit of Euroclear and Clearstream, Luxembourg,
for credit against payment in immediately available funds on the date of settlement to the respective accounts of the
holders of the Notes of the Series represented by such Temporary Global Note.
Each Temporary Global Note and each Permanent Global Note will contain provisions which apply to the
Bearer Notes while they are in global form, some of which modify the effect of the terms and conditions of the
Notes set out in this information memorandum. A summary of certain of those provisions is set out below.
So long as the Common Depositary, or its nominee, is the bearer of a Global Bearer Note, the Common
Depositary or such nominee, as the case may be, will be considered the sole owner and holder of the Notes
represented by such Global Bearer Note for all purposes under the Trust Deed, the Agency Agreement and such
Notes. Owners of beneficial interests in a Global Bearer Note will not be considered the owners or holders of such
Global Bearer Note (or any Notes represented thereby) under the Trust Deed, the Agency Agreement or the Notes. In
addition, no beneficial owner of an interest in a Global Bearer Note will be able to transfer that interest except in
accordance with applicable procedures of Euroclear and Clearstream, Luxembourg (in addition to those under the
Agency Agreement referred to herein).
In considering the interests of Noteholders while the Permanent Global Note is held on behalf of a clearing
system, the Trustee may have regard to any information provided to it by such clearing system or its operator as to
the identity (either individually or by category) of its accountholders with entitlements to the Permanent Global Note
and may consider such interests as if such accountholders were the holder of the Permanent Global Note.
Payments of the principal of and any premium, interest and other amounts on any Global Bearer Note will be
made to the Common Depositary for Euroclear and Clearstream, Luxembourg or its nominees as the bearer thereof.
Neither the Issuer, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership interests in a Global Bearer Note or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
The Issuer expects that each of Euroclear and Clearstream, Luxembourg, upon receipt of any such payment in
respect of a Global Bearer Note held by a Common Depositary or its nominee, will immediately credit participants’
accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of
such Global Bearer Note as shown on the records of Euroclear or Clearstream, Luxembourg, as the case may be. The
Issuer also expects that payments by participants to owners of beneficial interests in a Global Bearer Note held
through such participants will be governed by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
So long as the Bearer Notes are represented by the Permanent Global Note and the Permanent Global Note is
held on behalf of a clearing system, notices to Noteholders may be given by delivery of the relevant notice to that
clearing system for communication by it to entitled accountholders, except that so long as the Bearer Notes are listed
on the Luxembourg Stock Exchange and the rules of that Exchange so require, notices shall also be published in a
leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).
On or after the date (the “Exchange Date”) which is the earlier of: (i) the first Business Day following the
expiration of a period of 40 days after (and including) the date on which the Notes of such Series were issued; and
(ii) the first day on which interest, if any, is paid on the Notes of such Series, beneficial interests in the Temporary
Global Note of a Series as to which the European Issuing and Paying Agent has received certification as to the
non-U.S. beneficial ownership thereof as required by U.S. Treasury regulations (see “—General”) and as set forth in
the Trust Deed will, upon presentation thereof by the Common Depositary to the European Issuing and Paying
Agent, be exchanged: (1) for interests in a Permanent Global Note of such Series; or (2) in whole but not in part,
directly for one or more Definitive Bearer Notes of the same Series, in each case pursuant to the procedures set forth
in the next sentence, with respect to that portion of such Temporary Global Note; provided, however, that, if
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Definitive Bearer Notes and (if applicable) Coupons have already been issued in exchange for a portion of such
Temporary Global Note, or for all of the Notes represented for the time being by such Permanent Global Note
because Euroclear and/or Clearstream, Luxembourg do not regard the Permanent Global Note to be fungible with
such Definitive Bearer Notes, then such Temporary Global Note may only thereafter be exchanged for Definitive
Bearer Notes and (if applicable) Coupons pursuant to the terms of the Trust Deed, the Agency Agreement and such
Notes. At any time after the Exchange Date, upon 40 days’ notice (which may be given at any time prior to, on or
after the Exchange Date) to the European Issuing and Paying Agent by Euroclear or Clearstream, Luxembourg, as
the case may be, acting at the request of or on behalf of the beneficial owner or owners of a Global Bearer Note,
and, in the case of a Temporary Global Note, upon receipt of the certifications required by U.S. Treasury regulations
referred to above, and, unless otherwise agreed, upon payment by the Holder of reasonable costs (and the provision
to Euroclear and Clearstream of the full contact details and the agreement to bear the printing costs by holders who
instruct Euroclear and Clearstream to receive definitive notes; the Issuer will collect the related payments outside the
clearing systems), interests in the Temporary Global Note or Permanent Global Note of a Series may be exchanged,
in whole but not in part, for Definitive Bearer Notes of such Series with Coupons, if applicable, attached; provided,
however, that, if Definitive Bearer Notes and (if applicable) Coupons have already been issued in exchange for a
portion of such Temporary Global Note or for all of the Notes represented for the time being by such Permanent
Global Note because Euroclear and/or Clearstream, Luxembourg do not regard the Permanent Global Note to be
fungible with such Definitive Bearer Notes, then such Temporary Global Note may only thereafter be exchanged for
Definitive Bearer Notes and (if applicable) Coupons pursuant to the terms of the Trust Deed, the Agency Agreement
and such Notes. Any Definitive Bearer Note delivered in exchange for a beneficial interest in a Temporary Global
Note or Permanent Global Note shall bear substantially the same legends as are set forth on the face of the
Temporary or Permanent Global Note for which it was exchanged. No Bearer Note may be delivered nor may any
interest be paid on any Bearer Note until the person entitled to receive such Bearer Note or such interest furnishes
the certifications required by U.S. Treasury regulations referred to above.
Until exchanged in full, Global Bearer Notes of a Series shall in all respects be entitled to the same benefits
under the Trust Deed and the Agency Agreement as Definitive Bearer Notes of such Series authenticated and
delivered thereunder, except that principal of and any premium, interest, additional amounts and other amounts on a
Temporary Global Note will not be payable unless a certification, as described herein, is given by the person(s)
appearing in the records of Euroclear or Clearstream, Luxembourg as the owner of the Temporary Global Note or
portions thereof being presented for payment, and unless a corresponding certification by Euroclear or Clearstream,
Luxembourg shall have been delivered prior to each such date on which such amounts are to be paid.
Claims against the Issuer in respect of principal and interest in respect of the Permanent Global Note will
become prescribed unless the Permanent Global Note is presented for payment within a period of 10 years (in the
case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in
Condition 8).
The holder of the Permanent Global Note will (unless the Permanent Global Note represents only one Bearer
Note) be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders and,
at any such meeting, as having one vote in respect of each minimum Specified Denomination of Notes for which the
Permanent Global Note may be exchanged.
Cancellation of any Bearer Note required by the Conditions to be cancelled following its purchase will be
effected by reduction in the nominal amount of the Permanent Global Note, and evidenced by the appropriate
notation in the relevant schedule to such Permanent Global Note.
The Permanent Global Note provides that the holder may cause the Permanent Global Note to become due and
payable in the circumstances described in Condition 9 by giving notice thereof to the Trustee.
The Issuer’s call option in Condition 6(e) may be exercised by the Issuer giving notice to the Noteholders within
the time limits set out in and containing the information required by Condition 6(e) except that the notice shall not
be required to contain the certificate numbers of Notes drawn for redemption in the case of a partial redemption of
Notes and accordingly no drawing of Notes for redemption shall be required.
The Noteholders’ put option in Condition 6(f) may be exercised by the holder of the Permanent Global Note
giving notice to the European Issuing and Paying Agent of the nominal amount of Bearer Notes in respect of which
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the option is exercised and presenting the Permanent Global Note for endorsement of exercise within the time limits
specified in Condition 6(f).
Each Permanent Global Note provides that, if the Currency Constraint provisions are specified in the Final
Terms as being applicable, paragraphs (a) and (b) of Condition 15 of the Notes represented by such Permanent
Global Note shall be replaced EITHER with the provisions set out in paragraph (1) below (if the Permanent Global
Note is specified on the face of such Permanent Global Note as representing the original Currency Constraint Notes)
OR with the provisions set out in paragraph (2) below (if the Permanent Global Note is specified on the face of such
Permanent Global Note as representing the Exchanged Notes in respect of which the Currency Constraint Notes may
be exchanged):
(1) If a Foreign Currency Constraint Event has occurred, the Issuer shall give to the Trustee and the European
Issuing and Paying Agent within two São Paulo Business Days (as defined below) after such event, a
certificate signed by two authorized signatories certifying the existence of the Foreign Currency Constraint
Event. The Issuer shall, as soon as practicable thereafter, give notice of such certification and its contents,
in accordance with Condition 18 and shall immediately appoint a Paying Agent with a specified office in
São Paulo, Brazil (the “São Paulo Paying Agent”). In this event any Noteholder may, for a period of
30 days after the date of publication of such notice (the “Election Period”), elect to exchange its interests in
the Permanent Global Note representing the original Notes for equivalent interests in the Permanent Global
Note representing the Exchanged Notes (such exchange, the “Currency Constraint Exchange”) and transfer
such interests through Clearstream, Luxembourg, Euroclear and/or any Alternative Clearing System to or to
the order of the São Paulo Paying Agent. The São Paulo Paying Agent shall hold such transferred interests
for the account of the transferring Noteholder only, and such Noteholder may not transfer or otherwise
dispose of such transferred interests and the São Paulo Paying Agent will treat such Noteholder as the
owner of the Exchanged Notes and related Coupons and Talons (if any) throughout the period of existence
of the Foreign Currency Constraint Event. In order for such an election to be effective, the Trustee, the São
Paulo Paying Agent, the European Issuing and Paying Agent and the Issuer must receive a notice of
election substantially in the form contained in the Agency Agreement appropriately completed by such
Noteholder within the time limits described above. All duly completed and valid notices of election
received within the Election Period shall, on receipt, be deemed to have been received on the first day of
the Election Period.
“Exchanged Notes” means Notes with terms and conditions identical to the terms and conditions of the
Notes represented by the Permanent Global Note representing the original Notes save that:
(i) all payments due in respect of such Exchanged Notes and related Coupons shall be made by the Issuer,
to the extent permitted by Brazilian law, in the lawful currency of Brazil when due (the “Due Date”) or,
where the Due Date occurs before the date of the Currency Constraint Exchange (the “Currency
Constraint Exchange Date”), as soon as practicable after the Currency Constraint Exchange Date and
without any additional amount in compensation for late payment; and
(ii) the amount of any payment due in respect of such Exchanged Notes and related Coupons shall be that
amount in the lawful currency of Brazil, as determined by the São Paulo Paying Agent, having regard
to this paragraph (ii), which would be required to purchase the amount of such payment in the
Specified Currency at the rate of exchange shown on the Brazilian Central Bank computer information
system, under the title ”SISBACEN PTAX-800, Option 5” on the São Paulo Business Day prior to the
Due Date (or, where the Due Date precedes the Currency Constraint Exchange Date, on the São Paulo
Business Day prior to the date of payment), provided that if no such rate of exchange is available, the
applicable rate of exchange shall be an average of the Brazilian currency exchange rates on such São
Paulo Business Day for the purchase of the Specified Currency notified to the São Paulo Paying Agent
by four leading Brazilian Banks selected by the São Paulo Paying Agent in its discretion.
“Foreign Currency Constraint Event” means any law, regulation, directive or communication imposed or
issued by the Brazilian government or the Brazilian Central Bank or any other competent authority in
Brazil imposing foreign exchange controls or other restrictions or any refusal to act or delay in acting by
any such party, which has the effect of prohibiting, preventing or delaying the remittance of the Specified
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Currency (whether in respect of principal, interest, additional amounts payable pursuant to the Conditions
or otherwise) to or by the Principal Paying Agent in respect of the Notes represented by the Permanent
Global Note representing the original Notes when due.
“São Paulo Business Day” means a day other than a Saturday or Sunday on which commercial banks and
foreign exchange markets are open for business in São Paulo, Brazil.
Each election which has become effective (as set forth above) shall be irrevocable. No transfers of
Exchanged Notes may be made other than as provided below after the termination of the Foreign Currency
Constraint Event. However, Clearstream, Luxembourg, Euroclear and/or any Alternative Clearing System
will not monitor any transfers of Exchanged Notes or block any transfer thereof. In addition, Noteholders,
by electing to receive the lawful currency of Brazil, waive their right to receive payments in respect of the
Exchanged Notes and related Coupons through Clearstream, Luxembourg, Euroclear and/or any Alternative
Clearing System since these payments will be made in Brazil by the São Paulo Paying Agent.
On termination of the Foreign Currency Constraint Event, Exchanged Notes and related unmatured
Coupons and unexchanged Talons shall be exchanged for an equivalent amount of the Notes represented by
the Permanent Global Note representing the original Notes, provided that, prior to such exchange, all
payments due under the Conditions of the Notes represented by the Permanent Global Note representing
the original Notes and the conditions of the Exchanged Notes and related Coupons shall have been made by
the Issuer. Such exchange will occur as a result of the São Paulo Paying Agent exchanging interests in the
Permanent Global Note representing the Exchanged Notes for interests in the Permanent Global Note
representing the original Notes and transferring those interests back to the account of the Noteholder(s)
which had originally elected to make the Currency Constraint Exchange.
(2) Upon a Foreign Currency Constraint occurring, the Issuer shall immediately appoint a Paying Agent with a
specified office in São Paulo, Brazil (the “São Paulo Paying Agent”), who will hold the Notes represented
by the Permanent Global Note representing the Exchanged Notes for the account of the Noteholders only
and will treat the Noteholders as the owners of the Notes represented by the Permanent Global Note
representing the Exchanged Notes throughout the period of the existence of the Foreign Currency
Constraint Event. No transfers of Notes represented by the Permanent Global Note representing the
Exchanged Notes may be made other than as provided below after the termination of the Foreign Currency
Constraint Event. However, Clearstream, Luxembourg, Euroclear and/or any Alternative Clearing System
will not monitor any transfers of Notes represented by the Permanent Global Note representing the
Exchanged Notes or block any transfer thereof. In addition, the Noteholders waive their right to receive
payments in respect of the Notes represented by the Permanent Global Note representing the Exchanged
Notes through Clearstream, Luxembourg, Euroclear and/or any Alternative Clearing System. All payments
which become due during the period in which a Foreign Currency Constraint Event shall be in effect will
be made, to the extent permitted by the laws and regulations of Brazil, in the lawful currency of Brazil by
the Issuer when due (the “Due Date”) (or, where the Due Date occurs before the date (the “Currency
Constraint Exchange Date”) on which interests in the Permanent Global Note representing the original
Currency Constraint Notes were exchanged for equivalent interests in the Permanent Global Note
representing the Exchanged Notes (such exchange, the “Currency Constraint Exchange”), as soon as
practicable following such Currency Constraint Exchange Date and without any additional amount in
compensation for late payment), to an account in the lawful currency of Brazil maintained by or on behalf
of the São Paulo Paying Agent with a bank in São Paulo, Brazil. The São Paulo Paying Agent will
thereafter make payment to Noteholders by transfer to an account in the lawful currency of Brazil
maintained by each such Noteholder with a bank in São Paulo, Brazil (as specified by each such
Noteholder in the notice of election delivered by each such Noteholder to any Paying Agent prior to, and
for the purpose of effecting, the Currency Constraint Exchange). The amount of any such payment shall be
that amount in the lawful currency of Brazil, as determined by the São Paulo Paying Agent, having regard
to the provisions of this paragraph, which would be required to purchase the amount of such payment in the
Specified Currency at the rate of exchange shown on the Brazilian Central Bank computer information
system, under the title ”SISBACEN PTAX-800, Option 5” on the São Paulo Business Day prior to the Due
Date (or, where the Due Date precedes the Currency Constraint Exchange Date, on the São Paulo Business
Day prior to the date of payment), provided that if no such rate of exchange is available, the applicable rate
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of exchange shall be an average of the Brazilian currency exchange rates on such São Paulo Business Day
for the purchase of the Specified Currency notified to the São Paulo Paying Agent by four leading Brazilian
Banks selected by the São Paulo Paying Agent in its discretion.
“Exchanged Notes” means Notes with terms and conditions identical to the terms and conditions of the
Notes represented by the Permanent Global Note representing the original Notes for which such Notes may
be exchanged save that payments shall be made in accordance with the provisions of this paragraph (2).
“Foreign Currency Constraint Event” means any law, regulation, directive or communication imposed or
issued by the Brazilian government or the Brazilian Central Bank or any other competent authority in
Brazil imposing foreign exchange controls or other restrictions or any refusal to act or delay in acting by
any such party, which has the effect of prohibiting, preventing or delaying the remittance of the Specified
Currency (whether in respect of principal, interest, additional amounts payable pursuant to the Conditions
or otherwise) to or by the Principal Paying Agent in respect of the Notes represented by the Permanent
Global Note representing the original Notes when due.
“São Paulo Business Day” means a day other than a Saturday or Sunday on which commercial banks and
foreign exchange markets are open for business in São Paulo, Brazil.
On termination of the Foreign Currency Constraint Event, the Exchanged Notes and related unmatured
Coupons and unexchanged Talons shall be exchanged for an equivalent amount of the Notes represented by
the Permanent Global Note representing the original Notes, provided that, prior to such exchange, all
payments due under the conditions of the Notes represented by the Permanent Global Note representing the
original Notes and the Conditions of the Exchanged Notes and related Coupons shall have been made by
the Issuer. Such exchange will occur as a result of the São Paulo Paying Agent exchanging interests in the
Permanent Global Note representing the Exchanged Notes for interests in the Permanent Global Note
representing the original Notes and transferring those interests back to the account of the Noteholder(s)
which had originally elected to make the Currency Constraint Exchange.
The following legend will appear on all Global Bearer Notes and Definitive Bearer Notes and any related
Coupons:
“Any United States person who holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue
Code.”
The sections referred to in the above legend provide that a U.S. person, with certain exceptions, will not be
permitted to deduct any loss, and will not be eligible for capital gains treatment with respect to any gain realized on
any sale, exchange or redemption of Bearer Notes or any related Coupons.
Notwithstanding anything to the contrary herein, Bearer Notes with maturities of one year or less may be issued
as specified in the applicable Final Terms.
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SUBSCRIPTION AND SALE
The following is subject to change in the applicable Final Terms. In addition, the Dealers who have agreed to
purchase Notes of a Series from the Issuer will be specified in the applicable Final Terms.
Notes may be sold from time to time by the Issuer to or through any one or more of the Dealers (the “Dealers”)
or to any other person or institution. The arrangements under which Notes may from time to time be agreed to be
sold by the Issuer to the Dealers as principal or through the Dealers, as agents, are set out in the Dealer Agreement
dated April 12, 2013, among the issuer and the Dealers (as amended from time to time, the “Dealer Agreement”).
Any such agreement will, among other things, make provision for the form and Terms and Conditions of the relevant
Notes, the price at which such Notes will be purchased by the Dealers and the commissions or other agreed
deductibles (if any) which are payable or allowable by the Issuer in respect of such purchase. The Dealer Agreement
makes provision for resignation of existing Dealers and the appointment of additional Dealers.
Each of Santander Investment Securities Inc. and Santander Brasil are our affiliates.
United States of America
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S
under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Terms
used in this paragraph have the meanings given to them by Regulation S.
Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the
United States or its possessions or to a U.S. person, except in certain transactions permitted by U.S. Treasury
regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and
U.S. Treasury regulations thereunder.
Each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it
has offered and sold Notes and will offer and sell Notes (i) as part of their distribution at any time and (ii) otherwise
until 40 days after the completion of the distribution of a Tranche of Notes of which such Notes are a part (the
“Distribution Compliance Period”), as determined and certified to the Principal Paying Agent by such Dealer (or, in
the case of a sale of a Tranche of Notes to or through more than one Dealer, by each of such Dealers with respect to
Notes of a Tranche purchased by or through it, in which case the Principal Paying Agent shall notify such Dealer
when all such Dealers have so certified), only in accordance with Rule 903 of Regulation S or Rule 144A under the
Securities Act as set forth below. Accordingly, each Dealer has agreed that neither it, its affiliates nor any persons
acting on its or their behalf (i) has engaged or will engage in any “directed selling efforts,” as defined in
Regulation S, in the United States with respect to Notes, (ii) has made offers or sales of any security, or solicited
offers to buy, or otherwise negotiated in respect of any security, under circumstances that would require the
registration of Notes under the Securities Act, or (iii) has engaged in any form of general solicitation, and it and they
have complied and will comply with the offering restrictions requirements or Regulation S. Each Dealer and its
affiliates also agree that, at or prior to confirmation of sale of Notes (other than a sale pursuant to Rule 144A), it will
have sent to each Dealer, distributor or person receiving a selling concession, fee or other remuneration to which it
sells Notes during the Distribution Compliance Period (other than resales pursuant to Rule 144A) a confirmation or
other notice setting out the restrictions on offers and sales of the Notes within the United States or to, or for the
account or benefit of, U.S. persons to substantially the following effect:
“The Notes covered hereby have not been registered under the United States Securities Act of 1933, as amended
(the “Securities Act”), and may not be offered or sold within the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time, or (ii) otherwise until 40 days after the completion of the
distribution of the Tranche of Notes of which such Notes are a part, as determined and certified by the relevant
Dealer or Dealers, except in either case in accordance with Regulation S under, or pursuant to an available
exemption from the registration requirements of, the Securities Act. Terms used above have the meaning given to
them by Regulation S of the Securities Act.”
Terms used in the above paragraph have the meanings given to them by Regulation S.
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The Notes are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S.
The Dealer Agreement provides that the Dealers may directly or through their respective U.S. broker-dealer
affiliates arrange for the offer and resale of Notes within the United States only to QIBs in reliance on Rule 144A.
Each Dealer has agreed that it will not, acting either as principal or agent, offer or sell any Notes in the United
States other than Notes in registered form bearing a restrictive legend thereon, and it will not, acting either as
principal or agent, offer, sell, reoffer or resell any of such Notes (or approve the resale of any such Notes):
•
except (A) inside the United States through a U.S. broker dealer that is registered under the United States
Exchange Act to institutional investors, each of which such Dealer reasonably believes is a “qualified
institutional buyer” (as defined in Rule 144A thereunder), or a fiduciary or agent purchasing Notes for the
account of one or more qualified institutional buyers or (B) otherwise in accordance with the restrictions
on transfer set forth in such Notes, the Dealer Agreement, the Information Memorandum and the relevant
Final Terms; or
•
by means of any form of general solicitation or general advertisement, including but not limited to (A) any
advertisement, article, notice or other communication published in any newspaper, magazine or similar
media or broadcast of television or radio and (B) any seminar or meeting whose attendees have been
advised by any general solicitation or general advertising.
Prior to the sale of any Notes in registered form bearing a restrictive legend thereon, the selling Dealer shall
have provided each offeree that is a U.S. person (as defined in Regulation S) with a copy of the Information
Memorandum in the form the Issuer and Dealers shall have agreed most recently shall be used for offers and sales in
the United States.
Each Dealer has represented and agreed that in connection with each sale to a qualified institutional buyer it has
taken or will take reasonable steps to ensure that the purchaser is aware that the Notes have not been and will not be
registered under the Securities Act and that transfers of Notes are restricted as set forth herein and, in the case of
sales in reliance upon Rule 144A, that the selling Dealer may rely upon the exemption provided by Rule 144A under
the Securities Act.
In addition, until 40 days after the commencement of the offering of any Series of Notes, an offer or sale of
Notes within the United States by any dealer (whether or not participating in the offering of such Series of Notes)
may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in
accordance with Rule 144A.
In addition:
(a) In respect of Notes that are expressed in the applicable Final Terms to be subject to the C Rules, the
following applies:
Under U.S. Treas. Reg. §1.163-5(c)(2)(i)(C) (the “C Rules”), the Notes in bearer form must be issued
and delivered outside the United States and its possessions in connection with their original issuance.
Each Dealer has represented and agreed that it has not offered, sold or delivered and will not offer, sell
or deliver, directly or indirectly, Notes in bearer form within the United States or its possessions in
connection with their original issuance. In connection with the original issuance of Notes in bearer
form, each Dealer has represented that it has not communicated and it will not communicate, directly
or indirectly, with a prospective purchaser if either of them is within the United States or its
possessions or otherwise involve its U.S. office in the offer or sale of Notes in bearer form. Terms used
in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and regulations
thereunder, including the C Rules.
(b) In respect of Notes that are expressed in the applicable Final Terms to be subject to the D Rules, the
following applies:
(i) except to the extent permitted under U.S. Treas. Reg. § 1.163-5(c)(2)(i)(D) (the “D Rules”), each
Dealer (a) has represented that it has not offered or sold, and has agreed that during a 40-day
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restricted period it will not offer or sell, Notes to a person who is within the United States or its
possessions or to a United States person, and (b) has represented that it has not delivered and
agrees that it will not deliver within the United States or its possessions definitive Notes that are
sold during the restricted period;
(ii) each Dealer has represented that it has and has agreed that throughout the restricted period it will
have in effect procedures reasonably designed to ensure that its employees or agents who are
directly engaged in selling Notes are aware that such Notes may not be offered or sold during the
restricted period to a person who is within the United States or its possessions or to a United States
person, except as permitted by the D Rules;
(iii) if a Dealer is a United States person, such Dealer has represented that it is acquiring the Notes for
purposes of resale in connection with their original issuance and if it retains Notes for its own
account, it will only do so in accordance with the requirements of U.S. Treas. Reg.
§1.163-5(c)(2)(i)(D)(6);
(iv) with respect to each affiliate that acquires from an affiliated Dealer Notes for the purpose of
offering or selling such Notes during the restricted period, such Dealer either (a) has repeated and
confirmed the representations and agreements contained in clauses (i), (ii) and (iii) on such
affiliate’s behalf or (b) has agreed that it will obtain from such affiliate for the benefit of the Issuer
the representations and agreements contained in clauses (i), (ii) and (iii); and
(v) each Dealer has represented and agreed that it has not and will not enter into any written contract
(other than a confirmation or other notice of the transaction) pursuant to which any other party to
the contract (other than one of its affiliates or another Dealer) has offered or sold, or during the
restricted period will offer or sell, any Notes, except where pursuant to the contract the Dealer has
obtained or will obtain from that party, for the benefit of the Issuer and the several Dealers, the
representations contained in, and the distributor’s agreement to comply with, the provisions of
clauses (i), (ii), (iii), (iv) and (v) of this paragraph.
Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and
regulations thereunder, including the D Rules and Notice 2012-20, 2012-13 I.R.B.574.
This information memorandum has been prepared by the Issuer for use in connection with the offer and sale of
the Notes outside the United States to non-U.S. persons and for the resale of the Notes in the United States. The
Issuer and the Dealers reserve the right to reject any offer to purchase, in whole or in part, for any reason, or to sell
less than the number of Notes which may be offered pursuant to Rule 144A. This information memorandum does
not constitute an offer to any person in the United States or to any U.S. person other than any QIB within the
meaning of Rule 144A to whom an offer has been made directly by one of the Dealers or an affiliate of one of the
Dealers. Distribution of this information memorandum by any non-U.S. person outside the United States or by any
QIB in the United States to any U.S. person or to any other person within the United States other than any QIB and
those persons, if any, retained to advise such non-U.S. person or QIB with respect thereto, is unauthorized and any
disclosure without the prior written consent of the Issuer of any of its contents to any such U.S. person or other
person within the United States other than any QIB and those persons, if any, retained to advise such
non-U.S. person or QIB, is prohibited.
United Kingdom
Each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme
will be required to represent, warrant and agree, that:
(a) in relation to any Notes which have a maturity of less than one year:
(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of its business; and
(ii) it has not offered or sold and will not offer or sell any Notes other than to persons:
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(1) whose ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or as agent) for the purposes of their businesses; or
(2) who it is reasonable to expect will acquire, hold, manage or dispose of investments (as
principal or agent) for the purposes of their businesses,
where the issue of the Notes would otherwise constitute a contravention of section 19 of the FSMA by
the Issuer;
(b) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity (within the meaning of
section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in
circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and
(c) it has complied and will comply with all applicable provisions of the FSMA and the Financial Services
Act 2012 with respect to anything done by it in relation to such Notes in, from or otherwise involving
the United Kingdom.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a “Relevant Member State”), each Dealer has represented and agreed, and each further Dealer
appointed under the Programme will be required to represent and agree, that with effect from and including the date
on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation
Date”) it has not made and will not make an offer of Notes which are the subject of the offering contemplated by the
information memorandum as completed by the Final Terms in relation thereto to the public in that Relevant Member
State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such
Notes to the public in that Relevant Member State:
(a) if the final terms in relation to the Notes specify that an offer of those Notes may be made other than
pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a “Non-exempt
Offer”), following the date of publication of a prospectus in relation to such Notes which has been
approved by the competent authority in that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent authority in that Relevant Member State,
provided that any such prospectus has subsequently been completed by the final terms contemplating
such Non-exempt Offer, in accordance with the Prospectus Directive, in the period beginning and
ending on the dates specified in such prospectus or final terms, as applicable and the Issuer has
consented in writing to its use for the purpose of that Non-exempt Offer;
(b) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(c) at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant provision
of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as
defined in the Prospectus Directive), subject to obtaining the prior consent of the relevant Dealer or
Dealers nominated by the Issuer for any such offer; or
(d) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Notes referred to in (b) to (d) above shall require the Issuer or any Dealer to publish a
prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the
Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes in
any Relevant Member State means the communication in any form and by any means of sufficient information on
the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the
Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in
that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto,
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including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes
any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending
Directive” means Directive 2010/73/EU.
Spain
Each Dealer has acknowledged that the Notes have not been and will not be registered with the Spanish
Regulator (Comisión Nacional del Mercado de Valores). Accordingly, each of the Dealers has represented and
agreed that the Notes may only be offered in Spain in compliance with Law 24/1998, as amended, Royal Decree
1310/2005 and any regulation issued thereunder.
Brazil
Each Dealer has agreed that it has not offered or sold, and will not offer or sell, any Notes in Brazil, except in
compliance with applicable Brazilian laws or pursuant to an available exemption therefrom.
The Notes have not been and will not be registered with the CVM in Brazil for the purpose of their offering or
distribution therein or abroad. Subsequent trading of the Notes in private transactions is not subject to registration in
Brazil to the extent such trading does not qualify as a public offering or distribution. Documents relating to the
offering of the Notes, as well as information contained therein, may not be supplied to the general public in Brazil or
used in connection with any offer for the sale of the Notes to the general public in Brazil. Persons wishing to offer or
acquire the Notes within Brazil should consult with their own counsel as to the applicability of registration
requirements or any exemption therefrom.
Bahamas
Each Dealer has agreed that the Notes have not been offered and may not be offered, sold or delivered to
persons deemed to be resident in the Bahamas for exchange control purposes without obtaining the prior permission
of the Central Bank of the Bahamas.
The Cayman Islands
Each Dealer has agreed that it has not offered or sold, and will not offer or sell, any Notes to the public in the
Cayman Islands. Notes may be issued to ordinary non-resident and exempted companies of the Cayman Islands.
Each Dealer has agreed to comply with any direction of the Registrar of Companies in and for the Cayman
Islands prohibiting (a) the sale of Notes in the Cayman Islands or (b) any invitation in the Cayman Islands to
subscribe for the Notes.
Portugal
Each Dealer has represented and agreed that the Notes may not be offered or sold in Portugal except in
accordance with the requirements of the Portuguese Securities Code (Código de Valores Mobiliários as approved by
the Decree-Law 486/99 dated November 13, 1999) and the regulations governing the offer of securities issued
pursuant thereto. Neither a public offer for subscription of the Notes nor a public offer for the sale of the Notes shall
be promoted in Portugal.
Japan
The Notes have not been and will not be registered under the Securities and Exchange Law of Japan (the
“Securities and Exchange Law”). Accordingly, each of the Dealers has represented and agreed that it has not,
directly or indirectly, offered or sold and shall not, directly or indirectly, offer or sell any Notes in Japan or to a
resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in
compliance with, the Securities and Exchange Law and other relevant laws and regulations of Japan. As used in this
paragraph, “resident of Japan” means any person resident in Japan, including any corporation or other entity
organized under the laws of Japan.
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General
No action has been or will be taken in any jurisdiction that would permit a public offering of the Notes or the
possession, circulation or distribution of this information memorandum or any other material relating to the Issuer or
the Notes in any jurisdiction where action for that purpose is required. Accordingly, the Notes may not be offered or
sold, directly or indirectly, and neither this information memorandum nor any other offering material or
advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction,
except under circumstances that will result in compliance with any applicable rules and regulations of any such
country or jurisdiction.
Purchasers of the Notes may be required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the purchase price.
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TRANSFER RESTRICTIONS
Rule 144A Notes
Each prospective purchaser of Notes which are “restricted securities” within the meaning of Rule 144(a)(3)
under the Securities Act (“Restricted Notes”) offered in reliance on Rule 144A by accepting delivery of this
information memorandum will be deemed to have represented and agreed that such offeree acknowledges that this
information memorandum is personal to such offeree and does not constitute an offer to any other person or to the
public generally to subscribe for or otherwise acquire the Notes other than pursuant to Rule 144A or in offshore
transactions in accordance with Regulation S. Distribution of this information memorandum, or disclosure of any of
its contents to any person other than such offeree and those persons, if any, retained to advise such offeree with
respect thereto, is unauthorized, and any disclosure of any of its contents, without the prior written consent of the
Issuer, is prohibited.
Each purchaser of Restricted Notes offered and sold in reliance on Rule 144A will be deemed to have
represented and agreed as follows (terms used in this paragraph that are defined in Rule 144A or in Regulation S are
used herein as defined therein):
(1) The purchaser: (A) is a qualified institutional buyer; (B) is aware, and each beneficial holder of such
Restricted Notes has been advised, that the sale to it is being made in reliance on Rule 144A; and (C) is
acquiring such Notes for its own account or for the account of a qualified institutional buyer.
(2) The Restricted Notes are being offered only in a transaction not involving any public offering in the United
States within the meaning of the Securities Act, the Restricted Notes have not been and will not be
registered under the Securities Act, and, if in the future the purchaser decides to offer, resell, pledge or
otherwise transfer such Notes, such Notes may be offered, sold, pledged or otherwise transferred only:
(A) to a person who the seller reasonably believes is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A; (B) in an offshore transaction in
accordance with Rule 903 or Rule 904 of Regulation S; or (C) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with
any applicable securities laws of any State of the United States or any other jurisdiction.
(3) It understands that such Restricted Notes, unless the Issuer determines otherwise in compliance with
applicable law, will bear a legend to the following effect:
“THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933 (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY
AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN
ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE
HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR
(3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.”
It acknowledges that the Issuer, the Registrar, the Dealers and their affiliates, and others will rely upon the
truth and accuracy of the foregoing acknowledgements, representations and agreements. If it is acquiring
any Restricted Notes for the account of one or more QIBs it represents that it has sole investment discretion
with respect to each such account and that it has full power to make the foregoing acknowledgements,
representations and agreements on behalf of each such account.
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It understands that the Restricted Notes offered in reliance on Rule 144A will be represented by the DTC
Restricted Global Note. Before any interest in the DTC Restricted Global Note may be offered, sold,
pledged or otherwise transferred to a person who takes delivery in the form of an interest in the DTC
Unrestricted Global Note, it will be required to provide a Transfer Agent with a written certification (in the
form provided in the Agency Agreement) as to compliance with applicable securities laws.
(4) Either: (A) the purchaser is not, and is not acting on behalf of (and for so long as it holds the Notes (or any
interest therein) will not be, or be acting on behalf of): (a) an employee benefit plan subject to Title I of the
United States Employee Retirement Income Security Act of 1974, as amended, or ERISA; (b) a plan that is
subject to Section 4975 of the U. S. Internal Revenue Code of 1986, as amended, or the Code; (c) an entity
whose underlying assets are considered “plan assets” within the meaning of ERISA; or (d) a governmental,
church, non-U.S. or other plan which is subject to any federal, state, local, non-U.S. or other laws or
regulations that are substantially similar to the fiduciary responsibility and/or the prohibited transaction
provisions of ERISA and/or Section 4975 of the Code (“Similar Laws”) and/or laws or regulations that
provide that the assets of the Issuer could be deemed to include “plan assets” of such plan (each, an “Other
Plan Investor”), and no part of the assets used by it to purchase or hold the Notes or any interest therein
constitutes the assets of any employee benefit plan, plan or entity that is deemed to hold the assets of such
employee benefit plan, plan or Other Plan Investor; or (ii) the purchaser’s purchase and holding of the
Notes will not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975
of the Code, or, in the case of Other Plan Investors, will not result in a non-exempt violation of any Similar
Laws and will not subject the Issuer to any laws, rules, or regulations applicable to such Other Plan
Investor solely as a result of the investment in the Issuer by such Other Plan Investor; and (B) it will not
sell or otherwise transfer any such Note or interest to any person without first obtaining these same
foregoing deemed representations, warranties and covenants from that person.
Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A.
Regulation S Notes
Each purchaser of Notes outside the United States pursuant to Regulation S and each subsequent purchaser of
such Notes in resales prior to the expiration of the distribution compliance period, by accepting delivery of this
information memorandum and the Notes, will be deemed to have represented, agreed and acknowledged that:
(1) it is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (a) it is not a
U.S. person and it is located outside the United States (within the meaning of Regulation S); and (b) it is
not an affiliate of the Issuer or a person acting on behalf of such an affiliate;
(2) it understands that such Notes have not been and will not be registered under the Securities Act and that,
prior to the expiration of the distribution compliance period, it will not offer, sell, pledge or otherwise
transfer such Notes except: (a) in accordance with Rule 144A under the Securities Act to a person that it
and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or the
account of a QIB; or (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of
Regulation S, in each case in accordance with any applicable securities laws of any State of the United
States;
(3) it understands that the Notes offered in reliance on Regulation S will be represented by the DTC
Unrestricted Global Note. Prior to the expiration of the distribution compliance period, before any interest
in the DTC Restricted Global Note may be offered, sold, pledged or otherwise transferred to a person who
takes delivery in the form of an interest in the DTC Unrestricted Global Note, it will be required to provide
a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to
compliance with applicable securities laws;
(4) either: (A) the purchaser is not, and is not acting on behalf of (and for so long as it holds the Notes (or any
interest therein) will not be, or be acting on behalf of): (a) an employee benefit plan subject to Title I of the
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United States Employee Retirement Income Security Act of 1974, as amended, or ERISA; (b) a plan that is
subject to Section 4975 of the U. S. Internal Revenue Code of 1986, as amended, or the Code; or (c) an
entity whose underlying assets are considered “plan assets” within the meaning of ERISA; or (d) a
governmental, church, non-U.S. or other plan which is subject to any federal, state, local, non-U.S. or other
laws or regulations that are substantially similar to the fiduciary responsibility and/or the prohibited
transaction provisions of ERISA and/or Section 4975 of the Code (“Similar Laws”) and/or laws or
regulations that provide that the assets of the Issuer could be deemed to include “plan assets” of such plan
(each, an “Other Plan Investor”), and no part of the assets used by it to purchase or hold the Notes or any
interest therein constitutes the assets of any employee benefit plan, plan or entity that is deemed to hold the
assets of such employee benefit plan, plan or Other Plan Investor; or (ii) the purchaser’s purchase and
holding of the Notes will not result in a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code, or, in the case of Other Plan Investors, will not result in a non-exempt violation
of any Similar Laws and will not subject the Issuer to any laws, rules, or regulations applicable to such
Other Plan Investor solely as a result of the investment in the Issuer by such Other Plan Investor; and (B) it
will not sell or otherwise transfer any such Note or interest to any person without first obtaining these same
foregoing deemed representations, warranties and covenants from that person;
(5) it understands that such Notes, unless otherwise determined by the Issuer in accordance with applicable
law, will bear a legend to the following effect:
“THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933 (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY
OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND
INCLUDING THE LATER OF (i) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO
PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (ii) THE DATE
OF THE CLOSING OF THE ORIGINAL OFFERING.”; and
(6) the Issuer, the Registrar, the Dealers and their affiliates, and others will rely upon the truth and accuracy of
the foregoing acknowledgements, representations and agreements.
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TAXATION
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS AS TO THE TAX CONSEQUENCES OF PURCHASING THE NOTES, INCLUDING,
WITHOUT LIMITATION, THE TAX CONSEQUENCES OF THE RECEIPT OF INTEREST AND THE
SALE, REDEMPTION OR REPAYMENT OF THE NOTES.
Brazilian Tax Considerations
The following discussion is a summary of the Brazilian tax considerations relating to an investment in the Notes
by an individual, entity, trust or organization considered to be a resident or a person domiciled outside of Brazil for
tax purposes (a “Non-Resident Holder”). The discussion is based on the tax laws of Brazil as in effect on the date
hereof and is subject to any change in Brazilian law that may come into effect after such date. The information set
forth below is intended to be a general discussion only and does not address all possible tax consequences relating
to an investment in the Notes. Prospective purchasers should consult their tax advisers as to the specific tax
consequences of acquiring, holding and disposing of the Notes, in particular with regard to Notes having special
features such as Notes denominated in a foreign currency as to the holder and Notes subject to Currency Constraint,
Sovereign Event or Credit Event provisions.
Tax consequences in Brazil are different if the Notes are issued by us acting through our principal office in
Brazil (“Brazilian Issuer”) or issued through our Grand Cayman Branch (“Santander Cayman”).
Payments on Notes Issued by the Brazilian Issuer
Interest (including original issue discount) payable by the Brazilian Issuer to a Non-Resident Holder with
respect to the Notes is generally subject to withholding income tax at a rate of 15.0% or such other lower rate as
provided for in an applicable tax treaty between Brazil and another country. According to Normative Ruling 1,455 of
March 6, 2014 (“Normative Ruling 1,455/14”), in the event that a Non-Resident Holder is domiciled in a tax haven
jurisdiction (as defined by Brazilian tax laws from time to time), payments of interest (including original issue
discount) are also generally subject to withholding in respect of Brazilian income tax at the rate of 15.0%. However,
pursuant to article 8 of Law No. 9,779 at January 19, 1999, if the relevant average term of the Notes is of less than
96 months, the rate applicable to a Non-Resident Holder domiciled in a tax haven jurisdiction is 25.0% (article 691,
IX of Decree No. 3,000 at March 26, 1999 and article 1, IX of Law No. 9,481 at August 13, 1997). Accordingly,
there is a risk that tax authorities could seek to apply the rate of 25.0% in payments made to Non-Resident Holders
domiciled in tax haven jurisdictions.
According to article 26 of Law No. 10,833, enacted on December 29, 2003, capital gains realized on the
disposition of assets located in Brazil by a non-resident to another non-resident made outside Brazil are subject to
taxation in Brazil. Santander Brasil believes that, based on the fact that the Notes are issued abroad and, therefore,
will not fall within the definition of assets located in Brazil for purposes of Law No. 10,833, gains on the sale or
other disposition of the Notes made outside Brazil by a Non-Resident Holder, other than a branch or a subsidiary of
a Brazilian resident, to another non-Brazilian resident would not be subject to Brazilian taxes. Although, considering
the general scope of Law No. 10,833 and the absence of judicial guidance in respect thereof, Santander Brasil is
unable to predict whether such interpretation will ultimately prevail in the Brazilian courts.
Pursuant to Decree No. 6,306 at December 14, 2007 (Decree No. 6,306/07), as amended, foreign exchange
transactions related to interest, fees and commissions in respect to the Notes made by the Issuer are subject to IOF
(Tax on Financial Transactions). Under IOF regulations currently in force, the Ministry of Finance is empowered to
establish the applicable IOF rate. Since January, 2008, the IOF rate has been set at 0.38% for several foreign
exchange transactions. According to section 15-B, XIX of Decree No. 6,306/07, the liquidation of exchange
transactions in connection with foreign financings or loans for the flow of funds both into and out of Brazil, related
to funds raised as from October 23, 2008, are subject to IOF over exchange at a 0% rate. Pursuant to Decree
8,263/14, the rate is 6.0% for the conversion of foreign loans with a term shorter than 181 days into Brazilian
currency, effective from June 4, 2014. Such IOF rate can be increased at any time to a rate up to 25%.
Furthermore, gains realized by a Non-Resident Holder from the sale or other disposition of the Notes to a
Brazilian resident are subject to Brazilian income tax at a rate of 15.0% or 25.0%, if the Non-Resident Holder is
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domiciled in a tax haven jurisdiction (as defined by Brazilian tax laws from time to time). Additionally, Law No.
11,727 created the concept of a privileged tax regime. Pursuant to Law No. 11,727, a jurisdiction will be considered
a privileged tax regime if it (i) does not tax income or taxes income at a maximum rate lower than 20.0%; (ii) grants
tax advantages to non-resident entities or individuals (a) without the need to carry out substantial economic activity
in the country or said territory or (b) conditioned upon the non-exercise of substantial economic activity in the
country or said territory; (iii) does not tax proceeds generated abroad or taxes such proceeds at a maximum rate
lower than 17.0%; or (iv) restricts the disclosure of information regarding assets and ownership rights or restricts
disclosure about economic transactions. The concept of “privileged tax regime” should apply only for the purposes
of Brazilian transfer pricing rules and thin capitalization rules, and, in principle, does not impose a higher rate of
withholding tax on income and capital gains earned by a Non-Resident-Holder. Please note that the jurisdictions
currently deemed as privileged tax regimes by the Brazilian tax authorities are listed on Normative Ruling No. 1,037
at June 4, 2010.
Generally, there are no stamp, transfer or other similar taxes in Brazil with respect to the transfer, assignment or
sale of the Notes outside Brazil. Under Brazilian law, the transfer of a Note by gift made by a Noteholder (whether
or not a Non-Resident Holder) and involving a resident of Brazil may be subject to Gift Tax (Imposto Sobre
Transmissão Causa Mortis e Doação de Quaisquer Bens ou Direitos) imposed on the donee by the state in which
such Brazilian resident resides.
Payments on Notes Issued Through Santander Cayman
If payment of income is made to a Non-Resident Holder by Santander Cayman with respect to Notes issued
through Santander Cayman, based on the fact that Santander Cayman is considered to be domiciled outside of Brazil
for tax purposes, such payment will not generally be subject to withholding or deduction with respect to Brazilian
income tax or any other taxes, duties, assessments or governmental charges in Brazil, provided that such payments
are made with resources held by such entity outside of Brazil.
Foreign Currency Constraint, Sovereign Event and Credit Event Provisions
Currency Constraint, Sovereign Events or Credit Events are exceptional circumstances. If any such events
materialize, the taxation commented above may not be applicable in a situation where constitutional principles are
not observed. Noteholders are encouraged to consult with their legal and tax advisors concerning the tax
implications of such events, if and when materialized.
Cayman Islands Tax Considerations
The following summary is based upon the tax laws of the Cayman Islands as in effect on the date hereof and,
except as provided below, is subject to any change in Cayman Islands law that may come into effect after such date.
Payments in respect of the Notes will not be subject to taxation in the Cayman Islands and no withholding will
be required on such payments to any holder of a Note, and gains derived from the sale of Notes will not be subject to
Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital
gains tax and no estate duty, inheritance or gift tax.
The holder of any Note (or the legal personal representative of such holder) whose Note is executed or
thereafter brought into the Cayman Islands may in certain circumstances be liable to pay stamp duty imposed under
the laws of the Cayman Islands in respect of such Note.
United Kingdom and Cayman Islands Information Sharing Agreement
Holders of Notes who are resident in the United Kingdom for tax purposes should be aware that on November
5, 2013 the United Kingdom signed an intergovernmental automatic information exchange agreement with the
Cayman Islands, modeled on the intergovernmental agreement between the United Kingdom and the United States
that implements the United States FATCA legislation, the provisions of which have been implemented in the
Cayman Islands pursuant to, in particular, The Tax Information Authority (International Tax Compliance) (United
Kingdom) Regulations, 2014. Pursuant to these arrangements with the United Kingdom, the Cayman Islands will
require the Issuer to identify any direct or indirect United Kingdom tax resident account holders (including
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debtholders and equity holders) of the Issuer and obtain and provide to the Cayman Islands tax information authority
certain information about such United Kingdom tax resident account holders. Such information will then be
automatically exchanged by the Cayman Islands tax information authority with the United Kingdom tax authorities.
A holder of Notes that is resident in the United Kingdom for tax purposes or is an entity that is identified as having
one or more controlling persons that is resident in the United Kingdom for tax purposes will generally be required to
provide to the Issuer, or any agent on its behalf, information which identifies such United Kingdom tax resident
persons and the extent of their respective interests in the Issuer. Holders who may be affected should consult their
own tax advisers regarding the possible implications of these rules.
Certain Material U.S. Federal Income Tax Considerations
The following discussion is a summary of certain material U.S. federal income tax consequences of the
acquisition, ownership and disposition of Notes. This summary does not address the material U.S. federal income
tax consequences of every type of Note which may be issued under the Programme, and the relevant Final Terms
will contain additional or modified disclosure concerning the material U.S. federal income tax consequences
relevant to each such type of Note as appropriate. This summary assumes the Notes are properly treated as debt for
U.S. federal income tax purposes. This summary deals only with Noteholders that purchase the Notes at original
issuance at their initial “issue price” and that will hold the Notes as capital assets (generally, property held for
investment) except for the discussion below under “FATCA Compliance,” which applies to all Noteholders.
The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual
tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Notes by
particular investors, and does not address state, local or non-U.S. tax laws, or any aspect of U.S. federal tax law
other than income taxation (such as the estate and gift tax or the Medicare tax on net investment income). In
particular, this summary does not discuss all of the tax considerations that may be relevant to certain types of
investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions,
insurance companies, investors liable for the alternative minimum tax, regulated investment companies, real estate
investment trusts, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations,
partnerships and other pass-through entities, dealers or traders in securities or currencies, investors that will hold
the Notes as part of straddles, hedging transactions, conversion transactions or other integrated transactions for
U.S. federal income tax purposes or U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar). Moreover, this summary deals only with Notes with a term of 30 years or less and does not discuss
Bearer Notes. The U.S. federal income tax consequences of owning Notes with a longer term will be discussed in the
applicable Final Terms. In general, U.S. federal income tax law imposes significant limitations on U.S. Holders of
Bearer Notes (which can include taxation of gains recognized from the sale, retirement or other disposition of
Bearer Notes at the rates applicable to ordinary income (rather than capital gain), and the disallowance of a
deduction for losses recognized on such a disposition of Bearer Notes). U.S. Holders should consult their tax
advisors regarding the U.S. federal income and other tax consequences of the acquisition, ownership and
disposition of Bearer Notes.
As used herein, the term “U.S. Holder” means a beneficial owner of Notes that is, for U.S. federal income tax
purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity treated
as a corporation for U.S. federal income tax purposes created or organized in the United States or under the laws of
the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to
U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or if the trust has a valid election in place to be treated as a domestic
trust for U.S. federal income tax purposes.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of Notes that is not a U.S. Holder or a
partnership (or other entity or arrangement taxable as a partnership for U.S. federal income tax purposes).
The U.S. federal income tax treatment of a partner in a partnership (or other entity or arrangement taxable as a
partnership for U.S. federal income tax purposes) that holds Notes will depend on the status of the partner and the
activities of the partnership. Partners or partnerships should consult their tax advisors concerning the U.S. federal
income tax consequences of the acquisition, ownership and disposition of the Notes by the partnership.
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This summary is based on the tax laws of the United States including the Internal Revenue Code of 1986, as
amended (the “Code”), its legislative history, existing and proposed Treasury regulations thereunder, published
rulings of the U.S. Internal Revenue Service (“IRS”) and court decisions, all as of the date hereof and all of which
are subject to change at any time, possibly with retroactive effect.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR
GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN
INDEPENDENT TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.
Payments of Stated Interest
General
Stated interest on a Note, whether payable in U.S. dollars or a currency other than U.S. dollars (a “foreign
currency”), that is “qualified stated interest” (as defined below under “—Original Issue Discount—General”)
generally will be taxable to a U.S. Holder as ordinary income at the time that such interest is received or accrued,
depending on the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes. Interest paid by
the Issuer on the Notes and original issue discount (“OID”), if any, accrued with respect to the Notes (as described
below under “—Original Issue Discount—General”) generally will constitute income from sources outside the
United States. Prospective purchasers should consult their tax advisors concerning the applicability of the foreign
tax credit and source of income rules to income attributable to the Notes.
Effect of Brazilian Withholding Taxes
As discussed in “Taxation — Brazilian Tax Considerations,” payments of interest in respect of the Notes may be
subject to Brazilian withholding taxes. In such circumstances, discussed under “Terms and Conditions of the
Notes—Taxation,” the Issuer may become liable for the payment of additional amounts to U.S. Holders so that
U.S. Holders receive the same amounts they would have received had no Brazilian withholding taxes been imposed.
For U.S. federal income tax purposes, U.S. Holders would be treated as having actually received the amount of
Brazilian taxes withheld by the Issuer (as well as the additional amounts paid by the Issuer in respect thereof) with
respect to a Note, and as then having actually paid over the withheld taxes to the Brazilian taxing authorities. As a
result, the amount of interest income included in gross income for U.S. federal income tax purposes by a
U.S. Holder with respect to a payment of interest may be greater than the amount of cash actually received (or
receivable) by the U.S. Holder from the Issuer with respect to the payment.
Subject to certain limitations, a U.S. Holder generally will be entitled to a credit against its U.S. federal income
tax liability for Brazilian income taxes withheld by the Issuer. The limitation on foreign income taxes eligible for the
U.S. foreign tax credit is calculated separately with respect to specific classes of income. For this purpose, payments
of interest generally will constitute “passive category income.” Alternatively, a U.S. Holder may elect to deduct such
Brazilian income taxes when computing its U.S. federal taxable income, provided that such U.S. Holder elects to
deduct (rather than credit) all foreign income taxes paid or accrued for the taxable year. In certain circumstances, a
U.S. Holder may be unable to claim foreign tax credits (and may instead be allowed deductions) for foreign income
taxes imposed on a payment of interest if the U.S. Holder has not held the Notes for at least 16 days during the 31day period beginning on the date that is 15 days before the date on which the right to receive the payment arises.
Since a U.S. Holder may be required to include OID on the Notes in its gross income in advance of any withholding
of Brazilian income taxes from payments attributable to the OID (which may not occur until the Note is repaid or
redeemed), a U.S. Holder may not be entitled to a credit or deduction for these Brazilian income taxes in the year the
OID is included in the U.S. Holder’s gross income, and may be limited in its ability to credit or deduct in full the
Brazilian income taxes in the year those taxes are actually withheld by the Issuer. Prospective purchasers should
consult their tax advisors concerning the U.S. foreign tax credit implications of the payment of these Brazilian
income taxes.
Original Issue Discount
General
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A Note, other than a Note with a term of one year or less (a “Short-Term Note”), will be treated as issued with
OID (a “Discount Note”) for U.S. federal income tax purposes if the excess of the Note’s “stated redemption price at
maturity” over its issue price is equal to or more than a de minimis amount, which generally is 0.25% of the Note’s
stated redemption price at maturity multiplied by the number of complete years to its maturity. An obligation that
provides for the payment of amounts other than qualified stated interest before maturity (an “installment obligation”)
will be treated as a Discount Note if the excess of the Note’s stated redemption price at maturity over its issue price
is equal to or more than 0.25% of the Note’s stated redemption price at maturity multiplied by the weighted average
maturity of the Note. A Note’s weighted average maturity is the sum of the following amounts determined for each
payment on a Note (other than a payment of qualified stated interest): (i) the number of complete years from the
issue date until the payment is made multiplied by (ii) a fraction, the numerator of which is the amount of the
payment and the denominator of which is the Note’s stated redemption price at maturity. Generally, the issue price of
a Note will be the first price at which a substantial amount of Notes included in the issue of which the Note is a part
is sold to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers. The stated redemption price at maturity of a Note is the total of all
payments provided by the Note that are not payments of “qualified stated interest.” For this purpose, a qualified
stated interest payment is generally any one of a series of stated interest payments on a Note that is unconditionally
payable in cash or property, other than additional debt instruments of the issuer, at least annually at a single fixed
rate (with certain exceptions for lower rates paid during some periods), or a variable rate (in the circumstances
described below under “—Variable Interest Rate Notes”). Solely for the purposes of determining whether a Note has
OID, the Issuer will be deemed to exercise any option that has the effect of decreasing the yield on the Note, and the
U.S. Holder will be deemed to exercise any option that has the effect of increasing the yield on the Note.
U.S. Holders of Discount Notes must accrue OID into gross income calculated on a constant-yield basis before
the receipt of cash attributable to the OID, and generally will have to include in gross income increasingly greater
amounts of OID over the life of the Discount Notes. The amount of OID includible in gross income by a
U.S. Holder of a Discount Note is the sum of the daily portions of OID with respect to the Discount Note for each
day during the taxable year or portion of the taxable year on which the U.S. Holder holds the Discount Note
(“accrued OID”). The daily portion is determined by allocating to each day in any “accrual period” a pro rata portion
of the OID allocable to that accrual period. Accrual periods with respect to a Note may be of any length selected by
the U.S. Holder and may vary in length over the term of the Note as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or principal on the Note occurs on either the final or first day of an
accrual period. The amount of OID allocable to an accrual period equals the excess, if any, of (a) the product of the
Discount Note’s adjusted issue price at the beginning of the accrual period and the Discount Note’s yield to maturity
(determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of
the accrual period) over (b) the sum of the payments of qualified stated interest on the Note allocable to the accrual
period. The “adjusted issue price” of a Discount Note at the beginning of any accrual period is the issue price of the
Note increased by (x) the amount of accrued OID for each prior accrual period and decreased by (y) the amount of
any payments previously made on the Note that were not qualified stated interest payments.
Acquisition Premium
A U.S. Holder that purchases a Discount Note for an amount that is less than or equal to the sum of all amounts
payable on the Note after the purchase date, other than payments of qualified stated interest, but that exceeds the
adjusted issue price of the Discount Note (any such excess being “acquisition premium”), and does not make the
election discussed below under “—Election to Treat All Interest as Original Issue Discount,” is permitted to reduce
the daily portions of OID by a fraction, the numerator of which is the excess of the U.S. Holder’s adjusted tax basis
in the Discount Note immediately after its purchase over the Discount Note’s adjusted issue price, and the
denominator of which is the excess of the sum of all amounts payable on the Discount Note after the purchase date,
other than payments of qualified stated interest, over the Discount Note’s adjusted issue price.
Market Discount
A Note, other than a Short-Term Note, generally will be treated as purchased at a market discount (a “Market
Discount Note”) if the Note’s stated redemption price at maturity or, in the case of a Discount Note, the Note’s
“revised issue price,” exceeds the amount for which the U.S. Holder purchased the Note by at least 0.25% of the
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Note’s stated redemption price at maturity or revised issue price, respectively, multiplied by the number of complete
years to the Note’s maturity (or, in the case of a Note that is an installment obligation, the Note’s weighted average
maturity). For this purpose, the “revised issue price” of a Note generally equals its issue price, increased by the
amount of any OID that has previously accrued on the Note and decreased by the amount of any payments
previously made on the Note that were not qualified stated interest payments.
In general, any gain recognized on the maturity or disposition of a Market Discount Note (including any
payment on a Note that is not qualified stated interest), and possibly gain realized in certain non-recognition
transactions, will be taxable as ordinary income to the extent that the gain does not exceed the accrued market
discount on the Note. Alternatively, a U.S. Holder of a Market Discount Note may elect to accrue market discount
into gross income currently over the life of the Note. This election shall apply to all debt instruments with market
discount acquired by the electing U.S. Holder on or after the first day of the first taxable year to which the election
applies, and may not be revoked without the consent of the IRS. A U.S. Holder of a Market Discount Note that does
not elect to include market discount in gross income currently will generally be required to defer deductions for
interest on borrowing incurred to purchase or carry a Market Discount Note that is in excess of the interest and OID
on the Note includible in the U.S. Holder’s gross income, to the extent that this excess interest expense does not
exceed the portion of the market discount allocable to the days on which the Market Discount Note was held by the
U.S. Holder.
Under current law, market discount will accrue on a straight-line basis unless the U.S. Holder elects to accrue
the market discount on a constant-yield method. This election applies only to the Market Discount Note with respect
to which it is made and is irrevocable without the consent of the IRS.
Notes Purchased at a Premium
A U.S. Holder that purchases a Note for an amount in excess of its stated principal amount, or for a Discount
Note, its stated redemption price at maturity, may elect to treat the excess as “amortizable bond premium,” in which
case the amount required to be included in the U.S. Holder’s gross income each year with respect to interest on the
Note will be reduced by the amount of amortizable bond premium allocable (based on the Note’s yield to maturity)
to that year. Any election to amortize bond premium shall apply to all bonds (other than bonds the interest on which
is excludable from gross income for U.S. federal income tax purposes) held by the U.S. Holder at the beginning of
the first taxable year to which the election applies or thereafter acquired by the U.S. Holder, and may not be revoked
without the consent of the IRS. Regardless of whether the election to amortize bond premium is made, a U.S. Holder
generally will not be required to include OID in gross income for any Note acquired at a premium.
Election to Treat All Interest as Original Issue Discount
A U.S. Holder may elect to include in gross income all interest that accrues on a Note using the constant-yield
method described above under “—Original Issue Discount—General,” with certain modifications. For purposes of
this election, interest includes stated interest, OID, de minimis OID, market discount, de minimis market discount
and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. This election generally
will apply only to the Note with respect to which the election is made and may not be revoked without the consent
of the IRS. If the election to apply the constant-yield method to all interest on a Note is made with respect to a
Market Discount Note, the electing U.S. Holder will be treated as having made the election discussed above under
“—Market Discount” to accrue market discount into gross income currently for all debt instruments with market
discount held or thereafter acquired. U.S. Holders should consult their tax advisors concerning the propriety and
consequences of making this election.
Variable Interest Rate Notes
Notes that provide for the payment of interest at certain variable rates (“Variable Interest Rate Notes”) may
constitute “variable rate debt instruments” under the Treasury regulations governing accrual of OID. A Variable
Interest Rate Note will qualify as a “variable rate debt instrument” if, among other requirements, (a) its issue price
does not exceed the total non-contingent principal payments due under the Variable Interest Rate Note by more than
a specified de minimis amount and (b) it provides for stated interest, paid or compounded at least annually, at (i) one
or more qualified floating rates, (ii) a single fixed rate and one or more qualified floating rates, (iii) a single
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objective rate or (iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate. A Variable
Interest Rate Note that does not meet the requirements for qualification as a “variable rate debt instrument” under
the Treasury regulations generally will be treated as a “contingent payment debt instrument” for U.S. federal income
tax purposes. See “—Contingent Payment Debt Instruments” below.
A “qualified floating rate” is any variable rate where variations in the value of the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the
Variable Interest Rate Note is denominated. A fixed multiple of a qualified floating rate will constitute a qualified
floating rate only if the multiple is greater than 0.65 but not more than 1.35. A variable rate equal to the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not more than 1.35, increased or decreased by
a fixed rate, will also constitute a qualified floating rate. In addition, two or more qualified floating rates that can
reasonably be expected to have approximately the same values throughout the term of the Variable Interest Rate
Note (e.g., two or more qualified floating rates with values within 25 basis points of each other as determined on the
Variable Interest Rate Note’s issue date) will be treated as a single qualified floating rate. Notwithstanding the
foregoing, a variable rate that would otherwise constitute a qualified floating rate but which is subject to one or more
restrictions such as a maximum numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a floor)
may, under certain circumstances, fail to be treated as a qualified floating rate unless the cap or floor is fixed
throughout the term of the Note or is not reasonably expected to affect the yield significantly.
An “objective rate” is a rate that is not itself a qualified floating rate but which is determined using a single
fixed formula and which is based on objective financial or economic information (e.g., one or more qualified
floating rates or the yield of actively traded personal property). A rate will not qualify as an objective rate if it is
based on information that is within the control of the Issuer (or a related party) or that is unique to the circumstances
of the Issuer (or a related party), such as dividends, profits or the value of the Issuer’s stock (although a rate does not
fail to be an objective rate merely because it is based on the credit quality of the Issuer). Other variable interest rates
may be treated as objective rates if so designated by the IRS in the future. Despite the foregoing, a variable rate of
interest on a Variable Interest Rate Note will not constitute an objective rate if it is reasonably expected that the
average value of the rate during the first half of the Variable Interest Rate Note’s term will be either significantly less
than or significantly greater than the average value of the rate during the final half of the Variable Interest Rate
Note’s term. A “qualified inverse floating rate” is any objective rate where the rate is equal to a fixed rate minus a
qualified floating rate, as long as variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. If a Variable Interest Rate Note provides for stated interest
at a fixed rate for an initial period of one year or less followed by a variable rate that is either a qualified floating
rate or an objective rate for a subsequent period and if the variable rate on the Variable Interest Rate Note’s issue
date is intended to approximate the fixed rate (e.g., the value of the variable rate on the issue date does not differ
from the value of the fixed rate by more than 25 basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the case may be.
A qualified floating rate or objective rate in effect at any time during the term of the instrument must be set at a
“current value” of that rate. A “current value” of a rate is the value of the rate on any day that is no earlier than three
months prior to the first day on which that value is in effect and no later than one year following that first day.
If a Variable Interest Rate Note that provides for stated interest at either a single qualified floating rate or a
single objective rate throughout the term thereof qualifies as a “variable rate debt instrument,” then any stated
interest on the Note which is unconditionally payable in cash or property (other than debt instruments of the Issuer)
at least annually will constitute qualified stated interest and will be taxed accordingly. See “––Payments of Stated
Interest” above. Thus, a Variable Interest Rate Note that provides for stated interest at either a single qualified
floating rate or a single objective rate throughout the term thereof and that qualifies as a “variable rate debt
instrument” will generally not be treated as having been issued with OID unless the Variable Interest Rate Note is
issued at a “true” discount (i.e., at a price below the Note’s stated principal amount) in excess of a specified de
minimis amount. OID on such a Variable Interest Rate Note arising from “true” discount generally is allocated to an
accrual period using the constant yield method described above by assuming that the variable rate is a fixed rate
equal to: (i) in the case of a qualified floating rate or qualified inverse floating rate, the value, on the issue date, of
the qualified floating rate or qualified inverse floating rate; or (ii) in the case of an objective rate (other than a
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qualified inverse floating rate), a fixed rate that reflects the yield that is reasonably expected for the Variable Interest
Rate Note.
In general, any other Variable Interest Rate Note that qualifies as a “variable rate debt instrument” will be
converted into an “equivalent fixed rate debt instrument” for purposes of determining the amount and accrual of OID
and qualified stated interest on the Variable Interest Rate Note. Such a Variable Interest Rate Note must be converted
into an equivalent fixed rate debt instrument by substituting any qualified floating rate or qualified inverse floating
rate provided under the terms of the Variable Interest Rate Note with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as at the Variable Interest Rate Note’s issue date.
Any objective rate (other than a qualified inverse floating rate) provided under the terms of the Variable Interest Rate
Note is converted into a fixed rate that reflects the yield that is reasonably expected for the Variable Interest Rate
Note. In the case of a Variable Interest Rate Note that qualifies as a “variable rate debt instrument” and provides for
stated interest at a fixed rate in addition to either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a qualified inverse floating rate, if the
Variable Interest Rate Note provides for a qualified inverse floating rate). Under these circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate must be such that the fair market value of
the Variable Interest Rate Note as at the Variable Interest Rate Note’s issue date is approximately the same as the fair
market value of an otherwise identical debt instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the fixed rate into either a qualified floating
rate or a qualified inverse floating rate, the Variable Interest Rate Note is converted into an equivalent fixed rate debt
instrument in the manner described above.
Once the Variable Interest Rate Note is converted into an equivalent fixed rate debt instrument pursuant to the
foregoing rules, the amount of OID and qualified stated interest, if any, are determined for the equivalent fixed rate
debt instrument by applying the general OID rules to the equivalent fixed rate debt instrument, and a U.S. Holder of
the Variable Interest Rate Note will account for the OID and qualified stated interest as if the U.S. Holder held the
equivalent fixed rate debt instrument. In each accrual period, appropriate adjustments will be made to the amount of
qualified stated interest or OID assumed to have been accrued or paid with respect to the equivalent fixed rate debt
instrument in the event that these amounts differ from the actual amount of interest accrued or paid on the Variable
Interest Rate Note during the accrual period.
Short-Term Notes
In general, an individual or other cash basis U.S. Holder of a Short-Term Note is not required to accrue OID (as
specially defined below for the purposes of this paragraph) for U.S. federal income tax purposes unless it elects to
do so (but may be required to include any stated interest in gross income as such interest is received). Accrual basis
U.S. Holders and certain other U.S. Holders are required to accrue OID on Short-Term Notes on a straight-line basis
or, if the U.S. Holder so elects, using a constant-yield method (based on daily compounding). In the case of a
U.S. Holder not required and not electing to include OID in gross income currently, any gain realized on the sale,
exchange or retirement of the Short-Term Note will be ordinary income to the extent of the OID accrued on a
straight-line basis (unless an election is made to accrue the OID under the constant-yield method) through the date
of sale, exchange or retirement. U.S. Holders who are not required and do not elect to accrue OID on Short-Term
Notes will be required to defer deductions for interest on borrowing allocable to Short-Term Notes in an amount not
exceeding the deferred income until the deferred income is realized.
For purposes of determining the amount of OID subject to these rules, all interest payments on a Short-Term
Note are included in the Short-Term Note’s stated redemption price at maturity. A U.S. Holder may elect to
determine OID on a Short-Term Note as if the Short-Term Note had been originally issued to the U.S. Holder at the
U.S. Holder’s purchase price for the Short-Term Note. This election shall apply to all obligations with a maturity of
one year or less acquired by the U.S. Holder on or after the first day of the first taxable year to which the election
applies, and may not be revoked without the consent of the IRS.
Fungible Issue
The Issuer may, without the consent of the Holders of outstanding Notes, issue additional Notes with identical
terms. These additional Notes, even if treated for non-tax purposes as part of the same series as the original Notes, in
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some cases may be treated as a separate issue for U.S. federal income tax purposes. In such a case, the additional
Notes may be considered to have been issued with OID even if the original Notes had no OID, or the additional
Notes may have a greater amount of OID than the original Notes. These differences may affect the market value of
the original Notes if the additional Notes are not otherwise distinguishable from the original Notes.
Contingent Payment Debt Instruments
As discussed above, Notes that provide for the payment of interest at floating rates, but fail to qualify as
variable rate debt instruments under applicable Treasury regulations, generally will be treated as “contingent
payment debt instruments” for U.S. federal income tax purposes. Additionally, Notes that provide for different
payment schedules based upon the occurrence or non-occurrence of certain contingencies may be characterized for
U.S. federal income tax purposes as contingent payment debt instruments. Very generally, for a Note that is treated
for U.S. federal income tax purposes as a contingent payment debt instrument, applicable Treasury regulations will
require a U.S. Holder, regardless of its regular method of tax accounting: (i) to accrue interest income (as OID) over
the term of the Note based upon a “comparable yield” for a debt instrument without any contingent payments but
otherwise with terms and conditions comparable to the Note; and (ii) to periodically adjust its interest income
accruals on the Note for differences between the actual contingent payments received in respect of the Note and the
contingent payments reflected on a “projected payment schedule” prepared for the Note as at its issue date.
Additionally, any gain upon a sale or other taxable disposition of such a Note generally will be taxable to a
U.S. Holder as ordinary interest income; any loss will be ordinary loss to the extent of the interest previously
included in gross income by the U.S. Holder with respect to the Note, and thereafter, capital loss. The comparable
yield and projected payment schedule are used to determine accruals of interest for tax purposes only, and are
not to be regarded as predictions with respect to the actual yield or payments for a Note. In the event that the
Issuer issues Notes that constitute contingent payment debt instruments, the applicable Final Terms will further
describe the material U.S. federal income tax consequences of the acquisition, ownership and disposition of such
Notes for U.S. Holders. Prospective U.S. Holders of Notes should consult their own tax advisors regarding the
application of the Treasury regulations governing contingent debt instruments.
Sale, Retirement or Other Taxable Disposition of Notes
A U.S. Holder’s adjusted tax basis in a Note generally will be its cost: (i) increased by the amount of any OID or
market discount included in the U.S. Holder’s gross income with respect to the Note (including any amounts of de
minimis OID and de minimis market discount included in the U.S. Holder’s income as a result of an election to treat
all interest as OID, as discussed above); and (ii) reduced by the amount of any payments received in respect to the
Note that are not qualified stated interest payments and the amount of any amortizable bond premium applied to
reduce interest on the Note. A U.S. Holder generally will recognize gain or loss on the sale, retirement or other
taxable disposition of a Note equal to the difference between the amount realized on the sale, retirement or other
taxable disposition and the adjusted tax basis of the Note. The amount realized does not include any amount
attributable to accrued but unpaid qualified stated interest, which will be taxable as interest income to the extent not
previously included in gross income by the U.S. holder. Except as described above under “—Market Discount,” “—
Short-Term Notes” or “—Contingent Payment Debt Instruments” and except to the extent attributable to changes in
exchange rates (as discussed below under “—Foreign Currency Notes”), gain or loss recognized on the sale,
retirement or other taxable disposition of a Note will be capital gain or loss and will be long-term capital gain or loss
if the U.S. Holder’s holding period in the Notes exceeds one year. For certain non-corporate U.S. Holders, under
current law, long-term capital gains are taxed at preferential rates. The deductibility of capital losses is subject to
limitations under the Code.
Gain or loss realized by a U.S. Holder on the sale, retirement or other taxable disposition of a Note generally
will be treated as derived from U.S. sources for purposes of the U.S. foreign tax credit. Accordingly, if any gain
from the sale or exchange of a Note is subject to Brazilian or other foreign income tax, a U.S. Holder may not be
able to credit such taxes against its U.S. federal income tax liability, because such gain generally would be
U.S. source income, unless such tax can be credited (subject to applicable limitations) against tax due on other
income treated as derived from foreign sources. Alternatively, a U.S. Holder may deduct any foreign income taxes,
provided that the U.S. Holder does not credit any foreign income taxes paid or accrued in the same taxable year.
Foreign Currency Notes
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Interest
If a payment of qualified stated interest is denominated in, or determined by reference to, a single foreign
currency, the amount of income recognized by a cash basis U.S. Holder will be the U.S. dollar value of the interest
payment, based on the “spot” rate in effect on the date of receipt, regardless of whether the payment is in fact
converted into U.S. dollars. Under applicable Treasury regulations, the “spot rate” generally means a rate that
reflects a fair market rate of exchange available to the public for currency under a “spot contract” in a free market
and involving representative amounts. A “spot contract” is a contract to buy or sell a currency on the nearest
conventional settlement date, generally two business days following the date of the execution of the contract. If such
a spot rate cannot be demonstrated, the IRS has the authority to determine the spot rate. If the amount of qualified
stated interest payable in U.S. dollars under the Notes is determined by reference to the U.S. dollar value of a
foreign currency at periodic intervals over the term of the Notes, cash basis U.S. Holders will not realize any
U.S. source exchange gain or loss in respect of interest payments except to the extent that the exchange rate used to
determine the amount of interest payable in U.S. dollars with respect to an interest payment differs from the “spot
rate” in effect on the date such payment is received.
An accrual basis U.S. Holder may determine the amount of income recognized with respect to a qualified stated
interest payment denominated in, or determined by reference to, a single foreign currency in accordance with either
of two methods. Under the first method, the amount of income accrued will be based on the average exchange rate
in effect during the interest accrual period (or, in the case of an accrual period that spans two taxable years of a
U.S. Holder, the part of the period within the taxable year). Under the second method, the U.S. Holder may elect to
determine the amount of income accrued on the basis of the spot rate in effect on the last day of the accrual period
(or, in the case of an accrual period that spans two taxable years, the spot rate in effect on the last day of the part of
the period within the taxable year). Additionally, if a payment of qualified stated interest is actually received within
five business days of the last day of the accrual period, an electing accrual basis U.S. Holder may instead translate
the accrued interest into U.S. dollars at the spot rate in effect on the day of actual receipt. Any such election will
apply to all debt instruments held by the U.S. Holder at the beginning of the first taxable year to which the election
applies or thereafter acquired by the U.S. Holder, and may not be revoked without the consent of the IRS.
Upon receipt of a qualified stated interest payment (including a payment attributable to accrued but unpaid
qualified stated interest upon the sale or retirement of a Note) denominated in, or determined by reference to, a
single foreign currency, the accrual basis U.S. Holder may recognize U.S. source exchange gain or loss (taxable as
ordinary income or loss) equal to the difference between the amount received (translated into U.S. dollars at the spot
rate on the date of receipt) and the amount previously accrued, regardless of whether the payment is in fact
converted into U.S. dollars. If the amount of a qualified stated interest payable in U.S. dollars under the Notes is
determined by reference to the U.S. dollar value of a single foreign currency at periodic intervals over the term of
the Notes, an accrual basis U.S. Holder may recognize U.S. source exchange gain or loss equal to the difference
between the U.S. dollar value of the foreign currency on the date the interest is received determined based on the
spot rate in effect on the date the interest is received (which may be different than the exchange rate used to
determine the amount of interest payable in U.S. dollars) and the amount previously accrued.
OID
OID for each accrual period on a Discount Note that is denominated in, or determined by reference to, a single
foreign currency will be determined in the foreign currency and then translated into U.S. dollars in the same manner
as qualified stated interest accrued by an accrual basis U.S. Holder, as described above. Upon receipt of an amount
attributable to OID (whether in connection with a payment on the Note or a sale or retirement of the Note), a
U.S. Holder may recognize U.S. source exchange gain or loss (taxable as ordinary income or loss) equal to the
difference between the amount received (translated into U.S. dollars at the spot rate on the date of receipt) and the
amount previously accrued, regardless of whether the payment is in fact converted into U.S. dollars.
Market Discount
Market discount on a Note that is denominated in, or determined by reference to, a single foreign currency, will
be accrued in the foreign currency. If the U.S. Holder elects to accrue market discount into gross income currently,
the accrued market discount will be translated into U.S. dollars at the average exchange rate for the accrual period
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(or portion thereof within the U.S. Holder’s taxable year). Upon the receipt of an amount attributable to accrued
market discount, the U.S. Holder may recognize U.S. source exchange gain or loss (which will be taxable as
ordinary income or loss) determined in the same manner as for accrued qualified stated interest or OID. A
U.S. Holder that does not elect to include market discount in gross income currently will recognize, upon the
disposition or maturity of the Note, the U.S. dollar value of the amount accrued, calculated at the spot rate on that
date, and no part of this accrued market discount will be treated as exchange gain or loss.
Bond Premium
Bond premium (including acquisition premium) on a Note that is denominated in, or determined by reference
to, a single foreign currency will be computed in units of the foreign currency, and any such bond premium that is
taken into account currently will reduce interest income in units of the foreign currency. On the date bond premium
offsets interest income, a U.S. Holder may recognize U.S. source exchange gain or loss (taxable as ordinary income
or loss) measured by the difference between the spot rate in effect on that date and on the date the Notes were
acquired by the U.S. Holder. A U.S. Holder that does not elect to take bond premium (other than acquisition
premium) into account will recognize a loss when the Notes mature.
Sale, Retirement or Other Taxable Disposition of a Note
As discussed above under “—Sale, Retirement or Other Taxable Disposition of a Note,” a U.S. Holder generally
will recognize gain or loss on the sale, retirement or other taxable disposition of a Note equal to the difference
between the amount realized on the sale, retirement or other taxable disposition and the adjusted tax basis of the
Note. A U.S. Holder’s initial tax basis in a Note that is denominated in a single foreign currency will be determined
by reference to the U.S. dollar cost of the Note. The U.S. dollar cost of a Note purchased with foreign currency
generally will be the U.S. dollar value of the purchase price based on the spot rate in effect the date of purchase or,
in the case of Notes traded on an established securities market, as defined in the applicable Treasury regulations, that
are purchased by a cash basis U.S. Holder, or an accrual basis U.S. Holder that so elects, on the settlement date for
the purchase.
The amount realized on a sale, retirement or other taxable disposition for an amount in foreign currency will be
the U.S. dollar value of the amount of foreign currency received based on the spot rate in effect on the date of sale,
retirement or other taxable disposition of a Note or, in the case of a Note traded on an established securities market,
as defined in the applicable Treasury regulations, sold by a cash basis U.S. Holder, or an accrual basis U.S. Holder
that so elects, on the settlement date for the sale. Such an election by an accrual basis U.S. Holder must be applied
consistently from year to year and cannot be revoked without the consent of the IRS.
A U.S. Holder will recognize U.S. source exchange gain or loss (taxable as ordinary income or loss) on the sale,
retirement or other taxable disposition of a Note equal to the difference, if any, between the U.S. dollar values of the
U.S. Holder’s purchase price for the Note (or, if less, the principal amount of the Note) based on the spot rate in
effect: (i) on the date of sale or retirement; and (ii) the date on which the U.S. Holder acquired the Note. A
U.S. Holder that purchased a Note at a premium and has unamortized premium on the date of sale, retirement or
other taxable disposition of the Note will also recognize U.S. source exchange gain or loss equal to the difference, if
any, between the U.S. dollar values of the unamortized premium based on the spot rate in effect; (x) on the date of
sale or retirement; and (y) the date on which the U.S. Holder acquired the Note. In either case, any such exchange
gain or loss will be realized only to the extent of total gain or loss realized on the sale, retirement or other taxable
disposition.
Disposition of Foreign Currency
Foreign currency received as a payment of stated interest on a Note or on the sale, retirement or other taxable
disposition of a Note will have a tax basis equal to its U.S. dollar value based on the spot rate in effect at the time the
interest is received or at the time of the sale, retirement or other taxable disposition. Foreign currency that is
purchased generally will have a tax basis equal to the U.S. dollar value of the foreign currency based on the spot rate
in effect on the date of purchase. Any gain or loss recognized on a sale or other disposition of a foreign currency
(including its use to purchase Notes or upon exchange for U.S. dollars) generally will be U.S. source ordinary
income or loss.
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Dual Currency Notes
Under Treasury regulations governing “nonfunctional currency contingent payment debt instruments,” Dual
Currency Notes that meet certain conditions are treated in a manner similar to Notes that constitute “contingent
payment debt instruments” for U.S. federal income tax purposes (as discussed above under “Contingent Payment
Debt Instruments”). There is no assurance, however, that any particular issuance of Dual Currency Notes will meet
the conditions set forth in the Treasury regulations, and the U.S. federal income tax treatment of Dual Currency
Notes that do not meet these conditions is unclear. The U.S. federal income tax characterization of Dual Currency
Notes may affect the amount, timing and character of income, gain or loss recognized by a U.S. Holder in respect of
the Dual Currency Notes. The applicable Final Terms will describe the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of such Dual Currency Notes for U.S. Holders. There
can be no assurance that the IRS will agree with the characterization of Dual Currency Notes as described in the
Final Terms. In light of this uncertainty, prospective U.S. Holders of Dual Currency Notes should consult their own
tax advisors regarding the application of the Treasury regulations governing nonfunctional currency contingent
payment debt instruments and regarding the U.S. federal income tax treatment of the Dual Currency Notes that do
not meet the conditions set forth in such Treasury regulations.
Foreign Currency Constraints, Sovereign Events and Credit Events
There are no regulatory, administrative or judicial authorities that address the U.S. federal income tax treatment
of debt instruments containing provisions such as Foreign Currency Constraints, Sovereign Events and Credit
Events. Accordingly, the U.S. federal income tax consequences of Notes issued with Foreign Currency Constraint,
Sovereign Event or Credit Event provisions are uncertain and could be materially different (and potentially more
adverse to U.S. Holders) than those described herein. In particular, Notes issued with a Foreign Currency Constraint,
Sovereign Event or Credit Event feature may be treated as contingent payment debt instrument or may not be
characterized as indebtedness under U.S. federal income tax principles. Alternatively, a U.S. Holder that acquires a
Note subject to a Foreign Currency Constraint, Sovereign Event or Credit Event could be treated as having
purchased a debt instrument and having purchased a put option from (in the case of the Foreign Currency
Constraint) or written a put option to (in the case of the Sovereign Event or the Credit Event) the Issuer.
U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax considerations
applicable to the acquisition, ownership, and disposition of Notes subject to a Foreign Currency Constraint,
Sovereign Event or Credit Event.
Backup Withholding and Information Reporting
In general, payments of stated interest and accrued OID on, and the proceeds of a sale, exchange, redemption or
other disposition of, the Notes, payable to a U.S. Holder by a U.S. paying agent or other U.S. intermediary, will be
reported to the IRS and to the U.S. Holder as may be required under applicable Treasury regulations. Backup
withholding will apply to these payments if the U.S. Holder fails to provide an accurate taxpayer identification
number or certification of exempt status or fails to report all interest and dividends required to be shown on its
U.S. federal income tax returns. Certain U.S. Holders (including, among others, corporations) are not subject to
backup withholding. Backup withholding is not additional tax. Amounts withheld may be credited against a
U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the IRS in a timely manner. U.S. Holders should consult
their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an
exemption.
Legislation enacted in 2010 requires certain U.S. Holders to report information to the IRS with respect to their
investment in Notes unless certain requirements are met. Investors who fail to report required information could
become subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors
regarding the possible implications of this legislation on their investment in Notes.
Reportable Transactions
Any person that is required to file a U.S. federal income tax return or U.S. federal information return and
participates in a “reportable transaction” in a taxable year is required to disclose certain information on IRS
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Form 8886 (or its successor form) attached to such person’s U.S. tax return for such taxable years (and also file a
copy of such form with the IRS’s Office of Tax Shelter Analysis) and to retain certain documents related to the
transaction. A U.S. Holder may be required to treat a foreign currency exchange loss from the Notes as a reportable
transaction if the loss exceeds U.S.$50,000 in a single taxable year if the U.S. Holder is an individual or trust, or
higher amounts for other U.S. Holders. In the event the acquisition, ownership or disposition of Notes constitutes
participation in a “reportable transaction” for purposes of these rules, a U.S. Holder will be required to disclose its
investment by filing Form 8886 with the IRS. Prospective purchasers are urged to consult their tax advisors
regarding the application of these rules to the acquisition, ownership or disposition of Notes.
FATCA Compliance
Pursuant to legislation commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”), a
“foreign financial institution” (“FFI”) may be subject to withholding tax on certain income from U.S. sources (or
attributable to income from U.S. sources) unless it enters into an agreement with the IRS to be treated as a
“participating FFI,” or if the FFI is subject to an intergovernmental agreement (“IGA”), pursuant to which the FII
would be required to satisfy certain due diligence and reporting requirements with respect to its U.S. account
holders. Both Brazil and the Cayman Islands have signed IGAs with the United States, confirming that compliance
with FATCA by entities in such jurisdictions will be governed by domestic legislation with reporting directly to the
Brazilian and Cayman tax authorities. The Brazilian IGA will only become effective in Brazil after being approved
by the Brazilian Congress and ratified by the president of Brazil.
We believe that we should be treated as an FFI and we will comply with applicable laws. In this regard, you
may be required to provide us with additional certifications and information (such as an IRS Form W-9 or applicable
IRS Form W-8) to allow us to determine your status for purposes of FATCA, and investors that fail to provide such
certifications and information (or non-U.S. financial institutions that are not in compliance with FATCA) may be
included on annual reports which we would be required to submit to relevant tax authorities annually and which may
be shared with the IRS, subject to exclusions from this reporting requirement for certain publicly-traded notes that
meet certain trading volume requirements.
Under these rules, starting no earlier than 2017, we or another applicable withholding agent may be required to
withhold U.S. tax at a rate of 30% on all, or a portion of, payments on, or payments of the gross proceeds from a
sale, exchange, retirement or other taxable disposition of the Notes if such payment is deemed to be a “foreign
passthru payment.” Such FATCA withholding, however, generally will not apply in the case of debt obligations
outstanding on the date six months after the adoption of final U.S. Treasury regulations addressing withholding on
foreign passthru payments, unless such obligation undergoes a “significant modification” (within the meaning of
section 1.1001–3 of the Treasury regulations) after such date.
Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications
of this legislation on their investment in Notes. The application of FATCA to Notes may be addressed in the relevant
Final Terms or a supplement to this Prospectus, as applicable.
Certain European Union Tax Considerations
European Union Directive on the Taxation of Savings Income
Under Council Directive 2003/48/EC (the “Directive”) on the taxation of savings income, Member States (as
defined below) are required to provide to the tax authorities of other Member States details of payments of interest
and other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual,
or certain other persons, resident in another Member State (the member states constituting the European Union,
collectively, the “Member States” and, each, a “Member State”), except that Austria has instead opted to impose a
withholding system in relation to such payments (deducting tax at rates rising over time to 35.0%) for a transitional
period unless during that period it elects otherwise. The transitional period is to terminate at the end of the first full
fiscal year following agreement by certain non-EU countries to exchange the information relating to such payments.
A number of non-EU countries and certain dependent or associated territories of Member States have adopted
similar measures (either provision of information or withholding).
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On March 24, 2014, the Council of the European Union adopted a directive amending the Directive, which,
when implemented, will amend and broaden the scope of the requirements described above. EU Member States have
until January 2016 to adopt the national legislation necessary to comply with this amending directive.
Investors who may be affected by any of these arrangements are advised to consult with their own professional
advisors.
Proposed FTT Regulations
On February 14, 2013, the European Commission published a proposal for a Directive for a common FTT in
Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating
Member States). The proposed FTT has a very broad scope. If introduced in the form proposed on February 14,
2014, it could apply to certain dealings in Securities (including secondary market transactions) in certain
circumstances. Furthermore, under the February 14, 2013 proposal, the FTT could apply in certain circumstances to
persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in
Securities where at least one party is a financial institution, and at least one party is established in a participating
Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a
broad range of circumstances, including (a) by transacting with a person established in a participating Member State
or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States. Additional EU
Member States may decide to participate. In May 2014, a joint statement by ministers of the participating Member
States (excluding Slovenia) proposed “progressive implementation” of the FTT, with the initial form applying the
tax only to transactions in shares and some derivatives. In January 2015, a further joint statement by ministers of the
participating Member States (excluding Greece) stated, among other things, that the FTT should be based on the
principle of the widest possible base and low rates. The statement also reiterated a willingness to create the
conditions necessary to implement the FTT on 1 January 1, 2016.
Prospective holders of Securities are advised to seek their own professional advice in relation to the FTT.
CERTAIN ERISA CONSIDERATIONS
The United States Employee Retirement Income Security Act of 1974, as amended, or ERISA, imposes
fiduciary standards and certain other requirements on employee benefit plans subject to Title I of ERISA thereto,
including collective investment funds, separate accounts, and other entities or accounts whose underlying assets are
treated as assets of such plans pursuant to the U.S. Department of Labor “plan assets” regulation, 29 CFR
Section 2510.3-101, as modified by Section 3(42) of ERISA (collectively, “ERISA Plans”), and on those persons
who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general
fiduciary requirements, including the requirement of investment prudence and diversification and the requirement
that an ERISA Plan’s investments be made in accordance with the documents governing the Plan. The prudence of a
particular investment will be determined by the responsible fiduciary of an ERISA Plan by taking into account the
ERISA Plan’s particular circumstances and all of the facts and circumstances of the investment including, but not
limited to, the matters discussed in “Risk Factors” and the fact that in the future there may be no market in which the
fiduciary will be able to sell or otherwise dispose of the Notes.
In addition, Section 406 of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended, or
the Code, prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not
subject to ERISA but which are subject to Section 4975 of the Code (together with ERISA Plans, Plans)) and certain
persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans,
unless a statutory or administrative exemption is applicable to the transaction. In particular, a sale or exchange of
property or an extension of credit between a Plan and a “party in interest” or “disqualified person” may constitute a
prohibited transaction. A party in interest or disqualified person who engages in a prohibited transaction may be
subject to excise taxes and other penalties and liabilities under ERISA and the Code.
We, directly or through our affiliates, may be considered a party in interest or disqualified person with respect to
many Plans. Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may
arise if Notes are acquired, held or disposed of by a Plan with respect to which the Issuer, the Global Arranger, the
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Dealers or any of their respective affiliates is a party in interest or a disqualified person unless the Notes are acquired
pursuant to and in accordance with an applicable exemption. Certain exemptions from the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code may apply depending in part on the type of Plan
fiduciary making the decision to acquire the Notes and the circumstances under which that decision is made.
Included among these exemptions are Prohibited Transaction Class Exemption (“PTCE”) 91-38 (relating to
investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a “qualified
professional asset manager”), PTCE 90-1 (relating to investments by insurance company pooled separate accounts),
PTCE 95-60 (relating to investments by insurance company general accounts) and PTCE 96-23 (relating to
transactions determined by an in-house asset manager). In addition, ERISA Section 408(b)(17) and
Section 4975(d)(20) of the Code provide a limited exemption for the purchase and sale of securities and related
lending transactions, provided that neither the issuer of the securities nor any of its affiliates have or exercise any
discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in
the transaction, and provided further that the Plan pays no more than “adequate consideration” (within the meaning
of ERISA Section 408(b)(17) and Section 4975(f)(10) of the Code) in connection with the transaction (the “service
provider exemption”). There can be no assurance however that any of these exemptions or any other exemption will
be available with respect to any particular transaction involving the Notes.
Governmental plans, certain church plans, non-U.S. plans, and other plans, while not subject to the fiduciary
responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to
federal, state, local, non-U.S, or other laws that are substantially similar to the foregoing provisions of ERISA and
the Code. Fiduciaries of any such plans should consult with their counsel before purchasing the Notes.
Each purchaser of the Notes will be deemed to have represented and agreed that: (A) either: (i) it is not, and is
not acting on behalf of (and for so long as it holds the Notes (or any interest therein) will not be, or be acting on
behalf of): (a) a Plan; (b) an entity whose underlying assets are considered “plan assets” within the meaning of
ERISA; or (c) a governmental, church, non-U.S. or other plan which is subject to any federal, state, local, non-U.S.
or other laws or regulations that are substantially similar to the fiduciary responsibility and/or the prohibited
transaction provisions of ERISA and/or Section 4975 of the Code (“Similar Laws”) and/or laws or regulations that
provide that the assets of the Issuer could be deemed to include “plan assets” of such plan (each, an “Other Plan
Investor”), and no part of the assets used by it to purchase or hold the Notes or any interest therein constitutes the
assets of any employee benefit plan, plan or entity that is deemed to hold the assets of such employee benefit plan or
plan or Other Plan Investor; or (ii) its purchase and holding of the Notes will not result in a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code or, in the case of Other Plan Investors, will not
result in a non-exempt violation of any Similar Laws and will not subject the Issuer to any laws, rules, or regulations
applicable to such Other Plan Investor solely as a result of the investment in the Issuer by such Other Plan Investor
and (B) it will not sell or otherwise transfer any such Note or interest to any person without first obtaining these
same foregoing deemed representations, warranties and covenants from that person.
Due to the complexity of these rules and the potential penalties for any non-exempt prohibited transactions, we
would advise any persons considering purchasing our Notes on behalf of, or with the assets of, any Plan to consult
with their counsel regarding these matters.
The foregoing discussion is general in nature and is not intended to be all-inclusive. Each Plan fiduciary
should consult with its legal advisor concerning the potential consequences to the plan under ERISA or the
Code of an investment in the Notes.
The Sale of the Notes to a Plan is in no respect a representation by the Issuer that such an investment
meets all relevant legal requirements with respect to investment by Plans generally or any particular Plan, or
that such an investment is appropriate for Plans generally or any particular Plan.
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ENFORCEABILITY OF JUDGMENTS
We are a financial institution organized under the laws of Brazil. Substantially all of our directors and executive
officers reside in Brazil or elsewhere out of England, and all or substantially all of the assets of such persons may be,
and, except for the assets held abroad through branches and subsidiaries, substantially all of our assets are located in
Brazil. As a result, it may not be possible for investors to effect service of process within England or other
jurisdictions outside Brazil upon such persons or to enforce against such persons or against us judgments obtained in
the courts of England or other jurisdictions outside Brazil, including judgments predicated upon English law or laws
of such other jurisdictions. In the terms and conditions of the Programme or any Notes issued under the Programme,
we will: (i) agree that the courts of England shall have jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in connection with the Securities and, for such
purposes, irrevocably submit to the jurisdiction of such courts; and (ii) name an agent for service of process in
England. See “Terms and Conditions of the Notes.”
Judgments of English courts for civil liabilities against us (including the Grand Cayman Branch) predicated
upon laws of England may be enforced in Brazil, subject to certain requirements described below. A judgment
against us or any other person referred to above obtained outside of Brazil would be enforceable in Brazil against
Santander Brasil or any such person without reconsideration of the merits, upon confirmation of that judgment by
the Brazilian Superior Court of Justice (Superior Tribunal de Justiça). Such confirmation would be provided if the
foreign judgment: (i) fulfils all formalities required for its enforceability under the laws of the country where the
foreign judgment is granted; (ii) is issued by a competent court after proper service of process is made in accordance
with Brazilian law; (iii) is not subject to appeal; (iv) is authenticated by a Brazilian consular office in the country
where the foreign judgment is issued and is accompanied by a sworn translation into Portuguese; and (v) is not
contrary to Brazilian national sovereignty, “good morals” or public policy. Notwithstanding the foregoing, no
assurance can be given that the confirmation process described above can be conducted in a timely manner.
Further, we note that: (a) original actions based on the securities laws of England may be brought in Brazilian
courts and that, subject to Brazilian public policy and national sovereignty, Brazilian courts may enforce liabilities in
such actions against us, our directors, certain of their executive officers and certain of the experts named in this
information memorandum; and (b) the ability of a judgment creditor or the other persons named above to satisfy a
judgment by attaching certain of our assets is limited by provisions of Brazilian law. Pursuant to Article 835 of the
Brazilian Code of Civil Procedure, a plaintiff (whether Brazilian or non-Brazilian) who resides outside Brazil during
the course of litigation in Brazil and does not own real property in Brazil must post a bond to cover the court costs
and legal fees of the defendant. The bond must have a value sufficient to satisfy the payment of the court fees and
the defendant’s attorney fees, as determined by the Brazilian judge. This requirement does not apply to the
enforcement of foreign judgments which have been duly confirmed by the Brazilian Superior Court of Justice
(Superior Tribunal de Justiça) and in case of collection claims based on an instrument (which does not include the
Notes issued hereunder) that may be enforced in Brazil without the review of its merit (título executivo extrajudicial)
or counterclaims (reconvenções). Notwithstanding the foregoing, no assurance can be given that the process
described above can be conducted in a timely manner.
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LEGAL MATTERS
The validity of our Notes under Brazilian law will be passed upon by Pinheiro Neto Advogados, Brazilian
counsel to the Arranger and Dealers. Santander Brasil has been represented as to English and U.S. legal matters by
Milbank, Tweed, Hadley & McCloy LLP. The Arranger and Dealers have been represented as to English and
U.S. legal matters by Shearman & Sterling LLP. The Issuer has been represented as to Cayman Islands legal matters
by Maples and Calder.
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INDEPENDENT AUDITORS
The consolidated financial statements of Santander Brasil as at and for the years ended December 31, 2014,
2013 and 2012 included elsewhere in this information memorandum, have been audited by Deloitte Touche
Tohmatsu Auditores Independentes, an independent auditors, as stated in their report appearing therein.
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GENERAL INFORMATION
(1) We were duly incorporated on August 9, 1985 under the laws of Brazil as a multiple service bank in accordance
with Article 4 of our Articles of Association. Our corporate taxpayer registration number (CNPJ) is
90.400.888/0001-42. The establishment of the Programme, in the amount of U.S.$ 10,000,000,000 and the
issuance of the Notes thereunder by us are authorized by our by-laws and by a resolution of our Board of
Executive Officers passed on April 11, 2013. The updating and approval of the Information Memorandum for
2015 are authorized by a resolution of our Board of Executive Officers passed on June 2, 2015. As a matter of
Cayman Islands law, no separate resolutions by the Santander Grand Cayman Branch are required.
(2) Application has been made to admit the Programme for listing on the Official List of the Luxembourg Stock
Exchange and to trading on the Euro MTF market. Santander Brasil may apply to, but is not obliged to, admit
the Notes to be issued under the Programme to listing on the Official List of the Luxembourg Stock Exchange
and to trading on the Euro MTF market. The Final Terms applicable to a Series will specify whether or not
Notes of such Series have been admitted to listing on the Official List of the Luxembourg Stock Exchange and
to trading on the Euro MTF market. In case the Notes are not admitted to listing on the Official List of the
Luxembourg Stock Exchange and to trading on the Euro MTF market, Santander Brasil is not obliged to list the
Notes on any other stock exchange.
(3) The Notes have been accepted for clearance through the Euroclear and Clearstream, Luxembourg clearance
systems. The appropriate Common Code and International Securities Identification Number (ISIN) for each
series of Notes will be set forth in the Final Terms relating thereto. In addition, the Issuer will (or, in relation to
Notes denominated in a currency other than U.S. dollars, may) make an application with respect to each Series
of Notes sold pursuant to Rule 144A for such Notes to be accepted for trading in book-entry form by DTC. All
payments of principal and interest with respect to Notes denominated in any currency other than U.S. dollars
and registered in the name of the nominee for DTC will be converted to U.S. dollars unless the relevant
participants in DTC elect to receive such payment of principal or interest in that other currency. Acceptance of
each Series of Notes for trading through DTC will be confirmed in the Final Terms relating thereto.
(4) Copies of the Information Memorandum and any supplemental information memorandum, the Final Terms, the
Trust Deed, the documents of our incorporation, our most recent audited consolidated annual financial
statements (in English), and the most recent audited consolidated semi-annual financial statements (in English)
of Santander Brasil may be obtained free of charge, during the term of the Notes: (i) in the City of Luxembourg,
at the office of the Listing Agent for the Notes on the Luxembourg Stock Exchange, (ii) at the office of any
Paying Agent and (iii) at our registered office in São Paulo, Brazil. We do not publish any stand-alone financial
statements. Our branches do not publish stand-alone financial statements.
(5) The Issuer has agreed that, for so long as any Notes are “restricted securities” within the meaning of
Rule 144(a)(3) under the Securities Act, the Issuer will, during any period in which it is neither subject to
Section 13 or 15(d) of the Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder,
provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such
restricted securities designated by such holder or beneficial owner or to the Trustee for delivery of such holder,
beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner,
prospective purchaser or Trustee, the information required to be provided by Rule 144A(d)(4) under the
Securities Act.
(6) The consolidated financial statements included elsewhere in this information memorandum have been prepared
in accordance with Brazilian GAAP. Since December 31, 2014 (the date of the latest audited financial
statements of the Issuer which are included elsewhere in this information memorandum), except as disclosed
herein, there has been no material adverse change in the condition, financial or otherwise, or in the earnings,
operations, business affairs or business prospects of the Issuer.
(7) Except as disclosed herein, there are no pending actions, suits or proceedings against or affecting the Issuer
which, if determined adversely, would, individually or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or on the earnings, operations, business affairs or business prospects of
Santander Brasil as a whole, or be material in the context of the issuance of the Notes and the listing of the
239
Notes, and to the best knowledge of the Issuer, no such actions, suits or proceedings are threatened or
contemplated.
(8) Each Final Terms will set forth, with regard to each Series of Notes, if any, in respect of which this information
memorandum is being delivered, certain information relating to the issuance of Notes under the Programme. A
form of Final Terms is attached to this Information Memorandum as Annex C.
(9) All the members of the Board of Directors and officers of the Executive Board of the Issuer and certain experts
named herein reside outside the United States. Substantially all the assets of these persons and of the Issuer are
located outside the United States. As a result, it may not be possible for investors to effect service of process
within the United States upon such persons or to enforce in the United States against such persons or the Issuer
judgments obtained in the United States courts predicated upon the civil liability provisions of the federal
securities laws of the United States.
(10) All consents, approvals, authorizations and other orders of all regulatory authorities under the laws of Brazil or
the Cayman Islands have been given for the establishment of the Programme, the issuance of Notes under the
Programme and the execution of the Trust Deed and are in full force and effect, except for: (A) where we are
acting through our head office in Brazil: the (i) registration of the main financial terms under the relevant
Declaratory Registry of Financial Operations (Registro Declaratorio de Operações Financeiras, or ROF) on the
System of Information of the Brazilian Central Bank for the issue of any series of Notes by us, which shall be
obtained prior to any such issuance; (ii) Schedule of Payments in connection with any such issuance, which
shall be obtained after the entry of the related proceeds into Brazil; and (iii) further authorization from the
Brazilian Central Bank required to enable us to remit payments abroad in foreign currency under any series of
Notes other than scheduled payments of principal, interest, commissions, costs and expenses contemplated by
the relevant ROF or to make any payment provided for in such ROF earlier than the due date thereof or on a
date after the 120th day from the payment dates scheduled therein; and (B) where we are acting through our
Grand Cayman Branch, the approval of the Brazilian Central Bank for us to make any payment in the relevant
Specified Currency with funds derived from Brazilian sources.
240
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ANNEX A
SUMMARY OF CERTAIN DIFFERENCES BETWEEN ACCOUNTING PRACTICES ADOPTED IN
BRAZIL AND IFRS
Following the CVM Instruction 485/2010, we present a reconciliation of stockholders’ equity and net income
attributed to the parent between Brazilian GAAP (1) and IFRS (2), for each of the periods presented, below:
Note (3)
2014
2013
(in thousands of R$)
Shareholders’ Equity attributed under to the Parent Under Brazilian
GAAP ...................................................................................................
IFRS adjustments, net of taxes, when applicable: ................................
Classification of financial instruments at fair value through profit or
loss ....................................................................................................
Redesignation of financial instruments to available-for-sale ................
Impairment on loans and receivables....................................................
Deferral of financial fees, commissions and inherent costs under
effective interest rate method ............................................................
Reversal of Goodwill Amortization ......................................................
Realization on Purchase Price Adjustments ..........................................
Recognition of fair value in the partial sale in subsidiaries ..................
Capital Optimization Plan.....................................................................
Others ...................................................................................................
Shareholders’ equity attributed to the parent under IFRS .................
Non-controlling interest under IFRS ....................................................
Shareholders’ equity (including non-controlling interest) under
IFRS ....................................................................................................
57,320,685
62,819,207
a
b
c
d
e
f
g
h
Note (3)
(80,855)
34,852
128,080
3,367
28,912
155,527
273,275
20,620,628
874,738
112,052
(950,000)
(30,335)
78,303,120
380,173
319,533
17,060,156
999,510
112,052
(132,063)
81,336,201
289,101
78,683,293
81,655,302
2014
2013
Net Income Attributed to the Parent Under Brazilian GAAP
2,161,170
IFRS Adjustments, Net of Taxes, when applicable:..............................
Classification of Financial Instruments at Fair Value Through Profit
or Loss ...............................................................................................
Redesignation of Financial Instruments to Available-for-Sale .............
Impairment on Loans And Receivables ................................................
Deferral of Financial Fees, Commissions and Inherent Costs Under
Effective Interest Rate Method .........................................................
Reversal of Goodwill Amortization ......................................................
Realization on Purchase Price Adjustments ..........................................
Recognition of fair value in the partial sale in subsidiaries ..................
Others ...................................................................................................
Net Income Attributed to the Parent Under IFRS ..............................
Non-controlling interest under IFRS ....................................................
Net Income (Including Non-Controlling Interest) Under IFRS .........
2,107,327
a
b
c
d
e
f
h
(78,659)
(29,802)
36,998
(17,587)
96,213
75,114
(11,053)
3,683,391
(75,151)
(56,871)
5,630,023
77,753
5,707,776
(75,290)
3,636,985
(69,205)
112,052
(142,115)
5,723,494
124,630
5,848,124
__________________
(1)
(2)
(3)
Brazilian GAAP as defined in “Presentation of Financial and Other Information.”
International Financial Reporting Standards as issued by the IASB.
Letters refer to subitems as follow:
a. Classification of financial instruments at fair value through profit or loss:
Under BRGAAP, all loans and receivables and deposits are accounted for at amortized cost. Under IFRS, in
accordance with IAS 39 “Financial Instruments: Recognition and Measurement” the financial assets can be
measured at fair value and included in the category as “other financial assets at fair value through profit or loss”
A-1
to eliminate or significantly reduce the accounting mismatch the recognition or measurement derived from
measuring assets or liabilities or recognizing gains or losses on them on different bases, which are managed and
their performance evaluated on the basis of fair value. Thus, the Bank classified loans, financing and deposits
that meet these parameters, as the “other financial assets at fair value through profit or loss,” as well as certain
debt instruments classified as “available for sale” under BRGAAP. The Bank has selected such classification
basis as it eliminates an accounting mismatch in the recognition of income and expenses.
b. Redesignation of financial instruments to available-for-sale:
Under BRGAAP, the Bank accounts some investments, for example, in debt securities at amortized cost and
equity securities at cost. At the time of preparing this balance sheet, management revised its strategy for
managing their investments and in accordance with the premises of the Central Bank Circular 3.068, were
reclassified debt securities category for “negotiation” with record in fair value through profit or loss. Under
IFRS, the Bank has classified these investments as available for sale, measuring them at fair value with changes
recognized in the “Consolidated statements of comprehensive income,” within the scope of IAS 39 “Financial
Instruments: Recognition and Measurement,” which does not allow reclassification of any financial instrument
for the fair value through profit or loss category after initial recognition.
c. Impairment on loans and receivables:
On the income refers to the adjust based on estimated losses on loans and receivables portfolio, which was
established with based on historical loss of impairment and other circumstances known at the time of
evaluation, according to the guidance provided by IAS 39 “Financial Instruments: Recognition and
Measurement. These criteria differ in certain aspects of the criteria adopted under BRGAAP, which uses certain
regulatory limits set by the Central Bank. Additionally, the equity accumulated adjustments of the allocation of
purchase price when the acquisition of Banco Real, according to the requirements of IFRS 3 “Business
Combinations.”
d. Deferral of financial fees, commissions and other costs under effective interest rate method:
Under IFRS, in accordance with IAS 39 “Financial Instruments: Recognition and Measurement,” financial fees,
commissions and other costs that are integral part of effective interest rate of financial instruments measured at
amortized cost are recognized in profit or loss over the term of the corresponding contracts. Under BRGAAP
these fees and expenses are recognized directly as income when received or paid.
e. Reversal of goodwill amortization:
Under BRGAAP, goodwill is amortized systematically over a period up to 10 years and additionally, the
goodwill recorded is measured annually or whenever there is any indication that the asset may be impaired.
Under IFRS, in accordance with IAS 38 “Intangible Assets,” goodwill is not amortized, but instead, is tested for
impairment, at least annually, and whenever there is an indication that the goodwill may be impaired;
comparing its recoverable amount with its carrying value. The tax amortization of goodwill of Banco ABN
Amro Real SA represents a difference between book and tax basis of a permanent nature and definitive as the
possibility of future use of resources to settle a tax liability is considered remote by management, supported by
the opinion of expert external advisors. The tax amortization of goodwill is permanent and definitive, and
therefore does not apply to the recognition of a deferred tax liability in accordance with IAS 12, on temporary
differences.
f. Realization on purchase price adjustments:
As part of the allocation of the purchase price related to the acquisition of Banco Real, following the
requirements of IFRS 3, the Bank has recognized the assets and liabilities of the acquiree to fair value, including
identifiable intangible assets with finite lives. Under BRGAAP, in a business combination, the assets and
liabilities are kept at their book value. This purchase price adjustment relates substantially to the following
items:
•
The appropriation related to the value of assets in the loan portfolio. The initial recognition of value of the
loans at fair value, adjustment to the yield curve of the loan portfolio in comparison to its nominal value,
which is appropriated by its average realization period.
•
The amortization of the identified intangible assets with finite lives over their estimated useful lives.
A-2
g. Share based payments:
Banco Santander has local long-term compensation plans linked to payments based in shares. According to
IFRS 2 “share-based payments,” the amount of shares to be paid should be measured at the fair value and
accounted in equity, while in BRGAAP it is accounted in “Other Payables – Other.” In January 2012, the
BRGAAP began to adopt CMN Resolution 3,989/11, which eliminated this difference with IFRS.
h. Recognition of fair value in the partial disposal of investments in subsidiaries:
Under IFRS, in accordance with IFRS 10 “Consolidated Financial Statements” on partial disposal of a
permanent investment, fair value is recognized over the remaining portion. Under BRGAAP, this type of
operation, ongoing participation is maintained by its book value
A-3
ANNEX B
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A. as at
December 31, 2014 and 2013 and for the Years Ended December 31, 2014 and 2013
Independent Auditors’ Report .........................................................................................................
Balance Sheets as at December 31, 2014 and 2013 ........................................................................
Income Statements for the Years Ended December 31, 2014 and 2013..........................................
Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2014 and 2013
Statements of Cash Flows for the Years Ended December 31, 2014 and 2013...............................
Statements of Value Added for the Years Ended December 31, 2014 and 2013 .............................
Notes to the Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A...........
Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A. as at
December 31, 2013 and 2012 and for the Years Ended December 31, 2013 and 2012
Independent Auditors’ Report .........................................................................................................
Balance Sheets as at December 31, 2013 and 2012 ........................................................................
Income Statements for the Years Ended December 31, 2013 and 2012..........................................
Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2013 and 2012
Statements of Cash Flows for the Years Ended December 31, 2013 and 2012...............................
Statements of Value Added for the Years Ended December 31, 2013 and 2012 .............................
Notes to the Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A...........
B-1
F-2
F-4
F-8
F-9
F-10
F-11
F-12
F-97
F-99
F-103
F-104
F-105
F-106
F-107
ANNEX C
FORM OF FINAL TERMS
Final Terms dated [ ]
Banco Santander (Brasil) S.A.
(a company incorporated under the laws of the Federative Republic of Brazil)
[acting through its principal office in Brazil]
[acting through its Grand Cayman Branch]
U.S.$10,000,000,000 Global Medium-Term Note Programme
Series No: [ ]
[TITLE OF NOTES] [CURRENCY CONSTRAINT NOTES] [AND]
[SOVEREIGN EVENT NOTES] [AND] [CREDIT EVENT NOTES] DUE [ ]
Issue price: [ ]
PART A - CONTRACTUAL TERMS
[THE NOTES CONTAIN A FOREIGN CURRENCY CONSTRAINT PROVISION, AS MORE FULLY
DESCRIBED IN THE CONDITIONS (AS DEFINED BELOW). SUBJECT TO THE SOVEREIGN EVENT
PROVISIONS (IF APPLICABLE) AND SUBJECT TO THE CREDIT EVENT PROVISIONS (IF APPLICABLE)
DURING A FOREIGN CURRENCY CONSTRAINT EVENT (AS DEFINED IN THE CONDITIONS) HOLDERS
OF NOTES MAY ELECT TO EXCHANGE THE NOTES FOR AN EQUIVALENT NOMINAL AMOUNT OF
EXCHANGED NOTES (AS DEFINED IN THE CONDITIONS) WITH TERMS AND CONDITIONS
IDENTICAL TO THE CONDITIONS EXCEPT THAT PAYMENTS IN RESPECT OF THE EXCHANGED
NOTES WILL BE MADE IN THE LAWFUL CURRENCY OF BRAZIL. AFTER THE TERMINATION OF THE
FOREIGN CURRENCY CONSTRAINT EVENT EXCHANGED NOTES WILL BE EXCHANGED FOR AN
EQUIVALENT NOMINAL AMOUNT OF THE NOTES AND SUCH HOLDER WILL RECEIVE FUTURE
PAYMENTS IN RESPECT OF THE NOTES IN THE SPECIFIED CURRENCY. A FOREIGN CURRENCY
CONSTRAINT EVENT WILL NOT BE DEEMED TO BE AN EVENT OF DEFAULT.] [THE NOTES CONTAIN
A SOVEREIGN EVENT PROVISION, AS MORE FULLY DESCRIBED IN THE CONDITIONS [(AS DEFINED
BELOW)]. ON THE OCCURRENCE OF A SOVEREIGN EVENT (AS DEFINED IN THE CONDITIONS), THE
ISSUER MAY ELECT TO DELIVER ON THE MATURITY DATE OR EARLIER REDEMPTION DATE, THE
GOVERNMENTAL OBLIGATIONS (AS DEFINED IN THE CONDITIONS) OR REAIS TO THE HOLDER
WHEREUPON THE ISSUER’S OBLIGATIONS IN RESPECT OF SUCH PAYMENT UNDER SUCH NOTE
SHALL BE DEEMED FULLY SATISFIED AND DISCHARGED.] [THE NOTES CONTAIN A CREDIT EVENT
PROVISION, AS MORE FULLY DESCRIBED IN THE CONDITIONS [(AS DEFINED BELOW)]. ON THE
OCCURRENCE OF A CREDIT EVENT (AS DEFINED IN THE CONDITIONS), THE ISSUER MAY ELECT TO
DELIVER ON THE MATURITY DATE OR EARLIER REDEMPTION DATE, THE CREDIT OBLIGATIONS
(AS DEFINED IN THE CONDITIONS) OR REAIS TO THE HOLDER WHEREUPON THE ISSUER’S
OBLIGATIONS IN RESPECT OF SUCH PAYMENT UNDER SUCH NOTE SHALL BE DEEMED FULLY
SATISFIED AND DISCHARGED.]
C-1
[DEALER NAME(S)]
This document constitutes the Final Terms relating to the issue of Notes described herein. Terms used herein shall be
deemed to be defined as such for the purposes of the Conditions set forth in the Information Memorandum dated [ ]
[and the supplemental Information Memorandum dated [ ]]. These Final Terms must be read in conjunction with the
Information Memorandum [as so supplemented].
The issue of the Notes was authorized by [a resolution of the Board of Directors] of the Issuer dated [ ].
These Final Terms do not constitute, and may not be used for the purposes of, an offer or solicitation by anyone in
any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make
such offer or solicitation, and no action is being taken to permit an offering of the Notes or the distribution of these
Final Terms in any jurisdiction where such action is required.
THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933 (THE “SECURITIES ACT”) [AND THE NOTES COMPRISE BEARER NOTES* THAT ARE
SUBJECT TO U.S. TAX LAW REQUIREMENTS]. SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES
MAY NOT BE [OFFERED OR SOLD/OFFERED, SOLD OR DELIVERED] WITHIN THE UNITED
STATES [OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”))]. THESE FINAL TERMS HAVE
BEEN PREPARED BY THE ISSUER FOR USE IN CONNECTION WITH THE OFFER AND SALE OF
THE NOTES OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON
REGULATION S [AND WITHIN THE UNITED STATES TO “QUALIFIED INSTITUTIONAL BUYERS”
IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”)] [AND FOR LISTING
OF THE NOTES ON THE LUXEMBOURG STOCK EXCHANGE]. [PROSPECTIVE PURCHASERS ARE
HEREBY NOTIFIED THAT SELLERS OF THE NOTES MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A].
FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS AND
SALES OF THE NOTES AND DISTRIBUTION OF THESE FINAL TERMS AND THE REMAINDER OF
THE INFORMATION MEMORANDUM, SEE “SUBSCRIPTION AND SALE” CONTAINED IN THE
INFORMATION MEMORANDUM.
* In case of bearer notes, include the following language on the face of the note: “ANY UNITED STATES PERSON
WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES
INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF
THE INTERNAL REVENUE CODE.”
On the front:
[Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should
remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics
denote directions for completing the Final Terms.]
Banco Santander (Brasil) S.A. [acting through
its principal office in Brazil/acting through its
Grand Cayman Branch]
1
Issuer:
2
[(i)]
Series Number:
[(ii)
Tranche Number:
(If fungible with an existing Series, details
of that Series, including the date on which
the Notes become fungible).]
(i)
Specified Currency or Currencies
(Condition 1(d)):
(ii)
Specified Principal Payment
Currency if different from
3
C-2
[]
[]
[]
[]
4
5
6
7
8
Specified Currency (Condition
1(d)):
(iii)
Specified Interest Payment
Currency if different from
Specified Currency (Condition
1(d)):
Aggregate Nominal Amount:
(i)
Series:
(ii)
Tranche:
Issue Price:
[]
[]
[]
[ ] per cent of the Aggregate Nominal Amount [plus
accrued interest from [insert date] (in the case of
fungible issues only, if applicable)
[ ]1
(i)
Specified Denominations:
(Condition 1(b)):
(ii)
Tradable Amount:
(i)
(ii)
Issue Date (Condition 5(III)):
Interest Commencement Date
(if different from the Issue Date):
Maturity Date or Redemption Month
(Condition 6(a)):
9
Interest Basis (Condition 5):
10
Redemption/Payment Basis
(Condition 6(a)):
11
Change of Interest or
Redemption/Payment Basis:
12
Put/Call Options (Conditions 6(e) and (f)):
13
Status of the Notes (Condition 3):
[]
So long as the Notes are represented by a temporary
Global Note or permanent Global Note, the Notes
will be tradable only in principal amounts of at least
the Specified Denomination and integral multiples
of the Tradable Amount in excess thereof
[]
[]
[specify date or (for Floating Rate Notes) Specified
Interest Payment Date falling in the Redemption
Month]
[Fixed Rate (Condition 5(I))]
[Floating Rate (Condition 5(II))]
[Zero Coupon (Condition 5(IV))]
[Index Linked Interest]
[Other (specify)]
(further particulars specified below)
[Redemption at par]
[Index Linked Redemption (specify)]
[Dual Currency (specify)]
[Partly Paid (specify)]
[Instalment (specify)]
[Other (specify)]
[Specify details of any provision for convertibility of
Notes into another interest or redemption/payment
basis]
[Noteholder Put]
[Issuer Call]
[N/A]
[(further particulars specified below)]
[Senior] [Specify status if different from Condition
1
Notes (including Notes denominated in sterling) in respect of which the issue proceeds are to be accepted by the Issuer in the United
Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the FSMA and which have a maturity of less than one year must
have a minimum denomination of £100,000 (or its equivalent in other currencies).
C-3
14
Method of Distribution:
PROVISIONS RELATING TO INTEREST (IF
ANY) PAYABLE
15
Fixed Rate Note Provisions
(Condition 5(I)):
(i)
Rate(s) of Interest:
(ii)
Interest Payment Date(s):
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph)
[ ] per cent per annum [payable [annually/semiannually/quarterly/monthly/weekly/daily] in arrear]
[ ] [in each year]
(iii)
Fixed Coupon Amount(s):
[ ] per lowest Specified Denomination
(iv)
Broken Amount(s):
[Insert particulars of any initial or final broken
interest amounts]
[]
(Day count fraction should be Actual/Actual-ISMA
for all fixed rate issues other than those
denominated in U.S. dollars, unless otherwise
requested)
[Insert day(s) and month(s) on which interest is
normally paid (if more than one, then insert such
dates in the alternative) in each year - only to be
completed for any issue where day count fraction is
Actual/Actual–ISMA]
[N/A/give details]
(v)
Day Count Fraction
(Condition 5(III))
(vi)
Determination Date(s)
(Condition 5(III)):
(vii)
Other terms relating to the method of
calculating interest for Fixed Rate Notes:
16
3]
[Syndicated/Non-syndicated]
Floating Rate Note Provisions
(Condition 5(II)):
(i)
Interest Period(s)/Specified Interest
Payment Dates:
(ii)
Business Day Convention (Condition
5(III)):
(iii)
Additional Business Centre(s)
(Condition 5(III)):
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph. Also consider whether EURO BBA
LIBOR or EURIBOR is the appropriate reference
rate for euro denominated issues)
[]
[Floating Rate Business Day
Convention/Following Business Day Convention/
Modified Following Business Day Convention/
Preceding Business Day Convention/Other (give
details)]
[]
[Screen Rate Determination/ISDA
Determination/other (give details)]
(iv)
Manner in which the Rate(s) of
Interest is/are to be determined:
(v)
Party responsible for calculating the Rate(s) of Interest and Interest Amount(s) (if not the
Calculation Agent):
(vi)
[Applicable / N/A]
Screen Rate Determination
C-4
(Condition 5(II)(b)(i)):
•
Interest Determination Date(s)
(Condition 5(III)):
[]
•
Reference Rate:
[]
•
Reference Screen Rate:
[]
[Applicable / N/A]
(vii)
ISDA Determination
(Condition 5(II)(b)(ii)):
17
•
Floating Rate Option:
[]
•
Designated Maturity:
[]
•
Reset Date:
[]
•
ISDA Definitions
(if different from those set out in
the Conditions):
[]
(viii)
Margin(s):
[+/–] [ ] per cent per annum
(ix)
Minimum Rate of Interest:
[ ] per cent per annum
(x)
Maximum Rate of Interest:
[ ] per cent per annum
(xi)
Day Count Fraction
(Condition 5(III)):
[]
(xii)
Fall back provisions, rounding
provisions, denominator and any other terms
relating to the method of calculating interest
on Floating Rate Notes, if different from those
set out in the Conditions (Condition 5(II)(b)):
[]
(xiii)
[]
Relevant Financial Centre:
Zero Coupon Note Provisions (Conditions
5(IV) and 6(d)):
(i)
Amortisation Yield:
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph)
[ ] per cent per annum
(ii)
Reference Price:
[]
(iii)
Basis:
[Straightline/Compounded at [specify] interval]
(iv)
Day Count Fraction (Condition
5(III)):
[]
(v)
[]
Any other formula/basis of
C-5
determining amount payable:
18
Index Linked Interest Note Provisions:
(i)
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph - if applicable, complete terms MUST
be set out in these Final Terms)
[Give or annex details]
Index/Formula:
(ii)
Calculation Agent responsible for
calculating the interest due:
[]
(iii)
Provisions for determining Coupon
where calculation by reference to Index and/or
Formula is impossible or impracticable:
[]
(iv)
Interest Period(s)/Specified Interest
Payment Dates:
[]
(v)
[Floating Rate Business Day Convention/
Following Business Day Convention/
Modified Following Business Day Convention/
Preceding Business Day Convention/other (give
details)]
[]
Business Day Convention:
(vi)
Additional Business Centre(s)
(Condition 5(III)):
19
(vii)
Minimum Rate of Interest:
[ ] per cent per annum
(viii)
Maximum Rate of Interest:
[ ] per cent per annum
(ix)
Day Count Fraction
(Condition 5(III)):
[]
Dual Currency Note Provisions:
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph - if applicable, complete terms MUST
be set out in these Final Terms)
[Give details]
(i)
Rate of Exchange/Method of
calculating Rate of Exchange:
(ii)
Calculation Agent, if any, responsible
for calculating the principal and/or interest
due:
[]
(iii)
Provisions applicable where
calculation by reference to Rate of Exchange
impossible or impracticable:
[]
(iv)
[]
Person at whose option Specified
C-6
Currency(ies) is/are payable:
[]
(v)
Day Count Fraction
(Condition 5(III)):
PROVISIONS RELATING TO
REDEMPTION
20
Call Option (Condition 6(e)):
(i)
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph)
[]
Optional Redemption Date(s):
(ii)
Optional Redemption Amounts(s) and
method, if any, of calculation of such
amount(s):
[]
(iii)
Description of any other Issuer’s
option:
[]
(iv)
If redeemable in part:
[]
Minimum nominal amount
to be redeemed:
[]
Maximum nominal amount
to be redeemed:
(v)
Notice period (if other than as set out
in the Conditions):
21
Put Option (Condition 6(f)):
(i)
22
[]
[Applicable/N/A]
(If N/A, delete the remaining sub-paragraphs of this
paragraph)
[]
Optional Redemption Date(s):
(ii)
Optional Redemption Amount(s) and
method, if any, of calculation of such
amount(s):
[]
(iii)
Description of any other Noteholders’
option:
[]
(iv)
Deposit period (if other than as set
out in the Conditions):
[]
(v)
Notice period (in respect of deposit
period):
[]
Final Redemption Amount:
[Nominal amount/Other/See Appendix]
[Applicable/N/A]
(i)
Alternative Payment Mechanism
C-7
(Conditions 7(a) and (b)):
(ii)
23
Long Maturity Note (Condition 7(e)):
Early Redemption Amount:
(i)
Early Redemption Amount(s) payable
on redemption for taxation reasons (Condition
6(c)) or on an Event of Default (Condition 9)
and/or the method of calculating the same (if
required or if different from that set out in the
Conditions):
[]
(ii)
Original Withholding Level
(Condition 6(c)):
[]
(iii)
Unmatured Coupons to become void
(Condition 7(e)):
[Yes/No/N/A]
GENERAL PROVISIONS APPLICABLE TO
THE NOTES
24
Form of Notes:
(i)
Note:
Temporary or Permanent Global
(ii)
Permanent Global Note in respect of
Exchanged Notes (Condition 15):
26
[Bearer Notes/Registered Notes] [delete as
appropriate]
Bearer Notes
[Temporary Global Note exchangeable for a
Permanent Global Note which is exchangeable for
definitive Bearer Notes in the limited circumstances
specified in the Permanent Global Note]
[Permanent Global Note exchangeable for definitive
Bearer Notes in the limited circumstances specified
in the Permanent Global Note]
[Yes/N/A]
(iii)
Exchange Date in respect of
Temporary Global Note:
[N/A / specify date]
(iv)
[C Rules/D Rules/ N/A]
Applicable TEFRA exemption:
(v)
DTC Global Notes, International
Global Note Certificates or individual
Definitive Registered Notes:
25
[Applicable/N/A]
Additional Financial Centre(s) (Condition
7(a)(iii)) or other special provisions
relating to payment dates:
Talons for future Coupons to be attached
to definitive Bearer Notes (and dates on
which such Talons mature):
C-8
Registered Notes
[DTC Restricted Global Note and/or [DTC
Unrestricted Global Note/ International Global Note
Certificate] available on Issue Date]
[Individual Definitive Registered Notes available on
Issue Date]
[N/A /Give details. Note that this item relates to the
place of payment, and not interest period end dates,
to which item 17(iii) relates]
[Yes/No. If yes, give details]
27
28
29
30
Details relating to Partly Paid Notes:
amount of each payment comprising the
Issue Price and date on which each
payment is to be made and consequences
(if any) of failure to pay, including any
right of the Issuer to forfeit the Notes and
interest due on late payment:
Details relating to Instalment Notes:
Redenomination, renominalisation and
reconventioning provisions:
Consolidation provisions:
31
Foreign Currency Constraint Provisions
applicable (Condition 15(a)) – subject to
Sovereign Event provisions if applicable
(Condition 15(b) and Credit Event
provisions if applicable (Condition 15(c)):
32
Sovereign Event Provisions applicable
(Condition 15(b)):
(i)
Governmental Obligations:
(ii)
Delivery information to be
provided
in Transfer Notice:
(iii)
Other terms:
33
Credit Event Provisions applicable
(Condition 15(c)):
(i)
Credit Obligations:
(ii)
Reference Obligor
(iii)
Delivery information to be
provided in Transfer Notice:
(iv)
Other terms:
34
Other terms or special conditions:
DISTRIBUTION
35
(i)
If syndicated, names of Managers:
(ii)
Stabilising Manager (if any):
(iii)
Commissions and Concessions:
36
If non-syndicated, name of Dealer:
37
Additional selling restrictions:
OPERATIONAL INFORMATION
38
Settlement Date:
39
ISIN:
40
CUSIP:
41
Common Code:
42
Any clearing system(s) other than
Euroclear Bank S.A./N.V., and
Clearstream Banking société anonyme,
DTC and the relevant Identification
number(s):
1
Issuer:
C-9
[N/A /give details]
(If applicable, complete terms MUST be set out in
these Final Terms)
[N/A /give details]
(If applicable, complete terms MUST be set out in
these Final Terms)
[N/A /The provisions annexed to these Final Terms
apply]
[N/A /The provisions annexed to these Final Terms
apply]
[Yes/No]
[Yes/No]
[Not specified/Specified as follows:]
[]
[N/A /give details]
[Yes/No]
[Not specified/Specified as follows:]
[N/A /Specified as follows:]
[]
[N/A /give details]
[N/A /give names]
[N/A /give name]
[]
[N/A /give name]
[N/A /give details]
[●]
[●]
[●]
[●]
[●]
Banco Santander (Brasil) S.A. [acting through its
2
3
4
5
6
7
8
[(i)]
Series Number:
[(ii)
Tranche Number:
(If fungible with an existing Series, details
of that Series, including the date on which
the Notes become fungible).]
(i)
Specified Currency or Currencies
(Condition 1(d)):
(ii)
Specified Principal Payment
Currency if different from
Specified Currency (Condition
1(d)):
(iii)
Specified Interest Payment
Currency if different from Specified
Currency (Condition 1(d)):
Aggregate Nominal Amount:
(i)
Series:
(ii)
Tranche:
Issue Price:
(i)
Specified Denominations:
(Condition 1(b)):
(ii)
Tradable Amount:
(i)
(ii)
Issue Date (Condition 5(III)):
Interest Commencement Date
(if different from the Issue Date):
Maturity Date or Redemption Month
(Condition 6(a)):
9
Interest Basis (Condition 5):
10
Redemption/Payment Basis
(Condition 6(a)):
principal office in Brazil/acting through its Grand
Cayman Branch]
[]
[]
[]
[]
[]
[]
[]
[ ] per cent of the Aggregate Nominal Amount [plus
accrued interest from [insert date] (in the case of
fungible issues only, if applicable)
[ ]2
[]
So long as the Notes are represented by a temporary
Global Note or permanent Global Note, the Notes
will be tradable only in principal amounts of at least
the Specified Denomination and integral multiples
of the Tradable Amount in excess thereof
[]
[]
[specify date or (for Floating Rate Notes) Specified
Interest Payment Date falling in the Redemption
Month]
[Fixed Rate (Condition 5(I))]
[Floating Rate (Condition 5(II))]
[Zero Coupon (Condition 5(IV))]
[Index Linked Interest]
[Other (specify)]
(further particulars specified below)
[Redemption at par]
[Index Linked Redemption (specify)]
[Dual Currency (specify)]
[Partly Paid (specify)]
2
Notes (including Notes denominated in sterling) in respect of which the issue proceeds are to be accepted by the Issuer in the United
Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the FSMA and which have a maturity of less than one year must
have a minimum denomination of £100,000 (or its equivalent in other currencies).
C-10
11
Change of Interest or
Redemption/Payment Basis:
12
Put/Call Options (Conditions 6(e) and (f)):
[Instalment (specify)]
[Other (specify)]
[Specify details of any provision for convertibility of
Notes into another interest or redemption/payment
basis]
[Noteholder Put]
[Issuer Call]
[N/A]
[(further particulars specified below)]
LISTING APPLICATION
These Final Terms comprise the details required to list the issue of Notes described herein pursuant to the listing
of the U.S.$10,000,000,000 Global Medium-Term Note Programme of Banco Santander (Brasil) S.A. (acting
through its principal office in Brazil or through its Grand Cayman Branch).
MATERIAL ADVERSE CHANGE STATEMENT
There has been no significant change in the financial or trading position of the Issuer and its subsidiaries (taken
as a whole) since [insert date of last audited accounts or interim accounts (if later)] and no material adverse change
in the financial position or prospects of the Issuer and its subsidiaries (taken as a whole) since [insert date of last
published annual accounts].
RESPONSIBILITY
The Issuer accepts responsibility for the information contained in these Final Terms which, when read together
with the Information Memorandum referred to above, contain all information that is material in the context of the
issue of the Notes.
Signed on behalf of the Issuer:
By: _________________________
Duly authorized signatory
C-11
PART B - OTHER INFORMATION
DISTRIBUTION
1
2
LISTING
(i) Listing:
[London/Luxembourg/other (specify)/None]:
(ii) Admission to trading:
[Application has been made for the Notes to be
admitted to trading on the [Euro MTF Market/Other
(specify)] with effect from [ ].] [Not Applicable.]
(iii) Estimate of total expenses related to
admission to trading:
[]
RATINGS
Ratings:
The Notes to be issued have been rated:
[S&P:[ ]]
[Moody’s: [ ]]
[[Other]: [ ]]
(The above disclosure should reflect the rating
allocated to Notes of the type being issued under the
Programme generally or, where the issue has been
specifically rated, that rating.)
Rating agencies:
[[Insert credit rating agency] is established in the
European Union and has applied for registration
under Regulation (EC) No. 1060/2009, although
notification of the corresponding registration
decision has not yet been provided by the relevant
competent authority.]
[[Insert credit rating agency] is established in the
European Union and is registered under
Regulation (EC) No. 1060/2009.]
[[Insert credit rating agency] is not established in
the European Union and is not registered in
accordance with Regulation (EC) No. 1060/2009.]
[[Insert credit rating agency] is not established in
the European Union and has not applied for
registration under Regulation (EC) No. 1060/2009.
However, the application for registration under
Regulation (EC) No. 1060/2009 of [insert the name
of the relevant EU CRA affiliate that applied for
registration], which is established in the European
Union, disclosed the intention to endorse credit
ratings of [insert credit rating agency].]
[[Insert credit rating agency] is not established in
the European Union and has not applied for
registration under Regulation (EC) No. 1060/2009.
The ratings [[have been]/[are expected to be]]
endorsed by [insert the name of the relevant EUregistered credit rating agency] in accordance with
C-12
Regulation (EC) No. 1060/2009. [Insert the name of
the relevant EU-registered credit rating agency] is
established in the European Union and registered
under Regulation (EC) No. 1060/2009.]
3
[NOTIFICATION
The [include name of competent authority in EEA home Member State] [has been requested to provide/has
provided - include first alternative for an issue which is contemporaneous with the establishment or update of the
Programme and the second alternative for subsequent issues] the [include names of competent authorities of host
Member States] with a certificate of approval attesting that the Prospectus has been drawn up in accordance with the
Prospectus Directive.]
4
[INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE [ISSUE/OFFER]
Need to include a description of any interest, including conflicting ones, that is material to the issue/offer,
detailing the persons involved and the nature of the interest. May be satisfied by the inclusion of the following
statement:
“Save as discussed in [“Subscription and Sale”], so far as the Issuer is aware, no person involved in the offer of
the Notes has an interest material to the offer.”]
5
7
[REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL EXPENSES
[(i)
Reasons for the offer
[(ii)]
Estimated net proceeds:
[(iii))
Estimate of total expenses:
6
[Fixed Rate Notes only - YIELD
Indication of yield:
[]
(See [“Use of Proceeds”] wording in Information
Memorandum — if reasons for offer different from
making profit and/or hedging certain risks, will
need to include those reasons here.)]
[]
(If proceeds are intended for more than one use,
will need to split out and present in order of
priority. If proceeds insufficient to fund all proposed
uses state amount and sources of other funding.)
[]
[Include breakdown of expenses.] (Only necessary
to include disclosure of net proceeds and total
expenses at (ii) and (iii) above where disclosure is
included at (i) above.)] [Required for derivative
securities to which Annex XII to the Prospectus
Directive Regulation applies]
[]
The yield is calculated at the Issue Date on the basis
of the Issue Price. It is not an indication of future
yield.]
[Index Linked or other variable-linked Notes only - PERFORMANCE OF INDEX/FORMULA/
OTHER VARIABLE AND OTHER INFORMATION CONCERNING THE UNDERLYING
Need to include details of where past and future performance and volatility of the index/formula/other variable
can be obtained. Where the underlying is an index need to include the name of the index and a description if
composed by the Issuer and if the index is not composed by the Issuer, need to include details of where the
information about the index can be obtained. Where the underlying is not an index, need to include equivalent
information.]
C-13
8
[Dual Currency Notes only - PERFORMANCE OF RATE[S] OF EXCHANGE
Need to include details of where past and future performance and volatility of the relevant rate[s] can be
obtained.] [Required for derivative securities to which Annex XII to the Prospectus Directive Regulation applies]
9
OPERATIONAL INFORMATION
[]
ISIN Code:
Common Code:
[]
Any clearing system(s) other than Euroclear Bank
S.A./N.V. and Clearstream Banking société
anonyme, DTC and the relevant identification
number(s):
[Not Applicable/give name(s) and number(s) [and
addresses])]
Delivery:
Delivery [against/free of] payment
Names and addresses of additional Paying
Agent(s)
(if any):
[]
10
GENERAL
Applicable TEFRA exemption:
[C Rules/D Rules/Not Applicable]
C-14
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A. as at
December 31, 2014 and 2013 and for the Years Ended December 31, 2014 and 2013
Independent Auditors’ Report .........................................................................................................
Balance Sheets as at December 31, 2014 and 2013 ........................................................................
Income Statements for the Years Ended December 31, 2014 and 2013..........................................
Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2014 and
2013.................................................................................................................................................
Statements of Cash Flows for the Years Ended December 31, 2014 and 2013...............................
Statements of Value Added for the Years Ended December 31, 2014 and 2013.............................
Notes to the Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A...........
Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A. as at
December 31, 2013 and 2012 and for the Years Ended December 31, 2013 and 2012
Independent Auditors’ Report .........................................................................................................
Balance Sheets as at December 31, 2013 and 2012 ........................................................................
Income Statements for the Years Ended December 31, 2013 and 2012..........................................
Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2013 and
2012.................................................................................................................................................
Statements of Cash Flows for the Years Ended December 31, 2013 and 2012...............................
Statements of Value Added for the Years Ended December 31, 2013 and 2012.............................
Notes to the Audited Consolidated Financial Statements of Banco Santander (Brasil) S.A...........
F-1
F-2
F-4
F-8
F-9
F-10
F-11
F-12
F-97
F-99
F-103
F-104
F-105
F-106
F-107
F-2
Consolidated Financial Statemnets - December 31, 2014
F-3
Consolidated Financial Statemnets - December 31, 2014
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
BALANCE SHEETS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Current Assets
Cash
Interbank Investments
Money Market Investments
Interbank Deposits
Foreign Currency Investments
Securities and Derivative Financial
Instruments
Own Portfolio
Subject to Repurchase Commitments
Derivative Financial Instruments
Linked to Central Bank of Brazil
Privatization Certificates
Linked to Guarantees
Interbank Accounts
Payments and Receipts Pending Settlement
Restricted Deposits:
Central Bank Deposits
National Housing System
Correspondents
Interbranch Accounts
Internal Transfers of Funds
Lending Operations
Public Sector
Private Sector
Lending Operations Assignment
(Allowance for Loan Losses)
Leasing Operations
Public Sector
Private Sector
(Allowance for Lease Losses)
Other Receivables
Credits for Guarantees Honored
Foreign Exchange Portfolio
Income Receivable
Trading Account
Tax Credits
Others
(Allowance for Other Receivables Losses)
Other Assets
Non-Current Assets Held for Sale
Other Assets
(Allowance for Valuation)
Prepaid Expenses
4
5
6
7
8
8.f
8
8.f
9
10
11
12
8.f
13
12/31/2014
370,486,098
4,697,744
60,185,099
24,704,208
24,025,157
11,455,734
63,656,319
9,074,933
50,834,783
2,532,340
492,584
129
721,550
29,944,240
2,120
29,905,866
29,904,904
962
36,254
81,058,136
72,473
83,625,461
6,175
(2,645,973)
16
17
(1)
130,099,088
29
84,963,646
755,548
2,921,983
5,708,490
36,043,378
(293,986)
845,456
523,153
(49,364)
371,667
Bank
12/31/2013
273,933,942
5,290,047
65,498,311
32,456,665
21,557,117
11,484,529
33,244,090
11,713,343
18,103,822
1,988,686
992,127
446,112
35,434,037
2,783
35,387,633
35,387,166
467
43,621
809
809
52,721,727
39,581
55,457,523
8,337
(2,783,714)
4,594
4,958
(364)
81,129,325
1,640
46,418,065
634,509
1,521,451
4,711,337
27,953,828
(111,505)
611,002
320,575
(50,354)
340,781
12/31/2014
377,543,526
5,074,698
39,680,782
24,704,208
3,908,085
11,068,489
64,188,346
39,332,776
19,863,910
2,329,613
492,583
128
2,169,336
30,140,642
2,120
30,102,268
30,101,306
962
36,254
101,550,821
72,473
104,509,542
6,175
(3,037,369)
1,734,137
1,526
1,763,919
(31,308)
133,806,024
29
84,963,646
594,214
3,543,743
6,324,664
38,698,530
(318,802)
1,368,076
353,160
528,845
(51,170)
537,241
Consolidated
12/31/2013
278,966,002
5,485,679
47,477,388
32,456,665
2,361,119
12,659,604
33,427,183
26,369,720
2,423,264
1,924,274
992,127
1,717,798
35,665,665
2,783
35,619,261
35,618,794
467
43,621
809
809
70,049,851
39,581
73,206,184
8,337
(3,204,251)
2,147,111
2,607
2,199,224
(54,720)
83,923,128
1,640
46,418,065
562,547
1,611,127
5,476,303
29,987,862
(134,416)
789,188
325,709
(52,540)
516,019
Consolidated Financial Statements - December 31, 2014
F-4
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
BALANCE SHEETS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Long-Term Assets
Interbank Investments
Interbank Deposits
Foreign Currency Investments
Securities and Derivative Financial
Instruments
Own Portfolio
Subject to Repurchase Commitments
Derivative Financial Instruments
Linked to Central Bank of Brazil
Privatization Certificates
Linked to Guarantees
Interbank Accounts
Restricted Deposits:
National Housing System
Lending Operations
Public Sector
Private Sector
Lending Operations Related to Assignment
(Allowance for Loan Losses)
Leasing Operations
Public Sector
Private Sector
(Allowance for Lease Losses)
Other Receivables
Receivables for Guarantees Honored
Foreign Exchange Portfolio
Income Receivable
Negotiation and Intermediation of Securities
Tax Credits
Others
(Allowance for Other Receivables Losses)
Other Assets
Temporary Assets
(Allowance for Losses)
Prepaid Expenses
Permanent Assets
Investments
Investments in Affiliates and Subsidiaries:
Domestic
Foreign
Other Investments
(Allowance for Losses)
Fixed Assets
Real Estate
Others
(Accumulated Depreciation)
Intangibles
Goodwill
Intangible Assets
(Accumulated Amortization)
Total Assets
5
6
7
8
8.f
8
8.f
9
10
11
12
8.f
15
16
17
12/31/2014
Bank
12/31/2013
12/31/2014
Consolidated
12/31/2013
225,516,009
8,518,194
8,518,194
-
207,334,430
10,422,310
10,422,310
-
195,186,600
127,789
127,789
-
186,811,244
177,775
119,286
58,489
111,452,568
14,466,343
73,504,762
5,967,031
8,366,725
2,796
9,144,911
167,818
167,818
167,818
76,841,269
81,487
87,144,124
265
(10,384,607)
26
126
(100)
27,951,918
42,028
764,878
311,834
144,737
13,931,827
12,970,972
(214,358)
584,216
101,801
(1,765)
484,180
77,826,344
8,035,591
54,523,663
5,209,031
3,611,000
2,646
6,444,413
167,663
167,663
167,663
94,681,723
77,568
105,233,596
16,290
(10,645,731)
223
1,229
(1,006)
23,707,720
3,242
591,521
203,346
3,598
12,670,103
10,522,830
(286,920)
528,447
8,061
(1,765)
522,151
68,082,509
13,884,372
29,306,637
6,033,250
8,793,837
2,796
10,061,617
167,818
167,818
167,818
91,546,706
81,487
102,340,195
265
(10,875,241)
1,564,452
96
1,608,421
(44,065)
32,710,251
42,028
764,878
312,622
144,737
15,647,709
16,073,456
(275,179)
987,075
101,809
(1,773)
887,039
44,718,580
9,553,573
18,538,386
5,337,055
3,611,000
2,646
7,675,920
167,663
167,663
167,663
110,559,703
77,568
121,667,067
16,290
(11,201,222)
1,867,509
1,442
1,940,097
(74,030)
28,299,715
3,242
591,521
203,346
3,598
14,483,306
13,345,268
(330,566)
1,020,299
8,069
(1,773)
1,014,003
31,899,655
16,504,886
16,487,039
13,985,353
2,501,686
50,405
(32,558)
6,514,630
2,539,995
9,784,676
(5,810,041)
8,880,139
26,120,037
7,245,250
(24,485,148)
627,901,762
32,906,640
13,599,083
13,581,435
11,137,025
2,444,410
49,418
(31,770)
6,476,552
2,028,093
9,408,630
(4,960,171)
12,831,005
26,012,090
6,899,563
(20,080,648)
514,175,012
17,226,028
37,853
19,672
19,672
56,396
(38,215)
6,922,820
2,631,295
10,849,154
(6,557,629)
10,265,355
27,428,386
7,594,101
(24,757,132)
589,956,154
20,088,367
137,357
115,811
115,811
58,972
(37,426)
6,806,546
2,036,637
9,902,625
(5,132,716)
13,144,464
26,245,038
7,061,807
(20,162,381)
485,865,613
Consolidated Financial Statements - December 31, 2014
F-5
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
BALANCE SHEETS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Current Liabilities
Deposits
Demand Deposits
Savings Deposits
Interbank Deposits
Time Deposits
Money Market Funding
Own Portfolio
Third Parties
Linked to Trading Portfolio Operations
Funds from Acceptance and Issuance of
Securities
Exchange Acceptances
Resources of Debentures
Real Estate Credit Notes, Mortgage Notes,
Credit and Similar Notes
Securities Issued Abroad
Funding by Structured Operations Certificates
Interbank Accounts
Receipts and Payments Pending Settlement
Correspondents
Interbranch Accounts
Third-Party Funds in Transit
Internal Transfers of Assets
Borrowings
Local Borrowings - Other Institutions
Foreign Borrowings
Domestic Onlendings - Official Institutions
National Treasury
National Economic and Social Development
Bank (BNDES)
Federal Savings and Loan Bank (CEF)
National Equipment Financing Authority (FINAME)
Other Institutions
Foreign Onlendings
Foreign Onlendings
Derivative Financial Instruments
Derivative Financial Instruments
Other Payables
Collected Taxes and Other
Foreign Exchange Portfolio
Social and Statutory
Tax and Social Security
Trading Account
Subordinated Debt
Debt Instruments Eligible to Compose Capital
Others
18.a
18.b
12/31/2014
308,277,749
99,555,081
15,908,950
33,589,050
19,425,094
30,631,987
77,412,160
47,105,034
22,528,274
7,778,852
356,847,717
92,206,481
16,049,202
37,938,936
3,238,299
34,980,044
69,587,062
56,596,685
11,851,434
1,138,943
273,801,367
82,599,906
15,604,642
33,589,050
2,822,292
30,583,922
54,935,996
38,184,750
8,972,394
7,778,852
44,771,208
-
34,294,825
-
46,317,189
618,070
-
35,592,639
561,957
168,449
41,251,342
3,257,665
262,201
13,850
13,850
2,677,812
2,676,975
837
22,662,203
22,965
22,639,238
5,260,379
233
28,001,194
6,293,631
63,719
63,719
2,770,890
2,770,890
16,683,035
48,630
16,634,405
3,592,102
626
42,179,253
3,257,665
262,201
13,850
13,850
2,677,813
2,676,975
838
22,873,624
119,149
22,754,475
5,260,379
233
28,568,602
6,293,631
63,719
63,719
2,770,890
2,770,890
16,243,164
54,917
16,188,247
3,592,102
626
2,751,927
4,686
2,287,719
215,814
3,767,826
3,767,826
110,092,730
69,410
79,617,514
1,021,756
1,072,012
870,772
199,123
148,298
27,093,845
1,499,758
2,914
1,975,774
113,030
19,191
19,191
2,068,878
2,068,878
71,817,868
51,239
42,926,601
1,707,723
922,926
659,005
2,370,023
23,180,351
2,751,927
4,686
2,287,719
215,814
3,927,540
3,927,540
113,983,779
78,314
79,617,514
1,159,912
1,591,511
1,100,253
199,123
148,298
30,088,854
1,499,758
2,914
1,975,774
113,030
19,191
19,191
2,010,950
2,010,950
75,972,810
58,626
42,926,601
1,755,547
1,914,672
969,560
2,370,023
25,977,781
7
18.e
18.e
6
9
19
10
20
21
22
12/31/2014
Consolidated
12/31/2013
402,318,185
107,640,787
16,126,771
37,938,936
18,488,796
35,086,284
105,431,390
92,441,013
11,851,434
1,138,943
18.c
18.e
Bank
12/31/2013
Consolidated Financial Statements - December 31, 2014
F-6
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
BALANCE SHEETS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Long-Term Liabilities
Deposits
Interbank Deposits
Time Deposits
Money Market Funding
Own Portfolio
Linked to Trading Portfolio Operations
Funds from Acceptance and Issuance of
Securities
Exchange Acceptances
Real Estate Credit Notes, Mortgage Notes,
Credit and Similar Notes
Securities Issued Abroad
Funding by Structured Operations Certificates
Borrowings
Local Borrowings - Other Institutions
Foreign Borrowings
Domestic Onlendings - Official Institutions
National Treasury
National Economic and Social Development
Bank (BNDES)
Federal Savings and Loan Bank (CEF)
National Equipment Financing Authority (FINAME)
Other Institutions
Derivative Financial Instruments
Derivative Financial Instruments
Other Payables
Foreign Exchange Portfolio
Tax and Social Security
Negotiation and Intermediation of Securities
Subordinated Debts
Debt Instruments Eligible to Compose Capital
Others
12/31/2014
Bank
12/31/2013
12/31/2014
Consolidated
12/31/2013
167,863,855
51,405,411
359,232
51,046,179
41,115,308
31,057,727
10,057,581
142,768,904
50,904,700
30,339
50,874,361
25,010,361
25,010,361
-
174,237,406
51,425,486
538,132
50,887,354
40,765,686
30,708,105
10,057,581
147,949,412
51,613,201
1,097,225
50,515,976
23,526,094
23,526,094
-
25,859,065
-
30,856,381
-
28,634,380
380,791
33,468,316
545,508
17,319,206
8,537,959
1,900
1,570,206
4,125
1,566,081
10,353,134
418
18,980,292
11,876,089
1,732,185
26,313
1,705,872
8,164,559
241
19,713,730
8,537,959
1,900
1,570,206
4,125
1,566,081
10,353,134
418
21,046,719
11,876,089
1,732,185
26,313
1,705,872
8,164,559
241
4,732,009
111,319
5,500,089
9,299
4,704,079
4,704,079
32,856,652
679,901
12,618,120
30,619
7,094,953
6,628,348
5,804,711
4,348,219
68,442
3,747,657
3,789,610
3,789,610
22,311,108
507,024
10,553,902
46,907
6,536,121
4,667,154
4,732,009
111,319
5,500,089
9,299
4,885,034
4,885,034
36,603,480
679,901
15,839,704
30,619
7,094,953
6,628,348
6,329,955
4,348,219
68,442
3,747,657
3,854,468
3,854,468
25,590,589
507,024
13,367,042
48,181
6,536,121
5,132,221
Deferred Income
Deferred Income
394,492
394,492
303,006
303,006
408,926
408,926
308,183
308,183
Minority Interest
-
-
1,141,420
987,444
Stockholders' Equity
Capital:
Brazilian Residents
Foreign Residents
Capital Reserves
Profit Reserves
Adjustment to Fair Value
(-) Treasury Shares
Total Liabilities
18.a
18.b
18.c
18.e
18.e
6
9
19
10
20
21
22
24
57,325,230
57,000,000
4,808,186
52,191,814
548,164
2,104,205
(1,881,638)
(445,501)
627,901,762
62,825,353
62,828,201
6,251,291
56,576,910
827,496
1,481,301
(2,019,938)
(291,707)
514,175,012
57,320,685
57,000,000
4,808,186
52,191,814
548,641
2,097,573
(1,880,028)
(445,501)
589,956,154
62,819,207
62,828,201
6,251,291
56,576,910
828,217
1,466,402
(2,011,906)
(291,707)
485,865,613
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements - December 31, 2014
F-7
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
INCOME STATEMENTS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Financial Income
Lending Operations
Leasing Operations
Securities Transactions
Derivatives Transactions
Foreign Exchange Operations
Operations of Sale or Transfer of Financial Assets
Compulsory Deposits
Financial Expenses
Funding Operations Market
Borrowings and Onlendings Operations
Leasing Operations
Allowance for Loan Losses
6.a
18.d
8.f
Gross Profit From Financial Operations
Other Operating (Expenses) Income
Income from Services Rendered
Income from Banking Fees
Personnel Expenses
Other Administrative Expenses
Tax Expenses
Investments in Affiliates and Subsidiaries
Other Operating Income
Other Operating Expenses
27
27
28
29
30
15
31
32
Operating Income
Non-Operating Income
33
Income Before Taxes on Income and Profit Sharing
Income Tax and Social Contribution
Provision for Income Tax
Provision for Social Contribution Tax
Deferred Tax Credits
34
24.a
01/01 to
12/31/2014
54,313,805
33,837,944
2,985
17,867,744
466,825
(212,568)
56,758
2,294,117
37,210,696
23,808,549
235,050
10,998,552
(226,202)
880,900
19,289
1,494,558
64,967,001
41,496,734
489,141
17,543,078
462,773
1,751,344
31,708
3,192,223
56,377,625
39,596,299
621,289
13,624,743
378,161
(212,568)
57,250
2,312,451
(32,234,346)
(22,460,215)
(4,370,995)
(692)
(5,402,444)
(51,165,115)
(37,053,215)
(3,438,217)
(1,258)
(10,672,425)
(41,847,784)
(26,251,337)
(2,728,857)
(12,867,590)
(30,376,160)
(20,048,533)
(4,462,487)
(5,865,140)
(48,377,282)
(32,802,414)
(3,665,950)
(11,908,918)
(40,947,935)
(23,765,232)
(2,863,621)
(14,319,082)
5,360,613
13,767,757
12,466,021
6,834,536
16,589,719
15,429,690
(6,378,695)
3,737,844
1,194,434
(3,141,811)
(6,284,339)
(1,249,940)
703,724
1,592,535
(2,931,142)
(12,327,116)
7,241,626
2,369,355
(5,962,770)
(12,274,421)
(2,687,448)
1,291,145
2,813,366
(5,117,969)
(13,315,711)
6,956,705
2,399,088
(5,944,297)
(12,212,311)
(2,467,983)
967,314
1,828,863
(4,843,090)
(7,234,630)
4,259,615
1,482,458
(3,400,880)
(6,773,589)
(1,473,906)
2,258
1,632,350
(2,962,936)
(14,112,164)
8,159,789
2,898,150
(6,395,315)
(13,050,754)
(3,146,382)
2,549
2,879,783
(5,459,984)
(15,025,091)
7,771,522
2,902,857
(6,282,918)
(12,800,803)
(2,987,768)
20,113
2,131,530
(5,779,624)
(1,018,082)
1,440,641
(849,690)
(400,094)
96,411
2,449,231
135,657
99,025
2,214,549
-
Net Income
07/01 to
12/31/2014
64,932,872
34,916,695
24,352,271
721,273
1,751,344
22,096
3,169,193
(415,249)
Minority Interest
01/01 to
12/31/2014
Consolidated
01/01 to
12/31/2013
37,594,959
20,447,827
14,692,358
74,588
880,900
16,216
1,483,070
(921,671)
Profit Sharing
Number of Shares (Thousands)
Net Income per Thousand Shares (R$)
07/01 to
12/31/2014
Bank
01/01 to
12/31/2013
143,149
1,133,623
1,583,790
283,933
1,509,259
(392,599)
(198,696)
2,100,554
2,230,544
(7,881)
(134,569)
2,372,994
(940,145)
(888,919)
-
-
1,112,311
2,152,904
1,625,558
7,541,616
147.49
7,541,616
285.47
7,563,696
214.92
The accompanying notes are an integral part of these financial statements.
2,477,555
404,599
140,752
1,257,811
2,618,307
1,662,410
732,677
(625,056)
(388,955)
1,746,688
1,650,843
(123,286)
(327,064)
2,101,193
(438,383)
(991,193)
(958,394)
(115,213)
(198,621)
(247,532)
95,356
(304,738)
1,973,582
118,155
62,282
1,793,145
1,115,248
2,161,170
2,107,327
Consolidated Financial Statements - December 31, 2014
F-8
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
In thousands of Brazilian real - R$, unless otherwise stated
Note
Balances as of December 31, 2012 Adjusted
Employee Benefit Plan
Treasury Shares
Result of Treasury Shares
Reservations for Share - Based Payment
Adjustment to Fair Value - Securities and
Derivative Financial Instruments
Dividends based on Reserve for Dividend Equalization
Net Income
Allocations:
Legal Reserve
Dividends
Interest on Capital
Reserve for Dividend Equalization
Balances as of December 31, 2013
Employee Benefit Plan
Treasury Shares
Result of Treasury Shares
Reservations for Share - Based Payment
Adjustment to Fair Value - Securities and
Derivative Financial Instruments
Dividends based on Reserve for Dividend Equalization
Restructuring of Capital
Net Income
Allocations:
Legal Reserve
Dividends
Interest on Capital
Reserve for Dividend Equalization
Balances as of December 31, 2014
Balances as of June 30, 2014
Employee Benefit Plan
Treasury Shares
Result of Treasury Shares
Reservations for Share - Based Payment
Adjustment to Fair Value - Securities and
Derivative Financial Instruments
Restructuring of Capital
Net Income
Allocations:
Legal Reserve
Dividends
Interest on Capital
Reserve for Dividend Equalization
Balances as of December 31, 2014
Capital
24.d
24.d
35.f
24.b
24.b
24.b
24.c
24.d
24.d
35.f
24.b
24.d & f
24.b
24.b
24.c
24.d
24.d
35.f
62,828,201
-
Capital
Reserves
610,215
175,292
(716)
42,705
Profit Reserves
Reserve for
Legal
Dividend
Reserve
Equalization
1,300,216
-
-
-
Own
Position
Adjustment to Fair Value
Others
Affiliates and
Adjustment
Subsidiaries
to Fair Value
955,527
-
413,578
-
73,737
-
(955,527)
-
(974,075)
-
(200,914)
-
99,807
99,807
-
(560,497)
-
(127,177)
-
(99,807)
-
678,372
-
(2,524,323)
1,192,059
-
62,828,201
-
827,496
(4,926)
(89,094)
81,278
1,381,494
-
(5,828,201)
-
(185,312)
-
-
57,000,000
548,164
107,645
1,489,139
615,066
615,066
117,875
(118,161)
(1,881,352)
57,000,000
-
637,513
434
(89,783)
1,433,524
-
468,370
-
232,465
-
(81,403)
-
(1,330,492)
(550,860)
-
(114,590)
-
(36,758)
-
117,875
(118,161)
24.d & f
-
-
-
-
24.b
24.b
24.c
57,000,000
548,164
55,615
1,489,139
146,696
615,066
9,016
-
(1,332,264)
(549,088)
-
(1,881,352)
Retained
Earnings
1,625,558
(81,278)
(1,144,473)
(300,000)
(99,807)
-
(-)Treasury
Shares
Total
(170,562)
(121,145)
-
63,486,589
1,367,351
(121,145)
(716)
42,705
-
(1,174,989)
(955,527)
1,625,558
(291,707)
(153,749)
-
(1,144,473)
(300,000)
62,825,353
(549,088)
(153,749)
(4,926)
(89,094)
(45)
-
687,388
(99,807)
(6,013,558)
2,152,904
(445,501)
(740,193)
(690,000)
57,325,230
-
(351,993)
(93,482)
-
58,007,984
(550,860)
(93,482)
434
(89,783)
1,112,311
(26)
-
(151,348)
(26)
1,112,311
(445,501)
(220,000)
(690,000)
57,325,230
2,152,904
(107,645)
(740,193)
(690,000)
(615,066)
-
(55,615)
(220,000)
(690,000)
(146,696)
-
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements - December 31, 2014
F-9
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Operational Activities
Net Income
Adjustment to Net Income
Allowance for Loan Losses
Provision for Legal Proceedings and Administrative
and Legal Obligations
Deferred Tax Credits
Equity in Affiliates and Subsidiaries
Depreciation and Amortization
Recognition (Reversal) Allowance for Other Assets
Losses
Result on Sale of Other Assets
Result on Impairment of Assets
Result on Sale of Investments
Provision for Losses on Other Investments
Others
Changes on Assets and Liabilities
Decrease (Increase) in Interbank Investments
Decrease (Increase) in Securities and Derivative
Financial Instruments
Decrease (Increase) in Lending and Leasing Operations
Decrease (Increase) in Deposits on Central Bank of Brazil
Decrease (Increase) in Other Receivables
Decrease (Increase) in Other Assets
Net Change on Other Interbank and Interbranch Accounts
Increase (Decrease) in Deposits
Increase (Decrease) in Money Market Funding
Increase (Decrease) in Borrowings
Increase (Decrease) in Other Liabilities
Increase (Decrease) in Change in Deferred Income
Tax Paid
Net Cash Provided by (Used in) Operational Activities
Investing Activities
Acquisition of Investment
Acquisition of Fixed Assets
Acquisition of Intangible Assets
Net Cash Received
on Sale/Reduction
of Investments
Acquisition
of Subsidiary,
unless Net Cash
on Acquisition
Proceeds from Assets not in Use
Proceeds from Property for Own Use
Dividends and Interest on Capital Received
Net Cash Provided by (Used in) Investing Activities
Financing Activities
Restructuring of Capital
Issuance Debt Instruments Eligible to Compose Capital
Acquisition of Own Share
Issuance of Long - Term Emissions
Long - Term Payments
Subordinated Debts - Payments
Debt Instruments Eligible to Compose Capital - Payments
Dividends and Interest on Capital Paid
Increase (Decrease) on Minority Interest
Net Cash Provided by (Used in) Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period
07/01 to
12/31/2014
01/01 to
12/31/2014
Bank
01/01 to
12/31/2013
07/01 to
12/31/2014
01/01 to
12/31/2014
Consolidated
01/01 to
12/31/2013
8.f
1,112,311
6,859,990
5,402,444
2,152,904
16,627,866
10,672,425
1,625,558
18,129,215
12,867,590
1,115,248
8,852,906
5,865,140
2,161,170
19,949,198
11,908,918
2,107,327
21,450,216
14,319,082
15
29
2,274,570
(2,636,378)
(703,724)
2,743,572
4,342,246
(2,423,663)
(1,291,145)
5,422,583
2,756,254
(1,539,619)
(967,314)
5,327,864
2,493,005
(2,322,730)
(2,258)
2,879,868
4,899,698
(2,346,517)
(2,549)
5,584,391
3,450,872
(1,748,844)
(20,113)
5,368,521
(58)
(71,325)
9,608
(158,719)
2,015,659
(2,915,623)
(1,016)
(100,244)
10,879
(4,199)
(22,252,456)
(5,581,655)
(96,737)
(122,705)
349,030
(47,303)
(397,845)
(5,576,909)
7,482,318
(349)
(72,226)
9,783
1,882
791
(1,112,680)
(3,254,730)
(1,383)
(101,777)
11,054
1,925
(4,562)
(27,490,145)
(6,372,440)
(97,226)
(126,083)
349,030
(47,140)
1,200
917
(6,651,241)
6,456,890
(28,993,947)
(15,652,375)
2,588,476
(60,994,950)
22,108
11,074,649
(7,354,558)
41,129,707
8,778,371
54,270,120
71,278
(7,597)
9,987,960
(60,896,874)
(20,095,811)
5,482,262
(52,721,517)
7,085
(134,758)
8,586,417
44,124,177
9,654,850
49,239,479
91,486
(7,597)
(3,471,686)
(10,499,200)
(19,927,971)
(1,304,652)
(14,673,684)
(157,229)
806,762
(5,507,545)
22,768,841
4,764,309
11,169,892
80,911
(579,661)
14,177,864
(24,979,783)
(16,987,668)
12,371,497
(62,295,674)
51,884
1,337,872
9,509,519
20,408,722
8,797,256
54,082,035
73,771
(227,381)
8,855,474
(50,731,878)
(22,513,899)
5,517,488
(54,311,096)
109,071
(134,757)
9,414,204
31,892,078
10,128,587
49,976,104
100,743
(564,350)
(5,379,777)
(2,255,015)
(22,986,465)
(1,308,769)
(15,419,796)
(75,540)
806,762
7,667,968
5,933,528
4,324,438
11,421,712
86,084
(1,303,038)
16,906,302
(2,413,935)
(770,273)
(423,653)
140,536
36,031
128,899
621,868
(2,680,527)
(2,508,028)
(964,430)
(643,325)
146,839
98,909
137,219
942,834
(2,789,982)
(336,460)
(1,641,247)
(834,727)
4,315,971
31,490
182,113
73,760
1,790,900
(2,881)
(913,350)
(386,943)
725
(1,117,944)
37,417
205,191
56,408
(2,121,377)
(5,366)
(1,135,706)
(630,882)
6,986
(1,117,944)
101,312
207,254
67,958
(2,506,388)
(126,394)
(2,069,815)
(952,985)
25,869
36,630
296,964
37,850
(2,751,881)
(93,508)
30,492,990
(30,297,502)
(1,985,447)
(224,242)
(733,144)
(2,840,853)
4,466,580
18,945,444
23,412,024
(6,000,000)
6,000,000
(167,307)
53,442,629
(55,438,217)
(2,495,283)
(284,573)
(2,186,867)
(7,129,618)
(13,391,286)
36,803,310
23,412,024
(121,145)
45,417,762
(40,713,019)
(2,050,907)
2,532,691
18,501,455
18,301,855
36,803,310
(93,508)
31,294,196
(31,045,839)
(1,985,447)
(224,242)
(700,970)
143,966
(2,611,844)
4,122,253
19,279,480
23,401,733
(6,000,000)
6,000,000
(167,307)
54,974,845
(56,766,123)
(2,495,283)
(284,573)
(2,159,383)
153,976
(6,743,848)
(14,630,013)
38,031,746
23,401,733
(121,145)
47,696,402
(41,751,852)
(2,052,069)
158,617
3,929,953
18,084,374
19,947,372
38,031,746
33
33
32
33
15
24.f
24.f
24.d & f
4
4
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements - December 31, 2014
F-10
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO SANTANDER (BRASIL) S.A. AND SUBSIDIARIES
STATEMENTS OF VALUE ADDED
In thousands of Brazilian Real - R$, unless otherwise stated
Note
Financial Income
Income from Services Rendered and Banking Fees
Allowance for Loans Losses
Other Income and