Quarterly Management Discussion & Analysis (MDA300905.pdf)

Itaú BBAWe set out below the pro forma income statement of Itaú BBA.R$ Million• Banking Operations 240 238 2• Treasury 47 214 (167)• Management of Foreign Exchange Risk from Investments Abroad - net oftax effects 51 49 2Provision for Loan and Lease Losses (36) 14 (50)Credits Recoveries and Renegotiated 140 14 126Banking Service Fees 100 96 4Result from Operations of Insurance, Capitalization and Pension Plans - - -Despesas não Decorrentes de Juros (141) (176) 35Non-Interest Expenses (26) (32) 6Equity in the Earnings of Associated Companies - - -Other Operating Income 4 (2) 6Non-Operating Income 1 - 1Note: The item Non-Interest Expenses is composed by Personnel Expenses, Other Administrative Expenses, tax expenses for CPMF e Other taxes and Other Operating Expenses.The third quarter of 2005 showed a financial margin ofR$ 338 million, which represents a 32.6% decrease whencompared to the margin of R$ 501 million observed inthe previous quarter.The financial margin from banking transactions totaledR$ 240 million in the third quarter, a slight increase of0.7% over the previous quarter, as a result of gains fromstructured credit transactions, which have a higheradded value.The income of R$ 47 million from treasury transactionsreflects basically a reduction of their exposures in thecourse of the quarter.The excellent level of the quality of the credit portfolioshould be pointed out, with 98% of the credits rankedat “AA”, “A” and “B” risk levels, according to the criteriaof Resolution 2682 of the Brazilian Central Bank. In thiscontext, the result for loan losses shows a R$ 104 millionreversal of provision in the quarter, as a result of (i)reclassifications of risk ratings, (ii) credit recovery,resulting from renegotiating loans granted to theelectricity sector; and (iii) effects of the appreciation ofthe real against the US dollar.The gross income from financial intermediation, in theamount of R$ 442 million, showed a 17% decrease incomparison with the previous quarter.Banking service fees totaled R$ 100 million in the quarter,a 3.7% increase in relation to the previous quarter,explained mainly by the improved results from cashmanagement services.Non-interest expenses of R$ 141 million showed areduction of 20.0% , compared to the second quarterof 2005, mainly as a result of the acceleratedamortization of software carried out in June, in theamount of R$ 20 million.As a consequence of the items described above, ItaúBBA’s pro forma net income amounted to R$ 304 millionin the third quarter of 2005, which represents a 5.7%decrease in relation to the previous quarter,corresponding to an annualized return on allocatedcapital (Tier I) of 35.3% in the quarter.35 Management Discussion and AnalysisBanco Itaú Holding Financeira S.A.