Geeks on a Plane South America - Company presentation by Guilherme da Nobrega, Chief Economist, of Itaú BBA in Sao Paulo, Brazil.

1. Brazil:
Where next?
Guilherme da Nóbrega
Economist
Itaú BBA
April 2011 1

2. Latin America:
A healthy departure from the past
Deepening democratic values are helping improve macro policies
Voter discipline: less experimentation, more stability, longer-term thinking
New consumer mindset demands low inflation, product quality, sustainability, global ties
Well-designed income transfer programs reduce poverty
Demand for education is growing
Global integration creates world-class companies
April 2011 2

3. Latam macro achievements:
Inflation control, external solvency
Inflation - average annual rate Foreign reserves - % of GDP
Major Latam regions Argentina, Brazil, Chile, Colombia,
Mexico, Peru, Venezuela
90-99 00-09 15%
South America 273% 8%
14%
Central America 162% 8%
Caribbean 12% 8% 13%
Source: IDB
12%
11%
10%
9%
8%
90 96 02 08
April 2011 3

4. Political openness and market-friendly
policies are paying off
4500
4000
Brazil, Chile, Peru and Mexico
Argentina and Venezuela
3500
Greece
3000
2500
2000
1500
1000
500
0
2007 2008 2009 2010 2011
April 2011 4

5. Brazil: two very different 15-year periods
1980-1994 1995-2010
Presidents 5 2
Finance ministers 15 3
CB presidents 14 5
Currencies 6 1
Avg annual inflation 730% 7%
April 2011 5

6. Privatization • Telebrás
System
• BEMGE
• Gerasul
1991 to 2002 (US$ billion)
• CVRD 38
• BANERJ
• Acesita 28
• Acesita
Energética
• Fosfértil • BANESPA
• CSN • BANESTADO
• Usiminas • CST • Açominas
• Mafersa • Copesul • Cosipa • Embraer • Light
• DataMec 11
• CELMA • Petroflex • PQU • BEG
7 5
3 4 2 3
2 2 2
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Proceeds – Breakdown by Sector
Highlights
1.5% 7.9%
3.6%
Privatized Sectors Partially
Steel Privatized Sectors 32.1% 8.4%
Petrochemical Ports
Fertilizers Financial
2.2% 30.9%
Mining Sanitation 6.1%
6.7%
Aerospace Toll-Roads 0.7%
Railroads Power Steel Oil & Gas Mining Transports Sanitation
Telecommunication Oil & Gas Petrochemical Financial Power Telecom Other
April 2011 6

7. “Plano Real” – 15 years of inflation control
IPCA inflation vs Central Bank target
22.4
IPCA (YoY)
12.5
Inflation Target
9.6 9.3
8.9
7.7 7.6
6.0 5.7 5.9 5.9 6.3
5.2 5.0
4.5 4.3
3.1
1.7
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
April 2011 7

8. Progress towards world class companies
World’s second largest mining company
World’s third largest commercial aircraft maker
World’s largest brewery
Merger between Unibanco and Itaú created 10th largest bank by market capitalization
Merger with Chile’s Lan will create the world’s fourth largest airliner
Largest animal protein processing company in the world
Perdigão-Sadia merger created the world’s largest meat and poultry company
The world’s 13th biggest steel producer
“Odebrecht wins prize of largest family company of the world.”
April 2011 8
The world’s third largest oil company by market capitalization

9. Brazil’s fast changing consumer profile
Population by annual household income During 2003-09, 36 million new consumers
(million)
Low (< US$ 8,000 )
29
96m 94m Low
Middle
73m High
65m
Middle (US$ 8-35,000) 7
High (> US$ 35,000) 36 million
20m new consumers
13m
-23
2003 2004 2005 2006 2007 2008
Source: FGV; Itaú Unibanco
April 2011 9

10. What’s bringing inequality down?
Bolsa Familia is important, but the key factor has been more income from better
jobs (2003-2008)
The main sources of income, 2008 How each of them helped, 2003-2008
20% 16%
2%
2% 17%
76% 67%
1%
Work Other transfers Work Other transfers
Bolsa Família Pensions Bolsa Família Pensions
Source: FGV; Itaú Unibanco
April 2011 10

11. Interest rates: the road to normality
30%
26.50%
25%
20%
Nominal Selic Rate
15% 13.75%
12.25%
11.8%
10%
8.75%
5%
4.2% Real Selic Rate
3.4%
0%
1999 2001 2003 2005 2007 2009 2011
Source:BCB
April 2011 11

12. Credit: still the green fields
Total bank accounts and bank lending Loans to individuals (% total)
50 148
141.3 60%
Million bank Other
46.7
accounts (right) Personal loans
45 128 (incl payroll debit)
50%
40 108
Total Credit % GDP (left) 40%
35 88 30%
Acquisition of
goods (incl cars)
30 68
63.7 20% Acquisition of goods (incl cars)
Overdraft
Credit Card
25 48 10%
24.2
20 28 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2003 2005 2007 2009 2011
Source: Febraban; BCB
April 2011 12

13. A diversified investment case
MACRO STABILITY INFRASTRUCTURE
& CONSTRUCTION
LOWER COST OF CAPITAL
CONSUMER &
FINANCIAL SERVICES
NATURAL RESOURCES
COMMODITIES
190 MILLION PEOPLE
April 2011 13

14. A great 2010, but not an outstanding record
GDP growth
Average
4.0%
April 2011 14

15. Near the roof: capacity utilization
Industrial capacity utilization )%) % of ships with more than 72 hs delay at port
of Santos
88
27%
86
84 19%
17%
15%
82 14%
80
78
76
2006
Source: FGV 2008 2010 2006 2007 2008 2009 2010
Source: Port of Santos website
April 2011 15

16. A tight job market
Formalization ratio (% of Total Labor Force) Unemployment rate and NAIRU
54 14
52.05 13
52
12
50
11
48 10
46.23 9
46 NAIRU
8
44 7.5%
7
42 Unemployment rate
6 6.2%
40 5
2002 2004 2006 2008 2010 2002 2004 2006 2008 2010
Source: IBGE; Itaú
April 2011 16

17. Rising inflationary expectations
6.5
6.0 6.0%
2011
5.5
5.0 5.0%
2012
4.5
4.0
Jan-10 May-10 Sep-10 Jan-11
Source: FOCUS
April 2011 17

18. Airport traffic up 21% in 2010
150
140 million
140
130 21% growth in 2010
24
120
110 12
3
100
7
90 6
80
2006 2007 2008 2009 2010
Source: Infraero
April 2011 18

19. Rebalancing: fiscal policy
A R$ 50 bn budget freeze
Government spending growth (IPCA adj)
12%
11%
10% 10%
10%
9% 9%
8%
8%
6% Our estimate
4%
3% 3%
2%
1%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: BCB; Itaú Unibanco
April 2011 19

20. Challenges
Low savings ratio
Infrastructure bottlenecks and long-term credit
Quality of government spending and the social security system
High tax burden, complex and inefficient tax code
Education, Education, Education
April 2011 20

21. Low domestic savings ratio
60% Average 2004-09
Savings/GDP
50% Investment/GDP
40%
30%
20%
10%
0%
China India Russia Japan Mexico Eurozone Brazil US
April 2011 21

22. Total social security spending (% GDP) A generous social security system
20%
Italy
18%
16% Poland
14% Brazil
12%
10%
Japan
8%
US
6%
4% Mexico
2% Colombia
0%
5% 10% 15% 20% 25% 30%
People older than 65 as a % of total population
April 2011 22

23. There’s time to act
Brazil has a few years to go before the issue gets
complicated by population ageing
160 35%
Pop aged 15 to 60 (million - left)
140 30%
120
25%
100
20%
80
15%
60 Pop > 60 as % total (right)
10%
40 6%
20 5%
0 0%
1980 1990 2000 2010 2020 2030 2040 2050
Source: UN
April 2011 23

24. 300
350
400
450
500
550
600
April 2011
Shanghai
Source: OECD; Itaú Unibanco
Finland
Korea
Canada
Chinese Taipei
Netherlands
Switzerland
2009 PISA rankings
Germany
Macao-China
Iceland
United Kingdom
Slovenia
France
United States
Sweden
24
Portugal
Austria
Italy
Luxembourg
Croatia
Russian Federation
Israel
Serbia
Bulgaria
Romania
Mexico
Education: still a long way to go
Montenegro
Brazil
Kazakhstan
Tunisia
Indonesia
Qatar
Peru

25. A Brazilian advantage: entrepreneurial spirit
2007 2008 2009 2010 2011
IPOs
IBOV
INDEX
FOLLOW ONs
Summary 2007 Summary 2008 Summary 2009 Summary 2010 Summary 2011
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
# # # # #
(US$ BN) (US$ BN) (US$ BN) (US$ BN) (US$ BN)
IPO 64 29.8 IPO 4 4.6 IPO 6 13.1 IPO 11 6.3 IPO 5 3.0
Follow On 12 8.5 Follow On 8 16.6 Follow On 18 11.9 Follow On 12 82.9 Follow On 4 1.1
Total 76 38.3 Total 12 21.2 Total 24 25.0 Total 23 89.2 Total 9 4.1
Source: Dealogic, CVM, Thomson, Bloomberg
April 2011 25

26. Macro Forecasts
2006 2007 2008 2009 2010 2011F 2012F
World Economy
W orld GDP growth 5.1 5.2 3.0 -0.6 4.9 4.4 4.0
USA 2.7 1.9 0.0 -2.6 2.8 2.9 2.5
Euro Area 3.2 2.8 0.3 -4.0 1.7 1.7 1.3
Japan 2.0 2.4 -1.2 -6.3 3.9 0.7 1.4
China 12.7 14.2 9.6 9.1 10.3 9.0 8.5
Brazil
External Sector & Exchange Rate
BRL / USD - eop 2.14 1.77 2.34 1.74 1.69 1.55 1.65
BRL / USD - year avg 2.18 1.95 1.84 1.99 1.76 1.60 1.60
Exports - USD bn 138 161 198 153 202 243 254
Imports - USD bn 91 121 173 128 182 227 250
Trade balance - USD bn 46 40 25 25 20 16 4
Total Trade Flows (exp + imp) - % GDP 21 21 22 18 18 19 18
Current Account - USD bn 14 2 -28 -24 -48 -70 -102
Current Account - % GDP 1.3 0.1 -1.7 -1.5 -2.3 -2.8 -3.7
Foreign Direct Investment - USD bn 19 35 45 26 48 58 65
Foreign Direct Investment - % GDP 1.7 2.5 2.7 1.6 2.3 2.3 2.4
International reserves, cash - USD bn 86 180 194 239 288 335 361
International reserves - % GDP 7.9 13.2 11.7 14.9 13.9 13.3 13.1
Economic Activity
Nominal GDP - BRL bn 2,369.5 2,661.3 3,031.9 3,185.1 3,655.3 4,040.0 4,410.2
Nominal GDP - USD bn 1,088.8 1,366.5 1,650.7 1,598.4 2,076.6 2,521.0 2,749.2
Real GDP growth - % 4.0 6.1 5.2 -0.6 7.5 3.6 3.8
Inflation
IPCA - % 3.1 4.5 5.9 4.3 5.9 6.3 5.0
IGP–M - % 3.8 7.8 9.8 -1.7 11.3 6.3 5.4
Interest Rate
Selic - eop - % 13.25 11.25 13.75 8.75 10.75 12.25 11.50
Selic - year avg - % 15.1 12.0 12.5 9.9 10.0 12.0 12.1
Public Finances
Primary budget surplus - % GDP 3.2 3.3 3.4 2.1 2.8 2.5 1.9
Nominal budget surplus - % GDP -3.5 -2.7 -1.9 -3.3 -2.6 -3.7 -3.0
Source: Itaú Unibanco Net Debt - % GDP 47.0 45.1 38.4 42.8 40.4 39.3 37.9
April 2011 26

27. Long run - Macro Forecasts
Long Run Scenario
Data and Fore casts 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
External Sector
Exchange rate Dec 2.34 1.74 1.69 1.55 1.65 1.66 1.65 1.69 1.75 1.79 1.85 1.93 2.00
Current Account % GDP -1.7 -1.5 -2.3 -2.8 -3.7 -3.8 -3.7 -3.5 -3.4 -3.2 -3.2 -3.1 -2.9
Economic Activity
Real GDP growth % 5.2 -0.6 7.5 3.6 3.8 4.7 4.6 4.7 4.7 4.7 4.5 4.4 4.3
Inflation
IPCA % 5.90 4.3 5.9 6.3 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
IGP-M % 9.8 -1.7 11.3 6.3 5.4 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Monetary Policy
Selic Target (% a.a.) Dec 13.75 8.75 10.75 12.25 11.50 10.75 10.50 10.25 10.00 9.75 9.75 9.75 9.75
Fiscal Policy
Primary Surplus % GDP 3.4 2.1 2.8 2.5 1.9 1.5 1.3 1.0 1.0 1.0 1.0 1.0 1.0
Net Public Debt % GDP 38.4 42.8 40.4 39.3 37.9 38.3 37.7 37.0 36.1 35.2 34.3 33.4 32.5
Source: Itaú Unibanco
April 2011 27