EX-99.1 2 e19837ex99-1.htm FINANCIAL STATEMENTS Exhibit 99.1

Exhibit 99.1

Banco Itaú Holding Financeira S.A.

Management Discussion and Analysis
Complete Financial Statements
September 2004


   

Contents

Executive Summary 03 
Analysis of the Consolidated Performance 11 
Analysis of the Net Interest Margin 13 
Results from Doubtful Debts 14 
Banking Service Fees 16 
Administrative Expenses 17 
Tax Expenses 19 
Analysis of the Pro Forma Results 20 
Banco Itaú Segments 24 
Banking 26 
Credit Cards 28 
Insurance, Capitalization and Pension Plans 30 
Investment Funds and Managed Portfolio 35 
Banco Itaú BBA 36 
Balance Sheet by Currency 38 
Risk Management 40 
Activities Abroad 45 
Ownership Structure 48 
Performance in the Stock Market 50 
Independent Auditors’ Report 53 
Complete Financial Statements 54 

   

Executive Summary

Highlights

R$ Million (except where indicated)
Statements of Income 3rd Q./04 2nd Q./04 3rd Q./03 Jan-Sep/04 Jan-Sep/03
  Net Income   1,226   949   822   3,046   2,861  
  Extraordinary Result   (305 ) 0   (15 ) (301 ) (563 )
  Net Income   920   949   807   2,745   2,298  
  Net Interest Income   2,673   2,457   2,708   7,503   8,163  
  Net Income from Financial Operations   2,433   2,239   2,222   6,842   6,966  
  Bank Service Fees   1,508   1,454   1,323   4,366   3,778  
   
Income per Shares (R$)  
  Consolidated Net Income (per thousand shares)   8.13   8.38   7.05   24.24   20.06  
  Number of Outstanding Shares (in million)   113,250   113,160   114,55   113,250   114,559  
  Book Value (per thousand shares)   118.95   113.00   100.07   118.95   100.07  
  Dividends / JCP (1) (R$ Million)   325   264   202   828   681  
  Dividends / JCP (1) per thousand shares   2.87   2.33   1.76   7.31   5.94  
  Market Capitalization (R$ Million - period end)   34,959   30,485   25,691   34,959   25,691  
  Market Capitalization (US$ Million - period end)   12,229   9,810   8,788   12,229   8,788  
   
Performance Ratio (%)  
  Recurring ROE Annualized   41.7 % 33.1 % 31.9 % 31.2 % 34.6 %
  ROE Annualized   30.3 % 33.1 % 31.3 % 28.1 % 27.6 %
  ROA Annualized   2.7 % 3.1 % 2.7 % 2.7 % 2.6 %
  Solvency Ratio (BIS Ratio)   19.4 % 19.5 % 21.5 % 19.4 % 21.5 %
  Efficiency Ratio - Before Reclassifications   44.5 % 47.3 % 47.6 % 46.8 % 44.9 %
  Efficiency Ratio - After Reclassifications   43.1 % 45.3 % 46.3 % 44.7 % 43.6 %

Consolidated Balance Sheet 30-Sep-04 30-Jun-04 30-Sep-03
  Total Assets     138,520     122,760     118,982
  Credit Operations   44,810     42,381   0   36,933    
  Sureties, Endorsements and Guarantees     6,249   51,059     6,332   48,713     5,766   42,699
  Securities + Interbank Accounts     37,419     38,605     39,430
  Total Deposits     37,590     36,041     34,414
  Stockholder’s Equity of Itaú Consolidated     13,471     12,787     11,464
 
Relevant Data  
  Assets Under Management     93,774     89,565     72,817
  Employees     42,152     42,206     42,196
  Active Customers (Million)     9.3     9.1     9.2
  Branches (units)     2,262     2,274     2,319
  CSBs (units)     795     800     861
  Automated Teller Machines (units)     20,703     20,362     19,244

(1) JCP (Interests on Own Capital)

We point out that the figures referring to previous periods, shown in this report, have been reclassified for the purposes of comparability, without causing an impact on the net income.

We point out that the pro forma data referring to previous periods shown in this report have been reclassified due to the improvement of the criterion of allocated capital.

The effects of exchange variation on foreign investments are distributed in the Statement of Income according to the nature of the corresponding accounts.

The tables of this report have the numbers expressed in millions. However, the variations and totals were calculated based on numbers expressed in whole units.

Future expectations resulting from this analysis should take into consideration the risks and uncertainties surrounding any activity and which are beyond the control of the companies in the group (political and economic changes, volatility of interest and exchange rates, technological change, inflation, financial desintermediation, competitive pressures on products and prices, and changes in tax legislation).


3 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Third Quarter of 2004

Net Income and Return on Equity

Itaú’s performance has been driven by the adoption of strategies drawn up to meet the current demand from customers for loans and financing. With the growth in the volume of credit operations, we had a positive impact on the financial margin and on service fee income, as well as a natural increase in expenses for the allowance for loan losses, which were offset by the reversal of provisions associated with the recovery of financial capacity on the part of corporate customers. On the other hand, administrative expenses remained practically unchanged in relation to the previous period. The operational gains achieved generated a notable recurring result of R$ 1,226 million (amounting to an annualized return on equity of 41.7%), capable of absorbing the impact of the full amortization of the goodwill connected with the process of Itaú’s association with Companhia Brasileira de Distribuicao - CBD (reflected in the extraordinary expense of R$ 305 million in the period), leading to a consolidated net income of R$ 920 million, practically unchanged in relation to the result achieved in the previous quarter. For the ninth consecutive quarter, the annualized return on equity surpassed the notable mark of 30%, reaching 30.3%.

Net Interest Income

The expansion of the credit portfolio and the appropriate management of the securities portfolio caused a favorable impact on Itaú’s financial margin, resulting in an increase of R$ 216 million in relation to the second quarter of 2004, an amount that is equivalent to an increase of 8.8%. The financial margin associated with credit operations grew R$ 128 million in relation to the previous quarter, and 97.1% of this increase derived from the rise in the volume. This confirms the strategic importance of emphasizing the growth of the credit portfolio for forming results of the period, focusing on the segments where the opportunities are greater.

Bank Service Fees

Service fee income showed growth of R$ 54 million in relation to the previous quarter, totaling R$ 1,508 million in the third quarter of 2004. The preponderant factors for this increase were the larger volumes of credit operations and credit card transactions, both associated with the upturn in the economy, which raised revenues by R$ 32 million. There was also a greater volume of funds under management, which contributed towards the growth of R$ 23 million in funds management income.

Efficiency Ratio

Personnel expenses increased in this quarter, because of the setting up provision relating to the bank clerks’ collective salary agreement, which includes the salary increase, social contributions, benefits, and the respective impacts on the provisions for 13th salary and vacations. On the other hand, other administrative expenses remained unchanged in relation to the previous quarter. In this quarter, reclassifications were carried out in the financial statements, with the objective of allowing better comparability between Itaú’s results and those of its competitors. Accordingly, the efficiency ratio calculated from the reclassified financial statements amounted to 43.1% in the quarter, with a positive movement from the ratio of 45.3% achieved in the previous quarter.

On the other hand, if we calculated the efficiency ratio for the third quarter before the reclassifications, it would amount to 44.5%, against the 47.3% achieved in the second quarter of 2004.


4 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Third Quarter of 2004

Credit Operations (*)

(*) Endorsements and Sureties included

The credit portfolio, including sureties and guarantees, showed positive growth of 4.8% in the quarter, adding up to R$ 51,059 million. Considering only local currency credit transactions, growth of 9.3% was seen in the same period, reaching R$ 38,280 million. Once again, notable growth was shown in the quarter in the portfolios of micro, small and medium businesses (10.7%), personal credit (12.7%) and vehicle finance (9.6%). The portfolio of credit intended for private individuals added up to R$ 17,243 million, with an increase of 9.1% in relation to June 2004. On the other hand, the portfolio of credit for corporate customers was partly affected by the 8.0% appreciation of the real against the dollar, amounting to R$ 33,816 million at September 30, 2004, compared to a balance of R$ 32,911 million at the end of June of this year.

NPL Ratio(*) - Individuals x Businesses (%)

(*) Nonperforming Loans: Loans overdue for more than 60 days.

The favorable economic conditions seen throughout the third quarter of 2004 were reflected in the quality of Itaú’s credit portfolio. Generally speaking, the strong expansion in credit is being accompanied by a notable improvement in the portfolio’s performance indicators. In particular, the index of nonperforming loans is to be pointed out, calculated by dividing the transactions that have ceased generating revenues because of delay in payment by the total balance of the credit portfolio, which improved to 3.2%, from 3.5% in the previous quarter. We are not expecting an ongoing improvement in these indicators, because of the focus on credit products with higher margins, but, at the same time, with a greater credit risk.

Technical Reserves of Insurance,
Capitalization and Pension Plans

The technical provisions for insurance, pension plans and premium bonds amounted to R$ 10,048 million, showing growth of 8.4% in the third quarter of 2004. The highlight continues to be the VGBL family of products, which, when added to the other pension plan products, rose 9.8% in the same period, amounting to R$ 7,675 million in technical provisions. The technical provisions for pension plan operations (PGBL, VGBL and traditional plans) showed a notable growth of 307.7% in the last 24 months, far more than the 123.5% rise in the market (source: SUSEP - calculated between 08/31/2002 and 08/31/2004).

Unrealized Result

At September 30, 2004, the unrealized profit/loss in Itaú’s results added up to R$ 2,871 million, an increase of 7,6% in relation to the previous quarter. The unrealized profit/loss benefited from the improvement in the perception of risk by the various economic agents about the performance of the Brazilian economy. Accordingly, the effect of marking to market securities classified as held to maturity corresponded to an appreciation of R$ 109 million. Likewise, securities available for sale appreciated by R$114 million.

It is important to remember that this unrealized amount may be realized as income/expense in the course of time and as and when the financial instruments that originated them are realized under market conditions similar to those at the end of September 2004. Itaú also has a balance of R$ 1,000 million of provision in excess of the minimum required for loan losses, which has not been taken into consideration in the unrealized profit/loss.


5 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Consolidated Balance Sheet

R$ Million
Variation
ASSETS Sep 30, 04 Jun 30, 04 Sep 30, 03 Sep.04-Jun.04 Sep.04-Sep.03
Current and Long Term Assets   135,455   119,545   115,744   15,910   19,711  
  Cash And Cash Equivalents   1,926   1,725   1,644   201   282  
  Short-term Interbank Deposits   25,397   17,149   22,785   8,248   2,612  
  Securities and Derivative Financial Instruments   28,258   28,397   29,060   (138 ) (801 )
  Interbank and Interbranch Accounts   11,263   10,396   8,891   867   2,372  
  Loans, Leasing Operations and Other Credits   44,810   42,381   36,933   2,429   7,878  
  (Allowance for Loan Losses)   (3,027 ) (3,065 ) (3,290 ) 38   264  
  Other Assets   26,828   22,563   19,723   4,264   7,105  
    Foreign Exchange Portfolio   14,375   10,657   7,796   3,719   6,579  
    Others   12,452   11,906   11,926   546   526  
                       
Permanent Assets   3,065   3,214   3,238   (150 ) (173 )
  Investments   888   982   878   (95 ) 9  
  Fixed Assets   1,942   1,982   2,092   (41 ) (150 )
  Deferred Changes   235   250   268   (14 ) (33 )
TOTAL ASSETS   138,520   122,760   118,982   15,760   19,538  

R$ Million
Variation
LIABILITIES Sep 30, 04 Jun 30, 04 Sep 30, 03 Sep.04-Jun.04 Sep.04-Sep.03
Current and Long Term Liabilities   123,888   108,738   106,461   15,149   17,427  
  Deposits   37,590   36,041   34,414   1,549   3,177  
    Demand Deposits   9,723   9,551   7,100   171   2,623  
    Saving Account   18,224   17,801   16,867   423   1,357  
    Interbank Deposits   621   870   1,070   (249 ) (449 )
    Time Deposits   9,023   7,818   9,377   1,205   (354 )
  Deposits Received under Securities  
    Repurchase Agreements   21,929   12,995   18,294   8,934   3,635  
  Funds from Acceptances and Issue  
    of Securities   4,268   3,791   5,349   477   (1,081 )
  Interbank and Interbranch Accounts   2,476   2,366   1,958   110   518  
  Borrowings and On-lendings   11,269   13,233   13,484   (1,964 ) (2,215 )
  Derivative Financial Instruments   786   780   669   6   118  
  Technical Provisions for Insurance,  
    Pension Plans and Cap   10,048   9,267   6,086   780   3,962  
  Other Liabilities   35,522   30,265   26,208   5,256   9,314  
    Foreign Exchange Portfolio   14,643   10,766   8,098   3,877   6,545  
    Subordinated Debt   4,835   5,042   4,770   (207 ) 65  
    Others   16,044   14,458   13,340   1,586   2,704  
Deferred Income   57   60   74   (2 ) (16 )
Minority interest in subsidiaries   1,104   1,174   984   (70 ) 120  
                       
Stockholder’s Equity   13,471   12,787   11,464   684   2,007  
TOTAL LIABILITIES   138,520   122,760   118,982   15,760   19,538  
                       
Deposits   37,590   36,041   34,414   1,549   3,177  
Assets under Management   93,774   89,565   72,817   4,209   20,957  
                       
Total Deposits + Assets Under Management   131,364   125,607   107,230   5,758   24,134  

6 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Consolidated Statement of Income

R$ Million
Variation
3rd Q./04 2nd Q./04 Jan-Sep/04
Jan-Sep/03		 3rd Q.04 -
2nd Q.04		 Jan-Sep/04 -
Jan-Sep/03
Income from Financial Operations   2,712   5,367   12,524   9,515   (2,655 ) 3,009  
  Loans and leasing operations   1,755   3,002   7,096   4,990   (1,247 ) 2,106  
  Securities   509   1,846   3,952   2,818   (1,337 ) 1,134  
  Financial Income of Insurance,  
     Capitalization and Pension Plans   333   306   904   834   27   71  
  Trade Finance and Foreign Exchange Portfolio   (25 ) 55   114   134   (80 ) (20 )
  Compulsory Deposits   140   158   458   740   (18 ) (282 )
                           
Expenses from Financial Operations   (39 ) (2,910 ) (5,021 ) (1,352 ) 2,871   (3,669 )
  Deposits, Money Market and Interbank Funds   (310 ) (1,855 ) (3,691 ) (2,629 ) 1,546   (1,062 )
  Financial Expense of Insurance, Capitalization  
    and Pension Plans   (265 ) (225 ) (686 ) (519 ) (40 ) (167 )
  Borrowings, Assignments and On-lending   536   (829 ) (645 ) 1,796   1,365   (2,440 )
                           
Net Interest Income   2,673   2,457   7,503   8,163   216   (660 )
                           
Result for Loan Losses   (241 ) (218 ) (661 ) (1,197 ) (22 ) 536  
  Provision for Loan and Lease Losses   (402 ) (383 ) (1,148 ) (1,592 ) (19 ) 444  
  Credits Recoveries and Renegociated   161   165   487   395   (3 ) 92  
                           
Net Income from Financial Operations   2,433   2,239   6,842   6,966   194   (124 )
                           
Other Operation Income (Expenses)   (775 ) (662 ) (2,199 ) (2,465 ) (113 ) 266  
  Banking Service Fees   1,508   1,454   4,366   3,778   54   588  
  Partial Result of Insurance, Capitalization  
    and Pension Plans   193   201   590   537   (9 ) 53  
  Administrative Expenses   (1,886 ) (1,826 ) (5,481 ) (5,334 ) (60 ) (147 )
  Tax Expenses   (375 ) (309 ) (1,030 ) (766 ) (66 ) (264 )
  Equity in Income (Losses) of  
    Unconsolidated Investments   (57 ) 62   35   (34 ) (119 ) 69  
  Other Operating Income   62   68   208   261   (6 ) (53 )
  Other Operating Expenses   (220 ) (313 ) (888 ) (907 ) 93   19  
                           
Operating Income   1,658   1,577   4,643   4,501   81   142  
                           
  Non-operating Income   (8 ) 15   2   (70 ) (23 ) 72  
   
Income before Income Tax and  
  Social Contribution   1,650   1,592   4,645   4,431   58   214  
                           
Income Tax and Social Contribution   (412 ) (474 ) (1,313 ) (1,386 ) 62   73  
Extraordinary Results   (305 ) 0   (301 ) (563 ) (305 ) 263  
Profit Sharing   (90 ) (84 ) (271 ) (241 ) (7 ) (30 )
Minority Interests   77   (85 ) (15 ) 57   163   (72 )
Net Income   920   949   2,745   2,298   (28 ) 447  
                           
  Number of shares outstanding - In Thousand   113,250,221   113,159,755   113,250,221   114,559,146   90,466   (1,308,925 )
  Book value per thousand shares - (R$)   118.95   113.00   118.95   100.07   5.95   18.88  
  Net income per thousand shares - (R$)   8.13   8.38   24.24   20.06   (0.26 ) 4.18  

It is important to point out that the impacts of exchange rate variation on permanent investments abroad are distributed in the lines of the Statement of Income, according to the nature of the balance sheet accounts that originated them.

The effects of exchange rate variation on these investments are as follows: in the periods in which the real appreciates against foreign currencies, reductions in reais occur in foreign currency assets, the balancing item for which is a reduction in the income from the same assets; likewise, in those periods, reductions in foreign currency liabilities occur, leading to a reduction in expenses on these liabilities. On the other hand, in the periods in which the real depreciates in relation to the dollar, we see an opposite movement to those previously described.

Accordingly, the 8.0% appreciation of the real against the dollar (with the quotation falling from R$ 3.1075 to R$ 2.8586), compared to a 6.8% depreciation in the second quarter of 2004 (with the quotation rising from R$ 2.9086 to R$ 3.1075) is responsible for the large variation in income and expenses from financial intermediation, when we compare the results for these periods.


7 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary — Third Quarter of 2004

Income by Segments

Banco Itaú — Banking

The increase in the volume of credit operations and the appropriate management of the securities portfolio caused a favorable impact on the financial margin of Banco Itaú — Banking in the third quarter of 2004. The growth in credit operations led to a consequent increase in expenses for allowances for loan losses.

Credit Cards

The net income from credit card transactions amounted to R$ 122 million in this quarter, which shows a fall of 10.0% in relation to the previous quarter. This was chiefly due to the greater impact of operational measures implanted in the previous quarter, both in the recovery of written-off credits, and in expenses for allowances for loan losses. In this quarter the greater volume of financings also called for a rise in provisions. On the other hand, the increase in the volumes of invoicing and financing brought in greater service fee income, in particular from interchange and call centers. In relation to administrative expenses, an increase was seen in expenses for personnel, third party services, and advertising.

Insurance, Capitalization, and Pension Funds

The segment once again contributed in a notable way to the formation of Itaú’s results, accounting for 11.3% of the total of the third quarter of 2004. Earned premiums showed growth of R$ 17 million, in relation to the previous quarter, with growth in the automobile and property risks lines. Retained claims increased R$ 29 million, mainly because, of the increased claims level in the life, personal accident and property risk lines. With the lower funding for the VGBL and Super PIC products, because of the seasonal nature of the campaigns, the results from pension plans and premium bonds showed a slight reduction in the quarter. The item ‘Others’, made up of service income (management fees on funds connected with PGBL and VGBL), other operating income and expenses, and non- operating income, showed growth of R$ 19 million. It is worth pointing out the Combined Ratio, involving insurance of automobiles, life, personal accidents, property risks and transports, which once again showed positive growth, reaching 92.7% in the quarter.

Funds Management and Managed Portfolios

The net income from funds management and managed portfolios was positively affected by the increase in the volume of funds under management, which grew 4.7% in the period, reaching R$ 93,774 million. Furthermore, the interruption in the fall in interest rates favored performance fee income.

Banco Itaú BBA

The financial margin of Banco Itaú BBA was positively affected by the rise in the number of the transactions involving structured products and derivatives and by the management of the exchange rate risk on the investments abroad. In the quarter, there was a reversal of allowance for loan losses, because of reclassification of risk and of the effects of the appreciation of the real in relation to the dollar on the credit portfolio denominated in foreign currency. The increase in service fee income occurred mainly from commissions received. Administrative expenses grew because of the increase in the number of transactions with corporate customers, expenses with institutional marketing, and the provision associated with the collective negotiations with the bank clerks. The 461.5% rise in expenses for income tax and social contribution on revenues is due mainly to the tax effect of the currency hedge derivative transactions for investments abroad.

Corporation

A highlight in the results of the Corporation is the growth in the financial margin that occurred because of the effect of the appreciation of the real on derivatives used to hedge liability positions, which were contracted by the corporation as part of its policy for managing Itaú’s currency gaps. The net expense for income tax and the social contribution was impacted by the greater payment/provisioning of interest on own capital, relating to the excess capital allocated to the Corporation. Finally, the extraordinary result reflects the full amortization of the goodwill associated with the association of Itaú with Companhia Brasileira de Distribuição — CBD.


8 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Third Quarter of 2004

The information shown below is based on the pro forma financial statements of Banco Itaú and Banco Itaú BBA and was obtained using management information, reflecting more accurately manner the performance of the conglomerate’s various business units. Between the third and second quarter of 2004, the following variations occurred in the income statement of Itaú’s business segments:

PRO FORMA STATEMENT OF INCOME PER SEGMENT   R$ Million
Banco Itaú Pro Forma 3rd Q./04 2nd Q./04 Variation
Banking        
    Net Interest Income   1,661   1,607   53  
    Result from Loan Losses   (235 ) (203 ) (32 )
    Banking Service Fees   921   907   14  
    Administrative Expenses   (1,272 ) (1,257 ) (15 )
    Income Tax and Social Contribution   (150 ) (246 ) 96  
    Other   (393 ) (337 ) (57 )
  Net Income   531   471   60  
   
Credit Cards  
    Net Interest Income   312   317   (5 )
    Result from Loan Losses   (33 ) (8 ) (24 )
    Banking Service Fees   283   268   16  
    Administrative Expenses   (289 ) (273 ) (16 )
    Income Tax and Social Contribution   (53 ) (61 ) 8  
    Other   (97 ) (107 ) 9  
  Net Income   122   136   (13 )
   
Insurance, Capitalization and Pension Plans  
    Net Interest Income   118   127   (9 )
    Earned Premiums   485   467   17  
    Result of Capitalization and Pension Plans   56   59   (3 )
    Retained Claims   (293 ) (264 ) (29 )
    Selling Expenses   (100 ) (96 ) (4 )
    Administrative Expenses   (157 ) (151 ) (6 )
    Income Tax and Social Contribution   (41 ) (41 ) (0 )
    Other   49   30   19  
  Net Income   117   131   (14 )
   
Portfolio Management and Mutual Funds  
    Banking Service Fees   190   177   12  
    Administrative Expenses   (90 ) (86 ) (4 )
    Income Tax and Social Contribution   (27 ) (25 ) (2 )
    Other   (28 ) (26 ) (2 )
  Net Income   44   41   4  
Net Income of Banco Itaú   814   778   36  
Banco Itaú BBA Pro Forma        
    Net Interest Income   410   327   83  
    Result from Loan Losses   27   (7 ) 34  
    Banking Service Fees   83   76   7  
    Administrative Expenses   (104 ) (89 ) (16 )
    Income Tax and Social Contribution   (150 ) (27 ) (123 )
    Other   (54 ) (83 ) 29  
Net Income of Banco Itaú BBA   213   198   15  
Corporation        
    Net Interest Income   173   79   93  
    Banking Service Fees   (1 ) (1 ) (0 )
    Administrative Expenses   (4 ) (5 ) 1  
    Income Tax and Social Contribution   10   (74 ) 84  
    Extraordinary Result   (305 ) —   (305 )
    Income from Subsidiaries and Minority Interest   21   (27 ) 49  
Net Income of Corporation   (107 ) (27 ) (79 )
NET INCOME of ITAÚ CONSOLIDATED   920   949   (29 )


9 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Executive Summary

Efficiency Ratio

Itaú has been carrying out a series of studies about the methodology for calculating the efficiency ratio at an international level.

To make our figures compatible with those practiced in other markets, we are carrying out a wide-ranging survey, and in the fourth quarter of 2004 we hope to divulge a new calculation for the ratio, in line with those practiced internationally.

Merely with the objective of advising the current stage of the studies and to give an idea of what the efficiency ratio would be, if we were to apply the methodology that we regard as most representative, we set out below a table with the comparative calculation for this indicator. In the new model under study, the efficiency ratio is the result of the comparison between non interest expenses and the sum of the net interest margin and the non interest income.

Non-interest expenses comprise personnel expenses, other administrative expenses, other operating expenses and part of the tax expenses for CPMF, ISS, IPTU and others. Is important to point out that the extraordinary result (mainly the goodwill amortization) will not compose the non interest expenses.

On the other hand, non-interest income is made up of service fee income; the partial result from insurance, pension plans and premium bonds; other operating income; and the tax expenses from financial intermediation, that is, PIS/Cofins.

In accordance with the proposed criterion, the efficiency ratio would amount to 53.0% in third quarter of 2004, showing positive movement from the 56.3% of the second quarter, as shown in the table below.

Efficiency Ratio   R$ Million
New Model - under Studies Current Model
(after reclassifications)
Non Interest Expenses 3rd Q./04 2nd Q./04 Jan-Sep/04 3rd Q./04 2nd Q./04 Jan-Sep/04
  Personnel Expenses   845   791   2,410   845   791   2,410  
  Other Administrative Expenses   1,041   1,034   3,071   1,041   1,034   3,071  
  Tax Expenses - Other *   103   98   302   —   —   —  
  Other Operating Expenses   220   313   888   —   —   —  
TOTAL (A)   2,208   2,236   6,671   1,886   1,826   5,481  
Net Interest Margin + Non Interest Income  
  Net Interest Margin   2,673   2,457   7,503   2,673   2,457   7,503  
  Credit Recoveries   —   —   —   161   165   487  
  Banking Service Fees   1,508   1,454   4,366   1,508   1,454   4,366  
  Partial Results from Insurance, Cap. and Pension   193   201   590   193   201   590  
  Tax Expenses - PIS / COFINS *   (272 ) (211 ) (728 ) —   —   —  
  Other Operating Income   62   68   208   62   68   208  
  Other Operating Expenses   —   —   —   (220 ) (313 ) (888 )
TOTAL (B)   4,164   3,970   11,940   4,378   4,033   12,267  
                           
EFFICIENCY RATIO (A / B)   53.0 % 56.3 % 55.9 % 43.1 % 45.3 % 44.7 %


10 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Performance


   

Analysis of the Consolidated Performance

The first nine months of 2004

2004 is a year that has been showing favorable economic conditions that have brought Itaú countless business opportunities and permitted good operational performance from its various segments of activity. In the light of these opportunities, Itaú has adopted the strategy of expanding its credit portfolio, which has been making a significant contribution to the formation of its results.

Accordingly, Itaú’s consolidated net income for the period from January to September 2004 added up to R$ 2,745 million. This result is 19.5% higher than the one obtained in the same period of 2003, and represents a return of 28.1% p.a. on equity of R$ 13,471 million at September 2004.

In the period between January and September 2004, the credit portfolio (including sureties and guarantees) showed growth of 15.9%, reaching R$ 51,059 million. If we take into consideration only the local currency credit transactions, the growth in the period attains the notable mark of 20.3%, reaching R$ 38,281 million.

The third quarter of 2004 — Economic context

The good performance from exports and the large fiscal surplus attained by the Brazilian government contributed towards sovereign risk reaching relatively low levels. This positive scenario was also reflected in the quotation of the real against the American dollar, leading the Brazilian currency to end the quarter with an appreciation of 8% in relation to the dollar.

On the other hand, inflationary pressures led the Central Bank, from July 2004 onwards, to begin to signal an increase in the basic interest rate. This movement started in September, with a 0.25% increase in the basic rate, which closed the quarter at the level of 16.25% per year.

The third quarter of 2004 — Itaú’s results

In the third quarter of 2004, Itaú achieved consolidated net income of R$ 920 million. This notable result for the period derives fundamentally from the Bank’s sound operation as a provider of financial services, as well as from its policy of diversifying and balancing its positions. The institution’s performance has been driven, in particular, by the adoption of strategies drawn up to meet the current demand for loans and financing from various economic agents, offering firm support for the country’s development. With the growth in the volume of credit transactions, we saw a positive impact on the financial margin, which amounted to R$ 2,673 million. Furthermore, there was an expansion in revenues associated with credit transactions, credit card services, and fund and portfolio management, which added up to R$ 1,508 million. On the other hand, other administrative expenses totaled R$ 1,041 million and remained practically unchanged in relation to the previous quarter, which shows the high degree of commitment of the whole Bank to controlling and rationalizing costs. Personnel expenses added up to R$ 845 million, showing an increase over the previous period, because of the provision for the readjustment of salary, social contributions and other benefits associated with the bank clerks’ collective salary agreement.

Macroeconomics Ratio

3rd Q./04 2nd Q./04 Jan-Sep/04 Jan-Sep/03
CDI   4.0 % 3.6 % 11.8 % 18.1 %
Exchange Rate  -8.0%   6.8 % -1.1%   -17.3%  
Exchange Rate (Quotation in R$)  2.8586   3.1075   2.8586   2.9234  
IGPM  3.3 % 4.0 % 10.3 % 7.1 %
Savings (TR + 6% p.a.)  2.1 % 1.9 % 6.0 % 8.7 %

The operational gains achieved following the adoption of the strategy of expanding credit transactions generated a recurring result of R$ 1,226 million (corresponding to a return annualized over stockholders’ equity of 41,7%). This was capable of absorbing the impact of the full amortization of the goodwill connected with the process on Itaú’s association with Companhia Brasileira de Distribuição — CBD (reflected in the extraordinary expense of R$ 305 million in the period), and led to a net income that showed little change in relation to the result achieved in the previous quarter. For the ninth consecutive quarter, the annualized return on equity surpassed the notable mark of 30%, reaching 30.3%.

The portfolio of loans and financings, including sureties and guarantees, showed positive growth of 4.8% in the third quarter, adding up to R$ 51,059 million. Once again, notable growth was shown in the quarter by the portfolios of micro, small and medium businesses (10.7%), personal credit (12.7%) and vehicle finance (9.6%,).

The performance achieved by Itaú, higher than the average for the financial services industry in Brazil, is sustained, above all, by the constant effort to support the desires and initiatives of its customers. It is, however, important to point out that the Bank maintains a cautious posture, giving priority to customers with a better risk assessment, in such a way as to ensure the good quality of the portfolio.


12 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Performance

Net Interest Margin

The net interest margin of Itaú reached R$ 2,673 million in the third quarter of 2004, corresponding to an increase of R$ 216 million in relation to the second quarter of 2004, an amount that is equivalent to an increase of 8.8%.

The adoption of the strategy of increasing the volume of loan and finance operations has been contributing towards the increase in the Bank’s financial margin; this quarter, the financial margin on credit operations showed an increase of R$ 118 million in relation to the previous quarter, and 97,1% of this increase derived from the rise in the volume of operations.

Likewise, the policy of diversifying and balancing risks once again proved to be appropriate for facing the oscillations in the market and the consequent impact on the Bank’s positions at fixed rates, in foreign currency, referenced to price indices and associated with the country risk.

The gross margin of the results from treasury and gap management grew R$ 42 million in relation to the previous quarter. Mention should be made of the effect of the appreciation of the real on the liability position of foreign currency derivatives used for hedging the investments abroad. It should be remembered that Itaú’s gap management policy takes into consideration the tax effects arising from the positions taken up, in line with the strategy of low exposure to risk.

The set of events described above led to the expansion of the annualized rate of the financial margin, which reached 13.0% in the third quarter of 2004. This rate was 12.5% in the previous quarter.

Evolution of Net Interest Margin

Net Interest Margin Analysis
R$ Million
3rd Q./04 2nd Q./04 Jan-Sep/04 Jan-Sep./03
A) Net Interest Margin   2,673   2,457   7,503   8,163  
   
Average Balance from Operations (*)  
  Average Cash and Cash Equivalents + Short-Term  
  Interbank Deposits + Securities - Money Market  
  Funding - Derivative Financial Instruments   33,181   33,550   33,659   31,001  
  Average Interbank and Interbranch Accounts   10,829   9,879   9,872   9,946  
  Average Net Foreign Exchange Portfolio   (188 ) (97 ) (180 ) (260 )
  Average Net Loans   42,126   39,107   39,661   36,661  
B) Average Earning Assets   85,948   82,439   83,011   77,348  
                   
  Annual Average Ratio of Net Interest Margin                                                     = A/B   13.0 % 12.5 % 12.2 % 14.3 %
(*) The average balance for the quarter is obtained by taking the arithmetic average of the balance of the last day of the current quarter and that of the previous quarter. The average balance for the half-year is obtained by taking the arithmetic average of the balance of the last day of the last three quarters ((Dec + Mar + Jun) / 3).

13 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Performance

Results from Doubtful Loans

The favorable economic conditions throughout the third quarter of 2004 were reflected in the quality of Itaú’s credit portfolio. Generally speaking, the strong expansion of credit is being accompanied by a notable improvement in the portfolio’s performance indicators. In particular, the level of nonperforming loans is to be pointed out, which fell to 3.2%, from 3.5% of the previous quarter.

The level of nonperforming loans was benefited by the decline of R$ 59 million in loans that have ceased to generate revenues because of delay in payment, because of the increase in the normalization of overdue installments, with particular mention of vehicle finance and on-lending. An ongoing improvement in these indicators is not, however, to be expected, because of the commercial focus given to credit products with higher margins which at the same time, have greater credit risk.

With regard to the balance of the credit portfolio, the share of transactions ranked at risk levels “AA” to “C” accounted for 90.7% of the total of the portfolio in June 2004, compared to 89.5% in March of the same year. Likewise, the ratio between the balance of the allowance for loan losses and the total of the portfolio showed a 0.8 percentage point reduction, going down from 8.0% in March 2004 to 7.2% in June.

Non Performing Loans
R$ Million
Sep 30, 04 Jun 30, 04 31-Mar-04
Total Non Performing Loans (a)   1,440   1,499   1,538  
Provision for Loan and Lease Losses   (3,027 ) (3,065 ) (3,103 )
Credit Portfolio (b)   44,810   42,381   38,871  
NPL Ratio [(a)/(b)] x 100   3.2 % 3.5 % 4.0 %
(a) Loans overdue for more than 60 days and without generation of revenues on the accrual method.
(b)
Endorsements and Sureties not included.

Analysis of Result from Possible Loan Losses
R$ Million
3rd Q./04 2nd Q./04
Individuals Businesses Total Individuals Businesses Total
(Increase)/Generic Reversal   (14 ) 3   (11 ) (6 ) (18 ) (23 )
(Increase)/Specific Reversal   (328 ) (63 ) (391 ) (263 ) (97 ) (359 )
Subtotal (Increase)/Reversal   (343 ) (59 ) (402 ) (268 ) (115 ) (383 )
Exceeding Provision       —       —  
Expenses for Provision for Loan Losses           (402 )         (383 )
Credits Recoveries and Renegotiated       161       165  
Result from Loan Losses           (241 )         (218 )

In the third quarter of 2004, the expense for the allowance for loan losses amounted to R$ 402 million, which corresponds to a 5.0% increase in comparison with the previous quarter.

The recovery of credits written off against the allowance for loan losses amounted to R$ 161 million in the quarter, an amount equivalent to a reduction of R$ 4 million in relation to the previous period.

The third quarter of 2004 was characterized by the increase in expenses for the allowance for loan losses with private individuals, which reached R$ 343 million. This increase was a natural consequence of the increase in the volume of lending operations, resulting in the need for expanding provisions. Furthermore, there was no repetition in this quarter, with the same intensity, of the positive impact caused by the implantation of operational measures in the credit card segment, which was partly responsible for the lower expense for allowances for loan losses in the second quarter of 2004.

On the other hand, a significant improvement was seen in relation to expenses for the allowances for loan losses with corporate customers in the period, which added up to R$ 59 million, corresponding to a 48.3% reduction in relation to the second quarter. This fall is explained basically by the credit policy, which has been giving priority to the better customers, so as to maintain the good quality of the portfolio. Accordingly, we had in the quarter a reversal of allowances for loan losses, based on the recovery of the financial capacity on the part of the customers. Finally, the allowances for loan losses from corporate customers also benefited from the effects of the appreciation of the real against the dollar on the balance of the credit portfolio denominated in foreign currency, which contributed towards the reduction in expenses.

The book balance of the allowance for loan losses added up to R$ 3,027 million at September 30, 2004, decreasing R$ 38 million in the period. The excess


14 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Performance

provision for loan losses remained unaltered in the period, corresponding to R$ 1,000 million of the total. In relation to the total balance of the credit portfolio, without considering sureties and guarantees, the total balance of allowances for loan losses corresponds to 6.8%. This amount represents an improvement from 7.2% observed in the previous quarter.

At the end of the period, the difference between the balance of irregular credit balances (total balance of the loans and credits with at least one installment overdue more than 14 days) and the balance of the allowance for loan losses amounted to an excess of R$ 437 million in the latter.

Abnormal Portfolio
R$ Million
Sep 30, 04 Jun 30, 04 Mar 31, 04
Abnormal Portfolio   2,590   2,550   2,647  
Total Allowance   (3,027 ) (3,065 ) (3,103 )
Excess of Allowance   437   515   457  

Coverage Ratio (*)

(*) Provision for Loan and Lease Losses / Total Non Performing Loans

Movements of Credit Portfolio
R$ Million
3rd Q./04 2nd Q./04
Individuals Businesses Total Individuals Businesses Total
Previous Balance   15,787   26,594   42,381   14,997   23,874   38,871  
                           
New Contracts   5,127   11,443   16,570   3,814   12,714   16,528  
Debt Renegotiation   189   54   243   225   61   286  
                           
Accrual/ Movements   (1,470 ) (1,516 ) (2,986 ) (1,407 ) (182 ) (1,589 )
                           
Settlement   (2,090 ) (8,867 ) (10,957 ) (1,505 ) (9,788 ) (11,293 )
                           
Write-off   (315 ) (125 ) (440 ) (336 ) (85 ) (421 )
                           
Final Balance   17,228   27,582   44,810   15,787   26,594   42,381  

Movements of Provision for Loan Losses
R$ Million
3rd Q./04 2nd Q./04
Individuals Businesses Exceeding
Allowance		 Total Individual Businesses Exceeding
Allowance		 Total
Previous Balance   (1,301 ) (764 ) (1,000 ) (3,065 ) (1,370 ) (734 ) (1,000 ) (3,103 )
                                   
New Contracts   (188 ) (106 )   (295 ) (148 ) (131 )   (279 )
Debt Renegotiation   (95 ) (23 )   (119 ) (114 ) (30 )   (144 )
                                   
Risk Level Transfer   (318 ) (76 )   (393 ) (280 ) (67 )   (347 )
                                   
Accrual/ Movements   75   43     118   96   (44 )   52  
                                   
Settlement   184   103     287   179   157     335  
                                   
Exceeding Allowance           —   —           —   —  
                                   
Total   (343 ) (59 ) —   (402 ) (268 ) (115 ) —   (383 )
Write-off   315   125       440   336   85       421  
                                   
Final Balance   (1,329 ) (697 ) (1,000 ) (3,027 ) (1,301 ) (764 ) (1,000 ) (3,065 ) 

15 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Performance

Banking Service Fees
R$ Million
VARIATION
3rd Q./04 2nd Q./04 3Q.04/2Q.04
Resources Management   358   333   25  
  Mutual Fund Management Fees   337   314   23  
  Income from Administration of Consortium   21   19   2  
Current Account Services   303   312   (10 )
Credit Operations and Guarantees Provided   234   219   15  
  Credit Operations   208   192   16  
  Income from Guarantees Provided   26   27   (1 )
Collection Services   180   182   (2 )
  Collection   93   86   7  
  Interbank Fees (Bills, Checks and Documents)   48   48   (0 )
  Tax Collection   39   48   (9 )
Credit Cards   282   266   16  
Others   151   142   9  
  Foreign Exchange Services   9   9   (0 )
  Brokerage Services   23   22   1  
  Income from Inquiries of the Serasa Databases   37   35   2  
  Custody Services and Managed Portfolios   10   10   (0 )
  Other Services   72   65   6  
 Total   1,508   1,454   54  

During the third quarter of 2004, Banking Service Fees grew by R$ 54 million over the prior quarter, reaching R$ 1,508 million, primarily driven by increased revenues from fund management, credit operations and credit cards.

When compared to Administrative Expenses, the coverage index of Banking Service Fees stood at 80%, remaining on the same level as in the previous quarter. Considering only Personnel Expenses, the index went from 184% to 178%.

Banking Service Fees Coverage Index over
Administrative Expenses (*)

(*) Calculated by dividing Banking Service Fees by Total Personnel and Administrative Expenses (Personnel + Others)

Service fees from credit operations totaled R$ 208 million in the quarter, a R$ 16 million increase compared to the previous quarter. The growth in the volume of credit operations, related to the improvement of economic conditions in the country, was the main driver of this increase.

Details on income from fund management and credit cards – items which also grew during the quarter – can be found in the segment analysis section of this report. These increases were sufficient to offset the R$ 10 million decline in income from Current Account Services and R$ 9 million in Tax Collection Fees.

The decrease in the number of current accounts during this quarter arises from the deletion of common current accounts, upon the migration of clients from Bemge, Beg and Banestado banks to Itaú.

Products per Client (*) and Quantities (**): Active Clients
(***) and Current Accounts

(*) Includes only Itaú and Banerj
(**) Includes Banco Itaú Buen Ayre
(***) Conceptually, a client (represented by a CPF/CNPJ number) is considered active if there has been one or more transactions in the current account in the last six months or a positive average 3-month balance in cash deposits.

16 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Net Income

Administrative Expenses
R$ Million
VARIATION
3rd Q./04 2nd Q./03 3Q.04/2Q.04
Personnel Expenses   845   791   54  
  Remuneration   486   453   33  
  Social Charges   152   140   12  
  Social Benefits/ Training   133   133   (0 )
  Reorganization   75   66   9  
Other Administrative Expenses   1,041   1,034   6  
  Data Processing and Telecommunication   267   262   6  
  Depreciation and Amortization   136   139   (3 )
  Premises   133   134   (1 )
  Third Party Services   168   159   9  
  Financial System Services   81   80   0  
  Marketing   74   72   1  
  Transportation   46   43   3  
  Materials   39   35   4  
  Security   33   31   2  
  Legal and Judicial Suit   11   15   (4 )
  Travel Expenses   12   11   0  
  Other   41   53   (12 )
Total   1,886   1,826   60  

Personnel Expenses

Personnel Expenses totaled R$ 845 million in the third quarter of 2004, an increase when compared to R$ 791 million in the previous quarter. Such rise is due to the R$ 49 million provision recorded in September 2004, related to the collective labor agreement, impacting expenses with remuneration, social charges and social benefits, as well as the balance of provisions for vacation pay and 13th month salary.

The increase in Personnel Expenses was also influenced by the R$ 9 million increase in reorganization expenses.

The number of employees remained virtually stable during the period, with a slight reduction of 0.1% compared to the previous quarter.

Number of Employees (*)

(*) Includes Itaú BBA since Dec.02 and Banco Fiat since Mar.03.

Other Administrative Expenses

Other Administrative Expenses reached R$1,041 million in the third quarter of 2004, virtually unaltered from the prior quarter, clear evidence of the successful initiatives undertaken by Itaú to control administrative costs over the past few years.

Other Administrative Expenses



17 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Net Income

Efficiency Ratio (1)

The efficiency ratio was 43.1% in the third quarter of 2004, below 50% for the eighth consecutive quarter. The reclassifications made this quarter were considered in the past efficiency ratio numbers presented in the chart above. The efficiency ratio before the reclassifications would be 44.5% in this quarter compared to 47.3% in the second quarter of 2004.

From January to September 2004, investments in technology totaled R$ 976 million, including R$ 207 million for the acquisition of hardware and software, and R$ 769 million for the development and maintenance of the existing infrastructure.

Customer Service Locations comprised 23,760 units in September 2004, compared to 23,436 in June. The growth is due to Itaú’s focus on expanding its ATM network, which increased by 341 units in the quarter. The number of Branches and Customer Site Branches decreased this quarter as a result of the completion of the convertion of Bemge, Banestado and BEG banners to Itaú, as well as the convertion of Banerj banner, scheduled to be completed by the end of the year. Approximately 50 branches are expected to be opened during the fourth quarter of 2004.

Network Evolution (*)

(*) Includes Banco Itaú Buen Ayre. Includes Itaú BBA since Dec.02.

Internet Banking Clients



Volume of Self-Service Transactions (*)

(Quantity in million)
ATM Home & Office Banking
Period Usual
Transaction		 Warning(**) Automated
Programmed
Debit		 Itaúfone Bankfone PC Banking Internet Itaúfax Purchase Using
Debit Card		 Total
2002   946   192   284   135   40   38   306   11   89   2,043  
  1st Q./ 02   224   27   69   33   10   13   59   3   19   457  
  2nd Q/02   225   46   70   38   10   11   71   3   20   494  
  3rd Q./02   243   48   72   31   10   9   84   3   23   524  
  4th Q./02   254   71   73   33   10   6   92   2   27   569  
2003   1,033   586   302   145   41   13   427   10   121   2,677  
  1st Q./03   260   67   75   37   10   5   95   2   26   576  
  2nd Q/03   248   117   76   36   10   4   99   2   28   621  
  3rd Q./03   254   151   75   36   11   3   111   2   30   675  
  4th Q./03   271   251   76   36   10   1   121   2   36   805  
2004   794   529   236   97   27   0   388   6   111   2,188  
  1st Q./04   263   237   77   33   9   0   127   2   34   783  
  2nd Q/04   258   139   78   32   8   0   130   2   37   686  
  3rd Q./04   272   152   81   32   9   0   130   2   40   719  
(*) Includes Itaú, Banerj, Bemge, Banestado and Beg.
(**) Transaction through warning screen on ATM.

(1) Efficiency Ratio = (Personnel Expenses + Other Administrative Expenses)
(Net Interest Income + Credits Recoveries and Renegotiated + Banking Service Fees + Partial Result
of Insurance, Capitalization and Pension Plans + Other Operating Income - Other Operating Expenses)


18 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Analysis of the Consolidated Balance Sheet

Tax Expenses

Tax expenses for the third quarter of 2004 totaled R$ 375 million, up 21.3% from the second quarter of 2004. In addition to the increases arising from the expansion in operating activities subject to taxation, the following specific factors should be highlighted: part of the 29.1% increase in the PIS and COFINS expenses was due to the taxation of revenues from financial instruments used to hedge the foreign exchange risk of investments in foreign subsidiary and associated companies, while the 21.7% rise in the CPMF expense was largely due to payments of Interest on Own Capital, as well as expenditures in connection with financial investments by non-financial entities of the group and internal corporate restructuring.

R$ Million
Tax Expenses 3rd Q./04 2nd Q./04 Variation %
PIS/COFINS   272   211   61   29.1 %
Municipal Taxes   53   50   3   5.8 %
CPMF   40   33   7   21.7 %
Other   10   15   (6 ) -36.5 %
Total   375   309   66   21.3 %

Equity in the Earnings of Associated Companies

During the third quarter of 2004, equity in the earnings of associated companies was primarily due to the effect of the appreciation of the real against the euro on Itaú’s interests in Banco BPI S.A.

R$ Million
Equity in income of affiliates 3rd Q./04 2nd Q./04 Variation
Share of equity in affiliates - domestic   2   1   0  
   Equity in income of affiliates   2   1   0  
Share of equity in affiliates - foreign   (59 ) 61   (120 )
   Foreign exchange variation on investments   (45 ) 39   (85 )
   Equity in income of affiliates   (14 ) 21   (35 )
Total   (57 ) 62   (119 )

Income Tax and Social Contribution

For the third quarter of 2004, Income Tax (IR) and Social Contribution on Net Income (CSLL) expenses posted by the bank totaled R$ 412 million, a 13.2% decrease from the prior quarter. The most significant driver of such decline was the deduction of the tax effect of Interest on Own Capital, which was greater than the deduction in the second quarter.

Extraordinary Result

In the third quarter of 2004, the Extraordinary Results of Itaú amounted to expenses of R$ 305 million, primarily due to the R$ 349 million expense (net of tax effects) arising from the full amortization of the goodwill on the association of Itaú with Companhia Brasileira de Distribuição — The expenses for amortization of goodwill on investments, however, were partially offset by revenues of R$ 30 million (net of tax effects) from favorable decisions in administrative and/or judicial proceedings, as well as R$ 40 million (net of tax effects) of revenues from the realization of taxes on interest on long-term foreign loans.


19 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Pro Forma Financial Statements

Pro Forma Financial Statements

Allocated Capital

The pro forma financial statements were adjusted to account for the effects of the capital allocation required by the Central Bank rules (11%), plus a 25% safety margin, totaling 13.75% of the risk-weighted assets each of for the Itaú business lines.

This enables the computation of the Return on Allocated Capital, which corresponds to a performance measure consistently adjusted to the capital required to support the risk from the asset positions assumed.

The adjustments made to the balance sheet and income statement for the year are based on management information provided by the business units.

The “Corporation” column shows results associated with excess capital and subordinated debt, as well as the equity in the earnings of subsidiary and associated companies not related to the individual segments. The column also includes Minority Interest in income from subsidiary companies and Extraordinary Gains.

The tax effects of the payment of Interest on Own Capital for each segment were reversed and subsequently reallocated to each segment in proportion to Tier I capital levels, while the financial statements were adjusted to replace net equity with funding at market prices. The financial statements were then adjusted to incorporate revenues arising from allocated capital. Finally, the costs of subordinated debt and related remuneration at market prices were proportionately allocated to the segments, in accordance with Tier I allocated capital.

The schedule below describes the changes made for the financial statements to reflect the impacts of the allocation of regulatory capital.

Return on
Stockholders’
Equity 		Adjustments to the Financial Statements
  		Return on Allocated Tier I Capital
Adjustment to the Financial Statements with the replacement of the book value of Stockholders’ Equity and subordinated debts by funding at market prices.
   
Adjustment to the Financial Statements to include the Allocated Capital (Tier I and Tier II), calculated at 13.75% of the risk weighted assets, together with their respective remuneration (CDI) and expense (cost of the subordinated debt), taking into consideration that the Allocated Tier I Capital cannot be lower than 11% of the risk weighted assets.
Net Income
Stockholders’ Equity		 Pro Forma
Net Income
Allocated Tier I
Capital

21 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Pro Forma Financial Statements

The following tables are based on the pro forma financial statements of Banco Itaú and Banco Itaú BBA, using internally generated information, in such a way as to reflect the management activity of the business units.

On September 30, 2004

R$ Million
Banco Itaú Holding
ASSETS Banco Itaú Banco Itaú-BBA Corporation Consolidated
Current and Long-Term Assets   113,639   38,390   4,238   135,455  
Cash and Cash Equivalents   1,830   96   0   1,926  
Short-term Interbank Deposits   32,622   9,197   150   25,397  
Securities   17,815   8,570   3,941   28,258  
Interbank and Interbranch Accounts   11,196   78   0   11,263  
Loan Operations   23,325   18,459   —   41,783  
Other Assets   26,852   1,989   148   26,828  
Permanent Assets   2,243   74   747   3,065  
TOTAL ASSETS   115,882   38,464   4,986   138,520  

R$ Million
Banco Itaú Holding
LIABILITIES Banco Itaú Banco Itaú-BBA Corporation Consolidated
Current and Long-Term Liabilities   107,655   34,637   2,408   123,888  
Deposits   36,527   16,030   —   37,590  
Securities Repurchase Agreements   21,417   2,126   —   21,929  
Funds from Acceptances and Issue of Securities   4,310   882   —   4,268  
Interbank and Interbranch Accounts   2,222   265   —   2,476  
Borrowings   2,203   9,066   —   11,269  
Derivative Financial Instruments   757   747   1   786  
Other Liabilities   30,172   5,521   2,407   35,522  
Technical Provisions   10,048   —   —   10,048  
Deferred Income   45   12   —   57  
Minority Interest in Subsidiaries   —   —   1,104   1,104  
Allocated Capital Level I   8,182   3,814   1,474   13,471  
TOTAL LIABILITIES   115,882   38,464   4,986   138,520  

Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level.

Banco Itaú Holding
3rd Quarter/04 Banco Itaú Banco Itaú BBA Corporation Consolidated
NET INTEREST MARGIN   2,091   410   173   2,673  
                   
  Result from Loan Losses   (268 ) 27   —   (241 )
    Provision for Loan and Lease Losses   (422 ) 20   —   (402 )
    Credits Recoveries and Renegotiated   154   7   —   161  
                   
NET INCOME FROM FINANCIAL OPERATIONS   1,823   437   173   2,433  
                   
OTHER OPERATING INCOME (EXPENSES)   (660 ) (53 ) (62 ) (775 )
    Banking Service Fees   1,426   83   (1 ) 1,508  
    Partial Result of Insurance, Capitalization  
      and Pension Plans   193   —   —   193  
    Administrative Expenses   (1,778 ) (104 ) (4 ) (1,886 )
    Taxes Expenses   (317 ) (31 ) (27 ) (375 )
    Equity in Income (Losses) of Unconsolidated   57 )
    Investments   —   —   ((57 )
    Other Operating Income / Expenses   (184 ) (1 ) 28   (157 )
                   
OPERATING INCOME   1,163   385   111   1,658  
  Non-Operating Income   (11 ) 1   2   (8 )
                   
INCOME BEFORE TAX   1,152   386   112   1,650  
Income Tax and Social Contribution   (272 ) (150 ) 10   (412 )
Extraordinary Results   —   —   (305 ) (305 )
Profit Sharing   (66 ) (24 ) (1 ) (90 )
Minority Interests   —   —   77   77  
                   
  NET INCOME   814   213   (107 ) 920  
(ROE) - Return over Level I Allocated Capital   46.2 % 24.2 % -25.9%   30.3 %
Efficiency Ratio   48.3 % 21.1 % 2.1 % 43.1 %

22 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Pro Forma Financial Statements

On June 30, 2004

R$ Million
Banco Itaú Holding
ASSETS Banco Itaú Banco Itaú-BBA Corporation Consolidated
Current and Long-Term Assets   95,569   36,085   4,847   119,545  
Cash and Cash Equivalents   1,596   129   0   1,725  
Short-term Interbank Deposits   22,643   7,903   113   17,149  
Securities   17,356   7,802   4,557   28,397  
Interbank and Interbranch Accounts   10,295   119   0   10,396  
Loan Operations   20,873   18,443   —   39,316  
Other Assets   22,804   1,691   178   22,563  
Permanent Assets   2,297   75   842   3,214  
TOTAL ASSETS   97,866   36,161   5,690   122,760  

R$ Million
Banco Itaú Holding
LIABILITIES Banco Itaú Banco Itaú-BBA Corporation Consolidated
Current and Long-Term Liabilities   90,321   32,608   2,767   108,738  
Deposits   34,421   13,346   —   36,041  
Securities Repurchase Agreements   12,282   2,508   —   12,995  
Funds from Acceptances and Issue of Securities   3,702   945   —   3,791  
Interbank and Interbranch Accounts   2,164   220   —   2,366  
Borrowings   2,829   10,403   —   13,233  
Derivative Financial Instruments   641   549   —   780  
Other Liabilities   25,014   4,638   2,767   30,265  
Technical Provisions   9,267   —   —   9,267  
Deferred Income   46   14   —   60  
Minority Interest in Subsidiaries   —   —   1,174   1,174  
Allocated Capital Level I   7,499   3,539   1,749   12,787  
TOTAL LIABILITIES   97,866   36,161   5,690   122,760  

Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level.

Banco Itaú Holding
2nd Quarter/04 Banco Itaú Banco Itaú BBA Corporation Consolidated
NET INTEREST MARGIN   2,051   327   79   2,457  
                   
  Result from Loan Losses   (212 ) (7 ) —   (218 )
    Provision for Loan and Lease Losses   (374 ) (9 ) —   (383 )
    Credits Recoveries and Renegotiated   163   2   —   165  
                   
NET INCOME FROM FINANCIAL OPERATIONS   1,840   320   79   2,239  
                   
OTHER OPERATING INCOME (EXPENSES)   (630 ) (86 ) 54   (662 )
    Banking Service Fees   1,378   76   (1 ) 1,454  
    Partial Result of Insurance, Capitalization and   01  
    Pension Plans   2   —   —   201  
    Administrative Expenses   (1,732 ) (89 ) (5 ) (1,826 )
    Taxes Expenses   (285 ) (17 ) (7 ) (309 )
    Equity in Income (Losses) of Unconsolidated   2  
    Investments   —   —   6   62  
    Other Operating Income / Expenses   (192 ) (57 ) 5   (244 )
                   
OPERATING INCOME   1,210   234   133   1,577  
  Non-Operating Income   15   1   (1 ) 15  
                   
INCOME BEFORE TAX   1,225   234   133   1,592  
Income Tax and Social Contribution   (374 ) (27 ) (74 ) (474 )
Extraordinary Results   —   —   —   —  
Profit Sharing   (73 ) (10 ) (1 ) (84 )
Minority Interests   —   —   (85 ) (85 )
                   
  NET INCOME   778   198   (27 ) 949  
(ROE) - Return over Level I Allocated Capital   48.4 % 24.3 % -6.1%   33.1 %
 Efficiency Ratio   48.1 % 25.6 % 5.8 % 45.3 %

23 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Pro Forma Financial Statements

Financial Statements per Segment

In order to lend more transparency to the information provided to shareholders, analysts and capital market agents, once more Itaú is making a pioneering move, by presenting the balance sheets and statements of income of its Banking, Credit Card and Insurance, Pension Plan and Capitalization segments adjusted to reflect the impacts of the capital allocation to the individual segments (pro forma).

On September 30, 2004
R$ Milliion
Banco Itaú
ASSETS Banking Credit Cards Insurance Consolidated
Current and Long-Term Assets   98,468   4,410   12,098   113,639  
Cash and Cash Equivalents   1,812   20   29   1,830  
Short-term Interbank Deposits   32,633   351   28   32,622  
Securities   6,990   173   10,659   17,815  
Interbank and Interbranch Accounts   11,196   —   —   11,196  
Loan Operations   20,298   3,151   —   23,325  
Other Assets   25,540   714   1,381   26,852  
Permanent Assets   1,804   108   227   2,243  
TOTAL ASSETS   100,272   4,518   12,324   115,882  

R$ Milliion
Banco Itaú
LIABILITIES Banking Credit Cards Insurance Consolidated
Current and Long-Term Liabilities   93,753   4,011   11,089   107,655  
Deposits   36,899   —   —   36,527  
Securities Repurchase Agreements   21,435   —   —   21,417  
Funds from Acceptances and Issue of Securities   4,310   —   —   4,310  
Interbank and Interbranch Accounts   2,222   —   —   2,222  
Borrowings   2,057   161   —   2,203  
Derivative Financial Instruments   756   —   0   757  
Other Liabilities   26,074   3,850   1,041   30,172  
Technical Provisions   —   —   10,048   10,048  
Deferred Income   79   —   0   45  
Allocated Capital Level I   6,440   507   1,235   8,182  
TOTAL LIABILITIES   100,272   4,518   12,324   115,882  

Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level.

R$ Million
Banco Itaú
3rd Quarter/04 Banking Credit Cards Insurance,
Capitalization
and Pension
Plans		 Portfolio under
management
and Mutual
Funds		 Consolidated
NET INTEREST MARGIN   1,661   312   118   —   2,091  
                       
  Result from Loan Losses   (235 ) (33 ) —   —   (268 )
    Provision for Loan and Lease Losses   (353 ) (69 ) —   —   (422 )
    Credits Recoveries and Renegotiated   118   36   —   —   154  
                       
NET INCOME FROM FINANCIAL OPERATIONS   1,426   279   118   —   1,823  
                       
OTHER OPERATING INCOME (EXPENSES)   (677 ) (101 ) 37   81   (660 )
    Banking Service Fees   740   283   32   371   1,426  
    Transfer to Banking   181   —   —   (181 ) —  
    Partial Result of Insurance, Capitalization and Pension Plans   22   —   170   —   193  
    Administrative Expenses   (1,272 ) (289 ) (126 ) (90 ) (1,778 )
    Taxes Expenses   (217 ) (50 ) (31 ) (19 ) (317 )
    Other Operating Income / Expenses   (130 ) (45 ) (9 ) —   (184 )
                       
  OPERATING INCOME   749   178   155   81   1,163  
    Non-Operating Income   (15 ) 1   3   —   (11 )
                       
  INCOME BEFORE TAX   734   179   158   81   1,152  
  Income Tax and Social Contribution   (150 ) (53 ) (41 ) (27 ) (272 )
  Profit Sharing   (54 ) (3 ) (0 ) (9 ) (66 )
                       
    NET INCOME   531   122   117   44   814  
(ROE) - Return over Level I Allocated Capital   37.3 % 137.4 % 43.6 %     46.2 %
Efficiency Ratio   49.1 % 49.4 % 40.3 %     48.3 %

24 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Results per Segment

On June 30, 2004
R$ Million
Banco Itaú
ASSETS Banking Credit Cards Insurance Consolidated
Current and Long-Term Assets   81,506   4,556   11,471   95,569  
Cash and Cash Equivalents   1,580   13   19   1,596  
Short-term Interbank Deposits   22,708   711   394   22,643  
Securities   7,433   209   9,723   17,356  
Interbank and Interbranch Accounts   10,295   —   —   10,295  
Loan Operations   18,092   2,882   —   20,873  
Other Assets   21,398   742   1,335   22,804  
Permanent Assets   1,855   108   229   2,297  
TOTAL ASSETS   83,361   4,663   11,700   97,866  

R$ Million
Banco Itaú
LIABILITIES Banking Credit Cards Insurance Consolidated
Current and Long-Term Liabilities   77,627   4,189   10,333   90,321  
Deposits   35,135   —   —   34,421  
Securities Repurchase Agreements   12,303   —   —   12,282  
Funds from Acceptances and Issue of Securities   3,702   —   —   3,702  
Interbank and Interbranch Accounts   2,164   —   —   2,164  
Borrowings   2,661   182   —   2,829  
Derivative Financial Instruments   641   —   0   641  
Other Liabilities   21,022   4,007   1,066   25,014  
Technical Provisions   —   —   9,267   9,267  
Deferred Income   76   —   0   46  
Allocated Capital Level I   5,658   475   1,367   7,499  
TOTAL LIABILITIES   83,361   4,663   11,700   97,866  

Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level.

R$ Million
Banco Itaú
2nd Quarter/04 Banking Credit Cards Insurance,
Capitalization
and Pension
Plans		 Portfolio under
management
and Mutual
Funds		 Consolidated
NET INTEREST MARGIN   1,607   317   127   —   2,051  
                       
  Result from Loan Losses   (203 ) (8 ) —   —   (212 )
    Provision for Loan and Lease Losses   (320 ) (55 ) —   —   (374 )
    Credits Recoveries and Renegotiated   116   46   —   —   163  
                       
  NET INCOME FROM FINANCIAL OPERATIONS   1,404   309   127   —   1,840  
                       
  OTHER OPERATING INCOME (EXPENSES)   (633 ) (113 ) 42   74   (630 )
    Banking Service Fees   737   268   27   347   1,378  
    Transfer to Banking   170   —   —   (170 ) —  
    Partial Result of Insurance, Capitalization and Pension Plans   20   —   181   —   201  
    Administrative Expenses   (1,257 ) (273 ) (117 ) (86 ) (1,732 )
    Taxes Expenses   (184 ) (49 ) (34 ) (18 ) (285 )
    Other Operating Income / Expenses   (119 ) (58 ) (15 ) —   (192 )
                       
 OPERATING INCOME   771   196   169   74   1,210  
   Non-Operating Income   6   2   6   —   15  
                       
 INCOME BEFORE TAX   777   199   175   74   1,225  
 Income Tax and Social Contribution   (246 ) (61 ) (41 ) (25 ) (374 )
 Profit Sharing   (60 ) (2 ) (3 ) (8 ) (73 )
                       
   NET INCOME   471   136   131   41   778  
(ROE) - Return over Level I Allocated Capital   37.7 % 173.6 % 44.1 %   48.4 %
   
Efficiency Ratio   49.6 % 47.7 % 36.6 %   48.1 %
   

25 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Banco Itaú — Banking

The table below is based on the pro forma financial statements of Banco Itaú.

R$ Million
Banco Itaú - Banking 3rd Q./04 2nd Q./04 Variation
NET INTEREST MARGIN   1,661   1,607   53  
               
  Result from Loan Losses   (235 ) (203 ) (32 )
    Provision for Loan and Lease Losses   (353 ) (320 ) (33 )
    Credits Recoveries and Renegotiated   118   116   1  
               
NET INCOME FROM FINANCIAL OPERATIONS   1,426   1,404   22  
               
OTHER OPERATING INCOME (EXPENSES)   (677 ) (633 ) (44 )
    Banking Service Fees   921   907   14  
    Partial Result of Insurance, Capitalization and Pension Plans   22   20   2  
    Administrative Expenses   (1,272 ) (1,257 ) (15 )
    Taxes Expenses   (217 ) (184 ) (33 )
    Other Operating Income / Expenses   (130 ) (119 ) (12 )
               
OPERATING INCOME   749   771   (22 )
  Non-Operating Income   (15 ) 6   (21 )
               
INCOME BEFORE TAX   734   777   (43 )
Income Tax and Social Contribution   (150 ) (246 ) 96  
Profit Sharing   (54 ) (60 ) 7  
               
  NET INCOME   531   471   60  

Net income of the Banking segment of Banco Itaú reached R$ 531 million in the third quarter of 2004, representing a 12.8% increase compared to the prior quarter.

During the period, Banco Itaú — Banking segment’s financial margin grew by 3.3% to reach R$ 1,661 million. Such performance is primarily due to the 11.1% rise in the credit portfolio volume, which amounted to R$ 22,599 million, as well as treasury and gap management results. The focus on credit transactions to very small, small and mid-size companies, consumer credit and vehicle financing led to a significant expansion in the financial margin for the quarter.

With respect to the positions held in the securities portfolio, the Bank maintained its low exposure, high diversification strategy, availing itself of extensive use of hedging instruments.

Expenses for allowances for loan losses totaled R$ 353 million, up 10.4% from the prior quarter. Such increase was driven by the rise in the volume of credit transactions, requiring increased allowances.


26 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Banco Itaú — Banking

The positive trend of the loan portfolio played an important role in driving the results of the third quarter of 2004. The charts below depict the trend of the loan portfolios by type of customer of Banco Itaú’s Banking segment, highlighting the robust growth in the small and mid-size company portfolio.

Credit Operations — Personal Credits(*)

(*) The amounts at Dec/2003 were adjusted to exclude the loan granted on 12/18/03 to the civil servants of the State of Rio de Janeiro in the amount of R$ 520 million, which was totally settled on 01/05/04.

Endorsements and sureties included.

Credit Operations — Small and Medium-Sized Companies (*)

(*) Endorsements and sureties included

Credit Operations — Vehicles

Credit Operations — Real State Financing



27 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Credit Cards

R$ Million
3rd Q./04 2nd Q./04 Variation
Net Interest Income   312   317   (5 )
Result from Loan Losses   (33 ) (8 ) (24 )
  Provision for Loan and Lease Losses   (69 ) (55 ) (15 )
  Credits Recoveries and Renegotiated   36   46   (10 )
Net Income from Financial Operations   279   309   (30 )
Other Operating Income / Expenses   (101 ) (113 ) 12  
  Banking Service Fees   283   268   16  
    Annual Fees   87   86   1  
    Other Services   196   182   15  
  Administrative Expenses   (289 ) (273 ) (16 )
  Tax Expenses   (50 ) (49 ) (0 )
  Other Operating Income / Expenses   (45 ) (58 ) 13  
Operating Income   178   196   (18 )
  Non-Operating Income   1   2   (2 )
Income Before Tax   179   199   (20 )
  Income Tax and Social Contribution   (53 ) (61 ) 8  
  Profit Sharing   (3 ) (2 ) (1 )
Net Income   122   136   (14 )

Net income from credit card transactions reached R$ 122 million in the third quarter of 2004, a 10.0% decline from the prior quarter, chiefly due to loan losses.

The change in the financial margin is essentially due to lower spreads and is partly offset by the larger volume of financing to cardholders during the quarter. Operating actions taken were more effective than in the previous quarter, both with respect to credit recoveries and the provision for loan losses, which was also impacted by the higher volume of billing and financing in the third quarter.

Quantity of Credit Cards and Market Share

The number of Itaúcard credit cards increased from 6,261 thousand in June 2004 to 6,619 thousand in September 2004, an increase of 5.7% in the third quarter of 2004.

Volume of Transactions (*)

(*) Credicard not included.

The total volume of transactions reached R$ 3.2 billion, growing by 7.7% over the previous quarter, with a market share of 12.2%.


28 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Credit Cards

In September 2004, 81.9% of Itaúcard accounts were active (accounts that received bills), and 80.2% of these customers used their credit cards in the last month, charging an average of R$ 1,026.80 per account in the quarter.

The average sale ticket shows consistent growth over the last few quarters, reaching R$ 72.20 in the third quarter of 2004, a 1.3% increase on the prior quarter. Such behavior also points to the increased use of credit cards as a means of payment.

Average Sale Ticket (*)

(*) Credicard not included.

Below we present the evolution of the credit portfolio related to the Credit Card operations of Banco Itaú. We highlight the growth of 27.3% in the lasts 12 months.

Credit Operations — Credit Cards

As a result of the larger volume of transactions during the third quarter of 2004, service revenues also increased, in particular interchange and call center services. The rise in administrative expenses was mostly due to increased third-party services, marketing, and postage expenses, as well as personnel expenses, since the employees’ collective agreement became effective in the third quarter. The change in other operating income/expenses is primarily due to the adjustment in the provision for profit sharing.

Itaú holds a 33.3% interest in Credicard, a leading company in the credit card management sector, with 7.6 million credit cards in circulation.

Quantity of Credit Cards by Brand — Sep 30, 04



29 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Insurance, Pension Plan and Capitalization

The table below is based on the pro forma financial statements of Banco Itaú.

On September 30, 2004
R$ Million
ASSETS INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Current and Long-Term Assets   2,041   8,877   1,188   12,098  
  Cash and Cash Equivalents   20   9   1   29  
  Securities   924   8,611   1,167   10,687  
  Other Assets   1,097   257   20   1,381  
Permanent Assets   174   6   55   227  
TOTAL ASSETS   2,215   8,882   1,243   12,324  
LIABILITIES INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Current and Long-Term Liabilities   1,797   8,189   1,119   11,089  
  Technical Provisions - Insurance   1,082   279   —   1,361  
  Technical Provisions - Pension Plan   —   7,675   —   7,675  
  Technical Provisions - Capitalization   —   —   1,021   1,012  
  Other Liabilities   716   234   98   1,041  
Allocated Capital Level I   417   694   124   1,235  
TOTAL LIABILITIES   2,215   8,882   1,243   12,324  

Statement of Income of the Segment

R$ Million
3rd QUARTER / 2004 INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Revenues from Insurance, Pension          
  Plans and Capitalization   446   835   191   1,475  
  Revenues from Insurance   446   86   —   534  
  Revenues from Pension Plans   —   749   —   749  
  Revenues from Capitalization   —   —   191   192  
Changes in Technical Reserves   (46 ) (447 ) (145 ) (636 )
  Insurance   (46 ) (4 ) —   (50 )
  Pension Plans   —   (443 ) —   (443 )
  Capitalization   —   —   (145 ) (144 )
Pension Plan Benefits Expenses   —   (295 ) —   (299 )
Earned Premiums   400   82   —   485  
Result of Pension Plans and  
  Capitalization   —   11   46   56  
Retained Claims   (262 ) (29 ) —   (293 )
Selling Expenses   (81 ) (12 ) (7 ) (100 )
Administrative Expenses   (83 ) (51 ) (24 ) (157 )
  Administrative Expenses   (36 ) (37 ) (19 ) (92 )
  Tax Expenses   (15 ) (12 ) (4 ) (31 )
  Personnel Expenses   (32 ) (2 ) (0 ) (35 )
Other Operating Income/(Expenses)   17   31   (2 ) 46  
  Service Fees   —   32   —   32  
  Other Operating Income/(Expenses)  
    of Insurance Operations   22   (1 ) —   23  
  Other Operating Income/(Expenses)   (5 ) (0 ) (2 ) (8 )
Financial Income   38   51   30   118  
Operating Income   29   83   43   155  
Non-Operating Income   2   (0 ) (0 ) 3  
Income Before Income Tax and  
  Social Contribution   31   83   43   158  
Income Tax / Social Contribution   (5 ) (20 ) (15 ) (41 )
Profit Sharing   (0 ) (0 ) —   (0 )
NET INCOME   25   63   28   117  
Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level. All the information related to VGBL were classified among the pension plan products.

The predominance of technical provisions for life insurance and pension plans can be explained by the ready acceptance of the VGBL and PGBL products, which, at September 30, 2004, amounted to R$ 3,827 million and R$ 2,300 million, respectively.

In the balance sheet above, the participating interests in companies from the conglomerate were excluded from permanent assets and deducted from equity.


30 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Insurance, Pension Plan and Capitalization

The table below is based on the pro forma financial statements of Banco Itaú.

On June 30, 2004
R$ Million
ASSETS INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Current and Long-Term Assets   2,034   8,245   1,239   11,471  
  Cash and Cash Equivalents   11   8   0   19  
  Securities   984   7,974   1,211   10,116  
  Other Assets   1,039   263   28   1,335  
Permanent Assets   176   6   55   229  
TOTAL ASSETS   2,210   8,251   1,295   11,700  
LIABILITIES INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Current and Long-Term Liabilities   1,780   7,516   1,093   10,333  
  Technical Provisions - Insurance   1,038   267   —   1,304  
  Technical Provisions - Pension Plan   —   6,987   —   6,987  
  Technical Provisions - Capitalization   —   —   991   976  
  Other Liabilities   742   115   102   1,066  
Allocated Capital Level I   430   882   202   1,367  
TOTAL LIABILITIES   2,210   8,251   1,295   11,700  

Statement of Income of the Segment
R$ Million
2nd QUARTER / 2004 INSURANCE PENSION PLAN CAPITALIZATION CONSOLIDATED
Revenues from Insurance, Pension Plans          
  and Capitalization   415   1,054   237   1,700  
  Revenues from Insurance   415   118   —   530  
  Revenues from Pension Plans   —   937   —   937  
  Revenues from Capitalization   —   —   237   233  
Changes in Technical Reserves   (27 ) (672 ) (190 ) (885 )
  Insurance   (27 ) (36 ) —   (63 )
  Pension Plans   —   (636 ) —   (636 )
  Capitalization   —   —   (190 ) (186 )
Pension Plan Benefits Expenses   —   (288 ) —   (288 )
Earned Premiums   388   82   —   467  
Result of Pension Plans and Capitalization   —   12   48   59  
Retained Claims   (244 ) (23 ) —   (264 )
Selling Expenses   (79 ) (12 ) (5 ) (96 )
Administrative Expenses   (92 ) (35 ) (24 ) (151 )
  Administrative Expenses   (45 ) (22 ) (20 ) (86 )
  Tax Expenses   (18 ) (12 ) (4 ) (34 )
  Personnel Expenses   (29 ) (2 ) (0 ) (31 )
Other Operating Income/(Expenses)   7   19   0   27  
  Service Fees   —   27   —   27  
  Other Operating Income/(Expenses) of  
    Insurance Operations   14   (1 ) —   15  
  Other Operating Income/(Expenses)   (7 ) (7 ) 0   (15 )
Financial Income   40   62   26   127  
Operating Income   21   105   44   169  
Non-Operating Income   9   0   3   6  
Income Before Income Tax and  
  Social Contribution   30   105   47   174  
Income Tax / Social Contribution   (4 ) (26 ) (13 ) (41 )
Profit Sharing   (3 ) 0   —   (3 )
NET INCOME   23   80   33   131  

Note: The Consolidated figures do not represent the sum of the parts because certain intercompany transactions were eliminated only at the Consolidated level.
All the information related to VGBL were classified among the pension plan products.

31 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Insurance, Pension Plan and Capitalization

The result from the insurance, pension plans and capitalization segment showed a reduction, in relation to the previous quarter, amounting to R$ 117 million in the third quarter of 2004.

The growth of earned premiums is to be highlighted, with an increase of R$ 17 million in relation to the previous quarter, to reach R$ 485 million in the third quarter of 2004.

Reflecting the growth in the portfolio of PGBL and VGBL pension products, service fee income relating to the management fee on funds linked to these products grew R$ 5 million, to a total of R$ 32 million.

With the prospects for the country’s economic growth, stability in inflation, and adaptation of the tax legislation in relation to insurance and pension fund products, Itaú believes in this segment’s potential for expansion and has invested in the development of products, training and technology.

At the same time, it has been adopted measures that aim at controlling and reducing costs, seeking solutions such as focusing on marketing the products via electronic channels.

Corroborating the expectation for an increasingly favorable scenario for this market, two significant events occurred in the period, referring to the tax legislation involving insurance and pension plan products.

Through Decree 5172 of August 6, 2004, the federal government reduced the rate of IOF tax on life insurance transactions from 7% to 4% on the premiums paid, as from September 1, 2004. There should be a further reduction to 2%, on September 1, 2005 and 0% on September 1, 2006.

On August 26, 2004, Provisional Measure 209 was published, with the objective of encouraging the long- term formation of savings, making it possible to create pension plans that are subject to taxation at rates that decrease with time, starting off with a rate of 35% for withdrawals carried out in a period of accumulation of up to 2 years, falling to a rate of 10% for withdrawals where the period of accumulation is over 10 years.

Insurance

In the third quarter of 2004, earned premiums amounted to R$ 485 million, with growth in the automobile and property risks lines.

The automobile line achieved R$ 194 million in earned premiums in the third quarter of 2004, showing an increase of 6.8% in comparison with the second quarter of 2004.

Life insurance reached R$ 142 million in earned premiums in this period, with the campaign for the Life and Personal Accidents line carried out in September.

The increase in earned premiums in the property risk line reflects the increase in the production of residential insurance, with the campaign for Itaúresidência Premiável in August, resulting in earned premiums of R$ 55 million in the quarter.

Retained claims increased R$ 29 million from R$ 264 million to R$ 293 million in the third quarter of 2004, mainly from the increase in the level of claims in the life and personal accidents and property risk lines.

The breakdown of earned premiums by line of insurance can be seen in the graphs below.

With growth in relation to the previous quarter, the automobile line showed a 42.1% share in the total of earned premiums for the quarter.

Composition of Earned Premiums



32 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Insurance, Pension Plan and Capitalization

Combined Ratio

The combined ratio referring to insurance transactions showed a reduction because of the fall in administrative and selling expenses.

Over the course of time, the combined ratio has continued to show an improvement, as a consequence of improvements to the process for assessing claims and controlling costs.

Number of policies — Mass Products

The quantities of automobile and life and personal accident policies grew to 828 thousand and 953 thousand policies, respectively, at the end of the quarter.

The quantity of residential policies showed a small reduction, totaling 440 thousand policies.

Claim Ratio

The total claim ratio showed growth, rising to 55% in the third quarter of 2004, which reflects increased claims in the main lines of insurance.

Note: The insurance charts do not include Itaúseg Saúde and Gralha Azul Saúde, and include life insurance line of Itaú Vida e Previdência S.A.


33 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Insurance, Pension Plan and Capitalization

Private Pension Funds

In the third quarter of 2004, the Pension Plan segment recorded revenue in the amount of R$ 749 million, comprising PGBL, VGBL and traditional plan contributions. This inflow was lower than funds obtained in the second quarter of 2004, which totaled R$ 937 million, as a result of the successful campaigns implemented in that quarter.

The pro forma Net Income of Pension Plan companies reached R$ 63 million. The decrease is mainly attributable to the increased administrative expenses, which had a smaller net impact in the previous quarter because of the VGBL campaigns.

Income from fund management fees in connection with PGBL and VGBL products grew by R$ 5 million, totaling R$ 32 million in the quarter, reflecting the increased volume of pension plan funds.

At the end of the third quarter of 2004, technical provisions amounted to R$ 7.7 billion, growing 9.8% in relation to the end of the previous quarter. If the last 24 months are taken into consideration, Itaú has shown an increase of 307.7% in technical provisions, far more than shown by the market, which grew 123,5% (source: SUSEP — calculated between 08/31/2002 and 08/31/ 2004).

Pension Plan Technical Provisions

The table below shows the technical provisions by product and by guaranteed yield for the participant.

Technical Reserves by product/guarantee in 09/30/2004
R$ million
PRODUTO GUARANTEED YIELD
OTHER TOTAL %
EXCLUSIVE
FUNDS		 IGP-M TR
VGBL   3,827   —   —       3,827   49.9 %
PGBL   2,300   —   —       2,300   30.0 %
TRADITIONAL   —   1,442   81   0   1,523   19.8 %
DEFINED BENEFIT   —   —   22       22   0.3 %
ACCESSORIES   —   —   —   3   3   0.0 %
TOTAL   6,127   1,442   103   3   7,675   100.0 %

In a short time, the VGBL and PGBL products have become the main products of the private pension plan companies in the country. In Itaú, VGBL accounted for 49.9% of the technical provisions for pension plans at 09/30/2004, while technical provisions for PGBL accounted for 30.0% of the total.

Offering the customer greater transparency than the former pension plan products with a defined contribution or a defined benefit, VGBL and PGBL have their resources invested in exclusive funds during the accumulation phase, and do not constitute a risk for the company, which merely passes on the yield achieved in the fund.

The traditional plans, which have ceased to be marketed by Itaú, offered the customer the guarantee of a minimum yield, tied to an index (IGP-M or TR); at the end of the third quarter of 2004, their share in the technical provisions was 19.8%.

Capitalization

The income from capitalization bonds amounted to R$ 191 million in the third quarter of 2004, below the R$ 237 million in revenue achieved in the previous quarter, when the Super PIC São João 2004 campaign was carried out.

In August and September 2004, the PIC Primavera 2004 campaign was held. This capitalization bond has monthly installments of R$ 60.00, and with this the customer competes for over R$ 9 million in cash prizes. 150 thousand bonds were marketed in this campaign, which contributed towards the portfolio increase to 3.7 million active bonds, corresponding to R$ 1,012 million in technical provisions.

In the last 12 months, cash prizes amounting to R$ 36 million were distributed to 996 customers whose bonds were selected.

The following table shows the growth of the portfolio of capitalization bonds with monthly (PIC) and single (Super PIC) payments.

Number of capitalization bonds



34 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Investment Funds and Managed Portfolio

The following table is based on the pro forma financial statements of Banco Itaú:

R$ Million
VARIATION
3rd Q./04 2nd Q./04 3Q.04/2Q.04
Banking Service Fees   371   347   24  
   Mutual Fund Management Fees   337   314   23  
   Brokerage Services   23   22   1  
   Custody Services and Managed Portfolios   10   10   (0 )
Transfer for Banking   (181 ) (170 ) (11 )
Administrative Expenses   (90 ) (86 ) (4 )
Taxes Expeneses   (19 ) (18 ) (1 )
               
INCOME BEFORE TAX   81   74   7  
               
Income Tax and Social Contribution   (27 ) (25 ) (2 )
Profit Sharing   (9 ) (8 ) (1 )
               
NET INCOME   44   41   4  

Income from Investment Funds and Managed Portfolios Segment totaled R$ 44 million in the third quarter of 2004, a R$ 4 million increase compared to the prior quarter.

The increase was driven by income from fund management, which amounted to R$337 million in the quarter, up R$ 23 million from the prior quarter, chiefly because of the increase in the volume of funds under management, along the interruption of the downward trend in the basic interest rate, improving the income from performance fees.

At the end of September 2004, the volume of assets managed by Itaú reached R$ 93,774 million, compared to R$ 89,565 million in June 2004, or a 4.7% increase, in line with the market growth. Accordingly, Itaú’s market share remained at June levels, i.e. 14.1%.

Assets Under Management

Effective October 1st, 2004, funds used for financial investments are recorded in an Investment Account, a deposit current account to be used exclusively for financial investment purposes. One of the major features of the Investment Account is that funds can be transferred among various types of investment without being subject to the CPMF tax. In anticipation to the implementation of the Investment Account, Itaú restructured its products, statements and electronic screens. Furthermore, the bank provided specific training to its managers and investment advisors, and instructed its customers via Investfone and the website.

The volume traded by Itaú Corretora on Bovespa reached R$ 7.9 billion in the third quarter of 2004, ranking fourth among all brokers, with a 5.5% market share.

Using its Home Broker — www.itautrade.com.br —, in the third quarter of 2004, Itaú Corretora traded R$ 724 million on behalf of its customers, with a market share of 10.8%.

Investment Funds – By Business Area



35 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Banco Itaú BBA

The table below is based on the pro forma financial statements of Banco Itaú BBA.

R$ Million
Banco Itaú BBA 3rd Q./04 2nd Q./04 Variation
  NET INTEREST MARGIN   410   327   83  
               
Result from Loan Losses   27   (7 ) 34  
  Provision for Loan and Lease Losses   20   (9 ) 29  
  Credits Recoveries and Renegotiated   7   2   5  
               
NET INCOME FROM FINANCIAL OPERATIONS   437   320   117  
               
OTHER OPERATING INCOME (EXPENSES)   (53 ) (86 ) 34  
  Banking Service Fees   83   76   7  
  Partial Result of Insurance, Capitalization and Pension Plans   —   —   —  
  Administrative Expenses   (104 ) (89 ) (16 )
  Taxes Expenses   (31 ) (17 ) (14 )
  Equity in Income (Losses) of Unconsolidated Investments   —   —   —  
  Other Operating Income / Expenses   (1 ) (57 ) 56  
               
OPERATING INCOME   385   234   151  
Non-Operating Income   1   1   1  
               
INCOME BEFORE TAX   386   234   152  
Income Tax and Social Contribution   (150 ) (27 ) (123 )
Profit Sharing   (24 ) (10 ) (14 )
               
  NET INCOME   213   198   15  

During the third quarter of 2004, the financial margin was R$ 410 million, a 25.5% increase compared to R$ 327 million in the prior quarter. This is chiefly attributable to (i) increased volume of transactions involving structured products and derivative instruments, and (ii) to the management of the foreign exchange risk, which result is partially offset by the incident tributary effect over the hedge operations.

With respect to the allowance for loan losses, it should be noted that R$ 20 million were reversed during the quarter, as a result of reclassifications of risks, as well as the effects of the appreciation of the real against the U.S. dollar on the credit portfolio expressed in foreign currency.

In this context, gross revenues from financial intermediation, in the amount of R$ 437 million, increased by 36.6% quarter-on-quarter.

This quarter, service revenues totaled R$83 million, a 9.2% increase as compared to the previous quarter. This increase basically arises from commissions received on account of Itaú BBA’s dealings in the domestic (fixed income and variable income) and foreign markets.

Administrative costs totaled R$104 million, a 17.5% increase as compared to the second quarter of 2004. The main factors that contributed to this increase were the following: (i) branch systems and data processing costs, due to the increase in the number of transactions with corporate clients, (ii) institutional marketing expenses, and (iii) provisions for additional expenses, including those resulting from the collective bargaining with the trade unions.

The R$56 million decrease in other operating expenses, as compared to the second quarter of 2004, is mainly due to (i) the allocation of foreign exchange differences on foreign assets and liabilities upon the consolidation (translation) of balance sheets and (ii) the supplementary provision for securities portfolio volatility, recognized in June 2004, in the amount of R$21 million.

Income tax and social contribution expenses, totaling R$ 150 million in the third quarter of 2004, increased by 461.5% compared to the prior quarter, mainly due to the tax effect of foreign investment exchange hedge transactions.


36 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Banco Itaú BBA

As a result of the above, the pro forma net income of Itaú BBA reached R$ 213 million during the third quarter of 2004, or a 7.3% increase from the second quarter, contributing to an annualized return on allocated capital (Tier I) of 24.2% in the period.

The chart below shows the trend of Banco Itaú BBA’s loan portfolio balance. The significant impact arising from the fluctuation of the Brazilian currency against foreign currencies can be clearly seen from this chart, affecting the portion of transactions denominated in, or tied to, foreign currencies.

Credit Operations — Corporate(*)

(*) Endorsements and sureties included

37 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Balance by Currency

Analysis of the Consolidated Balance Sheet

Balance by Currency(*)

The Balance Sheet by Currencies shows the balances linked to the local and foreign currencies. At September 30, 2004, the net foreign exchange position, including investments abroad and disregarding the portion of minority interests, was a liability in the total US$ 895 million. It should be pointed out that the gap management policy followed by the institution considers the tax effects of this position and is consistent with the strategy for low risk exposure adopted by Banco Itaú Holding Financeira S.A.

R$ Million
Sep 30, 04 Jun 30, 04
Assets Consolidated Business in Brazil
Business
in Brazil
Total Local
Currency		 Foreign
Currency		 Business
Abroad		 Foreign
Currency
  Cash and Cash Equivalents   1,926   1,662   1,535   127   268   119  
  Short-term Interbank Deposits   25,397   19,416   18,791   625   6,695   1,837  
  Securities   28,258   20,111   18,876   1,235   10,654   1,626  
  Loan and Leasing Operations   41,783   36,163   31,694   4,469   7,575   4,884  
  Other Assets   38,090   36,637   27,814   8,824   2,121   6,929  
    Foreign Exchange Portfolio   14,375   14,260   5,592   8,668   0   6,818  
    Others   23,715   22,377   22,222   155   2,121   111  
  Permanent Assets   3,065   8,936   2,325   6,611   743   7,586  
    Investments in   888   6,873   262   6,611   629   7,586  
    Fixed Assets   1,942   1,869   1,869   0   73   0  
    Deferred Expenses   235   194   194   0   41   0  
TOTAL ASSETS   138,520   122,925   101,034   21,891   28,055   22,982  
  DERIVATIVES - CALL POSITIONS  
    Futures               4,655       5,304  
    Options               3,375       1,417  
    Swaps               4,931       7,571  
    Others               206       412  
  TOTAL ASSETS AFTER ADJUSTMENTS (a)               35,057       37,687  

Sep 30, 04 Jun 30, 04
Liabilities Consolidated Business in Brazil
Business
in Brazil
Total Local
Currency		 Foreign
Currency		 Business
Abroad		 Foreign
Currency
Deposits   37,590   31,071   31,038   33   6,958   148  
  Demand Deposits   9,723   8,699   8,665   33   1,027   148  
  Savings Accounts   18,224   17,994   17,994   0   230   0  
  Interbank Deposits   621   71   71   0   664   0  
  Time Deposits   9,023   4,307   4,307   0   5,037   0  
Deposits Received under Securities Repo Agreements   21,929   21,156   21,156   0   772   0  
Funds from Acceptances and Issue of Securities   4,268   3,710   886   2,824   3,051   2,926  
Borrowings and On-lending Borrowings   11,269   7,679   3,758   3,921   5,007   4,592  
Derivative Financial Instruments   786   603   603   0   184   0  
Other Liabilities   37,998   34,166   24,670   9,497   5,333   8,148  
  Foreign Exchange Portfolio   14,643   14,643   7,244   7,399   0   5,218  
  Others   23,355   19,523   17,425   2,098   5,333   2,930  
Technical Provisions of Insurance, Pension Plans  
and Capitalization - unrestricted   10,048   10,048   10,048   0   0   0  
Deferred Income   57   41   41   0   16   0  
Minority Interest in Subsidiaries   1,104   981   981   0   123   0  
Stockholder’s Equity   13,471   13,471   13,471   0   6,611   0  
  Capital and Reserves   10,726   10,726   10,726   0   6,308   0  
  Net Income   2,745   2,745   2,745   0   303   0  
TOTAL LIABILITIES   138,520   122,925   106,650   16,275   28,055   15,815  
DERIVATIVES - PUT POSITIONS  
  Futures               8,552       11,333  
  Options               3,885       2,246  
  Swaps               7,516       8,212  
  Others               643       903  
TOTAL LIABILITIES AFTER ADJUSTMENTS (b)               36,871       38,509  
FOREIGN EXCHANGE POSITION (c = a - b)               (1,814 )     (823 )
FOREIGN EXCHANGE POSITION OF MINORITY STOCKHOLDERS’ (d)               (744 )     (779 )
NET FOREIGN EXCHANGE POSITION AFTER MINORITY STOCKHOLDERS’ (c + d) R$               (2,559 )     (1,602 )
NET FOREIGN EXCHANGE POSITION AFTER MINORITY STOCKHOLDERS’ (c + d) US$               (895 )     (515 )
(*) It does not exclude transactions between local and foreign business.

39 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Risk Management

Risk Management

Market Risk

Banco Itaú Holding Financeira

Banco Itaú views risk management as a key tool to optimize the utilization of capital and the selection of the best business opportunities, in order to ensure the best risk/return ratio for its shareholders. Market risk management at Itaú uses three concepts: value at risk (VaR), stress scenarios, and stop loss.

During the third quarter of 2004, the volatility risks seen in the prior quarter significantly decreased. In general, such reduction was accompanied by the appreciation in the value of the major Brazilian assets, reflecting the improved Brazilian and global macroeconomic outlook.

The next table shows Itaú’s global VaR. It can be seen that the diversification of the business units’ risks is significant, enabling the conglomerate to carry a very small total exposure to market risk when compared to its capital.

Banco Itaú Holding VaR
R$ Million
Sep 30, 04 Jun 30, 04
Fixed Rate Risk Factor   6.1   2.1  
Benchmark Rate (TR) Risk Factor   11.0   17.3  
Foreign Exchange Risk Factor   41.3   13.3  
Sovereign Risk Factor   22.5   24.5  
Equities Risk Factor   11.9   6.9  
Libor Risk Factor   0.4   0.9  
Banco Itaú Europa   1.3   1.6  
Banco Itaú Buen Ayre   0.3   1.6  
Diversification Impact   (39.3 ) (32.2 )
Global VaR   55.6   35.9  
(*) VaR refers to the maximum potencial loss of 1 day, with a 99% confidence level.

Banco Itaú

To take advantage of the macroeconomic scenario, Banco Itaú made small changes in the profile of its Structural Gap, which represents commercial transactions, as well as those linked to the management of risk of the same in Brazil. Such changes are more noticeable in connection with fixed rate and foreign exchange risk factors, whose VaR, stated in the table below, show some growth, albeit small when compared to the institution’s assets.

Structural Gap Itaú VaR(*)
R$ Million
Sep 30, 04 Jun 30, 04
Fixed Rate Risk Factor   7.1   3.4  
Benchmark Rate (TR) Risk Factor   11.0   18.0  
Foreign Exchange Risk Factor   31.5   22.7  
Equities Risk Factor   7.6   6.8  
Diversification Impact   (23.7 ) (25.0 )
Global VaR   33.6   25.9  

The trading desks for the bank’s own portfolio seek the best alternatives from among the various business opportunities available in the domestic and international markets, in addition to managing the risks of structured transactions offered to customers. Although more susceptible to market conditions, the portfolio is now more liquid, and the portfolio management is more dynamic. Bearing in mind the portfolio dynamism and the increased volatility in the economic variables seen in the past few years, the control over Banco Itaú’s own trading desks was changed as of 2004. The Statistical VaR has been replaced by Stress VaR, a tool used to determine the maximum loss to which the bank’s own desks may be subject under a stress scenario defined by the Macroeconomic Scenario Assessment Commission. During the third quarter, the utilization of the Stress VaR limit was 35.8% on average, and 65.6% on September 30. During the period, the main operations were carried out in the Fixed Rate, Foreign Exchange Coupon, Foreign Exchange Variation, Variable Income, and International Securities markets.

Overseas VaR
US$ Million
Sep 30, 04 Jun 30, 04
Sovereign Risk Factor   6.0   7.9  
Libor Risk Factor   0.1   0.3  
Diversification Impact   0.0   (0.4 )
Global VaR   6.1   7.8  
Maximum Global VaR in the quarter   8.2   14.2  
Medium Global VaR in the quarter   6.2   10.9  
Minimum Global VaR in the quarter   5.0   7.8  

The overall risk of Overseas positions, comprising the Grand Cayman, New York and ItaúBank positions, declined during the third quarter of 2004, in line with the reduction of the Brazil country risk. Risk management for such positions continues to be characterized by a conservative posture, as seen in the table above.

Banco Itaú BBA

The treasury of Itaú BBA introduced changes in the profile of its risk positions as a result of new volumes arising from commercial transactions and new own transactions, which partly offset the impact of the reduced volatilities in the VaR of the individual risk factors, as illustrated in the chart below.


41 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Risk Management

It should be pointed out that the value at risk remained at negligible levels when compared to the institution’s assets.

Banco Itaú BBA VaR
R$ Million
Sep 30, 04 Jun 30, 04
Fixed Rate Risk Factor   2.9   3.1  
Exchange Indexation Risk Factor   0.6   0.5  
Exchange Variaton Risk Factor   9.3   10.2  
Equities Risk Factor   2.9   4.4  
Sovereign Risk Factor   5.5   1.7  
Diversification Impact   (5.9 ) (2.7 )
Global VaR   15.3   17.2  
Maximum Global VaR in the quarter   23.5   27.6  
Minimum Global VaR in the quarter   4.2   4.7  

Securities Portfolio and Credit Portifolio

The resources disposed to the diverse economic agents to finance its operations and investments totalized R$ 61,852 million on September 30, 2004.

Resources to the Economic Agents
R$ Million
30 Sep, 04
Risk Level AA A B C D - H Total
Euro Bond’s and Similars   3,284   676   101   1   31   4,094  
Certificates of Deposits   3,533   65   7   11   8   3,624  
Debentures   379   612   32   284   3   1,309  
Shares   209   376   19   25   1   629  
Promissory Notes   97   264   206   —   —   567  
Other   363   135   50   21   —   570  
SubTotal   7,866   2,128   415   341   43   10,793  
Credit Operations   8,824   22,447   13,121   2,097   4,570   51,059  
Total   16,690   24,575   13,536   2,438   4,614   61,852  
% do Total   27.0 % 39.7 % 21.9 % 3.9 % 7.5 % 100.0 %

Credit Portfolio

Credit Operations

As a result of the increased demand for credit and specific actions taken in certain segments, the portfolio grew in the quarter. The Bank, however, maintained its conservative posture by prioritizing the best customers in order to protect the quality of its portfolio.

The credit portfolio amounted to R$ 51,059 million in September 2004, with a remarkable growth in the small and mid-size company and consumer credit portfolios, which increased by 70.4% and 23.0%, respectively, over the past 12 months. The appreciation of the real during the quarter significantly impacted the large corporation portfolio.

The share of higher quality customers, rated between “AA” and “C”, increased by 0.3% compared to June 2004, accounting for 91.0% of the total portfolio. This improvement was brought about by the credit policy adopted by the bank, which prioritizes the best customers.

The credit risk is spread out among the different industries, so that no single sector has a concentration of more than 4.9% of the total risk. The most significant expansions include the sectors fertilizer and pesticide, with an increase of 48.8%, agriculture and cattle raising with 14.9%, and retail with 9.7%.

Credit Operations

(*) On September 30, 2004.
(**) In constant currency from December 31, 1995 to that date; in nominal amounts thereafter.
(1) Credit transactions: Loans, Leasing, Other Credits and Advances on Foreign Exchange Contracts.
(2) Guarantees include collateral, surety and other guarantees.

42 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Risk Management

Credit Portfolio Development Consolidated by Client Type and Currency(*)
R$ Million
Local Currency 30-Sep-04 Variation %
Sep04/Jun04		 30-Jun-04 31-Dec-03 Variation %
Sep04/Dec03
Corporate 12,903 7.3% 12,022 11,647 10.8%
Subtotal 12,903 7.3% 12,022 11,647 10.8%
           
Small and Medium-Sized Companies 8,114 12.7% 7,203 5,814 39.6%
Credit Card 3,464 8.8% 3,183 2,651 30.7%
Personal Credits 6,505 13.0% 5,757 (**)5,248 23.9%
Vehicles 5,385 9.6% 4,912 4,409 22.1%
Subtotal 23,468 11.5% 21,054 18,122 29.5%
           
Real State Financing 1,910 -1.9% 1,948 2,057 -7.1%
           
Total 38,281 9.3% 35,024 (**)31,825 20.3%

R$ Million
Foreign Currency 30-Sep-04 Variation %
Sep04/Jun04		 30-Jun-04 31-Dec-03 Variation %
Sep04/Dec03
Corporate 10,597 -8.4% 11,575 10,826 -2.1%
Subtotal 10,597 -8.4% 11,575 10,826 -2.1%
           
Small and Medium-Sized Companies 2,099 3.8% 2,023 1,331 57.7%
Credit Card — — — — —
Personal Credits 76 -6.6% 82 68 11.8%
Vehicles — — — — —
Subtotal 2,175 3.4% 2,105 1,399 55.5%
           
Real State Financing 6 -27.4% 9 10 -38.7%
           
Total 12,779 -6.6% 13,689 12,236 4.4%

R$ Million
Total 30-Sep-04 Variation %
Sep04/Jun04		 30-Jun-04 31-Dec-03 Variation %
Sep04/Dec03
Corporate 23,500 -0.4% 23,597 22,473 4.6%
Subtotal 23,500 -0.4% 23,597 22,473 4.6%
           
Small and Medium-Sized Companies 10,213 10.7% 9,226 7,145 42.9%
Credit Card 3,464 8.8% 3,183 2,651 30.7%
Personal Credits 6,581 12.7% 5,839 (**)5,317 23.8%
Vehicles 5,385 9.6% 4,912 4,409 22.1%
Subtotal 25,642 10.7% 23,159 19,521 31.4%
           
Real State Financing 1,916 -2.1% 1,957 2,067 -7.3%
           
Total 51,059 4.8% 48,713 (**)44,061 15.9%
(*) Endorsements and sureties included.
(**) The amounts at Dec/2003 were adjusted to exclude the loan granted on 12/18/03 to the civil servants of the State of Rio de Janeiro in the amount of R$ 520 million, which was totally settled on 01/05/04.

Case the foreign exchange rate had kept the level of June 30, 2004, the credit portfolio would reach R$ 52,172 million on September 30, 2004, being this impact related to the corporate portfolio that would be R$ 24.423 million and to the small and medium sized companies that would reach R$ 10.396 million.


43 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Risk Management

Loans Portfolio by risk factor
    Falling due installments
 
30-Sep-04 Overdue
Installments		 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 years or more Total
Fixed Rate 4.9% 45.5% 12.3% 16.4% 12.8% 8.2% 100.0%
Floating Rate 1.5% 15.4% 8.5% 17.6% 18.3% 38.7% 100.0%
Prices Index 0.8% 2.5% 2.4% 9.2% 4.3% 80.8% 100.0%
Other 0.9% 41.1% 11.9% 16.5% 8.9% 20.7% 100.0%
               
Total 3.5% 38.1% 11.3% 16.6% 13.2% 17.4% 100.0%

Risk Rate of the Credit Portfolio
R$ Million
    Sep 30, 04 Jun 30, 04 Sep 30, 03
Risk Portfolio Provision
for Loan
Losses		 %
Provision /
Portfolio		 %
Provision
Partic.		 Portfolio Provision
for Loan
Losses		 %
Provision /
Portfolio		 %
Provision
Partic.		 Portfolio Provision
for Loan
Losses		 %
Provision /
Portfolio		 %
Provision
Partic.
Individuals AA - C 13,849 129 0.9% 6.4% 12,539 115 0.9% 5.5% 10,770 102 0.9% 4.3%
  D - H 3,379 1,200 35.5% 59.2% 3,248 1,186 36.5% 57.5% 3,434 1,271 37.0% 53.4%
Subtotal Ind   17,228 1,329 7.7% 65.6% 15,787 1,301 8.2% 63.0% 14,204 1,372 9.7% 57.7%
                           
Businesses AA - C 26,440 156 0.6% 7.7% 25,382 153 0.6% 7.4% 21,299 195 0.9% 8.2%
  D - H 1,142 541 47.4% 26.7% 1,212 611 50.4% 29.6% 1,430 811 56.7% 34.1%
Subtotal Bus   27,582 697 2.5% 34.4% 26,594 764 2.9% 37.0% 22,729 1,005 4.4% 42.3%
                           
      Total AA - C 40,289 286 0.7% 14.1% 37,921 267 0.7% 13.0% 32,069 296 0.9% 12.5%
D - H 4,521 1,741 38.5% 85.9% 4,460 1,798 40.3% 87.0% 4,864 2,081 42.8% 87.5%
Total   44,810 2,027 4.5% 100.0% 42,381 2,065 4.9% 100.0% 36,933 2,378 6.4% 100.0%
Additional Provision     1,000 2.2%     1,000 2.4%     913 2.5%
                         
GENERAL TOTAL   44,810 3,027 6.8%   42,381 3,065 7.2%   36,933 3,290 8.9%

Policy on Credit and Provisions

Banco Itaú Holding Financeira adopts a conservative credit policy, based on rigorous analysis and rating of its customers, by using advanced, credit analysis and selective decision tools. As such, the institution tries to channel resources to those customers offering the lowest risk level. At Banco Itaú Holding Financeira, the entire decision taking process, as well as the definition of the credit policy, are centralized, in order to ensure synchronized actions and optimize business opportunities. This centralized process allows for the ongoing, swift monitoring of the criteria adopted. Decisions are taken by teams and focused on the individual segments. This policy implies provision levels considered adequate to cope with any erosion in the overall quality of the bank’s credit assets.

For more details on the provision for doubtful accounts, please refer to the section “Results of Loan Losses” of this report.

Equator Principles

In August 2004, Banco Itaú and Banco Itaú BBA subscribed to the Equator Principles, and accordingly adopted the social and environmental policy defined by the International Finance Corporation (IFC) for project finance transactions above US$ 50 million. With this move, Itaú strengthens its commitment to corporate citizenship and the development of the communities where it operates.

Operating Risk

Itaú’s policy for operating risk is twofold: managing risk- generating processes and controlling risks per se. The process management leg of this strategy focuses on identifying root causes, mapping processes, preparing action plans, developing policies and procedures, streamlining and improving processes, and developing and monitoring self-assessment indicators and key risk indicators. With respect to control, this approach focuses on the identification of operating risk events, standardization of information, quantitative modeling, statistical analysis and measurement of loss, as well as capital funding and allocation.

By using these tools to control and manage its operating risks, Itaú intends to improve its management process, comply with the requirement of the regulatory bodies and, most importantly, perpetuate its image as a solid, reliable bank.


44 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Activities Abroad

Activities Abroad

Activities Abroad

Banco Itaú Holding Financeira S.A. occupies a prominent place among the private capital economic groups with a presence abroad, through its units in New York, Grand Cayman Island, Nassau, South America, Europe, and more recently in Asia, with the conversion of the representative office in Tokyo into a branch and the opening of a trading room in Hong Kong forecast for the end of 2004.

The consolidated investments abroad of Banco Itaú Holding Financeira S.A at September 30, 2004, totaled R$ 6,611 million (US$ 2,313 million), including non-financial business.

Banco Itaú Europa has been working in commercial and investment relations between European countries and Brazil and in the issue of eurobonds on the international capital market, supported by the integration of its treasury, capital market and private banking business at Banco Itaú Europa Luxemburgo.

Banco Itaú Buen Ayre, with the purchase of 4 investment funds (Rembrandt Funds) from ABN Amro Bank, is now the third largest manager of funds in Argentina, with resources amounting to a total volume of 400 million pesos.

Highlights - Units Abroad   R$ Million    
UNIT ABROAD Sep 30, 04 Jun 30, 04       Comments on the variation in the quarterly results
Grand Cayman and New York Banches       Lower result from the marking to market of derivatives, offset by the increased of R$ 44 million on the thirdy quarter by the appreciation in securities available for sale, booked directly in Stockholder’s Equity.
  Assets 8,648  8,713   
  Stockholder’s Equity 2,081  2,142   
  Income accumulated in the Financial Year 9  50   
  Income in the Quarter (41) 12   
  Annualized ROA 0.1% 1.1%  
  Annualized ROE 0.6% 4.7%  
Itaú Bank, Ltd.
  Assets 2,601  2,646    Higher result from the portfolio of trading securities.
  Stockholder’s Equity 1,068  1,113   
  Income accumulated in the Financial Year 84  46   
  Income in the Quarter 38  19   
  Annualized ROA 4.3% 3.5%  
  Annualized ROE 10.6% 8.4%  
Banco Itaú Buen Ayre S.A
  Assets 1,505  1,833    Reversal of allowance for loan losses, relating to the collection of loans had been that fully reserved.
  Stockholder’s Equity 265  279   
  Income accumulated in the Financial Year 1  (12)  
  Income in the Quarter 13  4   
  Annualized ROA 0.1% -1.3%   
  Annualized ROE 0.5% -8.2%   
Banco Itaú Europa S.A. Consolidated
  Assets 8,427  8,919    Lower result from exchange rate variation on investments abroad and non-recurring gain in the second quarter from trading in securities available for sale, the appreciation of which is booked in Stockholder’s Equity.
  Stockholder’s Equity 1,400  1,480   
  Income accumulated in the Financial Year 55  47   
  Income in the Quarter 8  23   
  Annualized ROA 0.9% 1.1%  
  Annualized ROE 5.3% 6.5%  
Banco BBA and Subsidiaries(1)
  Assets 10,516  10,693    Maintenance of the recurring result.
  Stockholder’s Equity 1,844  1,862   
  Income accumulated in the Financial Year 103  44   
  Income in the Quarter 59  57   
  Annualized ROA 1.3% 0.8%  
  Annualized ROE 7.5% 4.8%  
                                                                                                    
(1) BBA-Creditanstalt Bank Ltd., Banco Itaú-BBA S.A. - Nassau Branch, BBA Representaciones S.A., Banco BBA-Creditanstalt S.A. - Sucursal Uruguai, Nevada Woods S.A., Karen International Ltd., Mundostar S.A., AKBAR - Marketing e Servicos Ltda., BBA Overseas Ltd and BBA Icatu Securities, INC.

46 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Activities Abroad

Trade Lines Raising

Entirely managed by Banco Itaú-BBA, funding of trade lines and the relationship with correspondent banks have maintained a great power for penetration and diversification of the origin of funds, which guarantees a substantial increase in supply, longer terms, and a reduction in funding costs.

Trade Line Distribution
Group / Country Participation
Europe 42%
United States 35%
Latin America 10%
Canada 6%
Japan / Australia 6%
Others 0%
   
Performance of Over-Libor spread on trade lines (%p.a.)
  Due To:
At: 180 days 360 days
Mar 31, 04 0.375% 0.550%
Jun 30, 04 0.375% 0.550%
Sep 30, 04 0.350% 0.475%

Main issues outstanding
Instrument Coordinator Amount
US$ Million		 Issue Date Maturity Date Coupon %
Fixed Rate Notes(1) Merrill Lynch 242  08/13/2001 08/15/2011 4.25%
Fixed Rate Notes Merrill Lynch and Itaubank 100  08/13/2001 08/15/2011 10.00%
Fixed Rate Notes Merrill Lynch and Itaubank 80  11/09/2002 08/15/2011 10.00%
Fixed Rate Notes Dresdner Kleinwort 100  04/05/2002 04/05/2005 6.75%
Fixed Rate Notes Standard Bank 150  05/28/2003 11/29/2004 5.00%
Fixed Rate Notes Merrill Lynch 105  11/25/2003 09/20/2010 5.01%
Floating Rate Notes(2) HypoVereinsbank and Hamburgische Landesbank GZ 110  03/14/2002 03/14/2005 Euribor(6) + 0.55%
Floating Rate Notes Bank of America 250  03/20/2002 03/20/2007 Libor(5) + 0.70%
Floating Rate Notes Bank of America 150  07/19/2002 03/20/2006 Libor(5) + 0.65%
Floating Rate Notes Nomura 150  07/23/2003 09/20/2008 Libor(5) + 0.63%
Floating Rate Notes(3) Banca IMI and Royal Bank of Scotland 172  07/24/2003 07/24/2006 Euribor(6) + 0.55%
Floating Rate Notes Itaubank 393  12/31/2002 03/30/2015 Libor(5) + 1.25%
Floating Rate Notes(4) Itaú Europa, HypoVereinsbank and ING Luxembourg 244  06/25/2004 07/12/2007 Euribor(6) + 0.45%
Medium Term Notes Itaubank, Itaú Europa and Standart Bank London 100  07/28/2003 07/28/2005 4.75
Total   2,347

(1) Amount in US$ equivalent to JPY 30 billion

(2), (3) and (4) Amounts in US$ equivalent to E$ 125 million, E$ 150 million and E$ 200 million, respectively

(5) 180-day Libor

(6) 90-day Euribor


47 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Ownership Structure

Ownership Structure

Ownership Structure

Itaú has been improving its ownership structure so as to ensure the best utilization of capital across the institution’s operating segments, by reducing potential inefficiencies arising from the organization of shareholdings. The organization chart below summarizes the current ownership structure of Banco Itaú.

Sep 30, 04 Jun 30, 04 Sep 30, 03
Stockholder’s   53,445   54,336   55,076  
Outstanding Preferred Shares (in thousand)  52,578,207   52,483,828   53,332,367  
Outstanding Common Shares (in thousand)  60,672,014   60,675,927   61,226,780  
Outstanding Shares (in thousand)   113,250,221   113,159,755   114,559,147  
Preferred Shares in Treasury (in thousand)  2,319,581   2,413,960   1,565,420  
Common Shares in Treasury (in thousand)  15,539   11,626   125,055  
Shares in Treasury (in thousand)   2,335,120   2,425,585   1,690,475  
Common Preferred Total
Itaúsa - Investimentos S.A. (in thousand)   53,246,417   2,803   53,249,220  
Free Float (in thousand)  7,425,597   52,575,404   60,001,001  

At September 30, 2004, preferred shares held in treasury accounted for 91.5% of the total options yet to be exercised by management. See Note 15 to the Financial Statements for details on the average acquisition cost of treasury stock, as well as the activity through September 30, 2004 of options granted to conglomerate executives under the “Stock Option Plan”.

Note: The percentage above refers to the total of direct and indirect participation.


49 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
Banco Itaú Holding Financeira S.A.

Performance in the Stock Market

Performance in the Stock Market

During the third quarter of 2004, the net outflow of foreign funds from the São Paulo Stock Exchange (Bovespa)     amounted to R$ 1,643 million. In spite of this, at the end of September Banco Itaú Holding Financeira preferred shares were quoted at R$ 317.50, appreciating by 10.2% from the third quarter. Similarly, common shares appreciated by 7.1% during the period and were traded at R$ 273.00 as of September 30, 2004.

Earnings per thousand shares amounted to R$ 8.13 in the third quarter, declining by 3.1% compared to the previous quarter. The net asset value per thousand shares was R$ 118.95, a 5.3% increase from June.

At the end of September, market capitalization reached R$ 34,959 million, corresponding to a 14.7% increase from the second quarter of 2004.

(*) Gross of taxes

(*) Refers to the average value of preferred shares in the last month of each quarter.

 

(*) Without reinvestment

Subsequent Events

On October 20, 2004, Itaú’s book entry registered shares underwent a reserve split of one share for every one thousand shares, trading under a per-share quotation as of that date.

On October 27, 2004, Itaú and Companhia Brasileira de Distribuição — CBD — announced that the final agreements had been signed to govern a new entity co-owned by them, Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento.

According to the announcement to the market published on November 8, 2004, Itaú Holding became the holder of 50% of Unibanco’s equity interest in Credicard, which, added to its existing participation in this company’s capital, reached a total Itaú Holding’s equity interest of 50% in Credicard Banco (a credit card issuer). Itaú Holding will acquire the equity interests of Citigroup and Unibanco in Orbitall thus increasing its participation to 100% of the company’s capital (a credit card transations processer). The net investment amounts approximately to R$ 1,049 million, including estimated goodwill of R$ 955 million.

Performance in the Stock Market
On September 30, 04
Lot of Preferred Shares
Maximum in 30 days 321.00
Minimum in 30 days 294.00
Variation (%) 9.2%
   
Maximum in 52 weeks 321.00
Minimum in 52 weeks 222.00
Variation (%) 44.6%
   
Price 317.50

51 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

         
         
         
         
         
         
         
         
         
         
         
         
         
52 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.
  PricewaterhouseCoopers
Av. Francisco Matarazzo, 1700
Torre Torino
Caixa Postal 61005
05001-400 Sao Paulo, SP - Brasil
Telefone (0xx11) 3674-2000

Report of Independent Accountants on Supplementary Information

To the Board of Directors and Stockholders

Banco ItaúHolding Financeira S.A.

1.In connection with our limited review of the Quarterly Information of Banco Itaú Holding Financeira S.A. and its subsidiaries (consolidated) as of September 30, 2004 and 2003, on which we issued a report without exceptions dated November 8, 2004, we performed a review of the supplementary information included in Management’s Report on the Consolidated Operations of Banco Itaú Holding Financeira S.A. and its subsidiaries (consolidated).

2. Our work was performed in accordance with specific rules set forth by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accountancy Council, for the purpose of reviewing the accounting information contained in the supplementary information of Management’s Report on the Consolidated Operations of Banco Itaú Holding Financeira S.A. and its subsidiaries, and mainly comprised: (a) inquiry of, and discussion with, management responsible for the accounting, financial and operational areas of the Bank with regard to the main criteria adopted for the preparation of the accounting information presented in the supplementary information and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the financial position and operations of the Bank and its subsidiaries. The supplementary information included in Management’s Report on the Consolidated Operations is presented to permit additional analysis. Notwithstanding, this information should not be considered an integral part of the Quarterly Information.

3. On the basis of our review, we are not aware of any material modifications that should be made to this supplementary information, in order for it to be adequately presented, in all material respects, in relation to the Quarterly Information taken as a whole.

São Paulo, November 8, 2004


PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5 		  
Ricardo Baldin
Contador
CRC 1SP110374/O-0 		  
Emerson Laerte da Silva
Contador
CRC 1SP171089/O-3

53 Management Discussion and Analysis
Banco Itaú Holding Financeira S.A.

Banco Itaú Holding Financeira S.A.

Complete Financial Statements

Complete Financial Statements

September 2004

BANCO ITAÚ HOLDING FINANCEIRA S.A.

INFORMATION ON THE RESULTS FOR THE PERIOD JANUARY-SEPTEMBER 2004

During this period, Itaú Holding maintained its differentiated performance and reiterated its corporate commitment for social, environmental, and economic dimensions.

The results achieved arise from the permanent search for excellence of a transparent and ethical relationship with all Itaú Holding’s stakeholders, with the objects of building a sounder and more dependable company.

See below the highlights of Itaú Holding in the period January-September. The complete Financial Statements are available at the Itaú Holding website (http://www.itauri.com.br).

1.
Consolidated net income totaled R$ 2,745 million in the period, with an annualized return of 28.1% and growth of 19.5% as compared to the same period in 2003.

2.
Itaú Holding paid or provided for taxes and contributions for the period January-September 2004 in the amount of R$ 2,870 million.

3.
Itaú Holding had 42,152 employees at the end of the period. The fixed remuneration added to the charges and benefits totaled R$ 715 million, representing R$ 17,000 by employee on average in the quarter. During the quarter, R$ 11 million was invested in the development of personnel.

4.
Consolidated stockholders’ equity totaled R$ 13,471 million, a 17.5% increase as compared to the same period in 2003, while the net regulatory capital reached R$ 18,806 million. Itaú Holding’s stock exchange market capitalization reached R$ 34,959 million, the highest among banks in Latin America.

5.
The efficiency rate was below 50% for the eighth consecutive quarter, confirming Itaú Holding’s efficiency in controlling costs, thanks to the efforts of the entire organization.

6.
By the end of the period, the value of Itaú Holding Shares increased 37.6% as compared to the same period in the prior year. The amount of interest on own capital, provisioned and distributed to the stockholders totaled R$ 828 million in the nine-month period, at R$ 7.31 per thousand shares.

7.
Consolidated assets totaled R$ 138,520 million, a 16.4% increase compared to the same period in the prior year. The loan portfolio reached R$ 51,059 million, including endorsements and sureties. In the last quarter, the loan portfolio increased 4.8%, an increase noted virtually in all segments.

8.
Total resources grew 21.8% as compared to September 2003, totaling R$ 213,289 million. Note the 28.8% increase in managed funds in the same period, totaling R$ 93,774 million.

9.
Total technical provisions related to insurance, pension and capitalization reached R$ 10,048 million, a 65.1% increase compared to the same period of 2003. The premiums earned and pension and capitalization plans grew 2.7% in the quarter.

10.
The efforts of the Itaú Social Foundation and Itaú Cultural Institute stand out on the social and cultural scenes. Highlights of the Itaú Social Foundation include the new edition of the Writing the Future Award, involving more than 10 thousand schools and approximately 1.5 million students, the continuity of the Program to Improve Education in Municipalities, and the training activities to teachers and to the
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 55
  youngsters that participated in the Urban Youth Program. In an effort to democratize access to culture, the Itaú Cultural Institute promoted the exhibition Emoção Art.ficial 2.0. In partnership with Paço Imperial in Rio de Janeiro, it launched the All is Brazil exhibition. The Idea Games interview program, produced by Itaú Cultural, was launched in TVE of Rio de Janeiro. The Rumos Program received applications from Brazil and other countries such as Germany, United States, and Japan. Note also the Chronicle in the Classroom Project selected to be included in the Good Corporate Citizenship Guide 2004 of Exame Magazine.


11.
To reiterate Itaú Holding concern with the environment, Banco Itaú and Banco Itaú-BBA adopted the Ecuador Principles. By adopting these Principles, Banks assure that ´projects financed over US$ 50 million are developed in a socially responsible manner, reflecting environmental management best practices.

12.
Itaú Holding and Companhia Brasileira de Distribuição (CBD) announced on July 27, 2004 the formation of a new financial institution that will operate exclusively in structuring and selling financial and related products and services to CBD’s customers. The new institution will be called Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento. Management will be the responsibility of Itaú which will appoint the Board of Directors, formed by professionals widely experienced in the business. Start-up is scheduled for the first half of 2005.

13.
Itaú Holding was picked for the fifth consecutive time to be part of the Dow Jones Sustainability Index (DJSI). In addition for being recognized for its management and generating shareholder value, the companies forming the DJSI represent an aggregate market value of US$ 6.5 trillion.

14.
Itaú Holding became the holder of 50% of Unibanco’s equity interest in Credicard, which, added to its existing participation in this company’s capital, reached a total Itaú Holding’s equity interest of 50% in Credicard Banco (a credit card issuer). Itaú Holding will acquire the equity interests of Citigroup and Unibanco in Orbitall thus increasing its participation to 100% of the company’s capital (a credit card transations processer). The net investment amounts approximately to R$ 1,049 million, including estimated goodwill of R$ 955 million.

15.
In October, Banco Itaú inaugurated its first branch in Tokyo, Japan. The branch is dedicated to the Brazilian clients resident in or passing through Japan to facilitate business with Brazil, always joining convenience, modernity, technology, transparency, and ethics, which are organization-wide values. Among the main services provided by the Japan Branch is the Itaú Remittance – transferring money from Japan to Brazil.

16.
Banco Itaú launched early October a unique campaign on the judicious use of credit. The purpose of the campaign it to guide clients and the population in general on how to judiciously use the Bank’s credit products. The campaign is planned to unfold into various aspects and aims at having a clarifying and educational role. In a time of solid credit expansion, Itaú Holding understands this is a material task for the sustainable development of the country.

Sao Paulo, November 8, 2004.


Olavo Egydio Setubal
Chairman of the Board of Directors



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 56

MANAGEMENT REPORT — January-September 2004

To our Stockholders:

We present our Management Report and financial statements of Banco Itaú Holding Financeira S.A. (Itaú Holding) and its subsidiaries for the Third Quarter of 2004, in accordance with the regulations established by the Central Bank of Brazil (BACEN) and the Brazilian Securities Commission (CVM) and the Superintendency of Private Insurance (SUSEP).

THE ECONOMY

This quarter, the Brazilian economy maintained its recovery trend. In July, inflation started to show signs of decrease that intensified in September. Growth expectations were maintained. This scenario was confirmed with the reduction in Brazil’s sovereign risk, measured by the EMBI index of 469 base points at the end of September from 650 base points at the end of June. The Brazilian Real also appreciated in relation to the main foreign currencies. With respect to the U.S. dollar, the foreign exchange rate decreased to R$ 2.8586 at the end of September from R$ 3.1075 at the end of June. This appreciation can assist fighting inflation and opens the opportunity their domestic demand becomes an important source of GDP growth. On the other hand, it may affect the maintenance of high trade surpluses in the coming quarters.

By September, the economy still posted a remarkable trade surplus of over US$ 25 billion, substantially reducing the country’s foreign vulnerability. Exports, which up until September aggregated to US$ 70 billion, grew 34.6% as compared to the first nine months of the year giving a substantial boost to the economy.

At the same time, the recovery in wages and salaries, which increased 4.6% in July-August as compared to the same period in 2003, is increasing domestic demand and allowing the recovery of demand for durables and stimulating the production and sale of nondurable and semi-durable goods. This quarter, credit to individuals increased 6.6% and credit to businesses increased 3.3%. Forecasts point to an aggregate GDP increase of 4.0% up to the third quarter.

The recovery of the investment rate, to reach 19.7% of GDP in the third quarter, against just 18.1% in the same period of 2003, should allow the ongoing recovery of the economy. We believe that we will still have a favorable economic environment for the banking sector in the coming quarters.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 57

 

Banco Itaú Holding Financeira

Net income in the third quarter was R$ 920 million, thus maintaining Itaú Holding’s performance in the last years. Annualized profitability was 30.3%. Recurring net income (which does not include amortization of goodwill with respect to the Pão de Açúcar association) was R$ 1,226 million, or annualized profitability of 41.7%. The efficiency rate - expense/revenue ratio - was 43.1%.
Itaú Holding still maintains the highest stock market value amongst all Latin-American banks, totaling R$ 34,959 million.
Main economic and financial indicators



3Q 2004
 2Q 2004
 Change %
 Jan-Sep/04
 Jan-Sep/03
 Change %
 Income - R$ million





 Gross income from financial intermediation
 2,433
 2,239
 8.6
 6,842
 6,966
 (1.8)
 Income from services, insurance, pension funds & capitalization
 2,983
 3,153
 (5.4)
 8,914
 7,164
 24.4
 Administrative & personnel expenses
 1,886
 1,826
 3.3
 5,481
 5,334
 2.7
 Operating income
 1,658
 1,577
 5.1
 4,643
 4,501
 3.2
 Consolidated recurring net income
 1,226
 949
 29.2
 3,046
 2,861
 6.4
 Consolidated net income
 920
 949
 (3.0)
 2,745
 2,298
 19.5
 Results per thousand shares - R$






 Consolidated net income
 8.13
 8.38
 (3.1)
 24.24
 20.06
 20.9
 Net worth
 118.95
 113.00
 5.3
 118.95
 100.07
 18.9
 Interest on own capital
 2.87
 2.33
 23.0
 7.31
 5.94
 23.0
 Price per share PN (1)
 308.69
 269.40
 14.6
 308.69
 224.26
 37.6
 Market capitalization - R$ million (2)
 34,959
 30,485
 14.7
 34,959
 25,691
 36.1
 Balance sheet - R$ million





 Total assets
 138,520
 122,760
 12.8
 138,520
 118,982
 16.4
 Total loans (3)
 51,059
 48,713
 4.8
 51,059
 42,699
 19.6
 Free, raised and managed own resources
 213,289
 194,750
 9.5
 213,289
 175,047
 21.8
 Subordinated debt
4,835
 5,042
 (4.1)
 4,835
 4,770
 1.4
 Consolidated stockholders’ equity
 13,471
 12,787
 5.3
 13,471
 11,464
 17.5
 Reference equity (4)
 18,806
 18,141
 3.7
 18,806
 17,889
 5.1
 Financial indices (%)





 Annualized profitability
 30.3
 33.1
28.1
 27.6
 Annualized return on assets
 2.7
 3.1
2.7
 2.6
 Solvency rate (Basel rate)
 19.4
 19.5
19.4
 21.5
 Efficiency rate (5)
 43.1
 45.3
44.7
 43.6
 Investment in fixed assets rate
 24.4
 23.1
24.4
 31.4
(1) Based on the average quotation of the last month of the year period. (2) Calculated based on the average quotation of the preferred shares of the last month of the period. (3) Includes endorsements and sureties. (4) Capital basis, calculated according to BACEN Resolution 2,837, dated May 30, 2001, based on the economic and financial consolidated. (5) Prior period indices were recalculated arising from reclassifications of income/expenses, as described in Note 18.

Assets, loans and raised and managed funds

Itaú’s consolidated assets reached R$ 138,520 million at the end of the period, a 16.4% increase over the same period last year. Reflecting the high priority defined and the strong support offered to clients during this economic upturn period, credit grew expressively in the quarter. The loan portfolio reached R$ 51,059 million, including sureties and bonds, a 19.6% increase over the same period last year. In the last quarter there was an increase of 4.8%, which was noted in virtually all segments.

Total resources increased 21.8% as compared to September 2003, totaling R$ 213,289 million.

The highlight in the period was the 28.8% increase in managed funds, totaling R$ 93,774 million.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 58


Significant Events in the Period

. Itaú Holding with the Pão de Açúcar partnership

Itaú Holding and Companhia Brasileira de Distribuição (CBD) announced on July 27, 2004 the incorporation of a new financial institution that will operate exclusively in structuring and selling financial and related products and services to CBD customers.
The new institution, in which each partner holds 50%, will be managed by Itaú Holding, always aiming at meeting the interests of CBD in the best way possible.
The partnership with the Pão de Açúcar Group of renowned management excellence and high value brand, is intended to strengthen the offer of credit to the Brazilian consumer market.
The institution will be called Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento. Management will be appointed by Itaú Holding and formed by professionals widely experienced in the business. Start-up is scheduled for the first half of 2005.
On October 27, 2004, the definitive contracts which will govern the relationship between both groups were signed.
For Itaú Holding, this partnership will represent an investment of approximately R$ 455 million, including goodwill of R$ 380 million, which was fully amortized in the consolidated financial statements for the 3rd quarter of 2004.
. Dow Jones Sustainability Index
Itaú Holding was picked for the fifth consecutive time to be part of the Dow Jones Sustainability Index (DJSI), and is currently the only Latin American bank in the index. The DJSI is used as reference by investors and fund managers from 14 countries that administrate investment funds and individual portfolios around the world.
In addition to being recognized for its management and generating shareholder value, the companies forming the DJSI represent an aggregate market value of US$ 6.5 trillion.



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 59

Awards

In the third quarter, Itaú Holding received important acknowledgements:

. Best Bank in Brazil - Euromoney Magazine (7th consecutive year)
. Best Bank in Brazil - The Banker Magazine (4th time)
. Best Bank in Brazil - Latin Finance Magazine (5th time)
. Best Bank in Latin America - Emerging Markets Magazine (3rd time)
. The most admired companies in Brazil - Carta Capital Magazine - leader in two categories: Retail Bank and Insurance company
  (3rd consecutive year) and Private Pension Fund (2nd time)
. Best Corporate Governance in Brazil - Euromoney Magazine (2nd consecutive year)
. The 100 Most Innovative IT Users - Information Week Magazine
. Largest third-party fund manager - Institutional Investor Magazine
. Best Investor Relations in Latin America - Institutional Investor - Research Group


SUBSIDIARIES

Because of the corporate restructuring completed in 2003, with the creation of Banco Itaú Holding Financeira S.A., and the resulting operational restructuring, we detail below the information of the main subsidiaries. Banco Itaú covers the main financial services market segments, while Banco Itaú-BBA specializes in services to large corporations. The tables below show the pro-forma data of Banco Itaú and Banco Itaú-BBA, as if these units’ separation process had started at the beginning of the 2003 financial year.

. Banco Itaú


This quarter loans increased 9.7%. The loans to the individuals segment and the vehicle financing segment increased 12.7% and 9.6%, respectively. In the credit card segment the increase was 8.8%. In the corporate segment, loans to small businesses and middle market increased 10.7% this quarter.
Itaú Personnalité maintained its expansion by opening four new branches in this quarter and continuously improving its products, services, and client service to ensure a high-level client satisfaction. This quarter the increase in raised and managed funds was 9.5%.
Itaú Private Bank, specialized in financial and equity management and consulting to high net worth investors, maintained its market leadership position with an aggregate of managed funds in Brazil and abroad of R$ 18.0 billion in the third quarter. This result represents a 17.7% increase in managed volume as compared to the same period in 2003 and 3.5% as compared to the second quarter of 2004.

It should be also highlighted the 20.8% increase in the deposits, as compared to the same period in 2003.



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 60
Pro forma information (R$ million)
 Q3 2004
 Q2 2004
 Change %
 Jan-Sep/04
 Jan-Sep/03
 Change %
Income






Gross income from financial intermediation
 1,823
 1,840
 (0.9)
 5,291
 5,374
 (1.5)
Income from services, insurance, pension funds & capitalization
 1,618
 1,580
 2.5
 4,736
 4,143
 14.3
Administrative & personnel expenses
 1,778
 1,732
 2.6
 5,187
 5,090
 1.9
Operating income
 1,163
 1,210
 (3.9)
 3,323
 3,167
 4.9
Net income
814
 778
 4.7
 2,204
 1,999
 10.2
Allocated capital - tier I (1)
 8,182
 7,499
 9.1
 8,182
 7,235
 13.1
Annualized profitability (%)
 46.2
 48.4
37,4
 38.5
Assets & Loans





Total loans (2)
 27,559
 25,116
 9.7
 27,559
 20,101
 37.1
Businesses
 10,316
 9,314
 10.7
 10,316
 6,084
 69.6
- Small businesses and middle market
 10,316
 9,314
 10.7
 10,316
 6,084
 69.6
Individuals
 17,243
 15,802
 9.1
 17,243
 14,017
 23.0
- Mortgage loans - individuals
 1,813
 1,868
 (3.0)
 1,813
 2,045
 (11.4)
- Credit card
 3,464
 3,183
 8.8
 3,464
 2,721
 27.3
- Consumer Credit
 6,581
 5,839
 12.7
 6,581
 5,140
 28.0
- Vehicles
 5,385
 4,912
 9.6
 5,385
 4,111
 31.0
Interbank investments
 32,622
 22,643
 44.1
 32,622
 22,785
 43.2
Securities
 17,815
 17,356
 2.6
 17,815
 18,135
 (1.8)
Deposits & Funds raised and managed
 130,301
 123,987
 5.1
 130,301
 103,056
 26.4
Deposits
 36,527
 34,421
 6.1
 36,527
 30,239
 20.8
Funds managed
 93,774
 89,566
 4.7
 93,774
 72,817
 28.8
- Investment funds
 86,444
 82,341
 5.0
 86,444
 66,906
 29.2
- Managed portfolios
 7,330
 7,225
 1.5
 7,330
 5,911
 24.0
(1) Reflects the capital of Banco Itaú Pro Forma, defined based on managerial criteria set up for the allocation of capital of Itaú Holding to its business units. (2) Including endorsements and sureties.

.. Financial Expansion

Taií, Itaú finance company engaged in offering credit facilities to the low-income population, started its operations in June and already has 11 branches for its pilot project. The confirmation of production, default, and brand forecasts have boosted the immediate expansion of Taií’s operations. By the end of the year, 19 additional branches will be inaugurated, 7 of which in the Greater Sao Paulo and 12 in the Greater Rio de Janeiro.

.. Credit Cards

In September, the number of Itaucard credit cards in issue in Brazil went over 6.6 million. The number of transactions in the third quarter, including shopping and money drafts, was more than R$ 3.2 billion, a 24.3% increase as compared to the same period in 2003. Market share reached 13.5% in the number of cards and 12.6% in billings.
It was launched the Itaucard Mastercard Business card for businesses - aimed at small businesses that are Banco Itaú clients - and conceived based on market research. The card was developed based on a new system platform and provides all the convenience of the Itaú electronic channels to an exclusive unique reward program, among other benefits. Approximately 20,000 cards were sold in the first quarter of activity.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 61

.. Social Excellency Fund

Launched in September, the Itaú Social Excellency Fund FIA, which will serve two types of investors: institution investors and individuals. The fund portfolio consists of securities of companies with differentiated and recognized social corporate responsibility practices. In addition to the security risk and return analysis, fund managers will analyze three essential aspects: Social Practices, Environmental Protection Practices, and Good Corporate Governance Practices.


.. Insurance, Pension Plans and Capitalization

Itaú Seguros and its subsidiaries (including Health) reached, this quarter, R$ 537 million in premiums, presenting an increase of 14% as compared to the same period in 2003. A higher cost of claims adversely affected income.

Income from pension plans reached, this quarter, R$ 199 million and VGBL premiums reached an aggregate of R$ 524 million.
Technical provisions for pension funds totaled R$ 3,850 million, an increase of 5.9% as compared to the second quarter of 2004. VGBL and life insurance technical provisions totaled R$ 4,104 million.
The technical provisions for capitalization totaled R$ 1,012 million, from which more than R$ 6 million in cash was distributed during this quarter, as prizes to the winning customers. This quarter, 170,000 bonds were sold, reaching 653,000 in the year to date.
Itaú Seguros launched the Consultor Automotivo (Car Adviser). This service offers car insurers a free evaluation that identifies possible problems in their cars before taking the car to a repair shop. Consultor Automotivo also provides a repair cost estimate.
(Pro Forma Information)
(R$ million) 		Insurance (1) Life Insurance and
Pension Plans (1)		 Capitalization (1) Consolidated (1)
Q3 2004 Q2 2004 Q3 2004 Q2 2004 Q3 2004 Q2 2004 Q3 2004 Q2 2004 Change (%)
Net income 25 23 63 80 28 33 117 131 (10.7)
Premiums earned and revenues from pension plans and capitalization 400 388 93 94 46 48 540 526 2.7
Technical provisions 1,082 1,038 7,954 7,254 1,012 976 10,048 9,267 8.4
(1) Shareholdings in other businesses were eliminated.

.. Banco Itau Europa

In January-September 2004, Banco Itaú Europa posted consolidated net income of € 21.5 million. These results reflect the diversification with important contribution to this performance of the capital market, treasury, and international private banking operations, and the interest held in BPI - Banco Português de Investimentos, one of the main Portuguese financial groups. At the end of the period, Banco Itaú Europa presents an efficiency rate of 29%.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 62
Itaú Europa’s business, including assets and guarantees, totaled € 2,543 million, a 15% increase when compared to the same period in 2003. This increase came with a positive performance of the different loan portfolios of Banco Itaú Europa, in particular the structured financing portfolio, which reached approximately US$ 850 million. In this context, Itaú Europa has been expanding its client base both in the corporate segment of Banco Itaú-BBA and middle market served by Banco Itaú.

Private banking has also helped to increase Banco Itaú Europa’s business, with managed assets exceeding US$ 2 billion.

Banco Itaú Europa Luxembourg maintained its policy of expanding its private client base by increasing and strengthening the product offer, fund family, investment options, and advisory services, always acting proactively in fund allocation.

. Banco Itau-BBA

Because of the very favorable economic environment during the quarter, the corporate segment experienced a significant improvement of its main financial indicators, including in the return over indebtedness ratio, thus positively impacting Banco Itaú-BBA’s (Itaú-BBA) risk ratings of different industries.
The balance of the loan portfolio was R$ 18.9 billion, a slight decrease of 0.4% as compared to June 2004. If we include endorsements and sureties, this balance increases to R$ 23.5 billion, a 4.0% increase as compared to September 2003. Note that these amounts were impacted by the appreciation of the real in relation to the US dollar to R$ 2.8586 at September 30, 2004 from R$ 3.1075 at June 30, 2004. If we disregard this effect on the loan portfolio portion subject to foreign exchange fluctuation, the balance would post an increase of approximately 3.0% when compared to the balance in June 2004.

This quarter, in addition to the increase in the number of transactions with structured products and derivatives in Brazil and abroad, we highlight the steady increase in businesses created resulting from cross selling and operating in the capital markets.
During the third quarter of 2004, Banco Itaú-BBA advised several clients on fund raising in the domestic and foreign markets, amounting to approximately R$ 4.0 billion in fourteen transactions.

In the domestic fixed-income market, Itaú-BBA participated in ten debenture transactions, totaling approximately R$ 3.0 billion, from which we highlight the issue in two series of Suzano Bahia Sul Papel e Celulose S.A. debentures, in the amount of R$ 500 million for a ten-year period, the issue of two series of Concessionária da Rodovia Presidente Dutra S.A. debentures, in the amount of R$ 180 million for a seven-year period, and finally the issue of Brasil Telecom S.A. single-series debentures, in the amount of R$ 500 million for a five-year period.

In the foreign market, Itaú-BBA led the issue of US$ 100 million Medium Term Notes of Banco Votorantim S.A. for a three-year period.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 63
In the variable-income market, Itaú-BBA acted as coordinator and book runner of the first Exchange Traded Fund in Latin America, PIBB, formed after the disposal of the BNDES shareholding fund, through which R$ 600 million was raised.

Additionally, Itaú-BBA assisted the Electrolux Group during the delisting procedure of Electrolux do Brasil S.A. and is currently advising Inbev SA/NV and Teléfonos de México S.A. in their takeover bids of the common shares of Companhia de Bebidas das Américas - Ambev and Embratel Participações S.A., respectively.

During the third quarter of 2004, Itaú-BBA continued to benefit from its international structure, consisting of its Nassau branch and offices in Buenos Aires and New York, to meet its clients’ demand. After the capital increase of the Nassau branch, Bahamas, in the amount of US$ 150 million or R$ 437 million, carried out in March 24, 2004, the institution established new equity levels consistent with the volume of its international operations.
In the period, the offer of foreign trade facilities was still large, with an increase in terms and a decrease in costs. The fund raising distribution for Itaú Holding’s trade facilities is still wide-ranging as regards the source of funds, thus evidencing Itaú Holding’s capacity of penetration and diversification in several markets.
Itaú-BBA and Banco Itaú closed the third quarter of 2004 with facilities drafted from correspondent banks in the amount of US$ 2.0 billion, against US$ 2.6 billion at the end of September 2003. Itaú-BBA, the unit in charge of all activities regarding Itaú Holding’s correspondent banks, maintains a relationship with over 120 banks.
The indicators below are based on the pro forma financial statements of Itaú-BBA are intended to reflect the results of this business unit’s results based on managerial information.
Banco Itaú-BBA
Pro Forma Information
 3Q 2004
 2Q 2004
 Change %
 Jan-Sep/04
 Jan-Sep/03 (2)
 Change %
Income - R$ million
            
Gross income from financial intermediation
 438
 320
 36.8
 1,181
 1,155
 2.2
Operating income
 385
 234
 64.6
 951
 978
 (2.7)
Consolidated net income
 213
 198
 7.3
 643
 550
 16.9
Balance Sheet - R$ million
            
Total assets
 38,464
 36,191
 6.3
 38,464
 29,063
 32.3
Total loans (including endorsements and sureties)
 23,500
 23,597
 (0.4)
 23,500
 22,598
 4.0
Allocated capital - tier 1 (1)
 3,814
 3,543
 7.7
 3,814
 3,078
 23.9
Financial indices (%)
            
Annualized profitability
 24.2
 24.3
23.1
 24.5
  
Annualized return on assets
 2.2
 2.2
2.2
 2.5
  
Efficiency rate
 21.1
 25.6
25.2
 15.5
  
(1) Reflects the capital of Itaú-BBA Pro Forma, defined based on managerial criteria set up for the allocation of capital of Itaú Holding to its business units.
(2) Prior periods information is readjusted, in order to provide a better comparison in relation to the managerial criteria adopted as from 2004, specially related to the allocation of capital and to interest on own capital.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 64

Human Capital Management

At the end of the quarter, Itaú Holding employed 42,152 people. Staff fixed compensation plus charges and benefits totaled R$ 715 million or R$ 17,000 per employee on average for this quarter. In the period, R$ 11 million was invested in human capital development. Amongst the different courses provided, we highlight the first Learning Map, aimed at contributing to the understanding of Itaú Holding’s People Management Policies and Management Practices, as well as to encourage their application by those who, among other responsibilities, are in charge of managing teams.

Through the Young Citizen Program, coordinated by the São Paulo State Government, this quarter the Bank hired 133 youngsters, as office boys and trainees, for the branches’ administrative and self-service areas. The Young Apprentice Program, aimed at expanding opportunities and offering professional experience to poor young students, resulted in the hiring of 61 youngsters. The number of employees working at the Bank through the People with Special Needs Hiring Program is now 790 people.


Social and Environmental Responsibility

For Itaú Holding, the commitment to sustainable development reflects on the way we do business, taking into consideration social, environmental, and economic dimensions, the transparency and ethics of our relationships with our stakeholders, and social and cultural investments.

 

. Itaú Social

Highlights for the period include the activities of the 2nd edition of the “Prêmio Escrevendo o Futuro” (“Writing the Future Award”) regarding the selection of the semifinalist texts and the students and teachers that will participate in the Regional Workshops. The awards will be granted on December 6.
The “Programa Melhoria da Educação do Município” (“Improvement of Municipal Education Program”) continued its 2nd stage in the so-called semiarid. In the Paraíba center a pilot project was initiated to assess and monitor the Program.
As part of the “Programa Educação e Participação” (“Education and Participation Program”), we continued the Learning Managers Program and promoted the six Regional Training Gatherings.
The “Programa Jovens Urbanos” (Urban Youth Program) continued to offer training courses to teachers and to the 480 youngsters that participated in its first edition.

The Itaú Holding Support Voluntaries Committee was created. This committee is composed of voluntary employees from different areas of the Bank.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 65
Together with Rádio Bandeirantes, the 4th edition of the “Prêmio Escola Voluntária” (“Voluntary School Award”) was opened with the participation of 225 schools. Teachers and students from the ten semifinalist schools participated in the communication and voluntary work training program.

Investing in the strengthening of the management competence of third sector entities, the Itaú Social Foundation developed a Social Projects Economic Evaluation methodology to be made available to Government Authorities and NGOs in 2005. In November, the Foundation will conduct in Sao Paulo the Social Projects Economic Evaluation Seminar.

. Environment

To reiterate Itaú Holding concern with the environment, Banco Itaú and Itaú-BBA have adopted the Ecuador Principles.

By adopting these Principles, Banks agree to comply with the social and environmental policy of the International Finance Corporation (IFC) in project finance transactions over US$ 50 million. Projects outside standards will have to adapt to the standards in order to receive financing.

. Itaú Cultural

In July, the 2nd edition of the international event Emoção Art.ficial 2.0 was opened to the public. With 30 art works by Brazilian and foreign artists, the biennial exhibition discussed the political use of technology, its growing presence in daily life, and its impact on society, especially in countries with striking social differences. The exhibition was open during 76 days and recorded 129,710 visitors.

The main purpose of the Rumos Program is to find new talents of the artistic and intellectual Brazilian production. Through public notices in the internet and in partnerships from all over the country, it is possible to participate in the selection process. The 2004-2005 issue received 1,649 applications from all Brazilian states and residents from countries such as Germany, United States, and Japan. From May 18 to September 22, 1,403 applications were received for the Music area, 108 applications for Cultural Journalism, and 138 for Audiobooks.
Following the partnership started in 2003 with Paço Imperial in Rio de Janeiro, in March it was launched in the capital of Rio de Janeiro , the exhibition “Tudo é Brazil” (“All is Brazil”), under the guardianship of Lauro Cavalcanti. 88,400 people visited the event, which generated a book and a DVD distributed to cultural and educational institutions. In November the exhibition will be transferred to the Itaú Cultural headquarter in São Paulo.
The Project “Crônica na Sala de Aula” (“Chronicle in the Classroom”), which enables teachers of public schools to use literary works as a tool in the classroom - passed through seven States during the year. In September, this project was selected to be included in the Good Corporate Citizenship Guide 2004 of Exame Magazine.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 66

In September, the Program “Jogo de Idéias” (“Idea Games”), to be exhibited on Tuesdays at 9:30 pm, was launched in TVE of Rio de Janeiro. Idea Games is produced by Itaú Cultural and includes discussions with authorities, artists, cultural producers and agents on current issues.

Subsequent Events

. Equity interest in Credicard Banco and Orbitall
According to the announcement to the market published in this date, Itaú Holding became the owner of 50% of Unibanco participation in Credicard, which, added to its existing participation, reached a total Itaú Holding’s equity interest of 50% in Credicard Banco (a credit card issuer).

Itaú Holding will acquire the equity interests of Citigroup and Unibanco in Orbitall thus increasing its participation to 100% of the company’s capital (a credit card transations processer).
The above mentioned transations, which are subject to certain conditions agreed upon among the parties, represent to Itaú Holding a net investment of approximately R$ 1,049 million, including estimated goodwill of R$ 955 million.

. Inauguration of the Itaú Branch in Japan

In October, Itaú inaugurated its first branch in Tokyo, Japan. The branch is dedicated to the Brazilian clients resident in or passing by Japan to facilitate business with Brazil, always joining convenience, modernity, technology, transparency, and ethics, which are organization-wide values. Among the main services provided by the Japan Branch is the Itaú Remittance - transferring money from Japan to Brazil.

The presence in Japan is an important step toward the consolidation of the Bank’s international strategy. The Tokyo Branch is Itaú’s first branch in Asia. Currently, Banco Itaú is in the USA and in Europe, in addition to branches in Central and South America.
. Judicious Use of Credit

Consistently with its corporate responsibility values, in early October Banco Itaú launched a unique campaign on the judicious use of credit. The guide on how to use credit - one of the most important issues of the campaign - will provide information on how to control a household budget, several types of credit facilities, and how to use them wisely.
The purpose of the campaign is to guide clients and the population in general, in a simple and transparent way, on how to judiciously use credit facilities available in the Brazilian financial market.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 67

Financial Capacity

Under Circular 3,068 of the Central Bank of Brazil, of November 8, 2001, which sets forth Securities’ recording and accounting measurement criteria, Itaú Holding hereby declares to have the financial capacity and the intention to hold to maturity securities classified under line item “held-to-maturity securities” in the balance sheet.

Independent Auditors

The policy of Itaú Holding for the engagement of non-audit services from our current independent auditors is based on following principles:
a) The engagement of any services to be provided by independent auditors depends upon approval by the Audit Committee, formed by members of the Board of Directors, which also approves the thresholds of fees payable;

b) It is the responsibility of the Audit Committee to ensure the independence and objectivity of the Independent Auditor, based on internationally accepted principles. These principles consist of: (a) the auditor must not audit his own work, (b) the auditor should not perform managerial roles for his client and (c) the auditor must not promote the interest of his client. It is also the duty of the Audit Committee to ensure that there are no other encumbrances to the provision of services by the Independent Auditor prescribed by Regulators.
During the period, PricewaterhouseCoopers Auditores Independentes provided audit related services to enable the Bank to comply with the rules set forth by the Sarbanes Oxley Act, Section 404, in the amount of R$ 1,730 thousand, which represent 18.0% of total fees paid.
During this period, PricewaterhouseCoopers Auditores Independentes did not provide to Banco Itaú Financial Holding or its subsidiary companies any services unrelated to the external audit which had fees that exceeded 5% of total external audit costs.

Acknowledgements

We thank our employees for their effort and dedication, which make our organization successful. To our clients, our acknowledgement for their preference and loyalty, which we try to pay back through the quality and distinctiveness of our services. We also thank our stockholders for their invaluable support and trust, which are essential for the performance of Itaú Holding.

(Approved at the Meeting of the Board of Directors on November 8, 2004).

The complete financial statements and the Management’s Discussion and Analysis Report, with more details about the results of the period, are available at Itaú Holding’s website (http://www.itauri.com.br).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 68

BANCO ITAÚ HOLDING FINANCEIRA S.A.

BOARD OF DIRECTORS
 ADVISORY COUNCIL
Chairman
 FERNANDO DE ALMEIDA NOBRE NETO
OLAVO EGYDIO SETUBAL
 JOAQUIM FRANCISCO MONTEIRO DE CARVALHO

LÍCIO MEIRELLES FERREIRA
Vice-Presidents
 LUIZ EDUARDO CAMPELLO
ALFREDO EGYDIO ARRUDA VILLELA FILHO
JOSÉ CARLOS MORAES ABREU
 OPTIONS COMMITTEE ITAÚ HOLDING
ROBERTO EGYDIO SETUBAL
 Chairman

OLAVO EGYDIO SETUBAL
Members
 Members
ALCIDES LOPES TÁPIAS
 CARLOS DA CÂMARA PESTANA
CARLOS DA CÂMARA PESTANA
 JOSÉ CARLOS MORAES ABREU
FERNÃO CARLOS BOTELHO BRACHER
 ROBERTO EGYDIO SETUBAL
HENRI PENCHAS
 ROBERTO TEIXEIRA DA COSTA
JOSÉ VILARASAU SALAT
MARIA DE LOURDES EGYDIO VILLELA
 AUDIT COMMITTEE
PERSIO ARIDA
 Chairman
ROBERTO TEIXEIRA DA COSTA
 CARLOS DA CÂMARA PESTANA
SERGIO SILVA DE FREITAS
 Members
TEREZA CRISTINA GROSSI TOGNI

 ALCIDES LOPES TÁPIAS
TEREZA CRISTINA GROSSI TOGNI (Specialist)
EXECUTIVE BOARD


Director and Chief Executive Officer
 TRADING COMMITTEE
ROBERTO EGYDIO SETUBAL

 ALFREDO EGYDIO SETUBAL
ALCIDES LOPES TAPIAS

ALFREDO EGYDIO ARRUDA VILLELA FILHO
Senior Vice-Presidents
 HENRI PENCHAS
HENRI PENCHAS
 MARIA ELIZABETE VILAÇA LOPES
SERGIO SILVA DE FREITAS
 ROBERTO TEIXEIRA DA COSTA

Executive Vice-President
 DISCLOSURE COMMITTEE
ALFREDO EGYDIO SETUBAL
 ALFREDO EGYDIO SETUBAL

ALCIDES LOPES TAPIAS
Legal Consultant
 ALFREDO EGYDIO ARRUDA VILLELA FILHO
LUCIANO DA SILVA AMARO
ANTONIO JACINTO MATIAS

HENRI PENCHAS
Executive Directors
 MARIA ELIZABETE VILAÇA LOPES
RODOLFO HENRIQUE FISCHER
 ROBERTO TEIXEIRA DA COSTA
SÍLVIO APARECIDO DE CARVALHO
 TEREZA CRISTINA GROSSI TOGNI


INTERNATIONAL ADVISORY COMMITTEE
 FISCAL COUNCIL
ROBERTO EGYDIO SETUBAL
ARTUR EDUARDO BROCHADO DOS SANTOS SILVA
 Chairman
CARLOS DA CÂMARA PESTANA
 GUSTAVO JORGE LABOISSIERE LOYOLA
FERNÃO CARLOS BOTELHO BRACHER

HENRI PENCHAS
 Effective Members
JOSÉ CARLOS MORAES ABREU
 ALBERTO SOZIN FURUGUEM
MARIA DE LOURDES EGYDIO VILLELA
 IRAN SIQUEIRA LIMA
ROBERTO TEIXEIRA DA COSTA
RUBENS ANTONIO BARBOSA
SERGIO SILVA DE FREITAS
   
Accountant
  
JOSÉ MANUEL DA COSTA GOMES
CPF: 053.697.558-25
CRC - 1SP219892/O-0
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 69

BANCO ITAÚ S.A.

President and Chief Executive Officer
ROBERTO EGYDIO SETUBAL
Senior Vice-Presidents
HENRI PENCHAS
SERGIO SILVA DE FREITAS
Executive Vice-Presidents
ALFREDO EGYDIO SETUBAL
ANTÔNIO JACINTO MATIAS
RENATO ROBERTO CUOCO
RODOLFO HENRIQUE FISCHER
Legal Consultant
LUCIANO DA SILVA AMARO
Executive Directors
FERNANDO TADEU PEREZ
HÉLIO DE MENDONÇA LIMA
JOÃO JACÓ HAZARABEDIAN
JOSÉ FRANCISCO CÁNEPA
MARCO AMBROGIO CRESPI BONOMI(*)
OSVALDO DO NASCIMENTO
RONALD ANTON DE JONGH
RUY VILLELA MORAES ABREU
SÉRGIO RIBEIRO DA COSTA WERLANG
SÍLVIO APARECIDO DE CARVALHO


BANCO ITAÚ-BBA S.A.

Chief Executive Officer
FERNÃO CARLOS BOTELHO BRACHER
Vice-Presidents
ANTÔNIO CARLOS BARBOSA DE OLIVEIRA
CANDIDO BOTELHO BRACHER
EDUARDO MAZZILLI DE VASSIMON


ITAÚ SEGUROS S.A.

Chief Executive Officer
LUIZ DE CAMPOS SALLES
Executive Vice-Presidents
OLAVO EGYDIO SETUBAL JÚNIOR
MARCELO BLAY
Executive Directors
CARLOS EDUARDO DE MORI LUPORINI
CLÁUDIO CÉSAR SANCHES
JOSÉ CARLOS MORAES ABREU FILHO


(*)  Promoted to Executive Director by the General Ordinary Meeting of April 30, 2004, pending approval by the Brazilian Central Bank.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 70

BANCO ITAÚ HOLDING FINANCEIRA S.A.
Consolidated Balance Sheet
(In thousands of Reais)

ASSETS 09/30/2004 09/30/2003
CURRENT ASSETS AND LONG-TERM RECEIVABLES 135,455,158 115,744,146
   
CASH AND CASH EQUIVALENTS 1,926,164 1,643,813
 
   
SHORT-TERM INTERBANK DEPOSITS (Notes 4a and 5) 25,396,978 22,784,817
   
Money market 15,932,790 11,757,099
   
Money market - Assets Guaranteeing Technical Provisions - SUSEP (Note 10b) 303,108 657,089
   
Interbank deposits 9,161,080 10,370,629
   
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4b, 4c and 6) 28,258,317 29,059,565
   
Own portfolio 12,813,774 14,775,098
   
Subject to repurchase commitments 1,344,040 2,374,544
   
Pledged in guarantee 2,396,927 3,465,754
   
Deposited with the Central Bank 1,041,712 1,701,866
   
Derivative Financial Instruments 1,318,784 1,506,447
   
Assets Guaranteeing Technical Provision - Funds Quotas of PGBL/VGBL (Note 10b) 6,117,892 2,773,078
   
Assets Guaranteeing Technical Provisions - Other securities (Note 10b) 3,225,188 2,462,778
   
INTERBANK ACCOUNTS 11,244,611 8,875,703
   
Pending settlement 1,339,835 1,180,986
   
Central Bank Deposits 9,635,040 7,379,150
   
National Housing System (SFH) 266,559 314,268
   
Correspondents 3,177 1,299
   
INTERBRANCH ACCOUNTS 18,169 15,352
   
LOAN, LEASING AND OTHER CREDIT OPERATIONS (Note 7) 41,783,375 33,642,353
   
Operations with credit characteristics (Note 4d) 44,810,178 36,932,673
   
(Allowance for loan losses) (Note 4e) (3,026,803) (3,290,320)
   
OTHER RECEIVABLES 25,714,251 18,700,015
   
Foreign exchange portfolio (Note 8) 14,375,443 7,796,186
   
Income receivable 523,988 590,715
   
Insurance premium receivable 632,177 522,387
   
Negotiation and intermediation of securities 783,739 569,978
   
Sundry (Note 11a) 9,398,904 9,220,749
   
OTHER ASSETS (Note 4f) 1,113,293 1,022,528
   
Other assets 399,128 493,462
   
(Valuation allowance) (129,087) (132,118)
   
Prepaid expenses 843,252 661,184
   
PERMANENT ASSETS 3,064,609 3,237,803
   
INVESTMENTS (Notes 4g and 14a) 887,603 878,206
   
Investments in subsidiaries and affiliates 749,697 734,504
   
Domestic 124,389 113,807
   
Foreign 625,308 620,697
   
Other investments 249,809 237,137
   
(Allowance for losses) (111,903) (93,435)
   
FIXED ASSETS (Note 4h) 1,941,604 2,091,635
   
Property for own use 2,127,803 2,102,044
   
Other fixed assets 2,788,515 2,429,534
   
(Accumulated depreciation) (2,974,714) (2,439,943)
   
DEFERRED CHARGES (Note 4i) 235,402 267,962
   
Organization and expansion expenses 534,129 560,193
   
(Accumulated amortization) (298,727) (292,231)
   
TOTAL ASSETS 138,519,767 118,981,949

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 71
BANCO ITAÚ HOLDING FINANCEIRA S.A.
CONSOLIDATED BALANCE SHEET
(In thousands of Reais)
LIABILITIES 09/30/2004 09/30/2003
CURRENT AND LONG-TERM LIABILITIES 123,887,598 106,460,865
   
DEPOSITS (Notes 4a and 9b) 37,590,378 34,413,585
 
   
Demand deposits 9,722,725 7,099,911
   
Savings deposits 18,223,958 16,866,548
   
Interbank deposits 620,869 1,069,817
   
Time deposits 9,022,826 9,377,309
   
DEPOSITS RECEIVED UNDER SECURITIES REPURCHASE AGREEMENTS (Notes 4a and 9c) 21,928,611 18,293,858
 
   
Own portfolio 9,559,128 8,637,387
   
Third-party portfolio 6,270,104 9,631,207
   
Free portfolio 6,099,379 25,264
   
FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES (Notes 4a and 9d) 4,267,777 5,348,788
 
   
Mortgage notes 41,057 73,241
   
Debentures 844,818 669,165
   
Foreign borrowings in securities 3,381,902 4,606,382
   
INTERBANK ACCOUNTS 1,388,995 1,194,969
 
   
Pending settlement 1,241,557 1,024,412
   
Correspondents 147,438 170,557
   
INTERBRANCH ACCOUNTS 1,087,345 763,118
 
   
Thirdy-party funds in transit 1,081,701 757,844
   
Internal transfer of funds 5,644 5,274
   
BORROWINGS AND ONLENDINGS (Notes 4a and 9e) 11,268,725 13,483,811
 
   
Borrowings 6,866,391 9,257,120
   
Onlendings 4,402,334 4,226,691
   
DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4c and 6e) 786,395 668,873
 
   
TECHNICAL PROVISIONS FOR INSURANCE, PENSION PLAN AND CAPITALIZATION (Notes 4j and 10a) 10,047,628 6,085,798
 
   
OTHER LIABILITIES 35,521,744 26,208,065
 
   
Collection and payment of taxes and contributions 1,391,910 845,419
   
Exchange portfolio (Note 8) 14,642,895 8,097,672
   
Social and statutory 744,902 639,861
   
Tax and social security contributions (Note 13c I) 3,641,946 3,684,161
   
Negotiation and intermediation of securities 1,562,741 989,413
   
Credit card operations 2,543,146 1,923,813
   
Securitization of foreign payment orders (Note 9f) 2,032,131 1,681,902
   
Subordinated debt (Note 9g) 4,834,829 4,770,195
   
Sundry (Note 11b) 4,127,244 3,575,629
   
DEFERRED INCOME 57,278 73,602
   
MINORITY INTEREST IN SUBSIDIARIES 1,104,045 983,677
   
STOCKHOLDERS’ EQUITY (Note 15) 13,470,846 11,463,805
   
Capital 8,101,000 4,780,000
   
Domestic 6,469,309 3,806,767
   
Foreign 1,631,691 973,233
   
Capital reserves 2,183,867 5,648,619
   
Retained earnings 3,173,186 850,543
   
Adjustment to market value - securities and derivatives (Notes 4b, 4c and 6c) 483,673 434,386
   
(Treasury shares) (470,880) (249,743)
   
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 138,519,767 118,981,949

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 72

BANCO ITAÚ HOLDING FINANCEIRA S.A.
Consolidated Statement of Income
(In thousands of Reais)
  01/01 to
09/30/2004		 01/01 to
09/30/2003
INCOME FROM FINANCIAL OPERATIONS 12,524,340 9,515,333
   
Loans, leasing and other credits 7,095,542 4,989,753
 
   
Securities 3,952,239 2,818,034
 
   
Insurance, pension plan and capitalization 904,398 833,549
 
   
Foreign exchange operations 114,050 133,717
 
   
Compulsory deposits 458,111 740,280
 
   
EXPENSES ON FINANCIAL OPERATIONS (5,021,315) (1,352,442)
   
Money market (3,690,545) (2,628,863)
 
   
Technical provisions for pension plan and capitalization (686,029) (519,219)
 
   
Borrowings and onlendings (644,741) 1,795,640
 
   
INCOME FROM FINANCIAL OPERATIONS BEFORE LOAN LOSSES 7,503,025 8,162,891
   
RESULT FROM LOANS LOSSES (Note 7d I) (660,555) (1,196,775)
   
Expenses with loan loss reserve (1,147,676) (1,591,598)
 
   
Income from recovery of loans written off as loss 487,121 394,823
 
   
GROSS INCOME FROM FINANCIAL OPERATIONS 6,842,470 6,966,116
   
OTHER OPERATING INCOME (EXPENSES) (2,199,425) (2,465,261)
   
Banking service fees (Note 11c) 4,366,230 3,777,913
 
   
Resources management 1,035,790 966,487
   
   
Current account services 903,501 742,690
   
   
Credit cards 790,958 714,907
   
   
Sureties and credits granted 649,200 484,712
   
   
Receipt services 564,808 514,541
   
   
Other 421,973 354,576
   
   
Result of operations with insurance, pension plan and capitalization (Note 10c) 590,255 536,993
 
   
Personnel expenses (Note 11d) (2,409,698) (2,344,627)
 
   
Other administrative expenses (Note 11e) (3,071,032) (2,989,579)
 
   
Tax expenses (Notes 4k and 13a II) (1,029,963) (766,256)
 
   
Income from interest in associated companies and subsidiaries (Note 14b) 34,659 (33,897)
 
   
Other operating income (Note 11f) 207,900 260,755
 
   
Other operating expenses (Note 11g) (887,776) (906,563)
 
   
OPERATING INCOME 4,643,045 4,500,855
   
NON-OPERATING RESULT 1,932 (69,624)
   
INCOME BEFORE TAXATION ON PROFIT AND PROFIT SHARING 4,644,977 4,431,231
   
INCOME TAX AND SOCIAL CONTRIBUTION (Notes 4k and 13a I) (1,312,866) (1,386,224)
   
Due on operations for the period (1,280,469) (1,555,711)
 
   
Temporary differences (32,397) 169,487
 
   
EXTRAORDINARY RESULT (Note 12) (300,599) (563,473)
   
PROFIT SHARING (271,049) (240,923)
   
Employees - Law 10101 of 12/19/2000 (211,293) (187,407)
 
   
Officers - Statutory - Law 6404 of 12/15/1976 (59,756) (53,516)
 
   
MINORITY INTEREST IN SUBSIDIARIES (15,167) 57,260
   
NET INCOME 2,745,296 2,297,871
NUMBER OF OUTSTANDING SHARES - In thousands (Note 15a) 113,250,221 114,559,146
   
NET INCOME PER THOUSAND SHARES - R$ 24.24 20.06
   
BOOK VALUE PER THOUSAND SHARES - R$ 118.95 100.07

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 73

BANCO ITAÚ HOLDING FINANCEIRA S.A.
NOTES TO THE FINANCIAL STATEMENTS
PERIODS FROM JANUARY 01 TO SEPTEMBER 30, 2004 AND 2003
(All amounts in thousands of Reais unless otherwise indicated)

NOTE 1 – OPERATIONS

Banco Itaú Holding Financeira S.A. (ITAÚ HOLDING) is a publicly listed company which, together with its subsidiary and affiliated companies, operates in Brazil and abroad, with all types of banking activities, through its commercial, investment, consumer credit and mortgage loan, finance credit, and lease portfolios, including foreign exchange operations, and other complementing activities, with emphasis on Insurance, Private Pension Plans, Capitalization, Administration of Credit Cards and Administration of Consortia and Securities Brokerage.

In the period, the process of acquisition of Banco AGF S.A., which had started on October 20, 2003, was approved by the Brazilian Central Bank on February 5, 2004. As from March 31, 2004, the acquisition is included in the consolidated financial statements. Financial settlement in the amount of R$ 247,942 for the transaction as a whole, including the acquisition of AGF Vida e Previdência S.A. and the group life portfolio of AGF Brasil Seguros, already consolidated on December 31, 2003, occurred on February 20, 2004.

On October 27, 2004, the definitive contracts announced on July 27, 2004 which aim at establishing a partnership between ITAÚ HOLDING and Companhia Brasileira de Distribuição (CBD) for the incorporation of a new company named FINANCEIRA ITAÚ CBD S.A. CRÉDITO, FINANCIAMENTO E INVESTIMENTO were signed. This company will operate exclusively in the structuring and sales of financial products and services and related ones for CBD customers. The investment amounted to R$ 455,541, resulting in a goodwill of R$ 380,540 fully amortized in the consolidated financial statements.

This operation is pending approval by the Brazilian Central Bank. Operations are estimated to start at the beginning of the first half of 2005, and the result for the next year is not expected to be significantly affected.
NOTE 2 – PRESENTATION OF THE FINANCIAL STATEMENTS

a) Presentation of the Financial Statements

  The financial statements of ITAÚ HOLDING and of its subsidiaries (ITAÚ HOLDING CONSOLIDATED) have been prepared in accordance with accounting practices derived from the Brazilian Corporate Law and instructions issued by the Central Bank of Brazil (BACEN), the Brazilian Securities Commission (CVM) and the Superintendence of Private Insurance (SUSEP), which include the use of estimates necessary to calculate accounting provisions.

  The consolidated Financial Statements are being presented without the segregation between Current and Long-Term, consistent with the prior quarter’s presentations.

  In Loan, Leasing and Other Credits Operations – Operations with Credit Cards are included the receivables, arising from purchases made by their owners. The resources related to these amounts are included in Other Liabilities – Operations with Credit Cards. The leasing Operations are presented at current value in the Balance Sheet, and the related income and expenses, which represent the financial result of these operations, are presented, grouped together, under loan, leasing and other credits operations in the Statement of Income.

  The exchange rate result is presented adjusted, with the reclassification of expenses and income, so as to represent exclusively the impact of variations and differences of rates on the balance sheet accounts representative of foreign currencies.



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 74

 

b) Consolidation

Intercompany transactions and balances and results have been eliminated on consolidation. The investments by consolidated companies in Exclusive Investment Funds are consolidated. The investments in these fund portfolios are classified by type of operation and were distributed by type of security, in the same categories in which the funds quotas had been originally allocated. Deferred taxes related to adjustments to market value of trading securities, derivative financial instruments (assets/liabilities) and securities available for sale, including the additional provision, are presented in the Balance Sheet at their related net amounts. The effects of the Foreign Exchange Variation on foreign investments are classified in the Statement of Income accounts, according to the nature of the corresponding equity accounts.


The goodwill originated from the acquisition of investments is fully amortized in the years in which the investments occur, in order to: a) permit better comparability with previous periods’ consolidated Financial Statements; and b) permit measuring Net Income and Stockholders’ Equity based on conservative criteria.

In Banco Banestado S.A.(BANESTADO), tax credits are recorded at amounts considered adequate in relation to expected future earnings. In ITAÚ HOLDING CONSOLIDATED, these tax credits are fully recognized, considering the larger size and additional synergy, which are factors that favour maximization of results.

The consolidated financial statements include ITAÚ HOLDING and its direct and indirect subsidiaries, highlighting:
Participation %
09/30/2004 09/30/2003
FINANCIAL ACTIVITY AND FINANCIAL INTERMEDIATION
Banco Itaú S.A. 100.00 100.00
Banco Itaú-BBA S.A. 95.75 95.75
Banco Banerj S.A. 99.99 99.99
Banco Banestado S.A. 99.99 99.99
Banco BEG S.A. 100.00 99.99
Banco Itaucred Financiamento S.A. 99.99 99.99
Banco Fiat S.A. 99.99 99.99
Banco Itausaga S.A. (1) 99.99 -
Banco Itaú Buen Ayre S.A. 99.99 99.99
Banco Itaú Europa Luxembourg S.A. (2) 19.52 19.52
Banco Itaú Europa S.A. (2) 19.53 19.53
Itau Bank, Ltd. 100.00 100.00
Cia. Itauleasing de Arrendamento Mercantil 99.99 99.99
Itaú Corretora de Valores S.A. 99.99 99.99
INSURANCE, PENSION PLAN AND CAPITALIZATION
Itaú Seguros S.A. and Subsidiaries 100.00 100.00
Itaú Vida e Previdência S.A. 99.99 99.99
Cia. Itaú de Capitalização 99.99 99.84
Itauprev Vida e Previdência S.A. (1) 99.99 -
CREDIT CARD ADMINISTRATION ACTIVITIES
Itaucard Financeira S.A. Crédito, Financiamento e Investimento 99.99 99.99
Credicard S.A. Administradora de Cartões de Crédito and Subsidiaries (3) 33.33 33.33
Miravalles Empreendimentos e Participações S.A. (3)(4) 50.00 -
Redecard S.A. (3) 31.94 31.94
CONSORTIA GROUPS ADMINISTRATION
Fiat Administradora de Consórcio Ltda. 99.99 99.99
Itaú Administradora de Consórcio Ltda. 99.99 99.99
NON FINANCIAL INSTITUTIONS
Akbar – Marketing e Serviços, LDA and Subsidiaries 95.75 95.75
Afinco Americas Madeira, SGPS, Sociedade Unipessoal, Limitada 100.00 100.00
Itaúsa Export S.A. (2) 22.23 22.23
Serasa - Centralização de Serviços dos Bancos S.A. (3) 32.54 32.54
(1) New name of Banco AGF S.A. and AGF Vida e Previdência, respectively (Note 1).
(2) Affiliated companies included in consolidation, with the authorization from CVM, for a better presentation of the economic unit. Controlled by Itaúsa - Investimentos Itaú S.A. (ITAÚSA).
(3) Investment with shared control, proportionally included in consolidation.
(4) Investment set up on August 9, 2004 to make the venture between ITAÚ and CBD (Note 1) feasible.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 75
NOTE 3 - BASEL RATIO AND FIXED ASSET RATIO
The main indicators at September 30, 2004, obtained from the non-consolidated financial statements (the initial basis for determination of the financial system consolidated amounts and economic-financial consolidated amounts), are as follows:
Financial system
consolidated (1)		 Economic-Financial
consolidated (2)
Referential equity (3) 18,903,091 18,806,210
Basel ratio 20.6% 19.4%
Tier I 15.3% 14.4%
Tier II 5.3% 5.0%
Fixed asset ratio (4) 44.1% 24.4%
Excess capital in relation to fixed assets 1,107,951 4,804,207
(1) Consolidated financial statements including only financial companies.
(2) Consolidated financial statements comprising all subsidiary companies, including insurance, pension and capitalization companies and those in which control is based on the sum of ownership interests by an institution with those of its managers, owners and
(3) BACEN through its Resolution 2837 as of May 5, 2001 and subsequent changes, determined the Referential Equity (PR) for purposes of calculating operational limits, as being the sum of both Tier I and Tier II levels, following the International experience, each of them comprising items from stockholders’ equity, as well as subordinated debts and hybrid capital and debit.
(4) The difference between the fixed asset ratio of the financial system consolidated and the economic-financial consolidated arises from the inclusion of non-financial subsidiary companies, which provide high liquidity and low level of fixed asset ratio, wit

Management considers the current Basel ratio (19.4%, based on economic-financial consolidated) to be adequate, considering that:
a)
It is higher than the minimum required by the authorities (11.0%).
b)
The ratio increases to 19.7% when all of the tax credits of Banco Banestado S.A. (BANESTADO) are recorded in the financial statement basis (ITAÚ HOLDING) used to establish limits.
c)
Considering item (b) above, other realization asset amounts (Note 17), the amount of provisions exceeding the minimum required and the tax credits not recorded, the ratio would increase to 23.3%.

The adjusted referential equity used to calculate the ratios at September 30, 2004 is as follows:
Financial system
consolidated		 Economic-Financial
consolidated
ITAÚ HOLDING stockholders’ equity (Individual) 13,522,914 13,522,914
Minority interest not eliminated in the consolidation 1,209,631 1,116,136
Unrealized profits of operations with subsidiaries (15,963) (19,349)
Consolidated stockholders’ equity (BACEN) 14,716,582 14,619,701
Subordinated debt 4,235,882 4,235,882
Tax credits excluded from Level I (49,373) (49,373)
Referential equity 18,903,091 18,806,210
Adjustments:
Requirement for SWAP operations risk (495,967) (495,967)
Requirement for foreign exchange risk (1,402,206) (1,402,206)
Requirement for interest rate risk (220,194) (219,502)
Other (273,432) (273,432)
Adjusted referential equity 16,511,292 16,415,103

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 76

The effects resulting from the changes during the period, due to changes in the legislation or variation in the balances are shown below:

Evolution of the Basil ratio



  Financial System Consolidated Economic-Financial Consolidated
 
  Adjusted
Referential Equity		 Weighted
Assets		 Effect Adjusted
Referential Equity		 Weighted
Assets		 Effect
Ratio at 09/30/2003 15,779,179 69,388,568 22.7% 15,977,646 74,228,169 21.5%
Ratio at 12/31/2003 15,535,340 71,935,258 21.6% 15,403,251 77,956,899 19.8%
Result of the period 3,146,992 4.4% 3,126,990 4.0%
Interest on own capital (857,719) -1.2% (857,719) -1.1%
Variation adjustments to securities and derivatives (73,542) -0.1% (73,542) -0.1%
Interest Rate Risk (16,531) 0.0% (16,278) 0.0%
Treasury Stock (223,029) -0.3% (223,029) -0.3%
Foreign exchange exposure (1) (527,201) -0.7% (527,201) -0.7%
SWAP operations risk (67,157) -0.1% (67,157) -0.1%
Subordinated debt (290,450) -0.4% (290,450) -0.4%
Other changes in referential equity (115,411) -0.2% (59,762) -0.1%
Changes in weighted assets 8,376,150 -2.4% 6,638,704 -1.6%
Ratio at 09/30/2004 16,511,292 80,311,408 20.6% 16,415,103 84,595,603 19.4%
(1) ITAÚ HOLDING opted for using the prerrogative prescribed by BACEN Circular 3217 of December 17, 2003, which determined an alternative methodology to calculate the foreign exchange exposure.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 77

NOTE 4 – SUMMARY OF THE MAIN ACCOUNTING PRACTICES
a)   Interbank deposits, remunerated restricted credits – Brazilian Central Bank, remunerated deposits, funds obtained in the open market, exchange acceptances and issue of securities, borrowings and onlendings and other receivables and payables - Transactions subject to monetary correction or foreign exchange rates are recorded at current value, calculated “pro rata die” based on the variation of the contracted index and interest rate.

b)   Securities - Recorded at cost of acquisition restated by the index and/or effective interest rate and presented in the Balance Sheet, according to BACEN Resolution Circular 3068, of November 8, 2001. Securities are classified in the following categories:


•
trading securities - securities acquired to be actively and frequently traded, are adjusted to market value, as a contra-entry to the results for the period;

•
securities available for sale - securities that are not intended for negotiation nor intended to be maintained through to their maturity. They are adjusted to their market value with a contra-entry to an account disclosed in stockholders’ equity; and

•
securities held to maturity - securities, except for non-redeemable shares, for which there is the intention and financial capacity of the institution to hold them in the portfolio up to their maturity, are recorded at cost of acquisition, or market value, whenever these are transferred from another category. The securities are adjusted up to maturity date, not being adjusted to market value.

Gains and losses on securities available for sale, when realized, are recognized at the date of negotiation in the statement of income, as a contra-entry to a specific stockholders’ equity account.

Decreases in the market value of securities available for sale and those held up to maturity, below their related costs, resulting from non-temporary reasons, are recorded in results as realized losses.

c)   Derivative Financial Instruments - These are classified on the date of their acquisition, according to management’s intention of using them either as a hedge or not, according to BACEN, Resolution 3082, of January 31, 2002.Transactions involving financial instruments, carried out upon the client’s request, for their own account, or which do not comply with hedging criteria (mainly derivatives used to manage the exposure to global risks) are stated at market value, including realized and unrealized gains and losses, which are recorded directly in the statement of income.


The derivatives used for protection against risk exposure or to modify the characteristics of assets and liabilities which might be highly associated to changes in market value in relation to the market value of the item being protected, both at the beginning or throughout the duration of the contract, and which are deemed as relevant to reduce the risk-related exposure being protected, are classified as a hedge, in accordance with their nature:
•
Market Value Hedge - Assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, which are recorded directly in the statement of income.

•
Cash Flows Hedge - The actual hedged amount of assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, net of tax effects, when applicable, and recorded in a specific account in stockholders’ equity. The non-hedged amount is recorded directly in the statement of income.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 78
d)   Loan, Leasing Operations and Other Credits (Operations with Credit Characteristics) - These transactions are recorded at current value and calculated “pro rata die” based on the variation of the contracted index, and are recorded on the accrual basis until 60 days overdue in financing companies. Real estate loans are adjusted to present value of future installments.

e)   Allowance for Loan Losses - The balance of the allowance for loan losses was recorded based on an analysis of the credit risk in the loan portfolio, at an amount considered sufficient to cover loan losses according to the rules determined by BACEN Resolution 2682 of December 21, 1999, among which are:


•
Provisions are recorded from the date of the loan disbursements, based on periodic analysis of the quality of the client and the industry and not just in the event of default;

•
Based exclusively on delinquency, write-offs of credit operations against loss may be carried out 360 days after the due date of the credit or 540 days for operations that mature after a period of 36 months. Other factors related to analysis of the quality of the client/loan may generate write-offs before these periods.

f)   Other assets - These assets are mainly comprised by assets not for use relating to real estate available for sale and received as payment in kind, which are adjusted to market value through the set-up of a provision, according to current regulations; and prepaid expenses, corresponding to resources applied, of which benefits showed be recorded in deferred income.

g)   Investments - In subsidiary and affiliated companies, investments are accounted for under the equity method. The consolidated financial statements of foreign branches and subsidiaries are adapted to comply with Brazilian accounting practices and converted into Reais. Other investments are recorded at cost, restated up to December 31, 1995, and adjusted to market value by setting up a provision in accordance with current standards.

h)   Fixed assets - These assets are stated at cost of acquisition or construction, less accumulated depreciation, restated up to December 31, 1995. For insurance, private pension and capitalization operations, property and equipment are adjusted to market value supported by appraisal reports. Depreciation is calculated using the straight-line method, based on monetarily corrected cost at the following annual rates:



Buildings in use


4 %
Installations, furnishings, equipment and security,
transportation and communication
 10 %
 to
 25 %
EDP systems
 20 %
 to
 50 %


i)   Deferred charges - Deferred organization and expansion expenses mainly represent leasehold improvements, which are amortized on a straight line over the respective rental periods, and acquisition and development of logical systems, which are amortized on a straight-line basis over five years.


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 79
j)   Technical Provisions of Insurance, Capitalization and Pension Plans - Technical provisions are set up according to the technical notes approved by SUSEP and criteria established by CNSP Resolution 89 of August 19, 2002.


I-
Insurance:

 
Provision for unsettled claims - set up to determine unearned premiums relating to the risk coverage period; Provision for insufficient premiums – set up in case of insufficient Provision for unearned premiums; Provision for unearned premiums of current risks but not issued – calculated based on technical studies; Provision for unsettled claims – set up based on notices of loss, in an amount sufficient to cover future commitments; Provision for claims incurred but not reported (IBNR) - set up in relation to the estimated amount of claims occurred in risks assumed in the portfolio but not reported.

 
In order to calculate the amount of provision for claims under litigation, the experts and legal advisors carry out appraisals based on the amount insured and on technical regulations, taking into account the probability of unfavorable result to the insurance company.

II-
Supplementary Pension Plans and Individual life insurance segments – correspond to liabilities assumed such as retirement plans, disability, pension and annuity.

 
Provision for benefits to regulate and redemptions or Other amounts to regulate (Other provisions) – refer to amounts still not regulated up to the balance sheet date; Provision for events occurred but not reported (IBNR) – set up in relation to the estimated amount of events occurred but not reported; Mathematical provisions for benefits granted and benefits to be granted – correspond to commitments assumed with participants, but which benefits are not being used, and to those receiving the benefits; Provision for insufficient contribution – set up in case of insufficient mathematical provisions.

III-
Capitalization:

 
Mathematical provision for redemptions – represents capitalization securities received to be redeemed; Provision for raffles – calculated according to definition in technical note; Raffles payable – set up by raffles of securities carried out; Provision for contingencies (Other provisions) – set up by the application of contingency quota on the collected amount.

k)   Taxation - These provisions are calculated according to current legislation at the rates shown below, for effects of the related calculation bases.



Income tax
 15.00%
Additional income tax
 10.00%
Social Contribution
 9.00%
PIS (1)
 0.65%
COFINS (1) (2)
 4.00%
ISS
 Up to 5.00%
CPMF
 0.38%
(1) For the non financial subsidiaries which fit into the non cumulative calculation the PIS rate is 1.65% and COFINS increased from 3% to 7.6% as from February 2004.
(2) As from September 2003, included, the rate changed from 3% to 4% for financial companies and similar.

Amounts subject to litigation have been fully provided for.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 80
NOTE 5 - SHORT-TERM INTERBANK INVESTMENTS
  09/30/2004
0 - 30 31 - 180 181 - 365 Over 365
Money market 11,642,631 4,272,799 17,360 -
Funded position (*) 3,107,330 438,652 17,360 -
Financed position 8,535,301 3,834,147 - -
Without Free Movement 6,166,269 103,796 -
With Free Movement 2,369,032 3,730,351 -
Linked to Free Movement Securities - - - -
Money market - Guarantor Resources of Technical Provisions - SUSEP 303,108 - - -
Interbank deposits (*) 7,445,855 1,066,179 235,113 413,933
TOTAL - 09/30/2004 19,391,594 5,338,978 252,473 413,933
% per maturity term 76.4 21.0 1.0 1.6
TOTAL - 09/30/2003 20,938,530 1,547,929 165,802 132,556
% per maturity term 91.9 6.8 0.7 0.6

09/30/2004
  09/30/2003
Total %   Total %
 
 
Money market 15,932,790 62.7   11,757,099 51.6
Funded position (*) 3,563,342 14.0   2,525,551 11.1
Financed position 12,369,448 48.7   9,206,986 40.4
Without Free Movement 6,270,065 24.7   9,206,986 40.4
With Free Movement 6,099,383 24.0   - 0.0
Linked to Free Movement Securities - 0.0   24,562 0.1
Money market - Guarantor Resources of Technical Provisions - SUSEP 303,108 1.2   657,089 2.9
Interbank deposits (*) 9,161,080 36.1   10,370,629 45.5
 
 
TOTAL - 09/30/2004 25,396,978   22,784,817  
% per maturity term  
 
     
TOTAL - 09/30/2003 22,784,817  
% per maturity term
(*) Includes R$ 503,705 related to the money market investments with free movement, the securities of which are linked to guarantee transactions at the Commodities and Futures Exchange (BM&F).


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 81

NOTE 6 - MARKETABLE SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS AND LIABILITIES)
See below the composition by type of instruments and maturity of Securities and Derivatives portfolio, already adjusted to their respective market value. R$ 9,343,080 (R$ 5,235,856 at 09/30/2003) refer to the funds used to guarantee technical provisions (Note 10b).

(a) Summary

  09/30/2004
    Provision for adjustment to
market value with impact on:
   
  Cost Net income Stockholders’
equity		 Market value %
PUBLIC SECURITIES -DOMESTIC (1) 8,999,843 7,237 361,477 9,368,557 32.5
Financial Treasury Bills 2,305,221 2 15,630 2,320,853 8.0
National Treasury Bills 903,823 8 462 904,293 3.1
National Treasury Notes 2,651,124 (1,556) 258,153 2,907,721 10.1
National Treasury Notes - M 131,675 - - 131,675 0.5
Central Bank Notes 505,977 1,178 76,835 583,990 2.0
National Treasury/Securitization 159,130 181 1,861 161,172 0.6
Brazilian External Debt Bonds 1,948,849 7,424 8,261 1,964,534 6.8
Investment in non Exclusive Funds 348,440 - - 348,440 1.2
Financial Treasury Bills 271,457 - - 271,457 0.9
National Treasury Bills 42,445 - - 42,445 0.1
Other 34,538 - - 34,538 0.1
Other 45,604 - 275 45,879 0.2
PUBLIC - FOREIGN 792,604 372 44,009 836,985 2.9
Portugal 580,767 - 43,653 624,420 2.2
Argentina (2) 11,311 20 - 11,331 0.0
Central Bank 376 - - 376 0.0
National Treasury 10,935 20 - 10,955 0.0
Greece - - - - -
Mexico 15,563 (3) 356 15,916 0.1
United States 148,853 383 - 149,236 0.5
Other 36,110 (28) - 36,082 0.1
PRIVATE SECURITIES 10,895,547 48,208 272,344 11,216,099 38.9
Bank Deposit Certificates 3,623,981 - - 3,623,981 12.6
Shares in Publicly Traded Companies 446,895 14,251 167,807 628,953 2.2
Debentures 1,300,388 (182) 9,278 1,309,484 4.5
Promissory Notes 566,533 1 - 566,534 2.0
Mortgage Bills 143,638 - - 143,638 0.5
Rural Producer Cell 12,099 - - 12,099 0.0
Fixed Income Funds (3) 347,660 - - 347,660 1.2
Overseas Variable Income Funds 32,479 - (21) 32,458 0.1
Variable Income Funds 24,259 - 19,093 43,352 0.2
Euro Bonds and Others 3,998,503 19,041 76,141 4,093,685 14.2
Real Estate Certificates Receivable 167,606 14,311 47 181,964 0.6
Other 231,506 786 (1) 232,291 0.8
PGBL/VGBL FUNDS QUOTAS (4) 6,117,892 - - 6,117,892 21.2
SUBTOTAL - MARKETABLE SECURITIES 26,805,886 55,817 677,830 27,539,533 95.4
Trading securities 12,862,939 55,817 - 12,918,756 44.8
Securities available for sale 10,318,471 - 677,830 10,996,301 38.1
Securities held to maturity (5) 3,624,476 - - 3,624,476 12.6
DERIVATIVE FINANCIAL INSTRUMENTS 1,334,837 (16,053) - 1,318,784 4.6
TOTAL 28,140,723 39,764 677,830 28,858,317 100.0
Additional allowance (exceeding minimum required) (600,000)
TOTAL MARKETABLE SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) 28,258,317
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES) (847,858) 61,463 - (786,395) 100.0

  09/30/2004
0 - 30 31 - 90 91 - 180 181 - 365 366 - 720
PUBLIC SECURITIES -DOMESTIC (1) 563,138 161,135 1,001,930 1,479,501 1,461,676
Financial Treasury Bills 182,206 138,702 99,264 940,772 343,381
National Treasury Bills 2,276 - 894,314 7,703 -
National Treasury Notes 3,017 8,036 - 312,450 175,092
National Treasury Notes - M 13,167 - - 13,167 26,335
Central Bank Notes - - - - 544,348
National Treasury/Securitization 4,077 8,659 1,309 61,899 11,501
Brazilian External Debt Bonds 8,571 5,552 7,043 123,989 361,019
Investment in non Exclusive Funds 348,440 - - - -
Financial Treasury Bills 271,457 - - - -
National Treasury Bills 42,445 - - - -
Other 34,538 - - - -
Other 1,384 186 - 19,521 -
PUBLIC - FOREIGN 5,310 59,906 54,104 18,037 95,817
Portugal 1,801 - 53,404 3,184 95,817
Argentina (2) 2,832 - 2 - -
Central Bank - - - - -
National Treasury 2,832 - 2 - -
Greece - - - - -
Mexico 677 - 5 14,851 -
United States - 59,903 688 - -
Other - 3 5 2 -
PRIVATE SECURITIES 1,853,040 1,892,648 1,482,447 1,098,391 856,466
Bank Deposit Certificates 576,775 1,367,745 1,038,521 411,306 4,490
Shares in Publicly Traded Companies 628,953 - - - -
Debentures 12,594 22,063 50,705 38,535 94,723
Promissory Notes 85,585 249,837 231,112 - -
Mortgage Bills - - - - 143,638
Rural Producer Cell 11,439 370 290 - -
Fixed Income Funds (3) 344,383 - 2,276 - -
Overseas Variable Income Funds 32,458 - - - -
Variable Income Funds 43,352 - - - -
Euro Bonds and Others 109,593 252,633 159,543 648,550 608,849
Real Estate Certificates Receivable - - - - -
Other 7,908 - - - 4,766
PGBL/VGBL FUNDS QUOTAS (4) 6,117,892 - - - -
SUBTOTAL - MARKETABLE SECURITIES 8,539,380 2,113,689 2,538,481 2,595,929 2,413,959
Trading securities 7,747,853 1,596,359 1,190,673 471,422 298,680
Securities available for sale 755,831 486,922 1,336,184 1,076,516 2,012,309
Securities held to maturity (5) 35,696 30,408 11,624 1,047,991 102,970
DERIVATIVE FINANCIAL INSTRUMENTS 352,623 215,442 199,712 213,298 189,241
TOTAL 8,892,003 2,329,131 2,738,193 2,809,227 2,603,200
     
30.8% 8.1% 9.5% 9.7% 9.0%
Additional allowance (exceeding minimum required)
TOTAL MARKETABLE SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES) (231,461) (182,511) (130,155) (124,113) (70,887)

  09/30/2004
  09/30/2003
  Over 720    Market value
 
PUBLIC SECURITIES -DOMESTIC (1) 4,701,177   16,392,654
Financial Treasury Bills 616,528   4,880,835
National Treasury Bills -   3,504,117
National Treasury Notes 2,409,126   3,853,487
National Treasury Notes - M 79,006   162,294
Central Bank Notes 39,642   1,926,971
National Treasury/Securitization 73,727   -
Brazilian External Debt Bonds 1,458,360   1,865,927
Investment in non Exclusive Funds -   125,149
Financial Treasury Bills -   107,900
National Treasury Bills -   635
Other -   16,614
Other 24,788   73,874
PUBLIC - FOREIGN 603,811   880,428
Portugal 470,214   698,527
Argentina (2) 8,497   92,425
Central Bank 376   65,464
National Treasury 8,121   26,961
Greece -   14,208
Mexico 383   17,060
United States 88,645   32,123
Other 36,072   26,085
PRIVATE SECURITIES 4,033,107   8,051,958
Bank Deposit Certificates 225,144   1,955,462
Shares in Publicly Traded Companies -   426,709
Debentures 1,090,864   1,193,405
Promissory Notes -   78,962
Mortgage Bills -   53,387
Rural Producer Cell -   53,297
Fixed Income Funds (3) 1,001   159,122
Overseas Variable Income Funds -   27,317
Variable Income Funds -   28,677
Euro Bonds and Others 2,314,517   2,893,600
Real Estate Certificates Receivable 181,964   972,965
Other 219,617   209,055
PGBL/VGBL FUNDS QUOTAS (4) -   2,773,078
 
SUBTOTAL - MARKETABLE SECURITIES 9,338,095   28,098,118
Trading securities 1,613,769   10,157,133
Securities available for sale 5,328,539   15,848,811
Securities held to maturity (5) 2,395,787   2,092,174
DERIVATIVE FINANCIAL INSTRUMENTS 148,468   1,506,447
TOTAL 9,486,563   29,604,565
32.9%  
 
 
Additional allowance (exceeding minimum required)   (545,000)
TOTAL MARKETABLE SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)   29,059,565
 
 
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES) (47,268)   (668,873)
(1) Includes securities restricted to guarantees in the amount of R$ 3,917,714, being: Guarantor Resources of Technical Provisions R$ 1,177,850, Securities Subject to BACEN R$ 1,041,712 and Securities Subject to stock exchange and clearing house for the custody and financial settlement of securities amount of R$ 1,698,152.
(2) Includes mandatory acquisition in order to be compliant with deposit requirements R$ 11,331 (R$ 73,633 at 09/30/2003) and bonus to compensate losses associated to loans and lease pesification R$ 18,792 at 09/30/2003.
(3) Includes non-exclusive funds administered by the group, in the amount of R$ 106,784, which do not include public securities.
(4) Portfolios of PGBL and VGBL pension plans owned by customers and recorded as marketable securities in compliance with SUSEP requirements, in contra entry against liabilities in Technical Provision for Pension Plans.
(5) Unaccounted for market value of R$ 182,435 (R$ 48,637 at 09/30/2003), according to Note 6d.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 82

b) Trading securities

   See below the composition of the trading securities portfolio by type of securities, stated at its cost and market value, and by maturity term.
  09/30/2004
  Cost Adjustment to
market value
(in net income) 		Market value % 0 - 30 31 - 90
PUBLIC SECURITIES - DOMESTIC 1,303,700 7,237 1,310,937 10.1 516,844 118,793
Financial Treasury Bills 317,757 2 317,759 2.5 160,473 115,663
National Treasury Bills 8,545 8 8,553 0.1 2,276 -
National Treasury Notes 177,969 (1,556) 176,413 1.4 28 -
Central Bank Notes 22,505 1,178 23,683 0.2 - -
National Treasury/Securitization 8,624 181 8,805 0.1 46 2,598
Brazilian External Debt Bonds 413,285 7,424 420,709 3.3 5,581 532
Investment in non Exclusive Funds 348,440 - 348,440 2.7 348,440 -
Financial Treasury Bills 271,457 - 271,457 2.1 271,457 -
National Treasury Bills 42,445 - 42,445 0.3 42,445 -
Other 34,538 - 34,538 0.3 34,538 -
Other 6,575 - 6,575 0.1 - -
PUBLIC - FOREIGN 132,483 372 132,855 1.0 - 28,523
Argentina 4,195 20 4,215 0 - -
National Treasury 4,195 20 4,215 0.0 - -
Mexico 391 (3) 388 0.0 - -
United States 117,470 383 117,853 0.9 - 28,520
Other 10,427 (28) 10,399 0.1 - 3
PRIVATE SECURITIES 5,308,864 48,208 5,357,072 41.5 1,113,117 1,449,043
Bank Deposit Certificates 3,312,883 - 3,312,883 25.6 485,035 1,347,671
Shares in Publicly Traded Companies 187,480 14,251 201,731 1.6 201,731 -
Debentures 433,534 (182) 433,352 3.4 12,540 21,955
Promissory Notes 350,236 1 350,237 2.7 61,184 58,172
Rural Producer Cell 12,099 - 12,099 0.1 11,439 370
Fixed Income Funds 337,267 - 337,267 2.6 337,267 -
Euro Bonds and Others 540,730 19,041 559,771 4.3 3,899 20,875
Real Estate Certificates receivable 114,439 14,311 128,750 1.0 - -
Other 20,196 786 20,982 0.2 22 -
PGBL/VGBL FUNDS QUOTAS 6,117,892 - 6,117,892 47.4 6,117,892 -
TOTAL 12,862,939 55,817 12,918,756 100.0 7,747,853 1,596,359
             
60.0% 12.4%
 

  09/30/2004
  09/30/2003
  91 - 180 181 - 365 366 - 720 Over 720   Market value
 
PUBLIC SECURITIES - DOMESTIC 33,047 31,186 146,398 464,669   4,696,531
Financial Treasury Bills 32,412 9,211 - -   1,799,470
National Treasury Bills 19 6,258 - -   1,893,779
National Treasury Notes - 7,427 66,475 102,483   425,920
Central Bank Notes - - 23,683 -   27,875
National Treasury/Securitization 238 646 2,122 3,155   -
Brazilian External Debt Bonds 378 7,644 54,118 352,456   413,662
Investment in non Exclusive Funds - - - -   125,149
Financial Treasury Bills - - - -   107,900
National Treasury Bills - - - -   635
Other - - - -   16,614
Other - - - 6,575   10,676
PUBLIC - FOREIGN 700 2 - 103,630   332
Argentina 2 - - 4,213   -
National Treasury 2 - - 4,213   -
Mexico 5 - - 383   -
United States 688 - - 88,645   -
Other 5 2 - 10,389   332
PRIVATE SECURITIES 1,156,926 440,234 152,282 1,045,470   2,687,192
Bank Deposit Certificates 851,995 410,321 - 217,861   1,209,705
Shares in Publicly Traded Companies - - - -   158,246
Debentures - 14,781 75,712 308,364   312,870
Promissory Notes 230,881 - - -   -
Rural Producer Cell 290 - - -   53,297
Fixed Income Funds - - - -   143,533
Euro Bonds and Others 73,760 15,132 71,804 374,301   809,541
Real Estate Certificates receivable - - - 128,750   -
Other - - 4,766 16,194   -
PGBL/VGBL FUNDS QUOTAS - - - -   2,773,078
TOTAL 1,190,673 471,422 298,680 1,613,769   10,157,133
     
 
9.2% 3.6% 2.3% 12.5%  
 

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 83

c) Securities available for sale

   See below the composition of the securities available for sale portfolio by type, stated at its cost and market values, and by maturity term.
  09/30/2004
  Cost Adjustment to
market value
(in equity)		 Market value % 0 - 30 31 - 90
PUBLIC SECURITIES - DOMESTIC 4,839,940 361,477 5,201,417 47.3 17,135 32,008
Financial Treasury Bills 1,136,120 15,630 1,151,750 10.5 8,731 17,725
National Treasury Bills 895,278 462 895,740 8.1 - -
National Treasury Notes 1,445,110 258,153 1,703,263 15.5 2,989 8,036
Central Bank Notes 483,472 76,835 560,307 5.1 - -
National Treasury/Securitization 150,506 1,861 152,367 1.4 4,031 6,061
Brazilian External Debt Bonds 690,425 8,261 698,686 6.4 - -
Other 39,029 275 39,304 0.4 1,384 186
PUBLIC - FOREIGN 634,438 44,009 678,447 6.2 5,310 31,383
Portugal 580,767 43,653 624,420 5.7 1,801 -
Argentina 7,116 - 7,116 0.1 2,832 -
Central Bank 376 - 376 0.0 - -
National Treasury 6,740 - 6,740 0.1 2,832 -
Greece - - - - - -
Mexico 15,172 356 15,528 0.1 677 -
United States 31,383 - 31,383 0.3 - 31,383
PRIVATE SECURITIES 4,844,093 272,344 5,116,437 46.5 733,386 423,531
Bank Deposit Certificates 291,024 - 291,024 2.6 91,740 -
Shares in Publicly Traded Companies 259,415 167,807 427,222 3.9 427,222 -
Debentures 540,276 9,278 549,554 5.0 54 108
Promissory Notes 216,297 - 216,297 2.0 24,401 191,665
Mortgage Bills 143,638 - 143,638 1.3 - -
Fixed Income Funds 10,393 - 10,393 0.1 7,116 -
Overseas Variable Income Funds 26,051 (21) 26,030 0.2 26,030 -
Variable Income Funds 24,259 19,093 43,352 0.4 43,352 -
Euro Bonds and Others 3,079,275 76,141 3,155,416 28.7 105,585 231,758
Real Estate Certificates receivable 42,155 47 42,202 0.4 - -
Other 211,310 (1) 211,309 1.9 7,886 -
TOTAL 10,318,471 677,830 10,996,301 100.0 755,831 486,922
   
Deferred taxation (264,055) 6.9% 4.4%
Minority interest in subsidiaries (26,361)
Adjustment of securities reclassified to securities held to maturity 96,259
ADJUSTMENT TO MARKET VALUE - SECURITIES 483,673

  09/30/2004
  09/30/2003
  91 - 180 181 - 365 366 - 720 Over 720   Market value
PUBLIC SECURITIES - DOMESTIC 962,218 404,262 1,237,617 2,548,177   10,244,316
Financial Treasury Bills 66,852 98,533 343,381 616,528   2,359,146
National Treasury Bills 894,295 1,445 - -   1,610,338
National Treasury Notes - 107,165 57,291 1,527,782   2,860,273
Central Bank Notes - - 520,665 39,642   1,899,096
National Treasury/Securitization 1,071 61,253 9,379 70,572   -
Brazilian External Debt Bonds - 116,345 306,901 275,440   1,452,265
Other - 19,521 - 18,213   63,198
PUBLIC - FOREIGN 53,404 18,035 95,817 474,498   822,220
Portugal 53,404 3,184 95,817 470,214   698,527
Argentina - - - 4,284   92,425
Central Bank - - - 376   65,464
National Treasury - - - 3,908   26,961
Greece - - - -   14,208
Mexico - 14,851 - -   17,060
United States - - - -   -
PRIVATE SECURITIES 320,562 654,219 678,875 2,305,864   4,782,275
Bank Deposit Certificates 186,526 985 4,490 7,283   718,472
Shares in Publicly Traded Companies - - - -   268,463
Debentures 50,705 19,816 11,136 467,735   600,008
Promissory Notes 231 - - -   78,962
Mortgage Bills - - 143,638 -   53,387
Fixed Income Funds 2,276 - - 1,001   15,589
Overseas Variable Income Funds - - - -   1,026
Variable Income Funds - - - -   28,677
Euro Bonds and Others 80,824 633,418 519,611 1,584,220   1,835,671
Real Estate Certificates receivable - - - 42,202   972,965
Other - - - 203,423   209,055
TOTAL 1,336,184 1,076,516 2,012,309 5,328,539   15,848,811
 
 
Deferred taxation 12.2% 9.8% 18.3% 48.5%  
Minority interest in subsidiaries
Adjustment of securities reclassified to securities held to maturity
ADJUSTMENT TO MARKET VALUE - SECURITIES

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 84

d) Securities held to maturity

See below the composition of held to maturity securities portfolio by type, stated at their cost and by maturity term. In the carrying value, not considered in results, is included at 09/30/2004 the amount of R$ 96,259, relating to market adjustment of the reclassified securities up to 12/31/2003. The securities classified under this type, if stated at market value, would present a positive adjustment of R$ 182,435 (positive adjustment of R$ 48,637 at 09/30/2003).
  09/30/2004
  Carrying value % 0 - 30 31 - 90 91 - 180
PUBLIC SECURITIES - DOMESTIC 2,856,203 78.8 29,159 10,334 6,665
Financial Treasury Bills 851,344 23.5 13,002 5,314 -
National Treasury Bills (1) 1,028,045 28.4 - - -
National Treasury Notes - M (2) 131,675 3.6 13,167 - -
Brazilian External Debt Bonds 845,139 23.3 2,990 5,020 6,665
PUBLIC - FOREIGN 25,683 0.7 - - -
United States - - - - -
Other 25,683 0.7 - - -
PRIVATE SECURITIES 742,590 20.5 6,537 20,074 4,959
Bank Deposit Certificates (1) 20,074 0.6 - 20,074 -
Debêntures (1) 326,578 9.0 - - -
Overseas Variable Income Funds 6,428 0.2 6,428 - -
Euro Bonds and Others 378,498 10.4 109 - 4,959
Real Estate Certificates Receivable (1) 11,012 0.3 - - -
TOTAL (1) 3,624,476 100.0 35,696 30,408 11,624
         
1.0% 0.8% 0.3%

  09/30/2004
  09/30/2003
  181 - 365 366 - 720 Over 720   Carrying value
PUBLIC SECURITIES - DOMESTIC 1,044,053 77,661 1,688,331    1,451,807
Financial Treasury Bills 833,028 - -   722,219
National Treasury Bills (1) 197,858 51,326 778,861   567,294
National Treasury Notes - M (2) 13,167 26,335 79,006   162,294
Brazilian External Debt Bonds - - 830,464   -
PUBLIC - FOREIGN - - 25,683   57,876
United States - - -   32,123
Other - - 25,683   25,753
PRIVATE SECURITIES 3,938 25,309 681,773   582,491
Bank Deposit Certificates (1) - - -   27,285
Debêntures (1) 3,938 7,875 314,765   280,527
Overseas Variable Income Funds - - -   26,291
Euro Bonds and Others - 17,434 355,996   248,388
Real Estate Certificates Receivable (1) - - 11,012   -
TOTAL (1) 1,047,991 102,970 2,395,787   2,092,174
     
 
28.9% 2.8% 66.1%  
(1) Includes investment of Itaú Previdência e Seguros S.A. in the amount of R$ 914,855.
(2) All securities are nominative and cannot be sold.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 85

e) Derivative financial instruments

See below the composition of derivative financial instruments (assets and liabilities) by type, stated at their historical cost and market value, and by maturity term.
  09/30/2004
  Cost Adjustment to
market value
(in net income) 		Market value % 0 - 30 31 - 90 91 - 180
ASSETS
Option premiums 184,122 (89,724) 94,398 7.2 9,140 45,298 26,314
Term operations 88,195 266 88,461 6.7 52,848 7,165 28,266
Swaps - difference receivable 928,536 73,602 1,002,138 76.0 194,271 146,825 128,456
Other (1) 133,984 (197) 133,787 10.1 96,364 16,154 16,676
Total 1,334,837 (16,053) 1,318,784 100.0 352,623 215,442 199,712
         
26.7% 16.3% 15.1%
LIABILITIES
Option premiums (214,900) 98,990 (115,910) 14.7 (32,023) (24,183) (45,096)
Term operations - - - - - - -
Swaps - difference payable (503,756) (37,344) (541,100) 68.8 (105,564) (142,682) (67,921)
Other (1) (129,202) (183) (129,385) 16.5 (93,874) (15,646) (17,138)
Total (847,858) 61,463 (786,395) 100.0 (231,461) (182,511) (130,155)
         
29.4% 23.2% 16.6%

  09/30/2004
09/30/2003
  181 - 365 366 - 720 Over 720    Market value
ASSETS
Option premiums 13,644 2 -   78,096
Term operations 182 - -   91,817
Swaps - difference receivable 196,884 187,352 148,350   1,041,706
Other (1) 2,588 1,887 118   294,828
Total 213,298 189,241 148,468   1,506,447
 
16.2% 14.3% 11.3%  
LIABILITIES  
Option premiums (14,606) (2) -   (64,785)
Term operations - - -   (24,703)
Swaps - difference payable (109,303) (68,840) (46,790)   (368,989)
Other (1) (204) (2,045) (478)   (210,396)
Total (124,113) (70,887) (47,268)   (668,873)
 
 
15.8% 9.0% 6.0%  
(1) Basically includes Forwards contracts, Forward Rate Agreement (FRAs) and Non Deliverable Forward (NDFs).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 86

The globalization of the markets in the last years has resulted in a high level of sophistication in the financial products used. As a result of this process, there has been an increasing demand for derivative financial instruments to manage market risks mainly arising from fluctuations in interest and exchange rates and assets prices. Accordingly, ITAÚ HOLDING CONSOLIDATED is fully involved in the operation of derivative markets, either in complying with the growing clients’ needs, or in the performance of its risk management policy. Such policy is based on the use of derivative instruments to minimize the risks resulting from commercial and financial operations.

The derivatives negotiated by the Bank are purchased for two basic purposes:
• Hedge - to perform hedge of structural portfolio, arising from commercial bank operations;
•
Trading - to serve as instruments for the Bank to assume proprietary and risk management positions of the derivatives traded with large clients.

Most derivative contracts traded with clients in Brazil are swap and future contracts, which are registered at the Commodities and Futures Exchange (BM&F) or at the Clearing House for the Custody and Financial Settlement of Securities (CETIP). BM&F future contracts involving interbank rates and U.S. dollars are mainly used to lock the financing rates offered to customers with maturities or in currency which are mismatched with the resources used to fund these operations. ITAÚ HOLDING CONSOLIDATED carries out transactions overseas with future, forward, option and swap contracts, with registration mainly in the stock exchanges of Chicago, New York and London.

The main risk factors of the derivatives assumed by ITAÚ HOLDING CONSOLIDATED at September 30, 2004 were related to the foreign exchange rate, interest rate, U.S. dollar and Reference Rate, Libor and variable income. The management of these and other market risk factors is supported by the infrastructure of sophisticated statistical and deterministic models. Based on this management model, the Institution, with the use of transactions involving derivatives, has been able to maximize the relation risk and return, even under high volatility situations.
Under regular conditions, the stock exchange prices are the best indicators of the fair value of the financial instruments. However, not all instruments have liquidity or quotes and, in this case, it is necessary to adopt current value estimates and other valuation techniques. To obtain these market values, the following criteria were adopted:
• Futures and Forward Contracts: quotes on the stock exchanges;
•
Swaps: the cash flow of each part is discounted to current value, according to the corresponding interest curves, obtained based on the BM&F prices and/or market prices of the public securities for Brazilian transactions, and on the international stock exchanges prices for transactions carried out abroad;
• Options: statistical models that take over the volatility behavior of the asset objective, the interest rates, the exercise price and the spot price of the good, such as Black & Scholes model.

These financial instruments have their notional values recorded in memorandum accounts and adjustments/premiums in balance sheet accounts.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 87

  MEMORANDUM
ACCOUNT
VALUE		   NOTIONAL   BALANCE SHEET
ACCOUNT
RECEIVABLE /
(RECEIVED)
(PAYABLE) / PAID		   ADJUSTMENT
TO MARKET
VALUE		 MARKET VALUE
 
  09/30/2004   09/30/2003   09/30/2004   09/30/2004   09/30/2004   09/30/2003
 
 
 
 
 
Future contracts 95,255,995    42,744,691    (20,552)    -    (20,552)    39,231
  Purchase commitments 54,089,612   18,618,574   6,004   -   6,004   (12,997)
Foreign currency 4,386,671   6,046,298   2,596   -   2,596   328
Interbank market 2,451,371   8,495,284   (333)   -   (333)   6,318
Pre-fixed 116,889   -   (30)   -   (30)   -
Indices 3,321,720   3,674,563   228   -   228   (19,927)
Other 43,812,961   402,429   3,543   -   3,543   284
Commitments to sell 41,166,383   24,126,117   (26,556)   -   (26,556)   52,228
Foreign currency 7,121,099   7,982,125   (10,450)   -   (10,450)   453
Interbank market 9,949,442   9,568,364   428   -   428   (2,449)
Pre-fixed 302,343   -   (45)   -   (45)   -
Indices 7,811,211   6,229,452   (4,780)   -   (4,780)   55,214
Other 15,982,288   346,176   (11,709)   -   (11,709)   (990)
Swap contracts     424,780   36,258   461,038   672,717
  Asset position 31,415,442   30,904,048   928,536   73,602   1,002,138   1,041,707
Foreign currency 7,047,447   8,493,694   67,003   80,161   147,164   367,587
Interbank market 12,125,708   14,054,511   606,517   (71,908)   534,609   572,510
Pre-fixed 5,638,348   2,785,575   151,017   44,313   195,330   69,017
Indices 6,579,069   5,539,531   102,291   20,989   123,280   27,607
Other 24,870   30,737   1,708   47   1,755   4,986
Liability position 30,990,662   30,292,778   (503,756)   (37,344)   (541,100)   (368,990)
Foreign currency 10,446,882   10,350,990   (17,598)   (22,976)   (40,574)   (103,539)
Interbank market 12,225,130   12,057,970   (262,690)   17,275   (245,415)   (153,005)
Pre-fixed 2,943,915   2,582,894   (67,102)   (18,005)   (85,107)   (83,833)
Indices 5,157,793   4,979,635   (155,267)   (14,005)   (169,272)   (31,540)
Other 216,942   321,289   (1,099)   367   (732)   2,927
Option contracts 65,496,723   9,352,104   (30,778)   9,266   (21,512)   13,310
  Purchase commitments - purchased position 42,275,721   3,637,322   170,514   (97,159)   73,355   59,195
Foreign currency 9,882,530   1,680,518   143,744   (99,776)   43,968   18,434
Interbank market 54   -   609   (460)   149   -
Pre-fixed -   335,493   -   -   -   3,892
Indices 3,443,745   915,309   12,204   (9,779)   2,425   483
Shares 81,106   284,676   1,739   (1,167)   572   33,313
Other 28,868,286   421,326   12,218   14,023   26,241   3,073
Commitments to sell - purchased position 2,197,008   977,192   13,608   7,435   21,043   18,900
Foreign currency 1,460,837   238,000   8,821   10,386   19,207   12,481
Interbank market -   15,819   -   -   -   319
Indices 189   142,866   86   (29)   57   492
Shares 73,600   55,729   907   (899)   8   1,728
Other 662,382   524,778   3,794   (2,023)   1,771   3,880
Purchase position - sold position 18,446,738   4,179,585   (182,388)   109,855   (72,533)   (40,227)
Foreign currency 9,602,883   1,759,876   (149,594)   104,383   (45,211)   (20,703)
Interbank market -   993,956   -   -   -   (8,766)
Indices 7,921,962   1,153,771   (25,933)   8,879   (17,054)   (1,349)
Shares 191,116   119,047   (3,990)   1,310   (2,680)   (7,850)
Other 730,777   152,935   (2,871)   (4,717)   (7,588)   (1,559)
Commitments to sell - sold position 2,577,256   558,005   (32,512)   (10,865)   (43,377)   (24,558)
Foreign currency 2,151,218   36,000   (27,077)   (13,573)   (40,650)   (354)
Interbank market -   87,702   -   -   -   (1,516)
Indices 862   61,800   (2,333)   289   (2,044)   (132)
Shares 960   201,811   (20)   -   (20)   (21,809)
Other 424,216   170,692   (3,082)   2,419   (663)   (747)
Forward Contracts          
  Purchases receivable - Foreign currency   -   -   -   -   24,563
  Liabilities by purchase payable - For currency   -   -   -   -   (24,703)
  Sales receivable - Shares   -   88,195   266   88,461   67,255
Other derivative financial instruments (1) 4,961,435   7,685,112   4,782   (380)   4,402   84,432
Asset position 2,311,626   4,362,543   133,984   (197)   133,787   294,827
Liability position 2,649,809   3,322,569   (129,202)   (183)   (129,385)   (210,395)
  ASSETS   1,334,837   (16,053)   1,318,784   1,506,447
  LIABILITIES   (847,858)   61,463   (786,395)   (668,873)
  TOTAL   486,979   45,410   532,389   837,574
Derivative contracts mature in days as follows:
Clearing 0 - 30   31 - 180   181 - 365   Over 365   09/30/2004   09/30/2003
Futures 31,328,915   52,354,968   3,336,627   8,235,485   95,255,995   42,744,691
Swaps 5,609,068   10,119,965   7,317,324   7,440,549   30,486,906   29,890,561
Options 10,067,317   53,979,752   1,315,377   134,277   65,496,723   9,352,104
Other 1,271,063   646,772   398,893   2,644,707   4,961,435   7,685,112
(1) Basically includes Forward contracts, Forward Rate Agreement (FRAs) and Non Deliverable Forward (NDFs).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 88


f) Changes in the adjustment to market value for the period
01/01 to
09/30/2004		   01/01 to
09/30/2003
 
Opening balance 403,484    (1,293,254)
Balance arising from acquisition of Institutions -   4,345
Adjustments with impacts on:
      Net income (280,504) 673,132
      Stockholders’ equity 75,359 965,986
Write-offs:
      Net income 6,635 (9,133)
      Stockholders’ equity (155,962) (81,763)
Permanent losses 130,045 2,991
Closing balance 179,057 262,304
Adjustment to market value 779,057 807,304
      Trading securities 55,817 49,189
      Securities available for sale 677,830 679,456
      Derivative financial instruments (Assets and liabilities) 45,410 78,659
Additional provision (*) (600,000) (545,000)
(*) Aims at covering risks of current and future fluctuation in the prices, considering the high volatility scenarios seen in the course of recent years in the local and international markets.
The following table shows the changes in the additional provision for securities and the unrealized income of securities available for sale and of securities held to maturity:
09/30/2004   09/30/2003
 
Additional provision 600,000    545,000
Adjustment to securities available for sale - Stockholders’ equity 677,830   679,456
Adjustment to securities held to maturity (*) 278,694   48,637
Total unrealized income 1,556,524   1,273,093
(*) Includes as of September 30, 2004 the amount of R$ 96,259 related to the market value of reclassified securities at December 31, 2003 which was not recognized in results.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 89

NOTE 7 - LOAN, LEASING AND OTHER CREDITS

a) Composition of the portfolio with characteristics of credit assignment

   I- By type of operations and risk level

  09/30/2004
Risk levels
AA A B C D
Loan operations 5,448,647 16,889,708 8,981,694 1,647,951 1,514,969
    Loan operations 2,643,163 8,577,953 5,877,691 1,068,190 921,460
    Financing 2,016,578 6,769,012 1,756,176 318,108 292,152
    Farming and agrobusiness industries 788,260 1,242,553 447,114 26,633 9,440
    Real estate financing 646 300,190 900,713 235,020 291,917
Leasing operations 73,840 1,702,925 689,839 145,379 160,757
Credit card operations - 768,864 2,055,621 141,058 219,802
Advances on exchange contracts (1) 310,310 545,425 671,401 101,110 10,538
Other receivables (2) - 42,693 66,647 6,031 12,348
Total operations with characteristics of credit assignment 5,832,797 19,949,615 12,465,202 2,041,529 1,918,414
Endorsements and sureties (3)
Total endorsements and sureties 5,832,797 19,949,615 12,465,202 2,041,529 1,918,414
Total - 09/30/2003 5,649,094 13,982,012 9,688,660 2,748,993 1,715,371

  09/30/2004   09/30/2003
Risk levels
 
E F G H Total    Total
 
Loan operations 770,710 713,925 120,881 637,488 36,725,974   31,164,975
    Loan operations 476,526 611,022 71,565 295,578 20,543,149   16,127,241
    Financing 49,810 53,533 25,048 235,917 11,516,333   10,999,015
    Farming and agrobusiness industries 210,700 1,365 187 23,827 2,750,080   1,903,489
    Real estate financing 33,674 48,005 24,081 82,166 1,916,412   2,135,230
Leasing operations 8,697 14,145 3,356 31,377 2,830,315   1,007,888
Credit card operationsnge contracts (1) 105,471 48,881 20,288 103,703 3,463,688   2,720,597
Advances on excha 380 1,248 272 5,096 1,645,779   1,918,668
Other receivables (2) 950 343 830 14,580 144,422   120,545
Total operations with characteristics of credit assignment 886,208 778,542 145,627 792,244 44,810,178   36,932,673
 
Endorsements and sureties (3) 6,249,315   5,766,493
Total endorsements and sureties 886,208 778,542 145,627 792,244 51,059,493   42,699,166
 
Total - 09/30/2003 1,068,623 708,592 455,032 916,296 36,932,673    

(1) Includes Advances on Exchange Contracts and Income Receivable from Advances Granted, reclassified from Other Credits/Liabilities - Foreign Exchange Portfolio (Note 8).
(2) Includes Securities and Credits Receivable, Debtors for Purchase of Assets and Endorsements and Sureties paid.
(3) Recorded in Memorandum Accounts.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 90


II- By maturity and risk level
  09/30/2004
  AA A B C D E F
 
  ABNORMAL SITUATION (1) (2)
Falling due installments - - 274,475 187,298 331,890 120,783 183,632
     01 to 30 - - 14,887 10,742 17,778 11,152 15,583
     31 to 60 - - 11,589 8,037 13,966 8,701 12,220
     61 to 90 - - 11,480 8,315 13,951 8,447 12,082
     91 to 180 - - 31,889 23,284 37,921 22,253 32,303
     181 to 365 - - 53,143 38,253 59,338 28,040 45,590
     Over 365 - - 151,486 98,667 188,936 42,191 65,854
Overdue installments - - 75,283 94,839 269,115 112,400 138,623
     01 to 14 - - 1,172 5,825 6,036 3,803 5,351
     15 to 30 - - 74,110 15,713 69,233 22,684 18,362
     31 to 60 - - - 73,300 59,372 23,603 22,381
     61 to 90 - - - - 134,474 16,579 19,025
     91 to 180 - - - - - 45,730 73,504
     181 to 365 - - - - - - -
     Over 365 - - - - - - -
SUBTOTAL - - 349,758 282,137 601,005 233,183 322,255
SPECIFIC PROVISION - - (3,498) (8,464) (60,101) (69,955) (161,128)
SUBTOTAL 09/30/2003 - - 329,942 403,572 487,796 275,727 288,169
NORMAL SITUATION
Falling due installments 5,790,260 19,862,352 12,017,883 1,726,700 1,266,533 620,512 444,268
     01 to 30 1,370,715 3,587,562 4,234,402 493,684 425,014 109,570 62,038
     31 to 60 392,656 1,532,830 1,158,031 203,452 79,962 31,960 27,632
     61 to 90 407,801 1,389,773 976,707 161,576 64,343 30,653 29,078
     91 to 180 615,524 2,446,671 1,331,031 175,526 130,014 81,857 70,943
     181 to 365 1,530,880 3,553,206 1,485,021 198,808 166,264 82,403 97,120
     Over 365 1,472,684 7,352,310 2,832,691 493,653 400,937 284,069 157,457
Overdue up to 14 days 42,537 87,263 97,561 32,692 50,876 32,513 12,019
SUBTOTAL 5,832,797 19,949,615 12,115,444 1,759,392 1,317,409 653,025 456,287
GENERIC PROVISION - (99,748) (121,154) (52,782) (131,741) (195,907) (228,144)
 
SUBTOTAL 09/30/2003 5,649,094 13,982,012 9,358,719 2,345,421 1,227,575 792,896 420,422
TOTAL 5,832,797 19,949,615 12,465,202 2,041,529 1,918,414 886,208 778,542
EXISTING PROVISION - (164,901) (317,842) (161,491) (485,305) (424,373) (535,028)
Minimum required provision (3) - (99,748) (124,652) (61,246) (191,841) (265,862) (389,271)
Excess provision (4) - (65,153) (193,190) (100,245) (293,464) (158,511) (145,757)
TOTAL 09/30/2003 5,649,094 13,982,012 9,688,660 2,748,993 1,715,371 1,068,623 708,592
EXISTING PROVISION 09/30/2003 - (118,453) (339,689) (261,759) (414,687) (476,994) (426,648)
Minimum required provision (3) - (69,910) (96,886) (129,527) (171,537) (320,587) (354,296)
Excess provision (4) - (48,543) (242,803) (132,232) (243,150) (156,407) (72,352)

  09/30/2004
  09/30/2003
  G H Total   Total
 
 
  ABNORMAL SITUATION (1) (2)    
 
Falling due installments 56,389 220,932 1,375,399    1,560,585
     01 to 30 4,037 13,090 87,270   96,035
     31 to 60 3,578 9,274 67,366   85,174
     61 to 90 3,545 9,199 67,018   77,629
     91 to 180 9,260 38,068 194,977   210,899
     181 to 365 12,327 54,344 291,035   306,851
     Over 365 23,642 96,956 667,733   783,997
Overdue installments 72,606 451,827 1,214,693   1,216,562
     01 to 14 1,652 3,349 27,189   27,559
     15 to 30 2,551 21,837 224,490   156,171
     31 to 60 4,799 16,792 200,248   159,909
     61 to 90 5,435 13,025 188,538   160,840
     91 to 180 58,170 52,178 229,582   338,362
     181 to 365 - 273,594 273,594   340,473
     Over 365 - 71,052 71,052   33,248
 
SUBTOTAL 128,995 672,759 2,590,092   2,777,147
SPECIFIC PROVISION (90,297) (672,759) (1,066,200)   (1,222,774)
 
SUBTOTAL 09/30/2003 200,516 791,425 2,777,147  
NORMAL SITUATION
Falling due installments 16,109 113,329 41,857,946   33,900,290
     01 to 30 2,205 37,099 10,322,289   8,567,328
     31 to 60 563 6,439 3,433,525   2,587,528
     61 to 90 543 14,409 3,074,883   2,457,870
     91 to 180 1,367 11,044 4,863,978   4,664,326
     181 to 365 2,292 12,851 7,128,844   5,695,279
     Over 365 9,139 31,487 13,034,426   9,927,959
Overdue up to 14 days 523 6,156 362,140   255,236
 
SUBTOTAL 16,632 119,485 42,220,086   34,155,526
GENERIC PROVISION (11,642) (119,485) (960,603)   (1,154,786)
 
SUBTOTAL 09/30/2003 254,515 124,871 34,155,526  
 
TOTAL 145,627 792,244 44,810,178   36,932,673
EXISTING PROVISION (145,619) (792,244) (3,026,803)   (3,290,320)
Minimum required provision (3) (101,939) (792,244) (2,026,803)   (2,377,560)
Excess provision (4) (43,680) - (1,000,000)   (912,760)
 
TOTAL 09/30/2003 455,032 916,296 36,932,673  
EXISTING PROVISION 09/30/2003 (335,794) (916,296) (3,290,320)  
Minimum required provision (3) (318,521) (916,296) (2,377,560)  
Excess provision (4) (17,273) - (912,760)  
(1)     For the operations presenting overdue installments for more than 14 days or responsibility of bankrupted companies.
(2)     The balance of out of date operations ("Non Accrual”), amount to R$ 1,439,982 (R$ 1,739,791 at 09/30/2003).
(3) The policy of not using the classification of level “AA” for micro, small and medium companies, and also for individuals, was maintained. As a consequence, all loan operations with clients classified in this segment are charged by the constitution of a provision upon the extension of credit.
(4) Allocated, by BACEN request, so as to explain, at each risk level, the excess measured through the use of statistic models to evaluate the portfolios under conditions of "stress" in the economic scenario.


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 91


III) By business sector

09/30/2004 %   09/30/2003 %
  
PUBLIC SECTOR 1,265,277 2.8   1,010,978 2.7
   Chemical and Petrochemical 376,608 0.8   393,676 1.1
Generation and distribution of electric energy 787,379 1.8   537,170 1.5
Other 101,290 0.2   80,132 0.2
PRIVATE SECTOR 43,544,901 97.2   35,921,695 97.3
CORPORATE ENTITY 26,316,993 58.7   21,718,036 58.8
INDUSTRY 12,808,588 28.6   10,214,133 27.7
Food and beverages 2,227,683 5.0   1,556,680 4.2
Steel and metalurgy 1,330,521 3.0   1,437,647 3.9
Chemical and Petrochemical 1,893,386 4.2   1,860,770 5.0
Electrical and electronic 747,466 1.7   599,678 1.6
Paper and pulp 921,520 2.1   781,182 2.1
Light and heavy vehicles 412,876 0.9   545,309 1.5
Textile and clothing 579,832 1.3   419,391 1.1
Mechanics 298,035 0.7   200,454 0.5
Tobacco 597,415 1.3   491,006 1.3
Fertilizers, inseticides and crop protection 1,019,273 2.3   569,965 1.5
Autoparts and accessories 473,563 1.1   363,318 1.0
Construction material 716,919 1.6   404,732 1.1
Pharmaceuticals 112,857 0.3   95,200 0.3
Wood and furniture 595,664 1.3   278,139 0.8
Tractors and agribusiness machinery 227,910 0.5   139,764 0.4
Other 653,667 1.5   470,898 1.3
COMMERCE 2,977,151 6.6   2,299,115 6.2
Retailers 2,345,556 5.2   1,700,392 4.6
Wholesale 425,682 0.9   329,380 0.9
Others 205,913 0.5   269,343 0.7
SERVICES 7,895,148 17.6   7,209,962 19.5
Telecommunications 1,540,719 3.4   2,337,102 6.3
Electrical energy generation and distribution 1,969,004 4.4   1,582,558 4.3
Financial 949,335 2.1   601,823 1.6
Service companies 1,142,258 2.5   756,498 2.0
Contractors and real estate agents 468,012 1.0   374,056 1.0
Real estate financing (company) 102,740 0.2   88,702 0.2
Public services concessionaires 365,788 0.8   284,736 0.8
Transportation 387,974 0.9   301,593 0.8
Communications 13,870 0.0   150,376 0.4
Others 955,448 2.1   732,518 2.0
PRIMARY SECTOR 2,302,870 5.1   1,804,535 4.9
Mining 373,268 0.8   301,959 0.8
Farming and live stock 1,883,929 4.2   1,476,875 4.0
Others 45,672 0.1   25,701 0.1
OTHER 333,236 0.7   190,291 0.5
INDIVIDUALS 17,227,908 38.4   14,203,657 38.5
Credit cards 3,463,688 7.7   2,720,597 7.4
Real estate financing 1,813,671 4.0   2,046,528 5.5
Consumer loans/vehicles/overdraft 11,950,549 26.7   9,436,532 25.6
TOTAL 44,810,178 100.0   36,932,673 100.0

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 92


b) Concentration of Credit (*)

  09/30/2004
  09/30/2003
  Risk Total
percentage		   Risk Total
percentage
 
Largest debtor 688,710 1.3    831,164 1.9
20 largest debtors 7,644,142 15.0   8,267,107 19.4
50 largest debtors 12,703,327 24.9   13,188,670 30.9
100 largest debtors 17,121,102 33.5   17,286,421 40.5
(*) The amounts include endorsements and sureties.


c) Allowance for loan losses

01/01 to
09/30/2004		   01/01 to
09/30/2003
 
Opening balance (3,162,967)    (3,172,145)
Balance from institutions acquired (3,480)   (87,832)
Extraordinary result (1) -   (101,252)
Net increase for the period (1,147,676)   (1,591,598)
Write-offs (2) 1,287,320   1,662,507
Closing balance (3,026,803)   (3,290,320)
Specific allowance (3) (1,066,200)   (1,222,774)
Generic allowance (4) (960,603)   (1,154,786)
Additional allowance (5) (1,000,000)   (912,760)
(1) At September 30, 2003, including the additional provision for institutions acquired.
(2) Including additional write-offs on the allowance for loan losses, for operations that management considers as having expected realization in long-term.
(3) For operations with past due installments for over 14 days or owned by companies which are under administration or bankruptcy.
(4) For operations not covered by the previous item due to the classification of the client or operation.
(5) Refers to the provision in excess of the minimum required, recorded based on conservative criteria adopted by management in accordance with good banking practice, in order to cover any unexpected losses resulting from strong reversal of the economic cycle

Note: The specific and generic allowances reflect the effects of supplementary allowance totaling R$ 203,506 as it does not consider the option established by article 5 of BACEN Resolution 2682, altered by article 2 of BACEN Resolution 2697/02.24.2000, that the loan operations with clients whose total liability is below R$ 50 (Fifty thousand reais), could be assessed totally based on the overdue amounts.
At September 30, 2004, the balance of allowance for loan losses in relation to the credit portfolio is equivalent to 6.8% (8.9% at 09/30/2003).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 93


d) Recovery and Renegotiation of Credits

   I - Composition of result of loan losses

01/01 to
09/30/2004		   01/01 to
09/30/2003
  
Net increase for the period in the loan loss reserve (1,147,676)   (1,591,598)
Recoveries 487,121   394,823
Renegotiation 115,297   53,109
Receipt 371,824   341,714
Result of loan losses (660,555)   (1,196,775)

   II - Renegotiated Credits
09/30/2004   09/30/2003
 
Renegotiated credits 914,957    908,693
Allowance for loan losses (391,738)   (371,280)
(%) 42.8   40.9


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 94

NOTE 8 - FOREIGN EXCHANGE PORTFOLIO
09/30/2004   09/30/2003
  
ASSETS - OTHER RECEIVABLES 14,375,443   7,796,186
    Exchange purchase pending settlement - foreign currency (*) 7,040,961   4,649,859
Foreign currency bills exchange and term document - foreign currency 81   9,016
Exchange sale rights - local currency 7,500,655   3,263,297
(-) Advances received - local currency (166,254)   (125,986)
LIABILITIES - OTHER LIABILITIES 14,642,895   8,097,672
Exchange sales pending settlement - foreign currency 7,393,375   3,255,904
Exchange purchase liabilities - local currency (*) 7,244,241   4,835,357
Other 5,279   6,411
MEMORANDUM ACCOUNTS 114,313   138,687
Outstanding import credits - foreign currency 93,851   112,481
Confirmed export credits - foreign currency 20,462   26,206

(*) Net value of advances on exchange contracts included in the Loan Portfolio (Note 7a I).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 95


NOTE 9 - FUNDING AND BORROWINGS AND ONLENDINGS

a) Summary

  09/30/2004
 
  0-30 31-180 181-365 Over 365 Total %
 Deposits 33,492,654 1,987,143 924,899 1,185,682 37,590,378 45.8
 Money market 9,966,161 6,305,252 1,058,178 4,599,020 21,928,611 26.8
 Funds from acceptance and issuance of securities 48,850 512,234 1,163,470 2,543,223 4,267,777 5.2
 Borrowings and onlendings 749,376 2,712,256 2,594,860 5,212,233 11,268,725 13.8
 Securitization of payment orders abroad — 275,717 275,368 1,481,046 2,032,131 2.5
 Subordinated debts — 52,127 74 4,782,628 4,834,829 5.9
 TOTAL 44,257,041 11,844,729 6,016,849 19,803,832 81,922,451
 % per maturity date 54.0 14.5 7.3 24.2
 
 TOTAL - 09/30/2003 41,457,664 10,941,331 6,789,304 18,803,840 77,992,139
 % per maturity date 53.2 14.0 8.7 24.1

  09/30/2003
 
  Total %
 
 Deposits 34,413,585 44.0
 Money market 18,293,858 23.5
 Funds from acceptance and issuance of securities 5,348,788 6.9
 Borrowings and onlendings 13,483,811 17.3
 Securitization of payment orders abroad 1,681,902 2.2
 Subordinated debts 4,770,195 6.1
     
 TOTAL 77,992,139
 % per maturity date
 
 TOTAL - 09/30/2003
 % per maturity date

b) Deposits
  09/30/2004     09/30/2003
 
 
  0-30 31-180 181-365 Over 365 Total %     Total %
 
 
Demand deposits 9,722,725 — — — 9,722,725 25.8   7,099,911 20.6
Savings accounts 18,223,958 — — — 18,223,958 48.5   16,866,548 49.1
Interbank 533,977 68,568 18,324 — 620,869 1.7   1,069,817 3.1
Time deposits 5,011,994 1,918,575 906,575 1,185,682 9,022,826 24.0   9,377,309 27.2
 
TOTAL 33,492,654 1,987,143 924,899 1,185,682 37,590,378   34,413,585
% per maturity date 89.0 5.3 2.5 3.2  
       
TOTAL - 09/30/2003 27,893,698 3,417,794 1,262,596 1,839,497 34,413,585  
% per maturity date 81.1 9.9 3.7 5.3  


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 96

c) Money Market
  09/30/2004
 
  0 - 30 31 - 180 181 - 365 Over 365 Total %
 Own portfolio 1,326,690 2,575,240 1,058,178 4,599,020 9,559,128 43.6
     Public securities 114,877 544,772 557 — 660,206 3.0
Private securities — 81,273 — — 81,273 0.4
Own issue 714,502 1,797,801 1,056,791 4,476,122 8,045,216 36.7
Foreign 497,311 151,394 830 122,898 772,433 3.5
 Third-parties’ portfolio - public securities 6,270,104 — — — 6,270,104 28.6
 Free portfolio - public securities 2,369,367 3,730,012 — — 6,099,379 27.8
Unsettled repurchase 2,369,367 3,730,012 — — 6,099,379 27.8
Liabilities subject to securities repurchase agreements — — — — — 0.0
 TOTAL - 09/30/2004 9,966,161 6,305,252 1,058,178 4,599,020 21,928,611
 % per maturity date 45.4 28.8 4.8 21.0
 
 TOTAL - 09/30/2003 11,092,554 3,222,920 894,528 3,083,856 18,293,858
 % per maturity date 60.6 17.6 4.9 16.9

    09/30/2003
   
    Total %
   
 Own portfolio   8,637,387 47.3
   Public securities     1,503,098 8.2
  Private securities   — 0.0
  Own issue   5,958,346 32.7
  Foreign   1,175,943 6.4
 Third-parties’ portfolio - public securities   9,631,207 52.6
 Free portfolio - public securities   25,264 0.1
  Unsettled repurchase   — 0.0
  Liabilities subject to securities repurchase agreements   25,264 0.1
 
 TOTAL - 09/30/2004   18,293,858 100.0
 % per maturity date      
     
 TOTAL - 09/30/2003      
 % per maturity date      



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 97

d) Funds from acceptances and issuance of securities

  09/30/2004
 
  0-30 31-180 181-365 Over 365 Total %
 MORTGAGES 32,301 8,756 — — 41,057 1.0
 DEBENTURES — — — 844,818 844,818 19.6
 LIABILITIES FOR SECURITIES ABROAD 16,549 503,478 1,163,470 1,698,405 3,381,902 79.4
Trade Related - Issued abroad - Bankers Acceptance — 28,530 — — 28,530 0.7
Non-Trade Related 16,549 474,948 1,163,470 1,698,405 3,353,372 78.7
Issued in Brazil 6,346 17,020 8,189 299,749 331,304 7.8
      Commercial Paper — — — — — 0.0
      Fixed Rate Notes 6,346 17,020 8,189 299,749 331,304 7.8
    Issued abroad 10,203 457,928 1,155,281 1,398,656 3,022,068 70.9
         Brazil Risk Note Programme 28 23,949 108,814 155,856 288,647 6.8
      Euro CD 571 65,424 625 — 66,620 1.6
      Euro Medium Term Note Programme 3,050 2,338 366,122 20,388 391,898 9.2
      Euronotes 6,554 366,217 199,803 — 572,574 13.4
      Fixed Rate Notes — — 444,662 1,222,412 1,667,074 39.1
      Note Programme — — 35,255 — 35,255 0.8
 TOTAL 48,850 512,234 1,163,470 2,543,223 4,267,777
 % per maturity date 1.2 12.0 27.3 59.6    
 
 TOTAL - 09/30/2003 1,130,726 1,047,625 535,085 2,635,352 5,348,788
 % per maturity date 21.1 19.6 10.0 49.3    

    09/30/2003
   
    Total %
   
 MORTGAGES    73,241 1.4
 DEBENTURES   669,165 12.6
 LIABILITIES FOR SECURITIES ABROAD   4,606,382 86.0
Trade Related - Issued abroad - Bankers Acceptance   96,253 1.8
Non-Trade Related   4,510,129 84.2
Issued in Brazil   1,041,096 19.4
      Commercial Paper   32,981 0.6
      Fixed Rate Notes   1,008,115 18.8
Issued abroad   3,469,033 64.8
         Brazil Risk Note Programme   40,374 0.8
      Euro CD   606,237 11.2
      Euro Medium Term Note Programme   744,332 13.9
      Euronotes   920,579 17.2
      Fixed Rate Notes   1,117,136 20.9
      Note Programme   40,375 0.8
     
 TOTAL   5,348,788  
 % per maturity date      
     
 TOTAL - 09/30/2003      
 % per maturity date      

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 98

e) Borrowings and onlendings

  09/30/2004   09/30/2003
 
 
  0-30 31-180 181-365 Over 365 Total %   Total %
 
 BORROWINGS 659,439 2,055,818 1,852,616 2,298,518 6,866,391 60.9   9,257,120 68.7
  Local 70,501 87,707 21,310 6,350 185,868 1.6    415,918 3.1
  Foreign (*) 588,938 1,968,111 1,831,306 2,292,168 6,680,523 59.3   8,841,202 65.6
 ONLENDINGS 89,937 656,438 742,244 2,913,715 4,402,334 39.1   4,226,691 31.3
Local onlendings - official institutions 89,937 579,011 742,244 2,913,715 4,324,907 38.4   4,198,015 31.1
      BNDES 66,552 284,720 370,172 2,160,431 2,881,875 25.6   2,918,987 21.6
    FINAME 22,305 191,681 318,049 723,816 1,255,851 11.1   1,059,170 7.9
    Other 1,080 102,610 54,023 29,468 187,181 1.7   219,858 1.6
Interbank — 77,427 — — 77,427 0.7   28,676 0.2
     
 TOTAL 749,376 2,712,256 2,594,860 5,212,233 11,268,725   13,483,811
 % per maturity date 6.6 24.1 23.0 46.3          
       
 TOTAL - 09/30/2003 1,340,686 3,103,086 3,979,775 5,060,264 13,483,811  
 % per maturity date 10.0 23.0 29.5 37.5          

(*) Foreign borrowings are basically represented by investments in commercial exchange operations related to export pre-financing and import financing.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 99


f) Securitization of Payment Orders Abroad

Funds obtained abroad through the sales to Brazilian Diversified Payment Rights Finance Company of rights related to payment orders receivable abroad.
  09/30/2004
 
  31-180 181-365 Over 365 Total
 Securitization of payment orders abroad 275,717 275,368 1,481,046 2,032,131
 % per maturity date 13.5 13.6 72.9
 TOTAL - 09/30/2003 74,032 117,281 1,490,589 1,681,902
 % per maturity date 4.4 7.0 88.6

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 100

g) Subordinated Debt

Funds obtained through the issue of subordinated debt securities, in accordance with the conditions determined by BACEN Resolution 2837 of 05/30/2001, are as follows:
  09/30/2004   09/30/2003
 
 
  31-180 181-365 Over 365 Total %    Total %
 
 CDB (1) 37,471 — 1,744,569 1,782,040 36.9   1,670,994 35.1
 Debentures (2) 2,798 —— 600,000 602,798 12.5   607,183 12.7
 Euronotes (3) 11,858 — 1,314,424 1,326,282 27.4   1,342,645 28.1
 Redeemable preferred shares (4) — 74 1,123,635 1,123,709 23.2   1,149,373 24.1
 
 TOTAL 52,127 74 4,782,628 4,834,829     4,770,195  
 % per maturity date 1.1 0.0 98.9  
       
 TOTAL - 09/30/2003 75,874 39 4,694,282 4,770,195        
 % per maturity date 1.6 0.0 98.4  

(1) Bank Deposit Certificates:
             
     —   issued on 12/23/2002, with nominal value of R$ 850,000, with maturity date on 12/23/2009 and paying interest semi-annually at the average Interbank Deposit rate plus 0.87% p.a.;
           
    —   issued on 02/26/2003, with nominal value of R$ 673,103, with maturity date on 02/26/2008 and paying interest at the Interbank Deposit rate at the end of the period.
           
(2) Non-convertible debentures:
           
    —   issued on 09/01/2001, with nominal value of R$ 600,000, with maturity date on 09/01/2008, with no projected amortization or renegotiation and paying interest semiannually at the average Interbank Deposit (DI) rate registered at the Securities Custody Center CETIP (CETIP-DI) plus 0.75% p.a.
           
(3) Euronotes:
           
    —   issued on 08/13/2001, in the amount of US$ 100,000 thousand, and on 11/09/2001, in the amount of US$ 80,000 thousand, with maturity date on 08/15/2011 and paying interest semiannually at the rate of 10% p.a.;
           
    —   issued on 08/13/2001, in the amount of ¥ 30,000,000 thousand (US$ 244,938 thousand), also with maturity date on 08/15/2011 and paying interest semiannually at the rate of 4.25% p.a.;
           
    —   issued on 06/26/2002 by BBA Nassau, in the amount of US$ 50,000 thousand (US$ 30,000 thousand held in treasury), with maturity date on 06/28/2012 and paying interest semiannually at the rate of 10.375% p.a. up to 06/28/2007 and, after this date up to maturity, at the rate of 13.625% p.a.
           
(4) Redeemable preferred shares:
           
    —   issued on 12/31/2002 by Itau Bank, Ltd., as part of the settlement of the investment in Banco Itaú-BBA, with no voting right, in the amount of US$ 393,099 thousand, with maturity in 12.5 years and dividends calculated based on LIBOR rate plus 1.25% p.a., paid semiannually



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 101

NOTE 10 - INSURANCE, LIFE INSURANCE, PENSION PLAN AND CAPITALIZATION OPERATIONS

a) Composition of the Technical Provisions
  09/30/2004   09/30/2003
 
 Insurance 1,081,527    905,915
    Unearned premiums 588,821   494,042
Unsettled claims 328,588   287,987
IBNR 140,705   113,032
Other 23,413   10,854
       
 Life insurance and pension plan 7,954,353   4,252,773
Unearned premiums 201,669   189,271
Unsettled claims 34,403   36,385
IBNR 43,273   36,439
Mathematical reserve - benefits to be granted 7,333,902   3,774,838
Mathematical reserve - benefits granted 67,650   29,973
Financial surplus 159,970   107,117
Financial fluctuation 80,606   61,922
Other 32,880   16,828
       
 Capitalization 1,011,748   927,110
    Mathematical reserve for redemptions 912,868   820,375
Contingencies 83,271   90,849
Prizes 15,609   15,886
       
TOTAL 10,047,628 6,085,798

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 102

b) Technical Provisions Guarantees - SUSEP

  INSURANCE   LIFE INSURANCE AND PENSION PLAN
 
 
  09/30/2004   09/30/2003   09/30/2004   09/30/2003
 
 
 
 Short-term interbank investments - Money market 75,506    233,121    44,747    91,970
 Securities and derivative financial instruments 734,389   574,026   7,758,534   4,042,704
     PGBL/VGBL (1) funds quotas —   —   6,117,892   2,773,078
Public 177,664   259,586   894,901   886,415
Private 556,725   314,440   745,741   383,211
 Credit rights 240,438   134,229   164,072   142,763
 Properties 41,337   46,105   —   —
 TOTAL 1,091,670   987,481   7,967,353   4,277,437

  CAPITALIZATION   TOTAL
 
 
  09/30/2004   09/30/2003   09/30/2004   09/30/2003
 
 
 
 Short-term interbank investments - Money market 182,855    331,998    303,108    657,089
 Securities and derivative financial instruments 850,157   619,126   9,343,080   5,235,856
     PGBL/VGBL (1) funds quotas —   —   6,117,892   2,773,078
Public 105,285   281,600   1,177,850   1,427,601
Private 744,872   337,526   2,047,338   1,035,177
 Credit rights —   —   404,510   276,992
 Properties —   —   41,337   46,105
 TOTAL 1,033,012   951,124   10,092,035   6,216,042

(1)   PGBL and VGBL social security portfolio, owned by customers and recorded as marketable securities, according to the SUSEP accounts plan, as a contra entry to liabilities in the Social Security Technical Provisions account.

c) Result of Operations

    INSURANCE   LIFE INSURANCE AND PENSION PLAN
   
 
    01/01 to
09/30/2004 		  01/01 to
09/30/2003 		  01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 
 
 Premiums and contributions    1,237,330    1,041,578    2,688,016    1,767,782
 Changes in technical provisions   (68,475)   (66,981)   (1,570,365)   (1,113,613)
 Expenses with claims   (754,246)   (624,090)   (76,041)   (74,075)
 Selling expenses   (208,607)   (167,551)   (16,320)   (26,347)
 Expenses with benefits and redemptions   —   —   (836,881)   (398,062)
 Other income and expenses   53,607   51,888   (4,775)   (1,005)
 Result of insurance, pension plan and capitalization operations   259,609   234,844   183,634   154,680

    CAPITALIZATION   TOTAL
   
 
    01/01 to
09/30/2004 		  01/01 to
09/30/2003 		  01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 
 
 Premiums and contributions    622,169    576,417    4,547,515    3,385,777
 Changes in technical provisions   (475,157)   (428,948)   (2,113,997)   (1,609,542)
 Expenses with claims   —   —   (830,287)   (698,165)
 Selling expenses   —   —   (224,927)   (193,898)
 Expenses with benefits and redemptions   —   —   (836,881)   (398,062)
 Other income and expenses   —   —   48,832   50,883
 Result of insurance, pension plan and capitalization operations   147,012   147,469   590,255   536,993

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 103



NOTE 11 - OTHER ACCOUNTS

a) Other Sundry Receivables

09/30/2004   09/30/2003
 
 Tax credits (1) 3,595,163    4,105,346
 Social contribution to be offset (1) 1,311,054   1,340,613
 Taxes and contributions to offset 748,453   672,369
 Deposits in guarantee 2,911,208   2,393,349
     Tax appeals 1,696,029   1,551,345
Labor appeals 508,991   388,060
Civil 112,051   78,700
Overseas 566,696   292,404
Other 27,441   82,840
 Accounts receivable in guarantee 113,045   113,045
 Other domestic debtors 314,965   199,174
 Other foreign debtors 104,762   142,331
 Options for tax incentives 54,898   46,140
 Recoverable payments 25,598   30,078
 Salary advances 64,479   58,350
 Receivables from related companies 34,549   37,470
 Other 120,730   82,484
 Total 9,398,904   9,220,749

(1) Note 13b I.

b) Other Sundry Liabilities

09/30/2004   09/30/2003
 
 Provisions for contingent liabilities 1,969,467    1,608,851
     Labor liabilities 1,069,844   1,072,994
Civil lawsuits 659,875   439,862
Other 239,748   95,995
 Provision for personnel 430,669   454,975
 Provision for sundry payments 478,671   396,384
 Liabilities for official agreements and rendering of payment services 153,048   157,686
 Sundry creditors - local 232,462   226,118
 Sundry creditors - foreign 130,196   348,454
 Agreement and rendering services AOLA (1) 208,963   —
 Liabilities for purchase of assets and rights 135,130   90,455
 Related to insurance companies 189,724   99,424
 Provision for restructuring BANESTADO and BEG —   20,069
 Provision to cover actuarial deficit (2) 27,670   27,500
 Amounts payable to related companies 78,055   61,846
 Creditors for resources to be released 21,486   19,539
 Funds from consortia members 63,586   58,115
 Other 8,117   6,213
 Total 4,127,244   3,575,629

(1) Note 20.
(2) Note 19c.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 104

c) Banking Services Fees
01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Fund management 1,035,790    966,487
     Fund management fees 979,457   933,131
Income from management of consortia 56,333   33,356
 Current account services 903,501   742,690
 Credit cards 790,958   714,907
Annual fees 258,034   255,673
Other services 532,924   459,234
 Credit operations and guarantees provided 649,200   484,712
Credit operations 571,606   401,701
Income from guarantees provided 77,594   83,011
 Collection services 564,808   514,541
Collection fees 270,913   238,591
Collection services 148,383   122,367
Interbank charges (securities, checks and wire) 145,512   153,583
 Other 421,973   354,576
Income from consultation to Serasa 103,471   84,600
Income from brokerage 65,345   30,363
Income from custody services and management of portfolio 30,093   26,421
Foreign exchange services 24,745   34,033
Other services 198,319   179,159

 Total

4,366,230

  

3,777,913


d) Personnel Expenses

01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Remuneration 1,375,717    1,239,957
 Charges 424,836   372,662
 Social benefits 356,805   308,546
 Training 33,241   31,537
 Subtotal 2,190,599   1,952,702
 Employee resignation and labor claims 219,099   335,484
 Single bonus —   56,441
 Total 2,409,698   2,344,627

e) Other Administrative Expenses

01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Data processing and telecommunication 795,144    757,534
 Depreciation and amortization 412,706   450,215
 Facilities 397,536   377,478
 Third-party services 464,802   416,598
 Financial system service cost 238,753   224,867
 Advertising, promotions and publications 202,234   199,473
 Transportation 136,142   139,676
 Materials 105,265   110,172
 Security 94,972   93,566
 Legal 43,161   41,491
 Travel expenses 30,944   29,273
 Other 149,373   149,236
 Total 3,071,032   2,989,579

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 105

f) Other operating income

01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Reversal of operating provisions 35,735    111,659
 Equity result in subsidiaries, not derived from net income 25,089   51,053
 Recovery of charges and expenses 56,810   36,010
 Net exchange variation on assets and liabilities of companies overseas 13,272   —   
 Other 76,994   62,033
 Total 207,900   260,755

g) Other operating expenses

01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Charges on taxes 99,179    123,712
 Provision for contingencies 98,731   153,764
 Sales - Credit cards 140,684   116,990
 Civil lawsuits 272,370   160,678
 Claims 63,760   80,896
 Net exchange variation on assets and liabilities of companies overseas —   48,483
 Other 213,052   222,040
 Total 887,776   906,563

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 106



NOTE 12 - EXTRAORDINARY RESULT

In order to permit the proper analysis of the financial statements for the period, the amount of R$ 300.599 was classified in the account Extraordinary Result, net of the related taxes, as follows:
 Amortization of goodwill on investments (371,021)
     Partnership ITAÚ and CBD (1) (349,184)
     BPI - SIC (Sociedade Independente de Comunicação S.A.) and others (21,837)
 Favorable outcomes in administrative/legal suits 30,110
 Realization of taxes on interest in the obtaining of long-term foreign resources 40,312
 TOTAL (300,599)

(1) Note 1.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 107

 

NOTE 13 - TAXES

a) Composition of expenses with taxes and contributions


I) We show below the Income Tax and Social Contribution due on the operations for the period and on temporary differences arising from additions and exclusions:
Due on Operations for the Period 01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Income before income tax and social contribution 4,644,977    4,431,231
 Charges (Income Tax and Social Contribution) at the rates of 25% and 9% (*) respectively (1,579,292)   (1,506,619)
 Increase/Decrease to Income Tax and Social Contribution charges arising from:  
 Permanent (Inclusions) Exclusions 516,289   114,029
     Investments in affiliates 11,784   (11,525)
  Foreign exchange variation of overseas investments 148,439   (120,476)
  Interest on own capital 294,859   234,057
  Non-deductible provisions and other 61,207   11,973
 Temporary Exclusions (Inclusions) (255,032)   (248,289)
  Allowance for loan losses (9,156)   (234,271)
  Excess (Insufficiency) of Depreciation 59,701   (5,093)
  Adjustment to market value of securities for negotiation and derivative financial instruments (20,297)   206,768
  Labor provisions, tax contingencies and other (285,280)   (215,693)
 (Increase) Offset on tax losses/Negative social contribution basis 37,566   85,168
 Expenses with Income Tax and Social Contribution (1,280,469)   (1,555,711)
Related to Temporary Differences  
 
  Increase for the period 130,237   116,667
  Prior periods increase (reversal) (162,634)   52,820
 Total Deferred Taxes (32,397)   169,487
 Total Income tax and Social contribution (1,312,866)   (1,386,224)

II) Composition of tax expenses:
  01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
     PIS and COFINS (727,613)    (506,417)
Municipal taxes (153,795)   (133,184)
Tax on Bank Account Outflows (113,284)   (100,937)
Other (35,271)   (25,718)
 Total (*) (1,029,963)   (766,256)

(*) According to Note 4k.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 108

b) Tax Credits

I)    The tax credit balance segregated based on its origin and disbursements incurred (income tax and social contribution) is represented as follows:

  PROVISIONS   TAX CREDITS
 
 
  12/31/2003   09/30/2004   12/31/2003   Realization/
Reversal 		  Set up
 
 
Reflected in results     3,805,048   (1,214,333)   1,004,448
Related to tax losses and negative social contribution         830,251   (87,235)   —
Related to disbursed provisions         1,571,349   (564,535)   352,223
     Allowance for loan losses         1,132,878   (457,340)   261,366
  Adjustment to market value of trading securities and derivative
financial instruments (assets and liabilities)		         46,334   (46,334)   —  
  Allowance for real estate         48,695   (5,678)   3,019
  Other         343,442   (55,183)   87,838
Related to non-disbursed provisions (*) 4,683,127    4,902,910    1,403,448    (562,563)    652,225
  Related to the operation 2,935,985   3,643,061   889,441   (377,263)   630,332
       Interest on own capital 115,196   501,905   5,167   (5,167)   169,398
    Tax contingencies 793,003   952,422   232,443   —     43,220
    Labor contingencies 984,768   968,392   307,161   (225,480)   219,948
    Civil contingencies 497,283   673,556   155,925   (29,560)   90,610
    Other 545,735   546,786   188,745   (117,056)   107,156
  Related to provisions in excess in relation to the minimum
required not disbursed		 1,747,142   1,259,849   514,007   (185,300)   21,893
    Allowance for loan losses 906,000   1,000,000   289,713   —     21,893
    Adjustment to market value of securities and derivative
financial instruments (assets and liabilities)		 545,000   —     185,300   (185,300)   —  
    Tax contingencies 296,142   259,849   38,994   —     —  
Reflected in stockholders’ equity - adjustment to market value of
securities available for sale		     527   (527)   —  
Total 4,683,127   4,902,910   3,805,575   (1,214,860)   1,004,448
Social contribution to offset arising from option foreseen in artcle 8
of Provisional Measure 2158-35 of August 24, 2001.		     1,341,278   (30,224)   —  

  TAX CREDITS
 
  09/30/2004 09/30/2003
 
Reflected in results    3,595,163    4,101,042
Related to tax losses and negative social contribution   743,016 815,401
Related to disbursed provisions   1,359,037 1,778,357
Allowance for loan losses   936,904 1,218,990
Adjustment to market value of trading securities and derivative
financial instruments (assets and liabilities)		   —   34,957
Allowance for real estate   46,036 43,310
Other   376,097 481,100
Related to non-disbursed provisions (*)   1,493,110 1,507,284
Related to the operation   1,142,510 1,000,586
Interest on own capital   169,398 134,178
Tax contingencies   275,663 210,265
Labor contingencies   301,629 301,918
Civil contingencies   216,975 153,781
Other   178,845 200,444
Related to provisions in excess in relation to the minimum
required not disbursed		   350,600 506,698
Allowance for loan losses   311,606 282,208
Adjustment to market value of securities and derivative
financial instruments (assets and liabilities)		   —   185,300
Tax contingencies   38,994 39,190
Reflected in stockholders’ equity - adjustment to market value of
securities available for sale		   —   4,304
Total   3,595,163 4,105,346
Social contribution to offset arising from option foreseen in artcle 8
of Provisional Measure 2158-35 of August 24, 2001.		   1,311,054 1,340,613

(*) From a financial point of view, rather than recording the provision of R$ 4,902,910 (R$ 4,683,127 at 12/31/2003) and Tax Credits of R$ 1,493,110 (R$ 1,403,448 at 12/31/2003) only the difference should be considered, because the deferred tax assets are only realized when the liability is disbursed.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 109


II) The estimate of realization and present value of tax credits and social contribution to offset, arising from Provisional Measure 2158-35/08.24.2001, existing at September 30, 2004, in accordance with the expectation to generate future taxable income, based on the history of profitability and technical studies of feasibility are:
    Tax Credits    
   
  Social
contribution to
offset
Realization year   Temporary
differences 		  Tax loss and
negative basis 		  TOTAL  
2004    840,468    119,815    960,283    19,555
2005   710,604   245,914   956,518   115,714
2006   432,253   310,418   742,671   126,275
2007   357,861   66,869   424,730   137,146
2008   182,985   —     182,985   146,337
After 2008   327,976   —     327,976   766,027
Total   2,852,147   743,016   3,595,163   1,311,054
Present value (*)   2,578,181   684,057   3,262,238   1,073,257

(*) The average funding rate was used to determine the present value.

The projections of future taxable income include estimates related to macroeconomic variables, exchange rates, interest rates, volume of financial operations and services fees and others which can vary in relation to data and actual values.

Net income in the financial statements is not directly related to taxable income for income tax and social contribution, due to differences existing between accounting criteria and tax legislation, besides corporate aspects. Accordingly, we recommend that the development of the realization of tax credits arising from temporary differences, tax losses and negative basis are not used as indications of future net income.

III) Unrecorded tax credits amount to R$ 427,464 (R$ 154,978 at 09/30/2003).

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 110

c) Taxes and Social Security Contributions

 

    I) The balance of Taxes and Social Security Contributions is represented as follows:

  09/30/2004   09/30/2003
 
 Taxes and contributions on income payable 570,655    876,152
 Withholding taxes and contributions payable 334,729   304,777
 Provision for deferred income tax and social contribution 427,335   590,037
 Provision for tax contingencies 2,309,227   1,913,195
 
 Total 3,641,946   3,684,161

   II) Change in Deferred Income Tax and Social Contribution

  12/31/2003   Realization/
Reversal 		  Set up   09/30/2004   09/30/2003
 
 Reflected in income and expense accounts 364,355    (65,020)    65,477    364,812    354,466
     Depreciation in excess - Leasing 224,336   (2,898)   64,414   285,852   232,232
Taxation on results abroad - Capital Gains 67,614   (1,727)   —       65,887   63,220
Revaluation reserve 9,365   (532)   —       8,833   16,862
Adjustment to market value of trading securities and derivative
financial instruments (assets and liabilities)		 59,584   (59,584)   —       —       42,124
Other 3,456   (279)   1,063   4,240   28
 Reflected in stockholders’ equity accounts - Mark-to-market
  of securities available for sale (1)		 296,018   (233,495)   —       62,523   235,571
 
 Total 660,373   (298,515)   65,477   427,335   590,037

(1) Note 2b.

   III) Change in Allowance for Tax Contingencies
      
    The allowance for tax contingencies comprises amounts related to tax matters, where ITAÚ HOLDING and its subsidiaries have lawsuits against tax authorities; the legality of this collection is being challenged in administrative or judicial courts.

01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Opening balance 2,063,685    1,551,199
 Balance from the acquisition of investment —     106,801
 Change in the period 245,542   255,195
     Charges on taxes 76,853   121,172
  Net recognition 187,943   207,362
  Payments (11,122)   (32,292)
  Reversals (8,132)   (41,047)
 Closing balance 2,309,227   1,913,195

d) Taxes Paid or Provided For and Withheld from Clients

    The table below shows the amount of taxes paid or provided for, basically levied on income, revenues and payroll, and the amount withheld from and paid for clients, directly levied on financial intermediation:

  01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Taxes Paid or provided for 2,870,253    2,721,042
 Taxes withheld and collected from clients 3,849,754   3,790,375
 
 Total 6,720,007   6,511,417

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 111


NOTE 14 - INVESTMENTS

a) Composition of investments

  09/30/2004   09/30/2003
 
 Share of equity in affiliates - local 124,389    113,807
AGF Brasil Seguros S.A. 124,389   113,361
Other —     446
 Share of equity in affiliates - foreign 625,308   620,697
     BPI - SGPS S.A. (BPI) 623,007   617,374
Other 2,301   3,323
 Other investments 249,809   237,137
Investments by tax incentives 112,316   108,046
Equity securities 40,028   35,028
Shares and quotas 25,882   28,021
Other 71,583   66,042
 Provision for losses (111,903)   (93,435)
 TOTAL 887,603   878,206

b) Composition of Equity in Results of Associated Companies

  01/01 to
09/30/2004 		  01/01 to
09/30/2003
 
 Share of equity in associated - local 8,664    3,585
 Share of equity in associated - foreign 25,995   (37,482)
     Exchange variation in investments (18,392)   (50,154)
Equity in the results of associates 44,387   12,672
 Total 34,659   (33,897)

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 112




NOTE 15 - STOCKHOLDERS’ EQUITY

a) Shares

   

Capital comprises 115,585,340,539 book entry shares with no par value, of which 60,687,553,023 are common and 54,897,787,516 are preferred shares with no voting rights, but with tag-along rights, in the event of the public offer of common shares, in order to ensure a price equal to 80% of the amount paid per share with voting rights and part of the control block, as well as a dividend at least equal to that of the common shares.
   
  The table below shows the evolution of representative shares of capital and treasury shares during the period.

  NUMBER
 
  Common   Preferred   Total
 Representative shares of capital at 12/31/2003 61,351,834,948    54,897,787,516    116,249,622,464
     Cancellation of shares - E/OGM-04/28/2004 (664,281,925)   —   (664,281,925)
 Representative shares of capital at 09/30/2004 60,687,553,023   54,897,787,516   115,585,340,539
 Treasury shares at 12/31/2003 555,122,068   1,750,670,745   2,305,792,813
Purchase of shares (*) 124,698,741   1,002,810,000   1,127,508,741
Disposals - Stock option plan —   (433,900,000)   (433,900,000)
Cancellation of shares - E/OGM-04/28/2004 (664,281,925)   —   (664,281,925)
 Treasury shares at 09/30/2004 (*) 15,538,884   2,319,580,745   2,335,119,629
 Outstanding shares at 09/30/2004 60,672,014,139   52,578,206,771   113,250,220,910

(*) Own shares purchased under the authorization of the Board of Directors, to be held in Treasury for subsequent cancellation or replacement in the market. We detail below the costs of the shares bought back in the period and the average cost of treasury shares and their market price at 09/30/2004:

 Cost/market price (R$ 1/per thousand shares) Common   Preferred
 Purchases in the period  
     Minimum 221.18    225.69
Weighted average 253.03   253.62
Maximum 272.70   281.46
 Balance of treasury shares  
Average cost 241.85   201.38
Market price at 09/30/2004 273.00   317.50

 

The E/OGM of 04/28/2004 approved the shares grouping in the proportion of 1,000 shares for each one capital share, already approved by the Brazilian Central Bank. Through a Notice to the Stockholders, issued on 08/09/2004, a term of not less than 60 days was granted, due on 10/08/2004, for them to adjust their share position, in batches of 1,000 shares. As from 10/20/2004, the grouping will be effective resulting in 115,585,340 shares, of which 60,687,553 are common shares and 54,897,787 are preferred shares.

b) Dividends

 

Stockholders are entitled to a minimum dividend of not less than 25% of net income, which is adjusted according to the rules set forth in Brazilian Corporate Law. Both types of shares participate equally, after common shares have received dividends equal to the minimum priority dividend of R$ 0.55 per thousand shares to be paid to preferred shares.
   
 

The advance of the mandatory minimum dividend, paid as Interest on Own Capital, uses the share position of the last business day of the prior month as calculation basis, and the payment made in the first business day of the following month. The RCA of 05/03/2004 approved the increase of its value from R$ 0.13 to R$ 0.17 per thousand shares as from 07/01/2004.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 113

c) Stock Option Plan

 

ITAÚ HOLDING has established a Stock Option Plan in order to involve its officers in the process to develop the Institution at medium and long terms.
   
 

Up to September 30, 2004, the options were developed as follows:

                Lots of 1,000 shares
               
Issuance Vesting period
until		   Exercise period
until		   Exercise price
restated as of
09/30/2004  (R$1)		   Granted   Exercised   Cancelled   Not
exercised
Nº   Date              
1st    05/15/1995    12/31/1997    12/31/2000    68.15    146,000    135,000    11,000    —
    05/15/1995   12/31/1997   12/31/2001   68.15   136,000   136,000   —   —
    07/30/2001   12/31/1997   12/31/2001   68.15   3,000   3,000   —   —
2nd   04/29/1996   12/31/1998   12/31/2001   73.44   105,000   105,000   —   —
    04/29/1996   12/31/1998   12/31/2002   73.44   240,000   230,000   10,000   —
    04/29/1996   12/31/1998   12/31/2003   73.44   252,000   252,000   —   —
3rd   02/17/1997   12/31/2001   12/31/2004   95.35   533,000   518,400   7,000   7,600
    06/22/2001   12/31/2001   12/31/2004   95.35   8,000   8,000   —   —
    07/30/2001   12/31/2001   12/31/2004   95.35   4,000   4,000   —   —
    10/16/2001   12/31/2001   12/31/2004   95.35   8,500   8,500   —   —
    12/28/2001   12/31/2001   12/31/2004   95.35   500   500   —   —
    2/8/2002   12/31/2001   12/31/2004   95.35   3,000   3,000   —   —
4th   2/9/1998   12/31/2002   12/31/2005   110.41   43,500   43,500   —   —
    2/9/1998   12/31/2002   12/31/2005   110.63   535,000   502,000   8,000   25,000
    06/22/2001   12/31/2002   12/31/2005   110.63   7,000   7,000   —   —
    07/30/2001   12/31/2002   12/31/2005   110.63   3,000   3,000   —   —
    12/28/2001   12/31/2002   12/31/2005   110.63   500   500   —   —
    2/8/2002   12/31/2002   12/31/2005   110.63   3,000   3,000   —   —
5th   2/22/1999   12/31/2003   12/31/2006   130.21   34,000   34,000   —   —
    2/22/1999   12/31/2003   12/31/2006   130.42   464,100   389,200   3,400   71,500
    6/22/2001   12/31/2003   12/31/2006   130.42   7,000   7,000   —   —
    7/30/2001   12/31/2003   12/31/2006   130.42   3,000   3,000   —   —
    10/16/2001   12/31/2003   12/31/2006   130.42   5,000   5,000   —   —
    12/28/2001   12/31/2003   12/31/2006   130.42   500   500   —   —
    2/8/2002   12/31/2003   12/31/2006   130.42   4,000   4,000   —   —
    1/7/2004   12/31/2003   12/31/2006   130.42   6,250   6,250   —   —
6th   2/14/2000   12/31/2004   12/31/2007   199.09   533,200   99,600   25,400   408,200
    6/22/2001   12/31/2004   12/31/2007   199.09   7,000   —   —   7,000
    10/16/2001   12/31/2004   12/31/2007   199.09   5,000   —   —   5,000
    12/28/2001   12/31/2004   12/31/2007   199.09   500   —   —   500
    2/8/2002   12/31/2004   12/31/2007   199.09   5,000   —   —   5,000
    1/7/2004   12/31/2004   12/31/2007   199.09   6,250   —   —   6,250
7th   02/19/2001   12/31/2005   12/31/2008   258.03   510,000   20,800   21,600   467,600
    02/19/2001   12/31/2005   12/31/2008   256.78   22,000   —   —   22,000
    10/16/2001   12/31/2005   12/31/2008   256.78   5,000   —   —   5,000
    3/10/2003   12/31/2005   12/31/2008   258.03   6,000   —   —   6,000
    1/7/2004   12/31/2005   12/31/2008   258.03   6,250   —   —   6,250
    02/16/2004   12/31/2005   12/31/2008   258.03   7,000   —   —   7,000
8th   3/4/2002   12/31/2006   12/31/2009   246.07   534,150   21,850   23,450   488,850
    3/4/2002   12/31/2006   12/31/2009   244.58   9,000   —   —   9,000
    1/7/2004   12/31/2006   12/31/2009   244.58   6,250   —   —   6,250
9th   3/10/2003   12/31/2007   12/31/2010   166.63   533,900   49,500   16,000   468,400
    3/10/2003   12/31/2007   12/31/2010   166.74   13,500   3,000   —   10,500
    1/7/2004   12/31/2007   12/31/2010   166.74   6,250   —   —   6,250
10th   2/16/2004   12/31/2008   12/31/2011   251.85   504,695   —   9,980   494,715
              Total     5,275,795   2,606,100   135,830   2,533,865

  The exercise price of each series is fixed taking into consideration the average stock price at the São Paulo Stock Exchange over the period from one to three months prior to the issuance of options - subject to a positive or negative adjustment of up to 20% - at the option granting date and restated by the IGP-M until the month prior to that for exercising the option.



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 114


NOTE 16 - RELATED PARTIES

Transactions between related parties are carried out at amounts, terms and rates in accordance with normal market practices in force in the period, as well as under reciprocal conditions.

Transactions between companies included in the consolidation were eliminated from the consolidated financial statements and take into consideration the lack of risk.

The unconsolidated related parties are the following:

•
The parent company ITAÚSA, its controlling companies and non-financial subsidiaries, especially Itautec Philco S.A., Duratex S.A., Elekeiroz S.A. And Itaúsa Empreendimentos S.A.;

•
Fundação Itaubanco, FUNBEP - Multi-sponsored Pension Fund and Employees’ Social Security Savings of BEG (PREBEG), closed private pension entities, that administer supplementary retirement plans sponsored by ITAÚ HOLDING and/or its subsidiaries, as described in Note 19a; and

•
Fundação Itaú Social and Instituto Itaú Cultural, entities sponsored by ITAÚ HOLDING and subsidiaries to act in their respective areas of interest, as described in Note 21e and Note 21f.

The transactions with these related parties are not significant in the overall context of ITAÚ HOLDING CONSOLIDATED operations, and besides those already mentioned above, are basically characterized by:

•
Bank transactions under normal operations, in unrestricted compliance with the limits imposed by the Brazilian Central Bank (BACEN), such as movement of current accounts, investments in and redemption of securities and the provision for custody/management services.

•
Purchase, lease, maintenance and techinical assistance of IT equipment from Itautec Philco S.A. And subsidiaries.

•
Rental of real estates from Itaúsa, Fundação Itaubanco, FUNBEP and PREBEG.


Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 115


NOTE 17 - MARKET VALUE

The financial statements are prepared in accordance with accounting principles which assume the normal continuity of the operations of ITAÚ HOLDING and its subsidiaries. The book value of each financial instrument, whether included or not in the balance sheet, when compared to the values that might be obtained in an active market, or in the absence of such markets, using the net present value of future cash flows adjusted based on the current market interest, are approximately equal to the market value, or do not have a market quotation available, except for the instruments in the table below:
                    Unrealized income
(loss) (1) (2)
  BOOK VALUE   MARKET   Result
 
    09/30/2004   09/30/2003   09/30/2004   09/30/2003   09/30/2004
 
 
 
 
 
 Interbank deposits    9,161,080    10,370,629    9,171,361    10,378,933    10,281
 Securities and derivatives   28,258,317   29,059,565   28,258,317   29,059,565  
 Securities unrealized result           1,556,524
     Additional provision (exceeding minimum required)           600,000
Adjustment of securities available for sale           677,830
Adjustment of securities held to maturity           278,694
 Loan, leasing operations and other credits   41,783,375   33,642,353   42,092,109   33,835,031   308,734
 Investment in BPI   623,007   617,374   1,314,132   1,031,295   691,125
 Time and interbank deposits and funds from acceptance and issuance
 of securities and borrowings abroad		   20,777,863   25,053,034   20,691,128   25,052,277   86,735
 Securitization of payment orders abroad   2,032,131   1,681,902   1,899,041   1,625,706   133,090
 Subordinated debts   4,834,829   4,770,195   4,750,791   4,645,109   84,038
 Treasury shares   470,880   249,743   740,714   345,383   —
 Total unrealized                   2,870,527

    Unrealized income (loss) (1) (2)
   
    Result   Stockholders’ equity
   
     09/30/2003   09/30/2004   09/30/2003
 
 
 
 Interbank deposits   8,304    10,281    8,304
 Securities and derivatives      
 Securities unrealized result   1,273,093   782,435   593,637
         Additional provision (exceeding minimum required)   545,000   600,000   545,000
Adjustment of securities available for sale   679,456   —   —
Adjustment of securities held to maturity   48,637   182,435   48,637
 Loan, leasing operations and other credits   192,678   308,734   192,678
 Investment in BPI   413,921   691,125   413,921
 Time and interbank deposits and funds from acceptance and issuance
 of securities and borrowings abroad		   757   86,735   757
 Securitization of payment orders abroad   56,196   133,090   56,196
 Subordinated debts   125,086   84,038   125,086
 Treasury shares   —   269,834   95,640
 Total unrealized   2,070,035   2,366,272   1,486,219

(1)    Does not consider the corresponding tax effects.
     
(2)   Includes unrealized gains to minority interest amounting to R$ 310,005 (R$ 218,207 at 09/30/2003) on result and R$ 283,644 (R$ 169,877 at 09/30/2003) on stockholders’ equity.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 116


To obtain the market values for these financial instruments, the following criteria were adopted:

•
Interbank deposits were determined based on their nominal values, monetarily restated to maturity dates and discounted to present value using future market interest rates and swap market rates for fixed-rate securities and using market interest rates for fixed-rate securities published in the Gazeta Mercantil newspaper on July 1, 2004 for floating-rate securities.

•
Securities and Derivative Financial Instruments were stated at their market value, according to the rules established by Circular 3068 of 11/08/2001 and Circular 3082 of 1/30/2002, issued by the Brazilian Central Bank (BACEN), except for those classified as Held to Maturity. Government Securities allocated in this category have their market value calculated based on the rates obtained in the market, and validated through the comparison with information provided by the National Association of Open Market Institutions (ANDIMA). Private securities included in this category have their market value calculated using a criterion similar to the one adopted for Investments in Interbank Deposits, as described above.

•
Loans with maturity over 90 days, when available, were calculated based on their net present value of future cash flows discounted at market interest rates effective on the balance sheet date, taking into account the effects of hedges as well (swap contracts).

•
Investments and equity shares in foreign subsidiary and affiliated companies (BPI) are determined based on stock market quotations, book value per share and auction quotations.

•
Time and interbank deposits and funds from acceptances and issuance of securities, when available, were calculated based on their present value determined by future cash flows discounted at future market interest rates, swap market rates for fixed-rate securities, and for floating-rate securities, market interest rates for fixed-rate securities published in the Gazeta Mercantil on October 1, 2004. The effects of hedges (swap contracts) are also taken into account.

•
Securitization of the Payment Orders Abroad, based on the net present value of the future cash flows estimated as from the interest curves of the indexation market places, net of the interest rates practiced in the market on the balance sheet date, considering the credit risk of the issuer, calculated based on the market price of other securities issued by the same.

•
Subordinated Debts, based on the net present value of future fixed or post-fixed cash flows in foreign currency, net of the interest rates practiced in the market on the balance sheet date and considering the credit risk of the issuer, The post-fixed cash flows are estimated as from the interest curves of the indexation market places.

•
Treasury shares are valued according to the average quotation available on the last trading day of the month or, if this is not available, according to the most recent quotation on prior trading days, published in the daily bulletin of each Stock Exchange.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 117



NOTE 18 - RECLASSIFICATIONS FOR COMPARISON PURPOSES

There were reclassifications in the 09/30/2003 balances, in order to preserve the comparability, due to the regrouping, in the Balance Sheet, of the accounts Investment of Assets Guaranteeing Technical Provisions-SUSEP, Borrowings and Onlendings and of the more adequate classification in the Statement of Income of expenses and income with Exchange Transactions, Commissions on Credit Operations, Sale of Credit Cards, Civil Lawsuits and Losses with Claims.
  Prior disclosures   Reclassifications   Reclassified balances
 ASSETS          
 CURRENT ASSETS AND LONG-TERM RECEIVABLES          
 MONEY MARKET          
     Money market 11,610,191   146,908   11,757,099
Money market - Funds guaranteeing technical provisions - SUSEP —   657,089   657,089
 SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS          
Own portfolio 15,312,003   (536,905)   14,775,098
Related to guarantees 6,195,624   (2,729,870)   3,465,754
Assets guaranteeing technical provisions - SUSEP - Other securities —   2,462,778   2,462,778
 TOTAL ASSETS 118,981,949   —   118,981,949
 LIABILITIES          
 CURRENT AND LONG-TERM LIABILITIES          
  INTERBANK ACCOUNTS          
     Interbank onlendings 28,676   (28,676)   —
  BORROWINGS AND ONLENDINGS          
Borrowings —   9,257,120   9,257,120
Onlendings —   4,226,691   4,226,691
  BORROWINGS 9,257,120    (9,257,120)    —
  LOCAL ONLENDINGS - OFFICIAL INSTITUTIONS 4,198,015   (4,198,015)   —
 TOTAL LIABILITIES 118,981,949   —   118,981,949
 STATEMENT OF INCOME FOR THE PERIOD          
 INCOME FROM FINANCIAL INTERMEDIATION 9,458,129   57,204   9,515,333
Loan, leasing and other credits 4,912,091   77,662   4,989,753
Results of operations with securities 2,889,490   (71,456)   2,818,034
Results of exchange operations 82,719   50,998   133,717
 EXPENSES FROM FINANCIAL INTERMEDIATION (1,282,230)   (70,212)   (1,352,442)
Borrowings and Onlendings 1,865,852   (70,212)   1,795,640
 GROSS INCOME FROM FINANCIAL INTERMEDIATION 6,979,124   (13,008)   6,966,116
 OTHER OPERATING INCOME (EXPENSES) (2,399,734)   (65,527)   (2,465,261)
Income from Services Rendered 3,718,636   59,277   3,777,913
Personnel expenses (2,316,708)   (27,919)   (2,344,627)
Other Administrative Expenses (3,158,897)   169,318   (2,989,579)
Tax Expenses (740,184)   (26,072)   (766,256)
Other Operating Income 296,511   (35,756)   260,755
Other Operating Expenses (702,188)   (204,375)   (906,563)
 OPERATING INCOME 4,579,390   (78,535)   4,500,855
 NON-OPERATING RESULT (148,159)   78,535   (69,624)
 NET INCOME 2,297,871   —   2,297,871

During this quarter, Expenses with Commissions on Loan Operations, Sale of Credit Cards, Civil Lawsuits and Claims were reclassified in the Statement of Income, relating to the period from 01/01 to 06/30/2004.
  STATEMENT OF INCOME FOR THE PERIOD 01/01 to
06/30/2004
disclosed		   Reclassifications for the period
  01/01 to
06/30/2004
Reclassified
  01/01 to
03/31/2004		   04/01 to
06/30/2004		  
 
  INCOME FROM FINANCIAL INTERMEDIATION 9,909,509    (53,583)    (43,557)    9,812,369
     Loan, leasing and other credits 5,438,015   (53,583)   (43,557)   5,340,875
 GROSS INCOME FROM FINANCIAL INTERMEDIATION 4,506,941   (53,583)   (43,557)   4,409,801
 OTHER OPERATING INCOME (EXPENSES) (1,480,791)   36,160   19,964   (1,424,667)
Other administrative expenses (2,446,321)   239,608   176,513   (2,030,200)
Other operating expenses (308,002)   (203,448)   (156,549)   (667,999)
 OPERATING INCOME 3,026,150   (17,487)   (23,529)   2,985,134
 NON-OPERATING RESULT (31,388)   17,487   23,529   9,628
 NET INCOME 1,824,916       1,824,916



Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 118


NOTE 19 - BENEFITS TO EMPLOYEES

Under the terms of CVM Deliberation 371, dated December 13, 2000, we present the policies adopted by ITAÚ HOLDING and its subsidiaries in respect of benefits to employees, as well as the accounting procedures adopted:

a) Supplementary retirement benefits:

    ITAÚ HOLDING and its subsidiaries sponsor supplementary retirement plans managed by the closed private pension entities Fundação Itaubanco, FUNBEP - Multi-sponsored Pension Fund and Employees’ Social Security Savings of BEG (PREBEG). The main purpose of these entities is to grant life annuity benefits (FUNBEP, PREBEG and the plan of Fundação Bemge de Seguridade Social (FASBEMGE), which also grant death benefits) in order to supplement the retirement paid by the Social Security. All of these plans are closed to new participants.
   
 

As regards the new employees hired after August 1, 2002, they have the option to participate in a defined contribution plan (PGBL) managed by Itaú Previdência e Seguros S.A.
   
  During the period, the contributions totaled R$ 19,536 (R$ 19,415 from 01/01 to 9/30/2003). The contribution rate increases based on the beneficiary’ salary.

b) Post-employment benefits:

    ITAÚ HOLDING subsidiaries do not sponsor other post-employment benefits, except in those cases arising from maintenance obligations according to the acquisition agreements signed by ITAÚ, under the terms and conditions established, in which health plans are totally or partially sponsored for retired workers and beneficiaries. During the period, the contributions made totaled R$ 12,605 (R$ 6,365 from January 1 to September 30,2003). The contribution rate increases based on the beneficiary’s age.

c) Net amount of assets and actuarial liabilities of the benefit plans:

   
The assets and net actuarial liabilities calculated in conformity with the criteria established by CVM Deliberation 371/2000 are summarized below:


30/09/2004   30/09/2003
 
 Net assets of the plan
 7,672,767    6,432,118
 Actuarial liabilities
 (6,062,989)
   (5,282,522)
 Surplus (1)
 1,609,778   1,149,596

(1) According to paragraph 49g of the attachment to the CVM Deliberation 371/00, the net assets were not recognized.

   
In addition to the reserves recorded by the plans, the sponsors have provisions in the amount of R$ 27,670 (R$ 27,500 at 9/30/2003) to cover insufficient actuarial reserves.


d) Changes of net assets and actuarial liabillities and surplus
 Description 01/01 to 09/30/2004
  01/01 to 09/30/2003
Assets   Actuarial
liabilities 		  Surplus   Assets   Actuarial
liabilities 		  Surplus
 Present value - beginning of the period 6,925,160    (5,731,144)    1,194,016    5,541,053    (4,989,799)    551,254
 Adjustments in the period (1) —   —   —   —   16,597   16,597
 Expected return from assets/ Cost of current service + interest 630,288   (565,710)   64,578   503,965   (498,725)   5,240
 Benefits paid (233,865)   233,865   —   (189,405)   189,405   —
 Contributions sponsors/participants 51,421   —   51,421   44,261   —   44,261
 Gains/(Losses) in the period (2) 299,763   —   299,763   532,244   —   532,244
 Present value - end of period 7,672,767   (6,062,989)   1,609,778   6,432,118   (5,282,522)   1,149,596

(1) Adjustments arising from the review of the scope of assumed commitments and related effects on actuarial computations.
(2) The gains in assets correspond to the earnings obtained above the expected return rate of assets assumptions.
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 119

e) Main assumptions used in actuarial assessment

 Description
 09/30/2004
   09/30/2003
 Discount rate (1)
 10.24% p.a.
    10.24% p.a.
 Return rate expected for the assets
 12.32% p.a.
   12.32% p.a.
 Mortality table
 GAM-83
   (2)
 Turnover (3)
 Exp.Itaú 99/01
   Exp.Itaú 99/01
 Future salary growth
 7.12% p.a.
   7.12% p.a.
 Growth of the pension fund and social security benefits
 4.00% p.a.
   4.00% p.a.
 Inflation
 4.00% p.a.
   4.00% p.a.
 Actuarial method
 Projected Unit Credit
(4)
   Projected Unit Credit
(4)

(1)    Considering the plans managed by FUNBEP and PREBEG, sponsored by BANESTADO and BEG, a discount rate of 11.80% p.a. and 12.32% p.a., respectively, started being used as from December 31, 2002, considering the weighted average return rate expected for the assets of the mentioned plans, including fixed income securities with terms compatible with those of the actuarial obligations.
(2) On September 30, 2003, the Supplementary Retirement Plan, the Benefit Plan 002 and the Life Supplementary Retirement Plan, managed by Fundação Itaubanco, and FUNBEP used the AT-49 table, while the Franprev Benefit Plan, also managed by Fundação Itaubanco, PREBEG and the Healthcare Plans adopted the GAM-71 table. As of December 31, 2003, to replace these tables, the GAM-83 table started being used.
(3) The turnover assumption is based on the effective participants of ITAÚ HOLDING, resulting in an average of 2.0% p.a. based on experience 1999/2001.
(4) Using the Projected Unit Credit method, the mathematical reserve is determined by the current projected benefit amount multiplied by the ratio between the time of service in the company at the assessment date and the time of service that will be reached at the date when the benefit is granted. The cost is determined taking into account the current projected benefit amount distributed along the years each participant is employed.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 120

NOTE 20 - STRATEGIC ALLIANCE WITH AMERICA ONLINE LATIN AMERICA INC.

ITAÚ HOLDING through its subsidiaries holds 35,937,840 class A common shares of America Online Latin America Inc. (AOLA) capital, related to the strategic alliance signed with that company which is a “joint venture” of America Online Inc. and companies of Cisneros group to operate in Latin America as interactive services provider. The agreement signed on June 12, 2000 and amended through the Memorandum of Understanding dated December 14, 2002, included the contracting by América Online Brasil Ltda. (AOLB), subsidiary of AOLA, of interactive and marketing services rendered by ITAÚ HOLDING, in accordance with the contractual term ending on March 24, 2006.

The original purchase of shares did not imply in monetary disbursement, since, in parallel to the subscription, the amount of the resources related to the contract of services provider was previously received, in the same amount. This amount, firstly classified in our financial statements in an account reducer to the cost of purchase of the shares, as from December 31, 2003, is classified in other sundry liabilities and has been used to render the services contracted, with the amount of R$ 208,963 to be appropriated as income (Note 11b).

At 09/30/2004, the shares were rated at US$ 0.44 each (US$ 1.05 at 09/30/2003) and are classified in Marketable Securities, at their market value - R$45,202 (R$ 63,141 at 09/30/2003).
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 121


NOTE 21 - ADDITIONAL INFORMATION

a) Investment funds and managed portfolios - ITAÚ HOLDING, through its subsidiary companies, manages the following types of investments funds: privatization, fixed income, shares, open portfolio shares, investment clubs, its customers’ and Group portfolios, domestic and foreign, distributed, as follows:
  Amount   Amount(*)   Number of funds
 
 
 
  09/30/2004   09/30/2003   09/30/2004   09/30/2003   09/30/2004   09/30/2003
 
 
 
 
 
 Investment funds 86,443,689    66,905,778    86,443,689    66,905,778    717    665
 Fixed income 82,571,363   64,996,540   82,571,363   64,996,540   646   593
 Shares 3,872,326   1,909,238   3,872,326   1,909,238   71   72
 Managed portfolios 29,605,340   22,603,320   7,330,431   5,910,987   4,679   3,015
 Customers 16,692,097   13,034,160   3,952,234   3,916,010   4,637   2,964
 Itaú Group 12,913,243   9,569,160   3,378,197   1,994,977   42   51
 TOTAL 116,049,029   89,509,098   93,774,120   72,816,765   5,396   3,680

(*) It refers to the distribution after elimination of double countings of managed funds in investment funds.

b) Funds from Consortia
  09/30/2004   09/30/2003
 
     Monthly estimate of installments receivable from participants 33,562    27,662
Group liabilities by installments 1,303,106   973,310
Participants - assets to be delivered 1,184,958   867,095
Funds available for participants 124,956   94,990
 
 (In numbers)  
Number of managed groups 882   979
Number of current participants 129,458   114,942
Number of assets to be delivered to participants 71,765   59,864

c)   Insurance Policy - ITAÚ HOLDING and its subsidiaries, despite the low risk exposure due to a non-physical concentration of their assets, have the policy to guarantee their values and assets at amounts considered sufficient to cover possible claims.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 122


d) Foreign currencies

The balances in Reais linked to foreign currency were:

  09/30/2004   09/30/2003
 Permanent foreign investments (*) 6,610,956    6,416,696
 Net amount of assets and liabilities indexed to foreign currency, including derivatives (8,425,020)   (5,921,602)
 Net foreign exchange position (1,814,064)   495,094

(*) Not considering the participation of the other shareholders of Banco Itaú Europa S.A., the net foreign exchange position would be R$ (2,558,523), (R$ (162,067) on September 30, 2003), in ITAÚ HOLDING CONSOLIDATED.

e)   Fundação Itaú Social - ITAÚ HOLDING and its controlled companies are the main sponsors of Fundação Itaú Social, whose objectives are: 1) managing “Itaú Social Program” which aims at coordinating the organization’s role in projects of interest for the community by supporting or developing social, scientific and cultural projects, mainly in the elementary education and health areas; 2) supporting projects or initiatives in progress, supported or sponsored by entities qualified to work in the “Itaú Social Program” and 3) providing food and other similar benefits to the employees of ITAÚ HOLDING and other group companies.
     
   

Donations made by the consolidated companies (R$ 1.7 million in the period) were destined to the foundation’s social investment fund, which totaled R$ 302 million at September 30, 2004, and the income arising therefrom should be destined for the foundation’s social purposes.
     
f)   Instituto Itaú Cultural - IIC - ITAÚ HOLDING and its controlled companies are the founding members and supporters of Instituto Itaú Cultural - IIC, an entity formed to grant incentives, promote and preserve Brazil’s cultural heritage. During the period, the consolidated companies donated to IIC the amount of R$ 15,000 (R$ 9,988 from January 1 to September 30, 2004).
     
g)   Commissions receivable - Full provision has been made for the amount of commissions receivable relating to services rendered to the Social Security Institute (INSS), comprising the period from April to December 2002, May to December 2003 and from January to September 2004, in the amount of R$ 107,950 (R$ 92,845 corresponding to the period from January 2002 to September 2003, as of September 30, 2003). During the period, up to March 2004, commissions were received in the amount of R$ 40,225.
     
h)   Restricted operations on linked assets
     
    We present below information related to the restricted operations on linked assets, carried out as prescribed by BACEN Resolution 2921/02.

  0 - 30   31 - 180   181 - 365   Over 365   09/30/2004
  01/01 to
09/30/2004
Total   Income
(Expenses)
 
 Restricted operations on linked assets               
     Credit operations 2,814   2,733   792   341,845   348,184   (9,415)
 
Liabilities for restricted operations
  on linked assets		          
Liabilities for securities issued overseas 2,814   2,733   656   341,845   348,048   9,605
 
 Net result of restricted operations                     190

On September 30, 2004, there were no delinquent balances.

Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 123


NOTE 22 - INFORMATION ON SUBSIDIARIES
  Foreign branches (1)
  Banco Itaú Buen Ayre S.A.
  Banco Itaú Europa S.A.
Consolidated (2)
09/30/2004    09/30/2003    09/30/2004    09/30/2003    09/30/2004    09/30/2003
 
 
 
 
 
Assets          
Current and long-term receivables          
Cash and cash equivalents 91,027   103,134   43,818   359,018   40,594   51,569
Short-term interbank deposits 2,720,390   3,851,349   —   4,381   3,920,153   3,863,931
Securities 3,440,407   4,257,064   217,558   300,959   1,673,926   1,308,936
Loans, leasing operations and other credits 1,207,685   1,787,447   775,920   537,910   2,207,045   1,997,893
Prepaid expenses 45,826   79,646   1,880   425   5,362   3,252
Other assets 518,249   487,494   375,960   69,954   42,645   1,619,864
Permanent assets          
     Investments 620,596   15,254   2,301   3,323   517,124   12,061
  Fixed assets 963   1,331   59,645   61,772   9,902   10,785
  Deferred charges 2,705   3,249   28,124   70,087   9,827   1,689
Total 8,647,848   10,585,968   1,505,206   1,407,829   8,426,578   8,869,980
 
 
 
 
 
Liabilities                      
Current and long-term liabilities                      
Deposits 1,100,797   1,691,343   1,119,545   1,001,205   4,196,860   3,767,341
  Demand deposits 28,287   17,047   396,059   417,850   498,428   177,617
  Savings accounts —   —   230,000   152,200   —   —
  Interbank deposits 555,506   407,810   104,695   17,482   211,620   399,755
  Time deposits 517,004   1,266,486   388,791   413,673   3,486,812   3,189,969
Money market 416,588   567,002   —   —   555,370   596,648
Deposits received under securities repurchase agreements 932,818   1,056,361   —   —   1,667,074   1,117,136
Borrowings 681,184   2,334,185   30,329   39,953   514,384   720,062
Derivative financial instruments 43,428   11,609   —   —   19,726   26,608
Other liabilities 3,382,966   3,006,640   90,600   69,794   71,191   1,800,997
Deferred income 9,136   11,030   —   —   1,603   1,261
Minority interest in subsidiaries —   —   —   —   143   135
Stockholders’ equity          
  Capital and reserves 2,071,868   1,672,612   263,754   315,749   1,344,928   816,058
  Income from the year 9,063   235,186   978   (18,872)   55,299   23,734
Total 8,647,848   10,585,968   1,505,206   1,407,829   8,426,578   8,869,980

  Itau Bank, Ltd.
  IFE - Banco Bemge (Uruguay)
S.A. And Banco Del Paraná S.A.
  Non-financial (3)
09/30/2004    09/30/2003    09/30/2004    09/30/2003    09/30/2004    09/30/2003
 
 
 
 
 
Assets          
Current and long-term receivables          
Cash and cash equivalents 50,760   8,064   3,884   270   16,179   23,368
Short-term interbank deposits 870,665   399,925   —   19,229   97,961   100,686
Securities 1,525,373   1,450,358   —   —   59,218   6,910
Loans, leasing operations and other credits 75,176   638,626   —   117   —   —
Prepaid expenses 192   1,066   —   —   28   57
Other assets 77,369   60,904   1,463   9,524   677,890   663,165
Permanent assets          
     Investments 1,592   117,447   —   —   2,850,988   2,840,333
  Fixed assets 65   102   165   426   1,016   846
  Deferred charges 7   18   —   29   365   1,220
Total 2,601,199   2,676,510   5,512   29,595   3,703,645   3,636,585
 
 
 
 
 
Liabilities          
Current and long-term liabilities          
Deposits 355,331   209,374   227   3,522   —   1
  Demand deposits 66,785   12,974   132   715   —   —
  Savings accounts —   —   —   67   —   —
  Interbank deposits 130,094   19,000   —   —   —   1
  Time deposits 158,452   177,400   95   2,740   —   —
Money market 41,474   12,293   —   —   —   —
Deposits received under securities repurchase agreements —   8,874   —   —   —   —
Borrowings 5   74,305   —   —   137,682   180,491
Derivative financial instruments 8,539   32,101   —   —   —   —
Other liabilities 1,127,549   1,170,717   2,316   5,452   76,003   72,798
Deferred income 191   4,583   —   —   478   459
Minority interest in subsidiaries —   —   —   —   307   285
Stockholders’ equity          
  Capital and reserves 984,259   925,051   3,638   34,760   3,309,468   3,085,427
  Income from the year 83,851   239,212   (669)   (14,139)   179,707   297,124
Total 2,601,199   2,676,510   5,512   29,595   3,703,645   3,636,585

  Banco Itaú-BBA S.A. (4)
subsidiaries
  Foreign consolidated (5)
09/30/2004    09/30/2003    09/30/2004    09/30/2003
 
 
 
Assets      
Current and long-term receivables      
Cash and cash equivalents 32,165   30,983   267,625   566,501
Short-term interbank deposits 2,502,492   2,198,597   6,694,762   9,431,685
Securities 4,111,953   3,509,747   10,653,728   10,483,637
Loans, leasing operations and other credits 3,459,064   2,228,548   7,574,718   7,024,100
Prepaid expenses 11,555   15,047   64,926   99,494
Other assets 369,860   353,697   2,056,189   3,248,321
Permanent assets      
     Investments 28,575   28,902   629,443   624,797
  Fixed assets 212   195   72,517   76,141
  Deferred charges 24   51   41,398   76,778
Total 10,515,900   8,365,767   28,055,306   31,631,454
 
 
 
Liabilities      
Current and long-term liabilities              
Deposits 3,433,424   1,868,269   6,957,697   7,427,457
  Demand deposits 108,289   516,270   1,026,869   1,124,611
  Savings accounts —   —   230,000   152,267
  Interbank deposits —   —   663,782   815,954
  Time deposits 3,325,135   1,351,999   5,037,046   5,334,625
Money market —   —   772,432   1,175,943
Deposits received under securities repurchase agreements 572,817   1,544,996   3,050,598   3,565,287
Borrowings 3,879,485   2,852,367   5,007,050   6,034,925
Derivative financial instruments 131,292   216,991   183,681   283,527
Other liabilities 649,973   515,051   5,333,141   6,565,475
Deferred income 5,049   7,644   16,457   24,977
Minority interest in subsidiaries —   —   123,294   137,167
Stockholders’ equity      
  Capital and reserves 1,740,533   1,223,757   6,307,570   5,311,041
  Income from the year 103,327   136,692   303,386   1,105,655
Total 10,515,900   8,365,767   28,055,306   31,631,454
(1)    Banco Itaú S.A. - Branches, Grand Cayman and New York .
     
(2)   Banco Itaú Europa, S.A., BIE - Bank & Trust, Ltd., Banco Itaú Europa Luxembourg S.A., Banco Itaú Europa Fund Management Company, S.A. And BIEL Fund Management Company S.A.
     
(3)   Afinco Americas Madeira, SGPS, Soc. Unipessoal Ltda., BFB Overseas N.V., BFB Overseas Cayman, Ltd., Externalizacion Global S.A., Inversora del Buen Ayre S.A. Sociedad Gerente de Fondos Comunes de Inversion, Itaú Europa, SGPS, Lda., Itaúsa Portugal - SGPS, S.A., Itaú Leasing de Chile Ltda., Zux Cayman Company Ltd., Zux SGPS, Lda, BIEL Holdings AG, IPI - Itaúsa Portugal Investimentos, SGPS Lda., Itaú Europa Luxembourg Advisory Holding Company S.A., Itaúsa Europa - Investimentos, SGPS, Lda., Agate SàRL, ITB Holding Ltd., Topaz Holding Ltd., Itaú USA Inc, Jasper Internacional Investiment LLC, Itauinv - Itaú International Investment LLC, ITrust Servicios Financeiros S.A., Albarus S.A. And, only at September 30, 2004, Amethyst Holding Ltd., Garnet Corporation, Zircon Corporation, Spinel Corporation and Tanzanite Corporation.
     
(4)   BBA-Creditanstalt Bank Ltd., Banco Itaú-BBA S.A. - Nassau Branch, Banco BBA-Creditanstalt S.A. - Uruguay branch, Mundostar S.A., BBA Representaciones S.A., Karen International Ltd., Nevada Woods S.A., AKBAR - Marketing e Serviços, Lda, BBA Overseas Ltd. and BBA Icatu Securities, INC.
     
(5)   Information on foreign consolidated presents net balances of eliminations from consolidation.

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 124


NOTE 23 - STATEMENT OF CASH FLOW

We present below the Statement of Cash Flow prepared by the Indirect Method:
01/01 to
09/30/2004		   01/01 to
09/30/2003
 
Adjusted net income 7,425,833    5,493,176
    Net income 2,745,296   2,297,871
    Adjusted net income: 4,680,537   3,195,305
         Adjustment to market value of securities and derivative financial instruments (assets/liabilities) 273,869   (663,999)
      Allowance for loan losses 1,147,676   1,591,598
      Results from operations with subordinated debt 305,434   35,400
      Results from operations with foreign payment order securitization 14,469   (225,428)
      Change in technical provision for insurance, pension plan and capitalization 2,113,997   1,609,542
      Depreciation and amortization 412,706   450,215
      Extraordinary result in subsidiaries and associated companies - amortization of goodwill 371,021   523,738
      Assets deferred income tax 32,397   (169,487)
      (Income) deficit on disposal of assets and investments 25,757   42,495
      Equity in the results of associated and subsidiary companies (34,659)   33,897
      Exchange variation of permanent asset, assets not for own use and provision for losses 2,703   24,594
      Minority interest result 15,167   (57,260)
Changes in assets and liabilities (10,113,881)   (5,393,150)
    (Increase) Decrease in short-term interbank investments (4,139,602)   (5,813,278)
    (Increase) Decrease in securities and derivative financial instruments (Assets/Liabilities) 356,296   (3,979,657)
    (Increase) Decrease in compulsory deposits with Brazilian Central Bank (1,479,583)   2,572,551
    (Increase) Decrease in interbank and interbranch accounts (assets/liabilities) 381,857   (49,013)
    (Increase) Decrease in loan, lease and other credit operations (7,435,427)   13,179
    (Increase) Decrease in other credits and assets (753,967)   (238,378)
    (Increase) Decrease in foreign exchange portfolio (assets/liabilities) 7,678   22,358
    (Decrease) Increase in technical provisions for insurance, pension plan and capitalization 244,514   73,390
    (Decrease) Increase in other liabilities 2,757,522   1,998,040
    (Decrease) Increase in deferred income (53,169)   7,658
 Operating Activities - net cash provided by (invested) (2,688,048)   100,026
         
  Interest on own capital/Dividends received from associated companies 39,163   —
  Sale of assets not for own use 96,739   160,481
  Sale of investments 5,264   15,830
  Sale of fixed assets for use 25,978   20,263
  Decrease in deferred charges 5,981   3,332
  Purchase of assets not for own use (71,636)   (163,750)
  Purchase of investments (25,435)   (41,149)
  Goodwill in the acquisition of investments (380,541)   (539,474)
  Purchase of fixed assets for use (294,870)   (277,355)
  Deferred charges (64,092)   (87,484)
  Change in participation of minority interest (982)   2,238
 Investment Activities - net cash provided by (invested) (664,431)   (907,068)
         
  Increase (decrease) in deposits 892,698   (4,583,408)
  Increase (decrease) in money market 4,996,402   6,418,107
  Increase (decrease) in funds for issuance of securities 509,150   793,885
  Increase (decrease) in liabilities by borrowing and onlendings (1,699,441)   (1,117,135)
  Increase (decrease) in credit card operations 19,534   (109,408)
  Increase (decrease) in foreign payment order securitization 42,722   483,956
  Increase (decrease) in liabilities for subordinated debt (284,176)   (857,622)
  Granting for share options 62,859   29,245
  Share subscription —   522,220
  Purchase of own shares (285,888)   (135,770)
  Interest on own capital paid (1,132,175)   (887,471)
 Financing Activities - net cash provided by (invested) 3,121,685   556,599
 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS, NET (230,794)   (250,443)
         
  At the beginning of the period 2,156,958   1,894,256
  At the end of the period 1,926,164   1,643,813
 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS, NET (230,794)   (250,443)

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 125



Report of Independent Auditors

To the Board of Directors and Stockholders

Banco Itaú Holding Financeira S.A.

1.

    We have carried out limited reviews of the Quarterly Information of Banco Itaú Holding Financeira S.A. And its subsidiaries (consolidated) for the nine-month periods ended on September 30, 2004 and 2003, consisting of the consolidated balance sheet and the corresponding consolidated statement of income. This information is the responsibility of the management of the Bank.
     
2.   Our reviews were carried out in conformity with specific standards established by the IBRACON - Institute of Independent Auditors of Brazil, in conjunction with the Federal Accounting Council (CFC), and mainly comprised: (a) inquiries of and discussions with management responsible for the accounting, financial and operating areas of the Bank with regard to the main criteria adopted for the preparation of the Quarterly Information and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the financial position and operations of Banco Itaú Holding Financeira S.A. And its subsidiaries.
     
3.   Based on our limited review, we are not aware of any material modifications that should be made to the Quarterly Information referred to above in order that such information be stated in conformity with the accounting practices adopted in Brazil applicable to the preparation of Quarterly Information, consistent with the Brazilian Securities Commission (CVM) regulations.
     
    São Paulo, November 8, 2004
     
    PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
     
    Ricardo Baldin
Contador CRC 1SP110374/O-0
     
    Emerson Laerte da Silva
Contador CRC 1SP171089/O-3

 
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 126


OPINION OF THE FISCAL COUNCIL

     The members of the Fiscal Council of BANCO ITAÚ HOLDING FINANCEIRA S.A., after examining the financial statements for the third quarter of 2004, were able to verify the accuracy of all the elements thereof and are satisfied that they adequately reflect the assets and liabilities of the Company, its financial situation and the activities undertaken during this period, and recommend that they be approved by the Company’s Board of Directors.

São Paulo-SP, November 8, 2004

GUSTAVO JORGE LABOISSIERE LOYOLA
Chairman

ALBERTO SOZIN FURUGUEM
Member

IRAN SIQUEIRA LIMA
Member
Banco Itaú Holding Financeira S.A. – Consolidated Financial Statements - September 30, 2004 127