F-1/A 1 y79270a2fv1za.htm AMENDMENT NO. 2 TO FORM F-1 fv1za
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As filed with the Securities and Exchange Commission on October 2, 2009
Registration No. 333-161704
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Amendment No. 2
to
 
Form F-1
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Banco Santander (Brasil) S.A.
(Exact name of Registrant as specified in its charter)
 
Not Applicable
(Translation of Registrant’s name into English)
 
 
         
Federative Republic of Brazil   6029   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
 
Rua Amador Bueno, 474
São Paulo, SP 04752-005
Federative Republic of Brazil
(55 11) 3174-8589
 
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
 
 
 
Banco Santander, S.A.
New York Branch
45 E. 53rd Street
New York, New York 10022
Attn: James H. Bathon, Chief Legal Officer
(212) 350-3500
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
 
With copies to:
 
 
     
Nicholas A. Kronfeld
Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, N.Y. 10017
Phone: (212) 450-4000
Fax: (212) 701-5800
  Andrew B. Jánszky
Shearman & Sterling LLP
Avenida Brigadeiro Faria Lima, 3400
04538-132 São Paulo — SP Brazil
Phone: (55 11) 3702-2202
Fax: (55 11) 3702-2224
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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EXPLANATORY NOTE
This registration statement contains two forms of prospectus. The first prospectus is for use in the offering in the United States and follows immediately after this explanatory note. The second prospectus is for use in the offering outside the United States and Brazil and is identical to the first prospectus, except that the pages that immediately follow the back cover of the first prospectus will be substituted for the corresponding pages in the first prospectus.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
 
 
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 2, 2009
 
PROSPECTUS
 
525,000,000 Units
 
(SANTANDER LOGO)
 
Banco Santander (Brasil) S.A.
(incorporated in the Federative Republic of Brazil)

including units in the form of American depositary shares
 
 
We are offering a total of 525,000,000 units, each of which represents 55 common shares, without par value, and 50 preferred shares, without par value, of Banco Santander (Brasil) S.A. Until the approval of our capital increase by the Central Bank of Brazil, which is expected to occur promptly after the closing of this offering, the units will represent a combination of common and preferred shares and subscription receipts for common and preferred shares. See “The Offering”. We are offering the units in a global offering, which consists of an international offering in the United States and other countries outside of Brazil and a concurrent offering of units in Brazil. In the international offering, units are being offered directly or in the form of American depositary shares, or “ADSs”, each of which represents one unit. The offering of the ADSs is being underwritten by the international underwriters named in this prospectus. The units purchased by investors outside Brazil will be settled in Brazil and paid for in reais, and underwritten by the Brazilian underwriters named elsewhere in this prospectus. The Brazilian offering is being underwritten by the Brazilian underwriters. The closings of the international and Brazilian offerings are conditioned upon each other.
 
Prior to this offering, no public market existed for the units and ADSs. The initial public offering price is expected to be between R$22.00 and R$25.00 per unit, which is equivalent to approximately U.S.$12.37 and U.S.$14.06 per ADS, based upon an exchange rate of R$1.7781 to U.S.$1.00 reported by the Central Bank of Brazil on September 30, 2009. Our ADSs have been authorized for listing, subject to official notice of issuance, on the New York Stock Exchange under the symbol “BSBR”. We expect that the units will trade on the BM&FBOVESPA S.A. — Bolsa de Valores, Mercadorias e Futuros, or BM&FBOVESPA, under the symbol “SANB11”.
 
This global offering will be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM”. Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Investing in the units and ADSs involves risks. See “Risk Factors” beginning on page 24 of this prospectus.
 
 
                 
    Per ADS     Total  
 
Public offering price
  U.S.$           U.S.$        
Underwriting discounts and commissions
  U.S.$           U.S.$        
Proceeds, before expenses, to us
  U.S.$           U.S.$        
 
The international underwriters may also purchase up to an additional          ADSs from us within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the international offering. The Brazilian underwriters may also purchase up to an additional           units from us within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the Brazilian offering. The aggregate over-allotment option for the international and Brazilian offerings is 75,000,000 units, including in the form of ADSs.
 
The units and ADSs will be ready for delivery on or about          , 2009.
 
 
Global Coordinators and Joint Bookrunners
 
Santander Credit Suisse
 
Joint Bookrunners
 
BofA Merrill Lynch UBS Investment Bank
 
Co-Managers
Barclays Capital Bradesco BBI CALYON Deutsche Bank Securities
 
 
The date of this prospectus is          , 2009.


 

 
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    F-1  
 EX-1.1
 EX-21.1
 EX-23.1
 EX-23.2
 EX-99.2
 
 
 
 
In this prospectus, the terms “Santander Brasil”, the “Santander Brasil Group”, the “Bank”, “we”, “us”, “our” and “our company” mean Banco Santander (Brasil) S.A. and its consolidated subsidiaries (including, as from August 30, 2008, the entities of Banco Real), unless otherwise indicated. References to “Banco Real” mean Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. and their respective consolidated subsidiaries, unless otherwise indicated. References to “Banespa” mean Banco do Estado de São Paulo S.A. — Banespa, one of our predecessor entities. The terms “Santander Spain” and “our parent” mean Banco Santander, S.A. References to “Santander Group” or “Grupo Santander” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Santander Brasil.
 
 
 
 
You should rely only on the information contained in this prospectus. We and the international underwriters have not authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. Neither Santander Brasil nor the international underwriters are making an offer to sell the units or ADSs in any jurisdiction


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where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the units or ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
 
 
This prospectus is being used in connection with the offering of units, including units in the form of ADSs, in the United States and other countries outside Brazil.
 
This offering of units and ADSs is being made in the United States and elsewhere outside Brazil solely on the basis of the information contained in this prospectus. We are also offering units in Brazil using a Portuguese-language prospectus. The Brazilian prospectus, which has been filed with the CVM, is in a format different from that of this prospectus and contains information not generally included in documents such as this prospectus.
 
No offer or sale of ADSs may be made to the public in Brazil except in circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations.
 
 
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
 
All references herein to the “real”, “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars”, “dollars” or “U.S.$” are to United States dollars. All references to the “euro”, “euros” or “€” are to the common legal currency of the member states participating in the European Economic and Monetary Union. See “Exchange Rates” for information regarding exchange rates for the Brazilian currency since 2004.
 
Solely for the convenience of the reader, we have translated certain amounts included in “Summary Financial and Operating Data”, “Dilution”, “Capitalization”, “Selected Financial and Operating Data” and elsewhere in this prospectus from reais into U.S. dollars using the exchange rate as reported by the Central Bank of Brazil, or “Central Bank”, as of June 30, 2009 of R$1.9516 to U.S.$1.00 or the indicated dates (subject to rounding adjustments). These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.
 
Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
 
Financial Statements
 
We maintain our books and records in reais. Our consolidated financial statements at and for each of the years ended December 31, 2008 and 2007 have been audited, as stated in the report appearing herein, and are included in this prospectus. Our unaudited consolidated interim financial statements at June 30, 2009 and for the six months ended June 30, 2009 and 2008 are also included in this prospectus. These financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or “IFRS”. In addition, our consolidated financial statements include the results of Banco Real as from August 30, 2008. Balance sheet figures as of June 30, 2008 appearing in this document were derived from our unaudited consolidated interim balance sheet as of June 30, 2008.
 
On August 29, 2008, as further described in note 26 to our consolidated financial statements, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became our wholly-owned subsidiaries pursuant to a share exchange transaction (incorporação de ações) approved by the shareholders of Santander Brasil, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. As a result, Banco Real became our wholly-owned subsidiary. As a consequence of this share exchange transaction, one of the key factors to be considered when analyzing our financial condition and results of operations at and for the years ended December 31, 2008 and 2007 is the consolidation of the entities of Banco Real in our financial


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statements since August 30, 2008. The impact of the consolidation of Banco Real in the last four months of 2008 is so substantial that it makes our results of operations for 2008 not comparable to those of 2007. In order to analyze the organic developments in our business obscured by the effect of the Banco Real acquisition, management uses and we present in this prospectus certain 2008 financial information excluding the results of Banco Real. Banco Real was our wholly-owned subsidiary during the last four months of 2008 and this presentation is intended only to subtract from our reported results for 2008 the amounts contributed by Banco Real. This information does not purport to represent what our results of operations would have been had we not acquired Banco Real. We have not adjusted our reported results for any expenses incurred in 2008 in connection with the acquisition of Banco Real or for any revenue synergies. Management believes that any such additional expense or revenue was not material.
 
The combined financial statements of Banco Real at and for the year ended December 31, 2007 and the income statement for period from January 1 to August 29, 2008 have been audited, as stated in the report appearing herein, and are included in this prospectus. The unaudited combined interim financial statements of Banco Real for the period from January 1 to August 29, 2007 are included in this prospectus for comparative purposes. These financial statements are prepared in accordance with IFRS.
 
We have included in this prospectus selected financial data for the Bank which have been derived from unaudited financial statements at and for the years ended December 31, 2006, 2005 and 2004 prepared in accordance with accounting practices derived from the Brazilian corporate law and standards of the Brazilian Monetary Council and the Central Bank or “Brazilian GAAP”. The Bank was formed as a result of the reorganization of the Brazilian banking interests of the Santander Group in 2006. Prior to August 31, 2006, the Santander Group held controlling interests, directly and indirectly, in four separate entities through which it conducted its banking operations in Brazil: Banco Santander Brasil S.A., Banco Santander Meridional S.A., Banco Santander S.A. and Banco do Estado de São Paulo S.A. — Banespa. On August 4, 2006, this group of banks was reorganized into a consolidated group under the Bank. The selected financial data included in this prospectus for the years ended December 31, 2006, 2005 and 2004 reflect the combined unaudited income statement data of the Bank, Banco Santander Brasil S.A., Banco Santander S.A. and Banco do Estado de São Paulo S.A. — Banespa for the years ended December 31, 2006, 2005 and 2004 and the combined unaudited balance sheet data of these banks at December 31, 2004 and 2005. Selected financial data at December 31, 2006 reflect consolidated audited financial data because these banks were reporting on a consolidated basis at that date.
 
IFRS differs in certain significant respects from U.S. GAAP. IFRS also differs in certain significant respects from Brazilian GAAP. Note 17 to our financial statements at June 30, 2009 and for the six months ended June 30, 2009 and note 45 to each of our 2008 financial statements and the financial statements of Banco Real, respectively, included herein, contain information relating to certain differences between IFRS and Brazilian GAAP. Unless otherwise indicated, all financial information of our company included in this prospectus is derived from our consolidated financial statements and Banco Real’s combined financial statements prepared in accordance with IFRS.
 
We prepare and will continue to prepare statutory financial statements in accordance with Brazilian GAAP. As we are required to follow Brazilian Central Bank regulations, we have not adopted in our consolidated financial statements prepared in accordance with Brazilian GAAP the accounting rules issued by the Accounting Rules Committee (Comitê de Pronunciamentos Contábeis), or “CPC”, and approved by the CVM to the extent that such rules have not been adopted by the Brazilian Central Bank. Under CMN Resolution No. 3786, dated September 24, 2009, as of December 31, 2010 our consolidated financial statements must be prepared in accordance with IFRS. See “Regulatory Overview — Auditing Requirements”.
 
See “Unaudited Pro Forma Consolidated Financial Information” for financial information reflecting our consolidated financial information, to give effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group and the share exchange transaction (incorporação de ações) described in that section had occurred as of January 1, 2008.


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Market Share and Other Information
 
We obtained the market and competitive position data, including market forecasts, used throughout this prospectus from internal surveys, market research, publicly available information and industry publications. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian association of credit card companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços), or “ABECS”; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing), or “ABEL”; the Brazilian association of savings and mortgage financing entities (Associação Brasileira de Crédito Imobiliário e Poupança), or “ABECIP”; the Brazilian bank federation (FEBRABAN — Federação Brasileira de Bancos) or “FEBRABAN”; the Brazilian development bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES”; the Brazilian Institute of Geography and Statistics, or the “IBGE”; the Central Bank; the Central Bank system (Sistema do Banco Central), or “SISBACEN”, a Central Bank database; the Getulio Vargas Foundation (FGV — Fundação Getúlio Vargas), or “FGV”; the insurance sector regulator (Superintendência de Seguros Privados), or “SUSEP”; the national association of investment banks (Associação Nacional dos Bancos de Investimento), or “ANBID”; and the national federation of private retirement and life insurance (Federação Nacional de Previdência Privada e Vida), or “FENAPREVI”, among others. Industry and government publications, including those referenced here, generally state that the information presented therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share, market size, market growth or other data provided by third parties or by industry or other publications. We and the international or Brazilian underwriters do not make any representation as to the accuracy of such information.


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SUMMARY
 
This summary highlights selected information about us and the units and ADSs that we are offering. It may not contain all of the information that may be important to you. Before investing in the units and ADSs, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our audited consolidated financial statements and the related notes, and the sections entitled “Risk Factors” and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.
 
Overview
 
We are a leading full-service bank in Brazil, which we believe to be one of the most attractive markets in the world given its growth potential and low penetration rate of banking products and services. We are the third largest non government-owned bank, the largest bank controlled by a major global financial group and the fourth largest bank overall in Brazil with a 10.2% market share in terms of assets, at March 31, 2009. Our operations are located across the country and strategically concentrated in the South and Southeast, an area that accounted for approximately 73.1% of Brazil’s GDP in 2006, and where we have one of the largest branch networks of any Brazilian bank. For the six months ended June 30, 2009, we generated profit before taxes of R$3.8 billion, and at that date we had total assets of R$288.9 billion and shareholders’ equity of R$51.1 billion. Our Basel capital adequacy ratio was 17.0% as of June 30, 2009.
 
In August 2008, we acquired Banco Real which at the time was the fourth largest non government-owned Brazilian bank as measured by assets. At the time of the acquisition, we were the fifth largest non government-owned bank in Brazil as measured by assets. As a result of the acquisition of Banco Real and our organic growth, our net credit portfolio increased from R$44.6 billion at June 30, 2008 to R$132.3 billion at December 31, 2008, and our total deposits increased from R$46.9 billion at June 30, 2008 to R$124.0 billion at December 31, 2008, in each case as reported in our Brazilian GAAP financial statements. In the same period, our active current account holder base increased from approximately 3.5 million to approximately 7.7 million and our distribution network of branches and on-site service units increased from 1,546 to 3,603.
 
Banco Real’s operations are highly complementary to our pre-acquisition operations. We believe that the acquisition offers significant opportunities for the creation of operating, commercial and technological synergies by preserving the best practices of each bank. Banco Real’s strong presence in the states of Rio de Janeiro and Minas Gerais has further strengthened our position in the South and Southeast, complementing our strong footprint in the region, particularly in the state of São Paulo. The acquisition of Banco Real has further consolidated our position as a full-service bank with nationwide coverage and scale to compete effectively in our target markets.
 
Since the mid-1990s, Brazil has benefited from political, social and macroeconomic stability coupled with improvements in real income and a resulting high rate of upward social and economic mobility. During this period, the Brazilian financial services industry has experienced substantial growth, as economic stability, increased employment rates and rising purchasing power of the Brazilian population have been contributing to an increase in penetration of financial products and services. Nonetheless, the Brazilian financial market still presents a low credit penetration as compared to that of other developed and emerging markets, offering further growth opportunities. According to a World Bank 2009 Report, the ratio of total credit to GDP was approximately 50% in Brazil in 2007. As of December 31, 2007, in the United States, the ratio of total credit to GDP was approximately 169% according to central bank statistics. The Brazilian housing credit market is still incipient, with total mortgage loans accounting for approximately 2% of the GDP in 2007, according to the Central Bank, while, for example, in the United States the figure was approximately 68% in the same period according to the World Bank. We expect that credit penetration will continue to increase as a result of a relatively stable macroeconomic environment and customer-tailored new product offerings. In addition, we expect housing financing to grow given favorable trends, including a housing deficit, government’s focus on stimulating growth in the construction sector and legal reforms supporting the development of mortgage products. The Brazilian financial market is concentrated, with the four largest banks accounting for approximately 58% of total loans and 64% of savings deposits at March 31, 2009, according to the Central Bank.


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We are a member of the Santander Group, one of the largest financial groups in the world as measured by market capitalization. At June 30, 2009, the Santander Group had stockholders’ equity of €66.8 billion and total assets of €1,148.5 billion and was present in more than 40 countries, serving over 90 million customers through more than 14,000 branches. In the six months ended June 30, 2009, our operations accounted for over 20% of Santander Group’s net income and 53% of its net income in Latin America. At June 30, 2009, our business represented approximately 9% of the Santander Group’s assets and 51% of its assets in Latin America.
 
The following table shows certain financial and operational data for our operations.
 
                                 
    At and for the Six Months Ended
       
    June 30,     At and for the Year Ended December 31,  
    2009     2008     2008     2007  
    (In millions of R$, except as otherwise indicated)  
 
Financial Data
                               
Assets
    288,878       114,585       294,190       108,319  
Total loans and advances to customers, gross
    139,962       47,953       142,649       51,453  
Total deposits
    177,948       76,322       182,312       74,055  
Shareholders’ equity
    51,136       10,164       49,318       8,671  
Net interest income
    10,661       3,332       11,438       6,195  
Fee and commissions income
    3,463       1,881       4,809       3,364  
Total income
    15,483       5,573       15,971       11,367  
Profit for the period
    2,445       707       2,379       1,903  
Return on average shareholders’ equity(1)
    9.9 %     14.8 %     10.3 %     18.1 %
Efficiency ratio(2)
    34.7 %     40.8 %     45.0 %     39.2 %
Basel capital adequacy ratio(3)
    17.0 %     13.5 %     14.7 %     14.2 %
Operational Data
                               
Number of customers (in thousands)
    21,639       8,487       20,859       8,174  
Number of ATMs (in units)
    18,101       7,558       18,120       7,639  
Number of branches (in units)
    2,091       891       2,083       904  
Market share (based on assets)(4)
    10.2 %     4.4 %     10.5 %     4.5 %
Market share (based on deposits)(4)
    10.7 %     5.1 %     11.0 %     4.9 %
Market share (based on loan portfolio)(4)
    12.2 %     5.0 %     12.3 %     5.1 %
 
 
(1) Six-month returns are presented on an annualized basis by doubling the earnings component. Annualized returns are not necessarily indicative of returns for the entire year, which may be materially different from the annualized returns.
 
(2) Efficiency ratio is defined as administrative expenses divided by total income. The ratio for the six months ended June 30, 2008 is presented on a pro forma basis. See “Unaudited Pro Forma Consolidated Financial Information”.
 
(3) In July 2008, new regulatory capital measurement rules, which implement the Basel II standardized approach, went into effect in Brazil, including a new methodology for credit risk and operational risk measurement, analysis and management. As a result, our capital adequacy ratios as of any date after July 2008 are not comparable to our capital ratios as of any prior date. Our Basel capital adequacy ratios are calculated excluding goodwill, in accordance with the Basel II standardized approach (provided by the “International Convergence of Capital Measurement and Capital Standards — A Revised Framework Comprehensive Version” issued by the Basel Committee on Banking Supervision from the Bank for International Settlements).
 
(4) Source: Central Bank.


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Our Businesses
 
Our business consists of three operating segments: Commercial Banking, Global Wholesale Banking and Asset Management and Insurance. The following table shows selected financial data for our operating segments.
 
                                 
    For the Six Months
    For the Year Ended
 
    Ended June 30, 2009     December 31, 2008  
    Net Interest
          Net Interest
       
    Income     % of Total     Income     % of Total  
    (In millions of R$, except as otherwise indicated)  
 
Commercial Banking
    9,750.8       91.5       10,191.7       89.1  
Global Wholesale Banking
    893.7       8.4       1,213.5       10.6  
Asset Management and Insurance(1)
    16.5       0.1       32.8       0.3  
                                 
Total
    10,661.0       100.0       11,438.0       100.0  
                                 
 
 
(1) Does not include results of operations of the asset management and insurance companies acquired through a series of share exchange transactions (incorporações de ações) on August 14, 2009. See “— Recent Events — Acquisition of Asset Management and Insurance Companies”. Our asset management and insurance business represented 1.5% or R$227 million of our total income as of June 30, 2009.
 
Commercial Banking:  We focus on customer relationships, extending credit, services and products to individuals and corporations (other than global corporate customers who are served by our Global Wholesale Banking segment) through personal loans (including home and automobile financing, unsecured consumer financing, checking account overdraft loans, credit cards and payroll loans), leasing, commercial loans, working capital lines and foreign trade financing. Our product offering extends to private retirement plans, insurance, bill collection and processing services. Our Commercial Banking operations also include private banking typically for individuals with investment assets of over R$1 million. Our business model is based on a tailored approach to each income class of our individual customers (high, mid and low income classes) in order to address their specific needs. We are particularly well positioned in the mid-income class (monthly income in excess of R$1,200 and below R$4,000) and the high income class (monthly income in excess of R$4,000). Our customers are serviced throughout Brazil primarily through our branch network, which, at June 30, 2009, consisted of 2,091 branches, 1,521 on-site service units located at our corporate customers’ premises, and 18,101 ATMs, as well as our Internet banking platform and our call center operations. We believe our retail operations have benefited significantly from the acquisition of Banco Real, by improving our geographic coverage of Brazil and complementing our client portfolios. For example, Banco Real has historically had strong presence in the high-income class and small and medium-sized businesses, or SMEs, and in products such as automobile financing, while our strengths have been historically in the mid-income class and civil servant sectors, and in insurance products.
 
Global Wholesale Banking:  We are a leading wholesale bank in Brazil and offer financial services and sophisticated and structured solutions to our customers, in parallel with our proprietary trading activities. Our wholesale banking business focuses on servicing approximately 700 large local and multinational conglomerates, which we refer to as Global Banking & Markets, or “GB&M”, customers. In the six months ended June 30, 2009, Brazilian operations represented approximately 30% of the Santander Group’s wholesale banking business measured by profit before tax. Our wholesale business provides our customers with a wide range of domestic and international services that are specifically tailored to the needs of each client. We offer products and services in the following key areas: global transaction banking, credit markets, corporate finance, equities, rates, market making and proprietary trading. Our customers benefit from the global services provided by the Santander Group’s integrated wholesale banking network and local market expertise. Our proprietary trading desk is under strict risk control oversight and has consistently shown positive results, even under volatile scenarios.
 
Asset Management and Insurance:  We are the fourth largest asset manager in Brazil by assets under management, with 437,258 customers, according to data published by ANBID in June 2009. At June 30, 2009,


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we had R$99.8 billion in assets under management. Our product offering includes fixed income, money market, equity and multi-market funds. As part of our insurance business, we offer primarily bancassurance products related to our core banking business, such as home, credit life insurance and capitalization and pension products, to our retail and SME customers. We recently acquired 50% of Real Seguros Vida e Previdência S.A. (formerly Real Tokio Marine Vida e Previdência S.A.). Following the acquisition, Santander Brasil became one of the largest insurance companies in terms of issued premiums as of June 30, 2009, ranking eleventh in premiums, fourth in personal accident insurance, sixth in life insurance and fourth in residential insurance in Brazil (when combining our historic business with the business of Real Seguros Vida e Previdência). We believe that our strong branch network and client base will allow us to further expand the bancassurance business in a coordinated manner to individuals and SMEs as well as large corporations. We focus on the sale of products issued by the Santander Brasil Group, which represented almost 80% of our insurance premiums in the six months ended June 30, 2009. On August 14, 2009, our shareholders elected to transfer certain Brazilian asset management and insurance companies that were previously beneficially owned by Santander Spain to Santander Brasil, through a series of share exchange transactions (incorporações de ações) in order to consolidate all of the Santander Group’s Brazilian insurance and asset management operations into Santander Brasil. These transactions are pending approval by the Central Bank and SUSEP (with respect to the insurance operations). See “— Recent Events — Acquisition of Asset Management and Insurance Companies”.
 
Our Competitive Strengths
 
We believe that our profitability and competitive advantages are the result of Santander Brasil’s five pillars: nationwide presence with leading position within the high income regions of the country; wide range of products tailored to meet client needs; conservative risk profile; scalable state-of-the-art technology platform; and focus on sustainable growth, both organically and through selective acquisitions.
 
Relationship with the Santander Group
 
We believe that being part of the Santander Group offers us a significant competitive advantage over the other banks in our peer group, none of which is part of a similar global banking group. This relationship allows us to:
 
  •  leverage the Santander Group’s global information systems platform, reducing our technology development costs, providing operational synergies with the Santander Group and enhancing our ability to provide international products and services to our customers;
 
  •  access the Santander Group’s multinational client base;
 
  •  take advantage of the Santander Group’s global presence, in particular in other countries in Latin America, to offer international solutions for our Brazilian corporate customers’ financial needs as they expand their operations globally;
 
  •  selectively replicate or adapt the Santander Group’s successful product offerings from other countries in Brazil;
 
  •  benefit from the Santander Group’s operational expertise in areas such as internal controls and risk management, which practices have been developed in response to a wide range of market conditions across the world and which we believe will enhance our ability to grow our business within desired risk limits;
 
  •  leverage the Santander Group’s experience with integrations to maximize and accelerate the generation of synergies from the Banco Real acquisition and any future acquisitions; and
 
  •  benefit from the Santander Group’s management training and development which is composed of a combination of in-house training and development with access to managerial expertise in other Santander Group units outside Brazil.


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Strong presence in attractive demographic and geographic areas
 
We are focused on the growing mid- and high-income classes in Brazil, which we define as individuals with monthly income in excess of R$1,200 and R$4,000, respectively. We are well positioned to benefit from the growth in our target customer base and the relatively low penetration of financial products and services in Brazil, through sales of key products such as credit cards and insurance. Mid- and high-income customers provide access to a stable and low-cost funding base through customer time and demand deposits. Furthermore, we believe that our focus on these income classes has increased our profitability, as they have traditionally produced higher volumes and margins.
 
We believe that there is further potential through the use of our existing, scalable and newly redesigned IT platform for increasing the penetration of financial products and services with our client base of approximately 9.9 million current account holders according to data from the Central Bank as of July 31, 2009. For example, at June 30, 2009, only 22% of our current account holders had personal loans and only 60% had a credit card. In addition, the acquisition of Banco Real strengthened our competitive position in the South and Southeast regions of Brazil, an area that accounted for approximately 73.1% of Brazil’s GDP in 2006, and where we now have one of the largest branch networks among Brazilian banks, according to the Central Bank. Our presence in these attractive geographic areas, combined with our focus on mid- and high-income customers allow us to effectively cover a significant portion of Brazil’s economic base.
 
Track record of successful integrations
 
The Santander Group has expanded its footprint worldwide through the successful integration of numerous acquired businesses. For example, Abbey National Bank in the United Kingdom improved its efficiency ratio (cost to income) from 55.1% in 2006, two years after its acquisition by the Santander Group, to 45.2% in 2008. In addition, since 1997, the Santander Group has acquired six banks in Brazil, demonstrating its ability to execute complex acquisitions in this market, integrate the acquired companies into its existing business and improve the acquired companies’ operating performance. Our first significant acquisition was of Banespa in November 2000. In our acquisitions, but particularly in the case of Banco Real, we join the best of both banks into a single institution, benchmarking business strategies, key personnel, technology and processes of both banks to ensure the optimal combination for a sustainable competitive position. That is the case with our integration of Banco Real, from which we are seeking to achieve cumulative cost synergies of approximately R$2.4 billion (calculated based on the costs of Santander Brasil and Banco Real for 2008 adjusted for inflation and estimated salary increases) and cumulative revenue synergies of approximately R$300 million by December 31, 2011.
 
We started the process of the operational, commercial and technological integration of Banco Real immediately following the share exchange (incorporação de ações) in August 2008. We developed a three-year integration plan, which we are carefully executing in an effort to achieve synergies and ensure that best practices will be identified and implemented. Our wholesale banking operations have been fully integrated since the end of 2008. In March 2009, we began the integration of the branch networks and electronic distribution channels of the two institutions to enable customers to perform not only cash withdrawals but a full range of transactions at branches or ATMs of either bank. We expect to have fully integrated ATM and branch networks in 2010. We believe that we have thus far achieved our key integration goals, including maintaining and improving customer service; identifying operational strengths of each bank and maintaining and leveraging these strengths; establishing a new business culture among our employees focused on our strengths; retaining and developing trained and talented employees; and achieving our operating targets.


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Leading market position
 
We rank third among non government-owned banks in Brazil in terms of assets with a market share of 10.2% at March 31, 2009. Among these banks, we believe we hold a top three market position in most of our key product lines as evidenced by our market share in the following selected products and regions.
 
         
    At March 31, 2009  
    Market Share (%)  
 
Overdraft
    19.1  
Payroll/individual loans
    13.1  
Auto leasing/CDC
    15.3  
Credit cards
    9.7  
Branches
    12.2  
Southeast
    15.9  
South
    8.7  
 
 
Source: Central Bank.
 
The acquisition of Banco Real has further enhanced our critical mass in the Brazilian market. We believe that our scale and market leadership provide us with exceptional competitive opportunities including the ability to gather market intelligence to support decision-making in determining business opportunities and in meeting our customers’ needs operating as a full service bank. Since the acquisition of Banco Real, we have organically increased our market share in key business lines such as payroll/individual loans, overdraft on current accounts and credit cards. In addition, we are a leading wholesale bank in Brazil. Through our unique access to the Santander Group’s global network, we are able to support our large Brazilian corporate customers in the internationalization of their businesses, for example, through trade and acquisition financing, which brings together a loan syndicate that could use several take-out strategies in different markets. As one of the top tier banks in the country, and in light of the opportunities for leveraging our operating segments, our broad product offering and geographic presence, we are well positioned to gain market share.
 
State-of-the-art integrated technology platform
 
We operate the latest generation customer-centered technology platform that incorporates the standards and processes, as well as the proven innovations, of both the Santander Group worldwide and Banco Real. The incorporation of a customer relationship management system enables us to deliver products and services targeted to the needs of our customers. Because our IT platform is integrated with the platform of the Santander Group, we are able to support our customer’s global businesses and benefit from a flexible and scalable platform that will support our growth in the country. This platform has been enriched with a set of customer-focused features inherited from Banco Real, which we believe provides us with a significant competitive advantage.
 
Our Strategy
 
Our goal is to be the leading full-service bank in Brazil in terms of revenues, profitability and brand recognition, as well as client and work force satisfaction. We strive to be a relationship bank and the primary bank of our retail and wholesale customers based on sustainable practices, serving them with our full range of products. We believe we can achieve these goals through the following strategies:
 
Improve operating efficiency by benefiting from integration synergies and implementing best practices
 
We will continue seeking ways to further improve our operating efficiency and margins. We intend to maintain investment discipline and direct resources to areas that generate improvements in our client management and increase our revenues. We expect to be able to generate additional synergies from the combination of best practices of Santander Brasil and Banco Real, both in terms of revenues as we further leverage on relationship and cross selling opportunities across a wider client base, as well as in terms of costs


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as we realize the potential gains driven by scale, raising our efficiency levels. We believe that synergies creation will be supported by the complementary geographic distribution and customer base of the combined branch networks and the banks’ relatively low product overlap. Our integration has already shown a significant expense reduction, with our cost to income ratio declining from 45.0% in 2008 to 34.7% in the first half of 2009, and we believe that there are opportunities for further reductions in operating expenses.
 
Expand product offering and distribution channels in Commercial Banking
 
We intend to further increase our business and operations throughout Brazil, expanding our Commercial Banking services to existing and prospective retail customers. We plan to offer new products and services to existing customers based on each customer’s profile through our numerous distribution channels by leveraging our customer relationship management data base and IT platform. Our efforts related to the offer of new products and expansion of our reach to other markets will continue to be focused on the correct risk measurement of those opportunities. We also will seek to increase our market share through the offering of innovative banking products and intend to focus on product areas where we believe there is opportunity to increase our presence in the Brazilian market, for example in credit cards and insurance products. Furthermore, we plan to attract current account holders by capturing users of our products, such as automobile financing, insurance or credit cards. We will continue to focus our marketing efforts to enlarge our customer base and increase the number of products used by each client, as well as to increase our share in those products for which clients generally operate with more than one bank. We intend to improve our competitiveness by further strengthening our brand awareness, particularly through marketing.
 
We intend to improve and expand the distribution channels for our products through our traditional branch network and alternative marketing and direct sales distribution channels such as telemarketing, Internet banking and correspondent banks. We plan to open 600 new branches by 2013 in our stronghold area of South and Southeastern Brazil and other regions where we have critical mass. We will continue to maximize the synergies and leverage the opportunities between our corporate and retail businesses. For instance, when rendering payroll services to our corporate customers, we can place an on-site service unit at our corporate client’s premises and thereby access its employees as a potential new customer base and achieve the critical mass necessary to open a new branch in that area. We intend to grow our mortgage business as a consequence of the housing deficit in Brazil and the legal reforms supporting mortgage financing.
 
Capitalize on our strong market position in the wholesale business
 
We provide multinational corporations present in Brazil and local companies, including those with operations abroad, with a wide variety of financial products, utilizing our worldwide network to serve our customers’ needs with customized solutions. We intend to further focus on our strong worldwide position as a client relationship wholesale bank, in line with the Santander Group’s worldwide strategy for the Global Wholesale Banking segment. We expect to benefit from the Santander Group’s strengthened market position as a key player in the global banking industry and thereby strengthen our existing relationships and build new lasting relationships with new customers, exploring the widest possible range of our product portfolio, particularly higher margin products. In addition, as a leading local player with the support of a major international financial institution, we intend to be a strong supporter of Brazilian corporations as they continue to expand their businesses worldwide. Moreover, we believe that we can use our relationship with large corporate customers to access their suppliers as potential new customers. In addition, we intend to distribute treasury products to smaller companies or individuals through the Santander Global Connect (SGC) platform.
 
Further develop a transparent and sustainable business platform
 
We will maintain a commitment to economic, social and environmental sustainability in our procedures, products, policies and relationships. We will continue building durable and transparent relationships with our customers through understanding their needs and designing our products and services to meet those needs. We believe that our commitment to transparency and sustainability will help us create a business platform to maintain growth in our operations over the long term and that is instrumental to forge business relationships, improve brand recognition and attract talented professionals. We will continue to sponsor educational


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opportunities through Santander Universidades and the Universia portal to foster future potential customer relationships.
 
Continue growing our insurance business
 
We intend to continue growing our insurance business, particularly bancassurance. Our commitment to grow in this segment was recently demonstrated by our acquisition of the remaining 50% of Real Seguros Vida e Previdência S.A. (formerly Real Tokio Marine Vida e Previdência S.A.). We expect to increase our presence within the insurance segment by leveraging on our strong branch network and client base, particularly in the South and Southeast, to cross sell insurance products with the goal of maximizing the income generated by each customer, as well as using our strong relationships with SMEs and large corporations within the country. We intend to sell our products by means of our traditional distribution channels, such as branches, and also through ATMs, call center and Internet banking.
 
Recent Events
 
Acquisition of Asset Management and Insurance Companies
 
On August 14, 2009, as a result of a series of share exchange transactions (incorporações de ações), 100% of the share capital of certain Brazilian asset management, insurance and banking companies, all of which were previously beneficially owned by Santander Spain and minority shareholders, were transferred to us. These transactions are pending approval by the Central Bank and SUSEP (with respect to the insurance operations). The purpose of these transactions was to consolidate Santander Spain’s investments in Brazil, to simplify the current Santander Group corporate structure and to consolidate Santander Spain’s and the minority shareholders’ interests in such entities in Santander Brasil. As a result of these transactions, our capital stock was increased by approximately R$2.5 billion through the issuance of 14,410,886,181 shares, comprised of 7,710,342,899 common shares and 6,700,543,282 preferred shares. Under IFRS, we accounted for the share exchange transactions as from the date such transactions were completed based on the historical carrying amounts of assets and liabilities of the companies transferred.
 
The following table sets forth the name of each transferred company, its principal business activities, net income for the year ended December 31, 2008 and shareholders’ equity as of December 31, 2008, each in accordance with Brazilian GAAP.
 
                     
        At and for the Year Ended December 31, 2008  
        Net
    Shareholders’
 
   
Principal Business Activity
  Income     Equity  
        (In millions of R$)  
 
Santander Seguros S.A. 
  Commercialization of life insurance policies and pension funds     131       392  
Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. 
  Asset management     41       80  
Banco Comercial e de Investimento Sudameris S.A.(1) 
  Multiple service banking     186       2,011  
 
 
  (1)   Approximately 99.9% of this company was owned by us prior to the share exchange transactions.
 
Acquisition of Loan Portfolio from Santander Spain
 
On September 17, 2009, our Cayman Islands branch acquired from Santander Spain a loan portfolio consisting of trade finance agreements entered into with Brazilian companies or their off-shore affiliates at a purchase price of U.S.$806.3 million, net of allowances. The average maturity of the loan portfolio is four years. This transaction was carried out on an arm’s length basis. We may in the future acquire other Brazilian-related assets from our affiliates in arm’s length transactions.


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Non-core Asset Sales
 
As part of our corporate restructuring on September 18, 2009, our management decided to sell to Santusa Holdings S.L., or “Santusa”, an affiliate of the Santander Group headquartered in Spain, all of our shareholdings in the following companies: (a) Companhia Brasileira de Meios de Pagamento — Visanet; (b) Companhia Brasileira de Soluções e Serviços; (c) Serasa S.A.; (d) Tecnologia Bancária S.A.; and (e) Visa Inc. The sale of these shares will be made on an arm’s length basis at a purchase price determined based on the public market value or, when a public market value is not available, by an independent appraiser. These sales are expected to result in a capital gain of approximately R$2.1 billion, before taxes. In addition, we plan to sell our shareholding in Cetip S.A. — Balcão Organizado de Ativos e Derivativos in an initial public offering in Brazil registered with the CVM.
 
Subsidiary Merger Triggering Debenture Redemption Rights
 
As part of our corporate restructuring, a general shareholders’ meeting will be held on September 30, 2009 to approve the merger of our subsidiary ABN AMRO Arrendamento Mercantil S.A. into our subsidiary Santander Leasing S.A. Arrendamento Mercantil. Under Brazilian corporate law, the merger will trigger early redemption rights with respect to three separate debenture issuances by ABN AMRO Arrendamento Mercantil S.A. pursuant to which, during a period of six months from October 1, 2009, the holders of such debentures may redeem such debentures for 100% of the face amount, plus interest on the face amount equivalent to the Interbank Certificate Deposit or “CDI” rate for the applicable period. The principal amount of each issuance outstanding as of the date of this prospectus was R$1.5 billion, R$1.5 billion and R$4.1 billion, maturing on June 1, 2015, March 1, 2016 and August 1, 2016, respectively.
 
Risks Related to Our Business
 
Prospective investors should carefully consider the risks and other matters described under “Risk Factors”, including the following:
 
  •  we are vulnerable to the current disruptions and volatility in the global financial markets as well as to government action intended to alleviate the effects of the recent financial crisis;
 
  •  changes in regulation may negatively affect us;
 
  •  developments and the perception of risk in other countries, especially in the United States and in emerging market countries, may adversely affect our access to financing and the market price of our securities;
 
  •  our securities and derivative financial instruments are subject to market price and liquidity variations due to changes in economic conditions and may produce material losses;
 
  •  changes in base interest rates by the Central Bank could adversely affect our results of operations and profitability;
 
  •  the increasingly competitive environment and recent consolidations in the Brazilian financial services market may adversely affect our business prospects;
 
  •  we may experience increases in our level of past due loans as our loan portfolio matures;
 
  •  our market, credit and operational risk management policies, procedures and methods may not be fully effective in mitigating our exposure to unidentified or unanticipated risks;
 
  •  if our reserves for future insurance policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would adversely affect our results of operations and financial condition;
 
  •  we may fail to recognize the contemplated benefits of the acquisition of Banco Real;
 
  •  the profitability of our insurance operations may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing expectations; and


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  •  our controlling shareholder has a great deal of influence over our business.
 
One or more of these matters could negatively impact our business or financial performance and our ability to implement our business strategy successfully.
 
 
Our principal executive offices are located at Rua Amador Bueno, 474, São Paulo, SP 04752-005, Brazil, and our general telephone number is (55 11) 3174-8589. Our website is www.santander.com.br. Information contained on, or accessible through, our website is not incorporated by reference in, and shall not be considered part of, this prospectus.


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THE OFFERING
 
Issuer Banco Santander (Brasil) S.A.
 
Global offering The global offering consists of the international offering and the concurrent Brazilian offering.
 
International offering We are offering           units, including units in the form of ADSs, through the international underwriters (which, in the case of the units, will act as placement agents on behalf of the Brazilian underwriters) in the United States and other countries outside Brazil. The units purchased by any investor outside Brazil will be settled in Brazil and paid for in reais. Any investor outside Brazil purchasing units must comply with the requirements established by the National Monetary Council (Conselho Monetário Nacional), or “CMN” and the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM.”
 
Conflicts of interest Because the ADSs are being offered by Banco Santander (Brasil) S.A., whose affiliate, Santander Investment Securities Inc. is a member of the U.S. Financial Industry Regulatory Authority (“FINRA”) and an underwriter in this offering, and because affiliates of Banco Bradesco S.A. may own more than 10% of our subordinated debt, FINRA may view the participation of Santander Investment Securities Inc. as an underwriter in this offering, and the participation of Bradesco Securities, Inc. as a selling agent in this offering as the public distribution of securities issued by a company with which Santander Investment Securities Inc. and Bradesco Securities, Inc. have a conflict of interest and/or an affiliation, as those terms are defined in the National Association of Securities Dealers (“NASD”) Rule 2720, as administered by FINRA. Accordingly, this offering will be made in compliance with the applicable provisions of NASD Rule 2720. Pursuant to that rule, the initial public offering price of the shares can be no higher than that recommended by a “qualified independent underwriter”, as defined by the NASD Conduct Rule 2720(b)(15), which has participated in the preparation of the prospectus and performed its usual standard of due diligence with respect to that prospectus. Credit Suisse Securities (USA) LLC has agreed to act as qualified independent underwriter for the offering and to perform a due diligence investigation and review and participate in the preparation of the prospectus. We have agreed to indemnify Credit Suisse Securities (USA) LLC against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.
 
Brazilian offering Concurrently with the international offering, we are offering           units through the Brazilian underwriters in Brazil to investors in Brazil.
 
Employee, director, officer and customer offering We will reserve up to 15% of the units in the global offering for our employees, directors and officers and customers in Brazil at the public offering price for the Brazilian offering. See “Underwriting.”
 
Units Except as described under “— Subscription receipts” below, each unit represents 55 common shares and 50 preferred shares. A


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holder of units will be entitled to the same dividend and voting rights as a holder of the underlying shares. For a description of the material terms of the units and of a unit holder’s material rights, see “Description of Capital Stock — Description of the Units.”
 
Assembling units After the ratification of our capital increase by the Central Bank and completion of this offering, we intend to create a structure to allow non-controlling shareholders that hold common or preferred shares but not amounts sufficient to allow them to assemble units (that is, lots of 55 common shares and 50 preferred shares in exchange for each unit), to acquire common and preferred shares at market price in order to complete units. This structure may be subject to regulatory approval and its terms and conditions would then be communicated to the non-controlling shareholders. We cannot be sure that we will be able to implement such a structure or that it will be approved by the CVM and BM&FBOVESPA. Our shareholder Santander Seguros, a member of the Santander Group, has indicated its intention to sell its own shares issued by us to our other non-controlling shareholders that intend to purchase common or preferred shares exclusively for purposes of acquiring the correct amount of shares to allow them to assemble units.
 
ADSs Each ADS represents one unit. ADSs will be evidenced by American depositary receipts, or “ADRs”. The ADSs will be issued under a deposit agreement among us, JPMorgan Chase Bank, N.A. as depositary, and the registered holders and beneficial owners from time to time of ADSs issued thereunder.
 
Subscription receipts In order to comply with Central Bank regulations and certain fungibility requirements of the BM&FBOVESPA, each unit will, until the approval of our capital increase by the Central Bank, represent fractional shares of our common shares and preferred shares and subscription receipts representing the right to receive additional common shares and preferred shares such that each unit will initially represent 48.125 subscription receipts of common shares, 6.875 common shares, 43.750 subscription receipts of preferred shares and 6.250 preferred shares. Upon approval by the Central Bank of our capital increase, which is expected to occur promptly after the closing of this offering, the subscription rights will be converted into common and preferred shares and each unit will represent 55 common shares and 50 preferred shares. If the Central Bank does not ratify our capital increase within six months from the closing date of this offering, Santander Insurance Holding, S.L., one of our shareholders, has agreed to deliver to each record holder of units as of the date of delivery, free of charge, a fraction of a preferred share and a fraction of a common share such that the aggregate numbers of common and preferred shares represented by all units held of record by that holder plus such fractions of shares make up whole numbers of preferred and common shares. For example, a record holder of two units (representing receipts plus 13.75 common shares and 12.50 preferred shares) would receive 0.25 common shares and 0.50 preferred shares. In addition, the capital increase corresponding to the subscription receipts would be cancelled and amounts in


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respect of such subscription receipts equal to the amounts paid for such receipts in this offering would be distributed to the then current investors. See “Risk Factors — Risks Relating to Our Units and ADSs — Until the Central Bank ratifies our capital increase in connection with this offering, the units will represent subscription receipts, common and preferred shares and not only our common and preferred shares. We cannot provide assurance as to when or if the Central Bank will ratify our capital increase.” and “Description of Capital Stock — Description of the Subscription Receipts”.
 
Offering price The public offering price for the international offering for the units and ADSs is set forth on the cover page of this prospectus.
 
Over-allotment options We have granted the international underwriters the right to purchase up to an additional          ADSs within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the international offering. We have also granted the Brazilian underwriters the right to purchase up to an additional           units within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the Brazilian offering. The aggregate over-allotment option for the international and Brazilian offerings is 75,000,000 units, including in the form of ADSs.
 
Use of proceeds We estimate that the net proceeds to us from the global offering will be approximately U.S.$6.7 billion. We intend to use the net proceeds from the global offering to expand our business in Brazil by growing our physical presence and increasing our capital base. We also intend to improve our funding structure and, along with our traditional funding sources, increase our current credit transactions. See “Use of Proceeds”.
 
Share capital before and after global offering As of the date of this prospectus, our share capital consisted of 158,154,602,751 preferred shares and 181,989,171,114 common shares. We did not have any shares in treasury.
 
Immediately after the global offering, we will have 210,864,171,114 common shares and 184,404,602,751 preferred shares outstanding, assuming no exercise of the underwriters’ over-allotment options.
 
Following the offering, Santander Spain, our controlling shareholder, will continue to own, indirectly, 85.0% of our common shares, 83.6% of our preferred shares and 84.3% of our total capital, assuming no exercise of the underwriters’ over-allotment options.
 
Voting rights A holder of units will be entitled to the same voting rights as a holder of the underlying common and preferred shares. No voting rights attach to subscription receipts or to fractions of shares.
 
Holders of our common shares are entitled to vote in our shareholders’ meetings. Holders of our preferred shares are not entitled to vote in our shareholders’ meetings, with limited


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exceptions. See “Description of Capital Stock — Rights of Common Shares and Preferred Shares”.
 
Holders of ADSs are entitled to instruct the depositary how to vote underlying common shares, subject to the terms of the applicable deposit agreement. See “Description of American Depositary Shares — Voting Rights”.
 
Dividends We intend to declare and pay dividends and/or interest attributed to shareholders’ equity, as required by the Brazilian corporate law and our bylaws. The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders.
 
Holders of the ADSs will be entitled to receive dividends to the same extent as the owners of our common and preferred shares, subject to the deduction of the fees of the depositary and the costs of foreign exchange conversion. See “Dividends and Dividend Policy” and “Description of Capital Stock”.
 
Listing Our ADSs have been authorized for listing, subject to official notice of issuance, on the New York Stock Exchange, or NYSE, under the symbol ‘‘BSBR”. We expect to list the units on the BM&FBOVESPA under the symbol “SANB11”.
 
Lock-up agreements We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Our parent company, members of our board of directors and our executive officers have agreed to substantially similar lock-up provisions, subject to certain exceptions.
 
ADR Depositary JPMorgan Chase Bank, N.A.
 
Risk factors See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the units or ADSs.
 
Expected timetable for the global offering (subject to change):
 
Commencement of marketing of the global offering September 21, 2009
 
Pricing October 6, 2009
 
Commencement of trading of ADSs on the NYSE and units on the BM&FBOVESPA October 7, 2009
 
Settlement and delivery of units and ADSs October 13, 2009
 
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted to          , to be exercised with the consent of          , to purchase up to           additional units in the form of ADSs to cover over-allotments of ADSs, if any, in connection with the international offering and the Brazilian underwriters’ option to purchase up to          units to cover over-allotments, if any in connection with the Brazilian offering. The aggregate over-allotment option for the international and Brazilian offerings is 75,000,000 units, including in the form of ADSs.


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SUMMARY FINANCIAL AND OPERATING DATA
 
Santander Brasil financial data at and for the years ended December 31, 2008 and 2007 have been derived from the audited consolidated financial statements prepared in accordance with IFRS included in this prospectus. Banco Real has been consolidated with our financial statements since August 30, 2008. The Banco Real financial data at and for the year ended December 31, 2007 and for the period from January 1 to August 29, 2008 have been derived from the audited combined financial statements prepared in accordance with IFRS for Banco Real included in this prospectus. Our results of operations for the year ended December 31, 2008 are not comparable to our results of operations for the year ended December 31, 2007 because of the consolidation of Banco Real in our financial statements as from August 30, 2008. See “Operating and Financial Review and Prospects — Acquisition of Banco Real”.
 
The summary consolidated financial data at June 30, 2009 and for the six months ended June 30, 2009 and 2008 for Santander Brasil have been derived from the unaudited consolidated interim financial information included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented. The results for the six months ended June 30, 2009 are not necessarily indicative of the results of operations that you should expect for the entire year ended December 31, 2009 or any other period.
 
The summary combined financial data for the period from January 1 to August 29, 2007 for Banco Real have been derived from the unaudited combined interim financial information included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented.
 
The pro forma summary financial data for Santander Brasil for the year ended December 31, 2008 and six months ended June 30, 2008 have been derived from the unaudited pro forma consolidated financial information included elsewhere in this prospectus, which gives effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group and the share exchange transaction (incorporação de ações) had occurred as of January 1, 2008. See “Unaudited Pro Forma Consolidated Financial Information.”
 
This financial information should be read in conjunction with our audited and unaudited financial statements and the related notes and the sections entitled “Selected Financial and Operating Data” and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.


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Santander Brasil Income Statement Data
 
                                 
    Santander Brasil  
    For the Six Months Ended June 30,  
                2008
       
    2009     2009     (Pro Forma)(1)     2008  
          (In millions of R$, except as otherwise indicated)  
    (In millions of
                   
    U.S.$, except as
                   
    otherwise
                   
    indicated)(2)                    
 
Interest and similar income
    10,131       19,771       17,405       6,715  
Interest expense and similar charges
    (4,668 )     (9,110 )     (7,978 )     (3,383 )
                                 
Net interest income
    5,463       10,661       9,427       3,332  
Income from equity instruments
    8       15       18       16  
Share of results of entities accounted for using the equity method
    132       257       161       2  
Fee and commission income
    1,774       3,463       3,440       1,881  
Fee and commission expense
    (229 )     (447 )     (500 )     (164 )
Gains/losses on financial assets and liabilities (net)
    1,401       2,734       1,459       686  
Exchange differences (net)
    (531 )     (1,037 )     (470 )     (145 )
Other operating income (expenses)
    (84 )     (163 )     26       (35 )
                                 
Total income
    7,934       15,483       13,561       5,573  
Administrative expenses
    (2,756 )     (5,380 )     (5,535 )     (2,234 )
Depreciation and amortization
    (254 )     (495 )     (546 )     (310 )
Provisions (net)(3)
    (1,004 )     (1,958 )     (934 )     (522 )
Impairment losses on financial assets (net)(4)
    (2,475 )     (4,831 )     (3,194 )     (1,496 )
Impairment losses on other assets (net)
    (35 )     (68 )     (15 )     (9 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    586       1,145       38       32  
Gains/losses on disposal of non-current assets held for sale
    (29 )     (56 )     (14 )     (24 )
                                 
Profit before tax
    1,967       3,840       3,361       1,010  
Income tax
    (714 )     (1,395 )     (1,191 )     (303 )
                                 
Consolidated profit for the period
    1,253       2,445       2,170       707  
                                 
Earnings per share
                               
Basic and diluted earnings per 1,000 shares Common shares (reais)
            7.17       6.45       5.07  
Preferred shares (reais)
            7.89       7.09       5.58  
Common shares (U.S. dollars)(2)
            3.67       4.05       3.18  
Preferred shares (U.S. dollars)(2)
            4.04       4.45       3.51  
Weighted average shares outstanding (in thousands) — basic and diluted
                               
Common shares
            174,292,416       172,041,961       71,315,968  
Preferred shares
            151,465,867       149,503,808       61,969,586  
 
 
(1) See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(3) Principally provisions for legal and tax contingencies.
 
(4) Net provisions to the credit loss allowance less recoveries of loans previously written off.
 


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    Santander Brasil  
    For the Year Ended December 31,  
    2008
             
    (Pro Forma)(1)     2008     2007  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    38,102       23,768       13,197  
Interest expense and similar charges
    (18,872 )     (12,330 )     (7,002 )
                         
Net interest income
    19,230       11,438       6,195  
Income from equity instruments
    39       37       36  
Share of results of entities accounted for using the equity method
    305       112       6  
Fee and commission income
    6,849       4,809       3,364  
Fee and commission expense
    (983 )     (555 )     (266 )
Gains/losses on financial assets and liabilities (net)
    (485 )     (1,286 )     1,517  
Exchange differences (net)
    1,261       1,476       382  
Other operating income (expenses)
    (74 )     (60 )     133  
                         
Total income
    26,143       15,971       11,367  
Administrative expenses
    (11,532 )     (7,185 )     (4,460 )
Depreciation and amortization
    (1,236 )     (846 )     (580 )
Provisions (net)(2)
    (1,702 )     (1,230 )     (1,196 )
Impairment losses on financial assets (net)(3)
    (6,570 )     (4,100 )     (2,160 )
Impairment losses on other assets (net)
    (85 )     (77 )     (298 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    33       7       1  
Gains/losses on disposal of non-current assets held for sale
    22       9       13  
                         
Profit before tax
    5,072       2,549       2,687  
Income tax
    (1,159 )     (170 )     (784 )
                         
Consolidated profit for the year
    3,913       2,379       1,903  
                         
Earnings per share
                       
Basic and diluted earnings per 1,000 share
                       
Common shares (reais)
    11.65       11.59       14.02  
Preferred shares (reais)
    12.81       12.75       15.43  
Common shares (U.S. dollars)(4)
    6.01       5.94       7.18  
Preferred shares (U.S. dollars)(4)
    6.60       6.53       7.91  
Dividends and interest on capital per 1,000 shares(5)
                       
Common shares (reais)
            4.26       16.30  
Preferred shares (reais)
            4.69       17.93  
Common shares (U.S. dollars)(4)
            2.18       8.35  
Preferred shares (U.S. dollars)(4)
            2.40       9.19  
Weighted average shares outstanding (in thousands) — basic and diluted
                       
Common shares
    171,800,386       104,926,194       69,383,705  
Preferred shares
    149,283,961       91,168,064       60,285,449  
 
 
(1) See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2) Principally provisions for legal and tax contingencies.
 
(3) Net provisions to the credit loss allowance less recoveries of loans previously written off.
 
(4) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(5) Includes dividends based on net income and dividends based on reserves.

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Santander Brasil Balance Sheet Data
 
                                 
    Santander Brasil  
    At June 30,     At June 30,     At December 31,  
    2009     2009     2008     2007  
          (In millions of R$)  
    (In millions of
                   
    U.S.$)(1)                    
 
Assets
                               
Cash and balances with the Brazilian Central Bank
    12,714       24,813       23,700       22,277  
Financial assets held for trading
    8,101       15,809       19,986       12,293  
Other financial assets at fair value through profit or loss
    3,109       6,068       5,575       1,648  
Available-for-sale financial assets
    15,676       30,593       30,736       9,303  
Loans and receivables
    82,826       161,644       162,725       55,034  
Hedging derivatives
    91       178       106        
Non-current assets held for sale
    30       58       113       32  
Investments
    257       502       634       55  
Tangible assets
    1,845       3,600       3,829       1,111  
Intangible assets
    15,674       30,589       30,995       1,799  
Tax assets
    6,860       13,388       12,920       4,223  
Other assets
    838       1,636       2,871       544  
                                 
Total assets
    148,021       288,878       294,190       108,319  
                                 
Liabilities
                               
Financial liabilities held for trading
    2,504       4,887       11,210       4,650  
Other financial liabilities at fair value through profit or loss
    186       363       307       690  
Financial liabilities at amortized cost
    106,397       207,644       213,973       84,781  
Deposits from the Brazilian Central Bank
    446       870       185        
Deposits from credit institutions
    11,167       21,793       26,325       18,217  
Customer deposits
    79,382       154,922       155,495       55,147  
Marketable debt securities
    5,790       11,299       12,086       2,806  
Subordinated liabilities
    5,634       10,996       9,197       4,210  
Other financial liabilities
    3,978       7,764       10,685       4,401  
Hedging derivatives
    32       63       265        
Provisions(2)
    5,228       10,203       8,915       4,816  
Tax liabilities
    3,767       7,352       6,156       1,719  
Other liabilities
    3,361       6,560       3,527       1,454  
                                 
Total liabilities
    121,476       237,072       244,353       98,111  
                                 
Shareholders’ equity
    26,202       51,136       49,318       8,671  
Minority interests
    3       5       5        
Valuation adjustments
    341       665       514       1,537  
                                 
Total equity
    26,545       51,806       49,837       10,208  
                                 
Total liabilities and equity
    148,021       288,878       294,190       108,319  
                                 
Average assets
    147,558       287,974       163,621       100,243  
Average interest-bearing liabilities
    95,598       186,569       109,455       69,204  
Average shareholders’ equity
    26,000       50,742       23,110       10,521  
 
 
(1) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(2) Provisions for pensions and contingent liabilities.


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Santander Brasil Ratios
 
                                 
    At and for the Six Months
    At and for the Year Ended
 
    Ended June 30,     December 31,  
    2009     2008     2008     2007  
    (In percentages)  
 
Profitability and performance
                               
Net yield(1)(2)
    9.9       7.6       8.6       7.2  
Return on average total assets(1)
    1.7       1.3       1.5       1.9  
Return on average shareholders’ equity(1)
    9.9       14.8       10.3       18.1  
Adjusted return on average shareholders’ equity(1)(3)
    21.9       14.8       16.8       18.1  
Capital adequacy
                               
Average shareholders’ equity as a percentage of average total assets
    17.6       9.4       14.1       10.5  
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(3)
    9.0       9.4       9.2       10.5  
Basel capital adequacy ratio(4)
    17.0       13.6       14.7       14.2  
Asset quality
                               
Non-performing assets as a percentage of total loans(5)
    6.7       4.6       5.4       4.1  
Non-performing assets as a percentage of total assets(5)
    3.3       1.9       2.6       2.2  
Non-performing assets as a percentage of computable credit risk(5)(6)
    5.8       3.3       4.7       3.2  
Allowance for credit losses as a percentage of non-performing assets(5)
    97.1       112.2       105.8       107.5  
Allowance for credit losses as a percentage of total loans
    6.5       5.1       5.7       4.4  
Net loan charge-offs as a percentage of total loans(1)
    3.0       2.9       2.3       4.7  
Non-performing assets as a percentage of shareholders’ equity(5)
    18.4       21.5       15.7       24.1  
Non-performing assets as a percentage of shareholders’ equity excluding goodwill(3)(5)
    39.5       21.5       35.4       24.1  
Liquidity
                               
Total loans, net as a percentage of total funding
    65.3       52.9       66.0       60.7  
Deposits as a percentage of total funding
    88.9       88.7       89.5       91.3  
Other Information
                               
Efficiency
                               
Efficiency ratio(7)
    34.7       40.8       45.0       39.2  
 
 
(1) Six-month ratios are presented on an annualized basis by doubling the earnings component. Annualized ratios are not necessarily indicative of the ratios that would result for the entire year, which may be materially different from the annualized ratios.
 
(2) Net yield is defined as net interest income (including dividends on equity securities) divided by average interest earning assets.
 
(3) “Adjusted return on average shareholders’ equity,” “Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” and “Non-performing assets as a percentage of shareholders’ equity excluding goodwill” are non-GAAP financial measurements which adjust “Return on average shareholders’ equity,” “Average shareholders’ equity as a percentage of average total assets” and “Non-performing assets as a percentage of shareholders’ equity”, to exclude the R$27.5 billion goodwill arising from the acquisition of Banco Real in 2008.


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The reconciliation below presents the calculation of these non-GAAP financial measurements from their respective most directly comparable GAAP financial measurements. Such reconciliation was made only for the six months ended June 30, 2009 and the year ended December 31, 2008 because goodwill was not material in the six months ended June 30, 2008 or the year ended December 31, 2007 and, accordingly, the ratios presented are unaffected by the exclusion of goodwill.
 
                 
    At and for the
    At and for the
 
    Six Months Ended
    Year Ended
 
    June 30, 2009     December 31, 2008  
 
Return on average shareholders’ equity:
               
Net income
    2,445,145       2,378,626  
Average shareholders’ equity
    50,741,631       23,109,873  
                 
Return on average shareholders’ equity
    9.9 %     10.3 %
                 
Adjusted return on average shareholders’ equity:
               
Net income
    2,445,145       2,378,626  
Average shareholders’ equity
    50,741,631       23,109,873  
Average goodwill
    27,289,961       8,924,823  
                 
Average shareholders’ equity excluding goodwill
    23,451,670       14,185,050  
                 
Adjusted return on average shareholders’ equity
    21.9 %     16.8 %
                 
Average shareholders’ equity as a percentage of average total assets:
               
Average shareholders’ equity
    50,741,631       23,109,873  
Average total assets
    287,974,048       163,621,250  
                 
Average shareholders’ equity as a percentage of average total assets
    17.6 %     14.1 %
                 
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill:
               
Average shareholders’ equity
    50,741,631       23,109,873  
Average goodwill
    27,289,961       8,924,823  
Average shareholders’ equity excluding goodwill
    23,451,670       14,185,050  
Average total assets
    287,974,048       163,621,250  
Average goodwill
    27,289,961       8,924,823  
                 
Average total assets excluding goodwill
    260,684,087       154,696,427  
                 
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill
    9.0 %     9.2 %
                 
Non-performing assets as a percentage of shareholders’ equity:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders’ equity
    51,135,477       49,317,582  
                 
Non-performing assets as a percentage of shareholders’ equity
    18.4 %     15.7 %
                 
Non-performing assets as a percentage of shareholders’ equity excluding goodwill:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders’ equity
    51,135,477       49,317,582  
Goodwill
    27,263,159       27,488,426  
                 
Shareholders’ equity excluding goodwill
    23,872,318       21,829,156  
                 
Non-performing assets as a percentage of shareholders’ equity excluding goodwill
    39.5 %     35.4 %
                 
 
Our calculation of these non-GAAP measures may differ from the calculation of similarly titled measures used by other companies. The Bank’s management believes that these non-GAAP financial measures provide useful information to investors because the substantial impact of the R$27.5 billion goodwill arising from the acquisition of Banco Real during the year ended December 31, 2008 obscures the significance of other factors affecting shareholders’ equity and the related ratios. In addition, consistent with the guidance provided by the Basel II framework with respect to capital measurement, in all measures used to manage the Bank, management considers shareholders’ equity excluding goodwill.


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Management believes that exclusion of goodwill from shareholders’ equity, in addition to being consistent with Basel II, more accurately reflects the economic substance of the Bank’s capital because goodwill is not an asset available to absorb cash losses and is not otherwise taken into account by the Bank in managing its operations. Accordingly, management believes that the non-GAAP measures presented are useful to investors, as well as to management, because they reflect the economic substance of the Bank’s capital. The only limitation associated with the exclusion of goodwill from shareholders’ equity is that it has the effect of excluding a portion of the total investment in the Bank’s assets. Management compensates for this limitation by also considering shareholders equity including goodwill, as set forth in the above table.
 
(4) In July 2008, new regulatory capital measurement rules, which implement the Basel II standardized approach, went into effect in Brazil, including a new methodology for credit risk and operational risk measurement, analysis and management. As a result, our capital adequacy ratios as of any date after July 2008 are not comparable to our capital ratios as of any prior date. Our Basel capital adequacy ratios are calculated excluding goodwill, in accordance with the Basel II standardized approach (provided by the “International Convergence of Capital Measurement and Capital Standards — A Revised Framework Comprehensive Version” issued by the Basel Committee on Banking Supervision from the Bank for International Settlements).
 
(5) Non-performing assets include all credits past due by more than 90 days and other doubtful credits.
 
(6) Computable credit risk is the sum of the face amounts of loans and leases (including non-performing assets), guarantees and documentary credits.
 
(7) Efficiency ratio is defined as administrative expenses divided by total income. The ratio for the six months ended June 30, 2008 is presented on a pro forma basis. See “Unaudited Pro Forma Consolidated Financial Information”.


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Banco Real Combined Income Statement Data
 
                         
    Banco Real (Combined)  
          For the Year
 
    For the Period from January 1
    Ended
 
    to August 29,     December 31,  
    2008     2007     2007  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    14,007       12,075       19,070  
Interest expense and similar charges
    (6,552 )     (5,211 )     (7,800 )
                         
Net interest income
    7,455       6,864       11,270  
Income from equity instruments
    2       13       18  
Income from companies accounted for by the equity method
    193       137       183  
Fee and commission income
    2,040       1,635       2,525  
Fee and commission expense
    (428 )     (479 )     (762 )
Gain/loss on financial assets and liabilities (net)
    798       870       1,744  
Exchange differences (net)
    (215 )     (153 )     (179 )
Other operating income (expenses)
    (17 )     (146 )     (287 )
                         
Total income
    9,828       8,741       14,512  
Administrative expenses
    (4,347 )     (3,760 )     (6,227 )
Depreciation and amortization
    (288 )     (211 )     (339 )
Provision (net)
    (472 )     (303 )     (928 )
Impairment losses on financial assets (net)
    (2,470 )     (1,838 )     (2,897 )
Impairment losses on other assets (net)
    (8 )     (36 )     (33 )
Gain/(losses) on disposal of assets not classified as non-current assets held for sale
    25       20       28  
Gain/(losses) on non-current assets held for sale
    13       36       38  
                         
Operating profit before taxes
    2,281       2.649       4,154  
Income taxes
    (907 )     (1,115 )     (1,721 )
                         
Profit for the year/period
    1,374       1,534       2,433  
                         
Profit attributable to the Parent
    1,374       1,534       2,432  
Profit attributable to minority interests
                1  


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Banco Real Combined Balance Sheet Data
 
         
    Banco Real
 
    (Combined)  
    At December 31,
 
    2007  
    (In millions of R$)  
 
Cash and balances with the Brazilian Central Bank
    10,949  
Financial assets held for trading
    3,396  
Other financial assets at fair value through profit or loss
    147  
Available for sale financial assets
    12,779  
Loans and receivables
    77,310  
Hedging derivatives
    651  
Non-current assets held for sale
    39  
Investments in associates
    333  
Tangible assets
    1,051  
Intangible assets
    1,207  
Tax assets
    3,980  
Other assets
    985  
         
Total assets
    112,827  
         
Financial liabilities held for trading
    1,725  
Financial liabilities at amortized cost
    90,672  
Hedging derivatives
    5  
Provisions
    3,443  
Tax liabilities
    2,129  
Other liabilities
    1,695  
         
Total liabilities
    99,669  
         
Shareholders’ equity
    13,094  
Issued capital
    9,322  
Reserves
    1,542  
Profit for the year attributable to the Parent
    2,432  
Less: Dividends and remuneration
    (202 )
Valuation adjustments
    59  
Minority interests
    5  
         
Total equity
    13,158  
         
Total liabilities and equity
    112,827  
         


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RISK FACTORS
 
You should carefully consider the risks described below, as well as the other information in this prospectus, before deciding to purchase our units and ADSs. Our business, results of operations, financial condition or prospects could be adversely affected if any of these risks occurs, and as a result, the market price of our units and the ADSs could decline and you could lose all or part of your investment. The risks described below are those known to us and that we currently believe may materially affect us.
 
Risks Relating to Brazil
 
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian political and economic conditions, could adversely affect us and the market price of our securities.
 
The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policies and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations, as well as the market price of our securities, may be adversely affected by changes in policies or regulations involving or affecting factors such as:
 
  •  interest rates;
 
  •  exchange rates and controls and restrictions on the movement of capital out of Brazil, such as those which were briefly imposed in 1989 and early 1990;
 
  •  currency fluctuations;
 
  •  inflation;
 
  •  liquidity of the domestic capital and lending markets;
 
  •  tax and regulatory policies; and
 
  •  other political, social and economical developments in or affecting Brazil.
 
Although the Brazilian government has implemented sound economic policies over the last few years, uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and in the securities issued abroad by Brazilian issuers. These uncertainties and other developments in the Brazilian economy may adversely affect us and the market value of our securities.
 
Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business.
 
Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business. Tight monetary policies with high interest rates and high compulsory deposit requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes and increase our loan loss provisions. Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our interest rate spreads.
 
Since 2001, the Central Bank has frequently adjusted the base interest rate. The Central Bank reduced the base interest rate during the second half of 2003 and the first half of 2004. In order to control inflation, the Central Bank increased the base interest rate several times from 16.0% per annum on August 18, 2004 to 19.75% per annum on May 18, 2005. During the following two years, favorable macroeconomic figures and


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controlled inflation within the Central Bank target range led the Central Bank to lower the base interest rate several times from 18.0% in December of 2005 to 11.25% in September of 2007. In April and June of 2008, however, the Central Bank increased the base interest rate by 0.5% respectively, to 12.25%, due to the then macroeconomic conditions and the expectations of inflation in 2008. In June 2009, the Central Bank reduced the base interest rate in order to encourage an increase in the availability of credit and the SELIC rate was lowered to 9.25%.
 
As a bank in Brazil, the vast majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations.
 
Exchange rate instability may have a material adverse effect on the Brazilian economy and Santander Brasil.
 
The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching a selling exchange rate of R$3.53 per U.S.$1.00 at the end of 2002. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per U.S.$1.00 in August 2008. In the context of the crisis in the global financial markets since mid-2008, the real depreciated 31.9% against the U.S. dollar in 2008. On June 30, 2009, the exchange rate was R$1.9516 per U.S.$1.00.
 
Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations. Additionally, depreciation of the real could make our foreign currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios and have similar consequences for our borrowers. On the other hand, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.
 
Developments and the perception of risk in other countries, especially in the United States and in emerging market countries, may adversely affect our access to financing and the market price of our securities.
 
The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States and other Latin American and emerging market countries. Although economic conditions in those countries may differ significantly from economic conditions in Brazil, investor’s reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging countries may diminish investor interest in securities of Brazilian issuers, including Santander Brasil’s securities. This could adversely affect the market price of our units and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms, or at all. In addition, the global financial crisis has had significant consequences, including in Brazil, such as stock and credit market volatility, unavailability of credit, higher interest rates, a general economic slowdown, volatile exchange rates, among others, which may, directly or indirectly, adversely affect us and the market price of our units or ADSs.


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Risks Relating to Santander Brasil and the Brazilian Financial Services Industry
 
We are vulnerable to the current disruptions and volatility in the global financial markets as well as to government action intended to alleviate the effects of the recent financial crisis.
 
The global financial markets deteriorated sharply beginning in the second half of 2007, resulting in a prolonged credit and liquidity crisis that has begun to ease following the first quarter of 2009. A number of major financial institutions, including some of the largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies, experienced significant difficulties. In particular, banks in many markets globally faced decreased liquidity or a complete lack of liquidity, rapid deterioration of financial assets in their balance sheets and resulting decreases in their capital ratios that severely constricted their ability to engage in further lending activity. We routinely transact with such institutions as counterparties in the financial services industry, as well as brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional customers. While the severity of the credit and liquidity crisis has eased in the second quarter of 2009, the financial industry continues to recover from the effects of the crisis. If significant financial counterparties experience ongoing liquidity problems or the financial services industry in general is unable to recover from the effects of the crisis, it could have a material adverse effect on our business, financial condition and results of operations.
 
In addition, the financial condition of our borrowers has, in some instances, been adversely affected by the financial and economic crisis, which has in turn increased our non-performing loans, impaired our loans and other financial assets and resulted in decreased demand for borrowings in general. For example, certain of our customers that are large exporters, suffered significant losses in connection with hedging positions with respect to the U.S. dollar when the real began to decline in value against the U.S. dollar in 2008. These losses could impact such customers’ ability to repay or refinance their debt obligations to us. If our customers fail to perform their obligations under their contracts with us where the customers are counterparty (for instance, derivatives contracts), the failure or inability of our customers to perform their payment obligations under those contracts could have a material adverse effect on us.
 
Despite the extensive government and central bank intervention to prevent the failure of the global financial system, the final impacts of such intervention are unknown. Global investor confidence is only beginning to recover and additional disruption and volatility in the global financial markets could have further negative effects on the Brazilian financial and economic environment. In addition, a prolonged economic downturn would result in a general reduction in business activity and a consequent loss of income. Any such ongoing disruption or reduction in business activity could have an adverse effect on our business, financial condition and results of operations.
 
Changes in regulation may negatively affect us.
 
Brazilian financial markets, including all of our businesses, are subject to extensive and continuous regulatory review by the Brazilian government, principally by the Central Bank and the CVM. We have no control over government regulations, which govern all facets of our operations, including regulations that impose:
 
  •  minimum capital requirements;
 
  •  compulsory deposit and/or reserve requirements;
 
  •  requirements for investments in fixed rate assets;
 
  •  lending limits and other credit restrictions, including compulsory allocations;
 
  •  limits and other restrictions on fees;
 
  •  limits on the amount of interest banks can charge or the period for capitalizing interest;
 
  •  accounting and statistical requirements; and
 
  •  other requirements or limitations in the context of the global financial crisis.


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The regulatory structure governing Brazilian financial institutions is continuously evolving and the Central Bank has proven to very actively and extensively react to developments in our industry. For example, in early 2008, the Central Bank created a compulsory deposit requirement on interbank deposits from leasing companies and since our leasing company invests most of its available cash in interbank deposits with us, this could have an adverse effect on our cost of funding. Central Bank measures and the amendment of existing laws and regulations or the adoption of new laws or regulations could adversely affect our ability to provide loans, make investments or render certain financial services.
 
Our securities and derivative financial instruments are subject to market price and liquidity variations due to changes in economic conditions and may produce material losses.
 
Financial instruments and securities represent a significant amount of our total assets. Any realized or unrealized future gains or losses from these investments or hedging strategies could have a significant impact on our income. These gains and losses, which we account for when we sell or mark-to-market investments in financial instruments, can vary considerably from one period to another. If, for example, we enter into derivatives transactions to protect us against decreases in the value of the real or in interest rates and the real instead increases in value or interest rates increase, we may incur financial losses. We cannot forecast the amount of gains or losses in any future period, and the variations experienced from one period to another, do not necessarily provide a meaningful forward-looking reference point. Gains or losses in our investment portfolio may create volatility in net revenue levels, and we may not earn a return on our consolidated investment portfolio, or on a part of the portfolio in the future. Any losses on our securities and derivative financial instruments could materially and adversely affect our operating income and financial condition. In addition, any decrease in the value of these securities and derivatives portfolios may result in a decrease in our capital ratios, which could impair our ability to engage in lending activity at the levels we currently anticipate.
 
Changes in base interest rates by the Central Bank could adversely affect our results of operations and profitability.
 
The Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central — COPOM) establishes the base interest rate for the Brazilian banking system, and uses this rate as an instrument of monetary policy. The base interest rate is the benchmark interest rate payable to holders of some securities issued by the Brazilian government and traded at the Sistema Especial de Liquidação e Custódia, the Special System for Settlement and Custody, or “SELIC”. As of December 31, 2004, 2005, 2006, 2007 and 2008, the basic interest rate was 17.8%, 18.0%, 13.3%, 11.3% and 13.8%, respectively.
 
Since 2001, the Central Bank has frequently adjusted the base interest rate. The Central Bank reduced the base interest rate during the second half of 2003 and the first half of 2004. In order to control inflation, the Central Bank increased the base interest rate several times from 16.0% per annum on August 18, 2004 to 19.75% per annum on May 18, 2005. During the following two years, favorable macroeconomic figures and controlled inflation within the Central Bank target range led the Central Bank to lower the base interest rate several times from 18.0% in December of 2005 to 11.25% in September of 2007. In April and June of 2008, however, the Central Bank increased the base interest rate by 0.5% respectively, to 12.25%, due to the then macroeconomic conditions and the expectations of inflation in 2008. In July 2009, the Central Bank reduced the base interest rate in order to encourage an increase in the availability of credit and the SELIC rate was lowered to 8.75%.
 
Although increases in the base interest rate typically enable us to increase financial margins, such increases could adversely affect our results of operations by, among other effects, reducing demand for our credit and investment products, increasing our cost of funds and increasing the risk of customer default. Decreases in the base interest rate could also adversely affect our results of operations by, among other effects, decreasing the interest income we earn on our interest-earning assets and lowering margins.


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The increasingly competitive environment and recent consolidations in the Brazilian financial services market may adversely affect our business prospects.
 
The Brazilian financial markets, including the banking, insurance and asset management sectors, are highly competitive. We face significant competition in all of our principal areas of operation from other large Brazilian and international banks, both public and private, and insurance companies. In recent years, the presence of foreign banks and insurance companies in Brazil has grown and competition in the banking and insurance sectors and in markets for specific products has increased.
 
The acquisition of an insurance company or of a bank by one of our competitors would likely increase such competitor’s market share and customer base, and, as a result, we may face heightened competition. An increase in competition may negatively affect our business results and prospects by, among other things:
 
  •  limiting our ability to increase our customer base and expand our operations;
 
  •  reducing our profit margins on the banking, insurance, leasing and other services and products we offer; and
 
  •  increasing competition for investment opportunities.
 
We may experience increases in our level of past due loans as our loan portfolio matures.
 
Our loan portfolio has grown substantially in recent years. Any corresponding rise in our level of past due loans may lag behind the rate of loan growth. Rapid loan growth may also reduce our ratio of past due loans to total loans until growth slows or the portfolio becomes more seasoned. This may result in increases in our loan loss provisions, charge-offs and the ratio of past due loans to total loans. In addition, as a result of the increase in our loan portfolio and the described lag in any corresponding rise in our level of past due loans, our historic loan loss experience may not be indicative of our future loan loss experience.
 
Our market, credit and operational risk management policies, procedures and methods may not be fully effective in mitigating our exposure to unidentified or unanticipated risks.
 
Our market and credit risk management techniques and strategies, including our use of value at risk, or “VaR”, and other statistical modeling tools, may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. If existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits.
 
In addition, our businesses depend on the ability to process a large number of transactions efficiently and accurately. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, information systems failures or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures for mitigating operational risk proves to be inadequate or is circumvented. We have suffered losses from operational risk in the past and there can be no assurance that we will not suffer material losses from operational risk in the future.
 
We may fail to recognize the contemplated benefits of the acquisition of Banco Real.
 
The value of the units and ADSs could be adversely affected to the extent we fail to realize the benefits we hope to achieve from the integration of Santander and Banco Real, in particular, cost savings and revenue generation arising from integration of the two banks’ operations. We may fail to realize these projected cost


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savings and revenue generation in the time frame we anticipate or at all due to a variety of factors, including our inability to carry out headcount reductions, the implementation of our firm culture and the integration of our back office operations or delays or obstacles in the integration of our information technology platform and operating systems. It is possible that the acquisition could result in the loss of key employees, the disruption of each bank’s ongoing business and inconsistencies in standards, controls, procedures and policies and the dilution of brand recognition of the Santander and Banco Real brands. Moreover, the success of the acquisition will at least in part be subject to a number of political, economic and other factors that are beyond our control.
 
If our reserves for future insurance policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would adversely affect our results of operations and financial condition.
 
Our insurance companies establish and carry reserves to pay future insurance policyholder benefits and claims. Our reserves do not represent an exact calculation of liability, but rather are actuarial or statistical estimates based on models that include many assumptions and projections which are inherently uncertain and involve the exercise of significant judgment, including as to the levels of and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results, retirement, mortality, morbidity and persistency. We cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our insurance policy liabilities, together with future premiums, will be sufficient for payment of benefits and claims. If we conclude that our reserves, together with future premiums, are insufficient to cover future insurance policy benefits and claims, we would be required to increase our reserves in connection with our insurance business and incur income statement charges for the period in which we make the determination, which would adversely affect our results of operations and financial condition.
 
The profitability of our insurance operations may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing expectations.
 
We set prices for many of our insurance and annuity products based upon expected claims and payment patterns, using assumptions for mortality rates, or likelihood of death, and morbidity rates, or likelihood of sickness, of our insurance policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality or morbidity could emerge gradually over time, due to changes in the natural environment, the health habits of the insured population, treatment patterns for disease or disability, or other factors. Pricing of our insurance and deferred annuity products is also based in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Results may also vary based on differences between actual and expected premium deposits and withdrawals for these products. Significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our insurance products. Although some of our insurance products permit us to increase premiums or adjust other charges and credits during the life of the policy or contract, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability. Many of our insurance products do not permit us to increase premiums or adjust other charges and credits or limit those adjustments during the life of the policy or contract.
 
Our controlling shareholder has a great deal of influence over our business.
 
Following the offering, Santander Spain, our controlling shareholder, will continue to own, indirectly, 85.0% of our common shares, 83.6% of our preferred shares and 84.3% of our total capital. Due to its share ownership, our controlling shareholder has the power to control us and our subsidiaries, including the power to:
 
  •  elect a majority of our directors and appoint our executive officers, set our management policies and exercise overall control over our company and subsidiaries;
 
  •  agree to sell or otherwise transfer its controlling stake in our company; and


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  •  determine the outcome of substantially all actions requiring shareholder approval, including transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.
 
The interests of Santander Spain may differ from our interests or those of our other shareholders and the concentration of control in Santander Spain will limit other shareholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial, which may adversely affect our results of operations and financial condition.
 
Risks Relating to Our Units and ADSs
 
Until the Central Bank ratifies our capital increase in connection with this offering, the units will represent subscription receipts, common and preferred shares and not only our common and preferred shares. We cannot provide assurance as to when or if the Central Bank will ratify our capital increase.
 
Our capital increase must be ratified by the Central Bank in order for the units to represent our common and preferred shares. A capital increase for a financial institution is subject to the deposit of government bonds corresponding to the amount of the capital increase with the Central Bank, as well as to the presentation of certain information and documents to the Central Bank. As a result, the ratification of the capital increase for financial institutions occurs after confirmation by the Central Bank that the applicable requirements have been met and applicable banking rules do not require that the Central Bank make its determination within a specified period of time. We have no means of determining when the subscription receipts that will initially underlie the units will be converted into our common and preferred shares.
 
In the context of this offering, each unit will, until approval by the Central Bank of our capital increase, represent 48.125 subscription receipts of common shares, 6.875 common shares, 43.750 subscription receipts of preferred shares and 6.250 preferred shares. Until the capital increase is ratified by the Central Bank, investors can only exercise voting rights, if applicable, on the whole number of shares in each unit held by them. Subscription receipts, which underlie the units, are not entitled to receive dividends or interest on shareholders’ equity paid in respect of our shares, and not entitled to exercise voting rights. Subscription receipts entitle their holders to receive common and preferred shares, only upon Central Bank ratification. See “Description of Capital Stock”.
 
In the event that the Central Bank does not approve the capital increase within six months from the closing of this offering, one of our shareholders has agreed to deliver to each record holder of units as of the date of delivery, free of charge, a fraction of a preferred share and a fraction of a common share such that the aggregate numbers of common and preferred shares represented by all units held of record by that holder plus such fractions of shares make up whole numbers of preferred and common shares. For example, a record holder of two units (representing receipts plus 13.75 common shares and 12.50 preferred shares) would receive 0.25 common shares and 0.50 preferred shares. In addition, the capital increase corresponding to the subscription receipts would be cancelled and amounts in respect of such subscription receipts equal to the amount paid for such receipts in this offering would be distributed to the then-current investors. If the market price for units at the time of any such distribution is higher than the public offering price, such amounts will be correspondingly less than the then-implied market value of the receipts.
 
Cancellation of units may have a material and adverse effect on the market for the units and on the value of the units.
 
Pursuant to the terms of the custody, issuance and registration agreement, after 180 days from the initial announcement of the Brazilian offering, holders of units may present units for cancellation in Brazil in exchange for the common shares and preferred shares underlying these units. If unit holders present a significant number of units for cancellation in exchange for the underlying common shares and preferred shares, the liquidity and price of the units may be materially and adversely affected.


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The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADSs.
 
Although the Brazilian equity market is the largest in Latin America in terms of capitalization, it is smaller and less liquid than the major U.S. and European securities markets. The BM&FBOVESPA is significantly less liquid than the New York Stock Exchange, or the NYSE, or other major exchanges in the world. As of December 31, 2008, the aggregate market capitalization of the BM&FBOVESPA was equivalent to approximately R$1,375.3 billion (U.S.$588.5 billion) and the top ten stocks in terms of trading volume accounted for approximately 53.1% of all shares traded on BM&FBOVESPA in the year ended December 31, 2008. In contrast, as of December 31, 2008, the aggregate market capitalization of the NYSE was approximately U.S.$9.2 trillion. Although any of the outstanding shares of a listed company may trade on the BM&FBOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, government entities or a principal shareholder. The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the units or ADSs at the time and price you desire and, as a result, could negatively impact the market price of these securities.
 
The price of our units and ADSs is subject to volatility.
 
Before this offering, no public market for our units and ADSs has existed in Brazil and the United States, respectively. The initial public offering price for our units and ADSs will be determined by negotiations between us and the representatives of the international underwriters. The market price for our ADSs may fall below the initial public offering price. The market price of our ADSs could be subject to significant fluctuations due to a variety of factors, including actual or anticipated fluctuations in our operating results and financial performance, economic downturns, political events in the jurisdictions where we operate or other changes in our industries, changes in financial estimates by securities analysts, the introduction of new products or technologies by us or our competitors, or our failure to meet expectations of analysts or investors.
 
Actual or anticipated sales of a substantial number of units or our common shares or preferred shares in the future could decrease the market prices of the ADSs.
 
Sales of a substantial number of our units or our common shares or preferred shares after the completion of the global offering, or the anticipation of such sales, could negatively affect the market prices of the ADSs. Immediately after completion of the global offering, Santander Spain will, directly or indirectly, own 179,237,665,349 common shares and 154,146,450,231 preferred shares in the aggregate. Subject to some exceptions, we have agreed not to offer, sell or contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC, or the CVM a registration statement relating to, any additional units or ADSs or securities convertible into or exchangeable or exercisable for any shares of our share capital or ADSs, or publicly disclose any such offer, sale, pledge disposition or filing, for a period of 180 days after the date of this prospectus, without the prior written consent of the underwriters. Our directors, executive officers and our parent company have agreed to substantially similar lock-up provisions, subject to certain exceptions. In connection with our listing on the BM&FBOVESPA, our parent company will need to sell additional shares prior to the third anniversary after the date of this prospectus, extendable for up to two years upon presentation of a plan to BM&FBOVESPA, to ensure that the public float represents at least 25 percent of our total capital. If, in the future, substantial sales of units or common shares or preferred shares are made by existing or future holders, the market prices of the ADSs may decrease significantly. As a result, holders of ADSs may not be able to sell their ADSs at or above the price they paid for them.
 
The economic value of your investment may be diluted.
 
The estimated initial public offering price of our ADSs is higher than the net tangible book value per unit of our ADSs immediately prior to the offering. If you purchase ADSs in this offering, you will experience immediate and substantial dilution in the net tangible book value per unit from the public offering price. See “Dilution”. In addition, we may need additional funds and, in the case public or private financing is unavailable or if our shareholders decide, we may issue additional units or shares. Any additional funds obtained by such a capital increase may dilute your interest in our company.


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Delisting of our shares from Level 2 of BM&FBOVESPA may negatively affect the price of our ADSs and units.
 
Companies listed on Level 2 of BM&FBOVESPA are required to have a public float of at least 25% of their outstanding shares. We estimate that following the global offering of our units, our public float will be approximately 15.6% of our outstanding capital. We will have a grace period of three years from the date of listing our shares on Level 2 of BM&FBOVESPA, extendable for an additional two years upon presentation of a plan to BM&FBOVESPA to comply with the minimum public float requirement. If we do not meet the minimum public float requirement, we may be subject to fines and eventually delisted from Level 2 of BM&FBOVESPA and be traded at the regular level of BM&FBOVESPA. In addition, if the Central Bank does not ratify our bylaws as adopted in our general shareholders’ meeting on August 31, 2009 to conform with the requirements of Level 2 of the BM&FBOVESPA or the election of our new directors as approved in our general shareholders’ meeting on September 2, 2009 and we are unable to meet any potential requirements of the Central Bank relating to the ratification of either our bylaws or our directors, we will be unable to comply with the regulations of Level 2 and we will be subject to delisting and would be traded at the regular level of BM&FBOVESPA. Moreover, Level 2 regulations are subject to change and we may not be able to comply with such changes. Although such delisting will result in the obligation of the controlling shareholder to carry out a mandatory tender offer for the shares of the minority shareholders, such delisting may result in a decrease of the price of our shares, units and ADSs.
 
Holders of our units and our ADSs may not receive any dividends or interest on shareholders’ equity.
 
According to our bylaws, we must generally pay our common shareholders at least 25% of our annual net income as dividends or interest on shareholders’ equity, as calculated and adjusted under the Brazilian corporation law method, which may differ significantly from our net income as calculated under IFRS. This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed under the Brazilian corporation law method and may not be available to be paid as dividends or interest on shareholders’ equity. Additionally, the Brazilian corporation law allows a publicly traded company like ours to suspend the mandatory distribution of dividends in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. See “Dividends and Dividend Policy — Payment of Dividends and Interest Attributable to Shareholders’ Equity”.
 
Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.
 
Holders of ADSs will not be direct shareholders of our company and will be unable to enforce directly the rights of shareholders under our bylaws and the Brazilian corporation law. Holders of ADSs may exercise voting rights with respect to the units represented by ADSs only in accordance with the deposit agreement governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our units will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’ meeting by mail from the ADR depositary following our notice to the depositary requesting the depository to do so. To exercise their voting rights, holders of ADSs must instruct the ADR depositary on a timely basis. This voting process necessarily will take longer for holders of ADSs than for holders of our units or shares. Deposited securities represented by ADSs for which no timely voting instructions are received by the depositary from the holder shall not be voted. Additionally, the depositary shall, if so requested by us in writing, represent all deposited securities (whether or not voting instructions have been received in respect of such deposited securities from holders) for the sole purpose of establishing a quorum at a meeting of shareholders.
 
Holders of ADSs also may not receive the voting materials in time to instruct the depositary to vote the units underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the units underlying their ADSs are not voted as requested.


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Holders of ADSs could be subject to Brazilian income tax on capital gains from sales of ADSs.
 
Law No. 10,833 of December 29, 2003 provides that the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our units by a non-resident of Brazil to another non-resident of Brazil. It is unclear whether ADSs representing our units, which are issued by the ADR depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. There is no judicial guidance as to the application of Law No. 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADSs between non-residents of Brazil. In the event that the disposition of assets is interpreted to include a disposition of our ADSs, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADSs by a non-resident of Brazil to another non-resident of Brazil. See “Taxation — Brazilian Tax Considerations”.
 
Because any gain or loss recognized by a U.S. Holder (as defined in “Taxation — Material U.S. Federal Income Tax Considerations for U.S. Holders”) will generally be treated as a U.S. source gain or loss unless such credit can be applied (subject to applicable limitations) against tax due on the other income treated as derived from foreign sources, such U.S. Holder would not be able to use the foreign tax credit arising from any Brazilian tax imposed on the disposition of our units.
 
Judgments of Brazilian courts with respect to our units or ADSs will be payable only in reais.
 
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the units or ADSs, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations and according to Brazilian laws, an obligation in Brazil to pay amounts denominated in a currency other than reais may be satisfied in Brazilian currency only at the exchange rate, as determined by the Central Bank or competent court, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the units or ADSs.
 
Holders of ADSs may be unable to exercise preemptive rights with respect to our units underlying the ADSs.
 
Holders of ADSs will be unable to exercise the preemptive rights relating to our units underlying ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the “Securities Act”, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of units or ADSs. We may decide, in our discretion, not to file any such registration statement. If we do not file a registration statement or if we and the ADR depositary decide not to make preemptive rights available to holders of units or ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.


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FORWARD-LOOKING STATEMENTS
 
This prospectus contains estimates and forward-looking statements, principally in “Risk Factors”, “Operating and Financial Review and Prospects” and “Business”. Some of the matters discussed concerning our business operations and financial performance include estimates and forward-looking statements within the meaning of the Securities Act and the Exchange Act.
 
Our estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:
 
  •  increases in defaults by our customers and in impairment losses,
 
  •  decreases in deposits, customer loss or revenue loss,
 
  •  increases in provisions for contingent liabilities,
 
  •  our ability to sustain or improve our performance,
 
  •  changes in interest rates which may, among other effects, adversely affect margins,
 
  •  competition in the banking, financial services, credit card services, insurance, asset management and related industries,
 
  •  government regulation and tax matters,
 
  •  adverse legal or regulatory disputes or proceedings,
 
  •  credit, market and other risks of lending and investment activities,
 
  •  decreases in our level of capitalization,
 
  •  changes in market values of Brazilian securities, particularly Brazilian government securities,
 
  •  changes in regional, national and international business and economic conditions and inflation, and
 
  •  other risk factors as set forth under “Risk Factors”.
 
The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this prospectus might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.


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USE OF PROCEEDS
 
We expect to receive total estimated net proceeds of approximately R$12.1 billion, or U.S.$6.8 billion, based on the mid-point of the price range set forth on the cover page of this prospectus, converted by a selling exchange rate of R$1.7781 to U.S.$1.00 reported by the Central Bank on September 30, 2009. The total estimated net proceeds include approximately R$      million from the subscription of our units in the Brazilian offering, or R$      million if the Brazilian underwriters exercise their over-allotment option in full, and approximately U.S.$      million from the sale of our units, directly or in the form of ADSs in the international offering, or U.S.$      million if the international underwriters exercise the over-allotment option in full, in each case, after deducting estimated underwriting discounts and commissions and expenses of the offerings that are payable by us. Each ADS represents one unit. Each U.S.$1.00 increase (decrease) in the public offering price per ADS would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and expenses, by R$915.7 million, or U.S.$515 million (assuming no exercise of the over-allotment option by the international underwriters).
 
We intend to use the net proceeds from the global offering to expand our business in Brazil by growing our physical presence and increasing our capital base. We also intend to enhance our funding structure and, along with our traditional funding sources, increase our current credit transactions.
 
In particular, we estimate that we will use: (1) 70% of the net proceeds to expand our physical infrastructure, including by opening new branches and installing additional ATMs, and to fund increased credit transactions in our Commercial Banking and Global Wholesale Banking segments more efficiently than we could do with ordinary funding sources; (2) 20% of the net proceeds to improve our funding structure; and (3) 10% of the net proceeds to increase our capital base, improving our Basel capital adequacy ratio.
 
See “Capitalization” and “Operating and Financial Review and Prospects” for information on the impact of the net proceeds from this offering on our financial condition.


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MARKET INFORMATION
 
Prior to this offering, there has been no public market for the ADSs. We cannot assure you that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market subsequent to the global offering at or above the initial public offering price. Each ADS will represent one unit. Upon approval of our capital increase, each unit will represent 55 common shares and 50 preferred shares. See “Description of Capital Stock—Description of the Subscription Receipts”. The principal trading market for our common shares and preferred shares is the BM&FBOVESPA. Our common shares and preferred shares are listed on the BM&FBOVESPA under the symbols “SANB3” and “SANB4”, respectively. We expect to list the units on the BM&FBOVESPA under the symbol “SANB11”. At June 30, 2009, we had five U.S. record holders.
 
Price History of Our Preferred Shares and Common Shares
 
Our common shares and preferred shares began trading on the BMF&FBOVESPA in April 2007 following the merger of Banespa into Banco Santander Meridional S.A., our predecessor company. Banespa was a publicly held company at the time of its merger with us. As a result of the merger, we became a publicly traded company following approval from the CVM on March 2, 2007.
 
The table below sets forth the high and low closing sales prices for our preferred shares and common shares on the BM&FBOVESPA for the periods indicated. Due to a relatively low public float (approximately 2% of our total shares) our shares have historically traded at low prices which bear no relation to the offering price for the units and ADSs set forth on the cover page of this prospectus.
 
                                                 
    BM&FBOVESPA  
    Preferred Shares     Common Shares  
                Average Daily
                Average Daily
 
    High     Low     Trading Volume     High     Low     Trading Volume  
    R$ per share     (In shares)     R$ per share     (In shares)  
 
Year
                                               
2007(1)(2)
    340.00       0.23       136,494       313.00       0.21       26,475  
2008
    0.25       0.10       907,083       0.25       0.11       137,083  
Quarter
                                               
First Quarter, 2007(1)
    150.00       122.00       201,262                    
Second Quarter, 2007
    200.00       145.00       1,483,772       189.95       150.00       210,815  
Third Quarter, 2007
    240.00       166.01       1,743,333       220.00       160.00       203,233  
Fourth Quarter, 2007(2)
    340.00       0.23       3,123,333       313.00       0.21       300,667  
First Quarter, 2008
    0.25       0.18       743,333       0.25       0.17       113,333  
Second Quarter, 2008
    0.23       0.19       1,260,000       0.24       0.20       125,000  
Third Quarter, 2008
    0.20       0.13       958,000       0.21       0.14       150,000  
Fourth Quarter, 2008
    0.15       0.10       667,000       0.16       0.11       160,000  
First Quarter, 2009
    0.14       0.12       210,000       0.15       0.12       74,000  
Second Quarter, 2009
    0.15       0.12       1,011,667       0.14       0.11       796,000  
Month
                                               
March 2009
    0.13       0.12       460,000       0.13       0.12       480,714  
April 2009
    0.13       0.11       233,000       0.14       0.12       192,000  
May 2009
    0.13       0.12       1,477,000       0.14       0.12       937,500  
June 2009
    0.14       0.12       2,410,000       0.15       0.12       2,875,000  
July 2009
    0.25       0.14       11,225,000       0.24       0.21       4,150,000  
August 2009
    0.25       0.13       3,450,000       0.24       0.21       2,025,000  
September 2009
    0.24       0.23       5,225,071       0.24       0.23       1,765,000  


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Source: BM&FBOVESPA.
 
(1) Common shares started trading on April 3, 2007 and preferred shares started trading on March 6, 2007.
 
(2) Prior to November 1, 2007, our common shares and preferred shares each traded in lots of 1,000 shares, and following such date, began trading as individual shares.
 
On September 30, 2009, the last reported closing sale price on the BM&FBOVESPA was R$0.24 per preferred share and R$0.24 per common share.
 
Trading on the BM&FBOVESPA
 
In 2000, Bolsa de Valores de São Paulo was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges and assumed all shares traded in Brazil. In 2007, Bolsa de Valores de São Paulo was subject to a corporate reorganization, by which, among other things, the quotas issued by it were transferred to BOVESPA Holding S.A. and Bolsa de Valores de São Paulo S.A. — BVSP. The operations of BOVESPA Holding S.A. and Bolsa de Mercadorias e Futuros — BM&F S.A. were subsequently integrated, resulting in the creation of BM&FBOVESPA S.A. — Bolsa de Valores, Mercadorias e Futuros, or BM&FBOVESPA. In late 2008, Bolsa de Valores de São Paulo — BVSP and Companhia Brasileira de Liquidação e Custódia were merged into BM&FBOVESPA, which currently concentrates all trading activities of shares and commodities in Brazil.
 
Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, from 10:00 a.m. to 5:00 p.m. or from 11:00 a.m. to 6:00 p.m. during daylight savings time in the U.S., on an electronic trading system called Megabolsa. Trading is also conducted between 5:45 p.m. and 7:00 p.m., or between 6:45 p.m. and 7:30 p.m. during daylight savings time in Brazil, in an after-market system connected to both traditional brokerage firms and brokerage firms operating on the Internet. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.
 
In order to maintain control over the fluctuation of the BM&FBOVESPA index, the BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the BM&FBOVESPA index falls below 10% or 15%, respectively, in relation to the closing index levels of the previous trading session.
 
When investors trade shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date, without adjustments to the purchase price. The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date. Delivery of and payment for shares are made through the facilities of an independent clearing house, the BM&FBOVESPA, which handles the multilateral settlement of both financial obligations and transactions involving securities. According to the regulations of the BM&FBOVESPA, financial settlement is carried out through the system of transfer of funds of the Central Bank and the transactions involving the sale and purchase of shares are settled through the BM&FBOVESPA custody system. All deliveries against final payment are irrevocable.
 
Regulation of Brazilian Securities Markets
 
The Brazilian securities market is regulated by the CVM, as provided for by Law 6,385 of December 7, 1976 or the “Brazilian Securities Exchange Law” and Brazilian corporate law. The CMN is responsible for granting licenses to brokerage firms to govern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by the Brazilian Securities Exchange Act and Law No. 4595 of December 31, 1964. These laws and regulations provide for, among other things, disclosure requirements, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.
 
Under Brazilian corporate law, a company is either publicly held and listed, a companhia aberta, or privately held and unlisted, a companhia fechada. All listed companies are registered with the CVM and are subject to reporting requirements to periodically disclose information and material facts. A company registered


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with the CVM may trade its securities either on the Brazilian exchange markets, including the BM&FBOVESPA, or in the Brazilian over-the-counter market. Shares of companies listed on BM&FBOVESPA may not simultaneously trade on the Brazilian over-the-counter market. The over-the-counter market consists of direct trades between persons in which a financial institution registered with the CVM serves as an intermediary. No special application, other than registration with the CVM (and, in case of organized over-the-counter markets, in the applicable one), is necessary for securities of a public company to be traded in this market. To be listed on the BM&FBOVESPA, a company must apply for registration with the BM&FBOVESPA and the CVM.
 
The trading of securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA.
 
Investment in Our Units by Non-Residents of Brazil
 
Investors residing outside Brazil are authorized to purchase equity instruments, including our units, or foreign portfolio investments on the BM&FBOVESPA, provided that they comply with the registration requirements set forth in Resolution No. 2,689 of the CMN (or Resolution No. 2,689), and CVM Instruction No. 325.
 
With certain limited exceptions, Resolution No. 2,689 investors are permitted to carry out any type of transaction in the Brazilian financial capital market involving a security traded on a Brazilian stock, future or organized over-the-counter market. Investments and remittances outside Brazil of gains, dividends, profits or other payments under our units are made through the foreign exchange market.
 
In order to become a Resolution No. 2,689 investor, an investor residing outside Brazil must:
 
  •  appoint a representative in Brazil with powers to take actions relating to the investment;
 
  •  obtain a taxpayer identification number from the Brazilian tax authorities;
 
  •  appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Central Bank and CVM; and
 
  •  through its representative, register itself as a foreign investor with the CVM and the investment with the Central Bank.
 
Securities and other financial assets held by foreign investors pursuant to Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM.
 
Foreign direct investors under Law No. 4,131/62 may sell their shares in both private and open market transactions, but these investors are currently subject to less favorable tax treatment on gains.
 
A foreign direct investor under Law No. 4,131/62 must:
 
  •  register as a foreign direct investor with the Central Bank;
 
  •  obtain a taxpayer identification number from the Brazilian tax authorities;
 
  •  appoint a tax representative in Brazil; and
 
  •  appoint a representative in Brazil for service of process in respect of suits based on the Brazilian corporate law.
 
Resolution No. 1,927 of the CMN, which restated and amended Annex V to Resolution No. 1,289 of the CMN, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian


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issuers. We filed an application to have the ADSs approved under Resolution 1,927 by the Central Bank and the CVM, and we received final approval on          , 2009.
 
If a holder of ADSs decides to exchange ADSs for the underlying units, the holder will be entitled to (1) sell the units on the BM&FBOVESPA and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our units, (2) convert its investment into a foreign portfolio investment under Resolution No. 2,689/00, or (3) convert its investment into a foreign direct investment under Law No. 4,131/62. See “Taxation — Brazilian Tax Considerations” for a description of the tax consequences to an investor residing outside Brazil of investing in our units in Brazil.
 
If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under Resolution No. 2,689/00 or a foreign direct investment under Law No. 4,131/62, it should begin the process of obtaining his own foreign investor registration with the Central Bank or with the CVM as the case may be, in advance of exchanging the ADSs for common shares.
 
The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments under Resolution No. 2,689/00. If a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law 4,131/62, the conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also involve the need to change the units into shares.
 
If a foreign direct investor under Law No. 4,131/62 wishes to deposit its units into the ADR program in exchange for ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also involve the need to change the units into shares.
 
The Brazilian constitution permits foreign individuals or companies to invest in the voting shares of Brazilian financial institutions only if they have specific authorization by the President of Brazil based on national interest or reciprocity. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (a predecessor entity) allows up to one hundred percent foreign participation in the capital stock of Santander Brasil. Foreign investors may acquire the shares issued by this offering as a result of this decree. In addition, foreign investors may acquire publicly traded non-voting shares of Brazilian financial institutions negotiated on a stock exchange, or depositary receipts offered abroad representing non-voting shares without specific authorization. See “Regulatory Overview — Foreign Investment in Brazil — Foreign Investment in Brazilian Financial Institutions”.


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CAPITALIZATION
 
The following table sets forth our consolidated capitalization at June 30, 2009, derived from our unaudited consolidated financial statements prepared in accordance with IFRS:
 
  •  on an actual basis; and
 
  •  as adjusted to give effect to sale of our units, including units in the form of ADSs, in the global offering, and the receipt of approximately R$12.1 billion in estimated net proceeds, assuming an offering price of R$23.50 per unit, the mid-point of the price range set forth on the cover page of this prospectus (and assuming that ADSs are offered in the global offering at the ratio of 1 unit per ADS), after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with the global offering, and the use of proceeds therefrom and assuming no exercise of the over-allotment by the international underwriters.
 
You should read this table in conjunction with our financial statements and the related notes and with the sections entitled “Selected Financial and Operating Data” and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.
 
                                 
    At June 30, 2009(1)  
    Actual     As Adjusted     Actual(2)     As Adjusted(2)  
    (In millions)  
 
Liabilities
                               
Financial liabilities held for trading
  R$ 4,887     R$ 4,887     US$ 2,504     US$ 2,504  
Other financial liabilities at fair value through profit or loss
    363       363       186       186  
Financial liabilities at amortized cost
    207,644       207,644       106,397       106,397  
Deposits from the Brazilian Central Bank
    870       870       446       446  
Deposits from credit institutions
    21,793       21,793       11,167       11,167  
Customer deposits
    154,922       154,922       79,382       79,382  
Marketable debt securities
    11,299       11,299       5,790       5,790  
Subordinated liabilities
    10,996       10,996       5,634       5,634  
Other financial liabilities
    7,764       7,764       3,978       3,978  
Hedging derivatives
    63       63       32       32  
Provisions
    10,203       10,203       5,228       5,228  
Tax liabilities
    7,352       7,352       3,767       3,767  
Other liabilities
    6,560       6,560       3,361       3,361  
                                 
Total liabilities
  R$ 237,072     R$ 237,072     US$ 121,475     US$ 121,475  
                                 
Shareholders’ equity
    51,136       63,213       26,202       32,390  
Minority interests
    5       5       3       3  
Valuation adjustments
    665       665       341       341  
                                 
Total capitalization
  R$ 288,878     R$ 300,955     US$ 148,021     US$ 154,209  
                                 
 
 
(1) Total capitalization corresponds to total liabilities plus total shareholders’ equity.
 
(2) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
The following are the principal transactions made by Santander Brasil and its subsidiaries affecting the capitalization of Santander Brasil after June 30, 2009:
 
On August 14, 2009, certain Brazilian asset management, insurance and banking companies, all of which were previously beneficially owned by Santander Spain and third party minority shareholders, were transferred to us. These transactions are pending approval by the Central Bank and SUSEP (with respect to the insurance operations). See “Summary — Recent Events — Acquisition of Asset Management and Insurance Companies”. As a result of these transactions, our capital stock was increased by approximately R$2.5 billion through the issuance of 14,410,886,181 shares, comprised of 7,710,342,899 common shares and 6,700,543,282 preferred shares.


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DILUTION
 
At June 30, 2009, we had a net tangible book value of R$20.6 billion, corresponding to a net tangible book value of R$6.62 per unit or U.S.$3.39 per ADS (using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 = U.S.$1.00 and the ratio of one unit to one ADS). Net tangible book value represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by 325,732,887,684, the total number of our common and preferred shares outstanding at June 30, 2009.
 
After giving effect to the sale by us of the 525,000,000 units offered by us in the global offering, and assuming (1) an offering price of R$23.50 per unit, the mid-point of the price range set forth on the cover page of this prospectus (and assuming that ADSs are offered in the global offering at a ratio of one unit per ADS) and (2) neither the Brazilian underwriters nor the international underwriters have exercised the over-allotment option, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated at June 30, 2009 would have been approximately R$32.62 billion, representing R$8.99 per unit, or U.S.$4.61 per ADS. This represents an immediate increase in net tangible book value of R$2.37 per unit or U.S.$1.21 per ADS to existing shareholders and an immediate dilution in net tangible book value of R$14.51 per unit, or U.S.$7.44 per ADS to new investors purchasing units in this offering. Dilution for this purpose represents the difference between the price per unit or ADS paid by these purchasers and net tangible book value per unit or ADS immediately after the completion of the offerings.
 
The following table illustrates this dilution to new investors purchasing units, including units in the form of ADSs, in the global offering before and after the capital increase effected in connection with the share exchange transactions (incorporação de ações) for certain asset management and insurance companies that were previously beneficially owned by Santander Spain. See “Summary — Recent Events — Acquisition of Asset Management and Insurance Companies”.
 
                                 
          At June 30, 2009,
 
    At June 30, 2009     As Adjusted(1)  
Assumed initial offering price
  Units     ADSs(2)     Units     ADSs(2)  
    R$     U.S.$     R$     U.S.$  
 
Net tangible book value per unit or ADS at June 30, 2009
    6.62       3.39       7.11       3.64  
Increase in net tangible book value per unit or ADS attributable to new investors
    2.37       1.21       2.22       1.14  
Pro forma net tangible book value per unit or ADS after the global offering
    8.99       4.61       9.32       4.78  
Dilution per unit or ADS to new investors
    14.51       7.43       14.18       7.26  
Percentage of dilution in net tangible book value per unit or ADS for new investors(3)
    61.7 %     61.7 %     60.3 %     60.3 %
 
 
(1) Adjusted to reflect our issuance of additional shares in connection with the transfer to us of certain asset management and insurance businesses previously beneficially owned by Santander Spain. See “Summary — Recent Events — Acquisition of Asset Management and Insurance Companies”.
 
(2) Translated for convenience only using the selling exchange rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars at R$1.9516 to U.S.$1.00.
 
(3) Percentage of dilution for new investors is calculated by dividing the dilution in net tangible book value for new investors by the price of the offering.
 
Each R$1.00 increase (decrease) in the offering price per unit or ADS, respectively, would increase (decrease) the net tangible book value after this offering by R$0.15 per unit or U.S.$0.08 per ADS assuming no exercise of the over-allotment options granted to the underwriters and the dilution to investors in the offering by R$0.85 per unit or U.S.$0.44 per ADS, assuming that the number of units offered in the Brazilian offering and the number of ADSs offered in the international offering, as set forth on the cover page of this prospectus, remain the same.


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EXCHANGE RATES
 
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
 
Since 1999, the Central Bank has allowed the real/U.S. dollar exchange rate to float freely, and since then the real/U.S. dollar exchange rate has fluctuated considerably. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per U.S.$1.00 at the end of 2002. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per U.S.$1.00 in August 2008. Since mid-2008, the real has depreciated 31.9% against the U.S. dollar compared to year-end 2008. On June 30, 2009, the exchange rate was R$1.9516 per U.S.$1.00.
 
The following tables set forth the exchange rate (rounded to the nearest tenth of a cent), expressed in reais per U.S. dollar (R$/U.S.$), for the periods indicated, as reported by the Central Bank.
 
                                 
          Average for
             
    Period-end     Period(1)     Low     High  
    (Per U.S. dollar)  
 
Year Ended:
                               
December 31, 2004
    2.654       2.930       2.654       3.205  
December 31, 2005
    2.341       2.463       2.163       2.762  
December 31, 2006
    2.138       2.215       2.059       2.371  
December 31, 2007
    1.771       1.793       1.732       2.156  
December 31, 2008
    2.337       2.030       1.559       2.500  
Month Ended:
                               
April 30, 2009
    2.178       2.206       2.170       2.290  
May 31, 2009
    1.973       2.061       1.973       2.148  
June 30, 2009
    1.952       1.958       1.921       2.007  
July 31, 2009
    1.873       1.933       1.873       2.015  
August 31, 2009
    1.886       1.845       1.818       1.886  
September 2009
    1.778       1.820       1.778       1.904  
 
 
(1) Average of the lowest and highest rates in the periods presented.
 
Source: Central Bank
 
Exchange rate fluctuation will affect the U.S. dollar equivalent of the market price of our units on the BM&FBOVESPA, as well as the U.S. dollar value of any distributions we make with respect to our units, which will be made in reais. See “Risk Factors — Risks Relating to Brazil”.
 
Our parent, Santander Spain, reports its financial condition and results of operations in euros. As of June 30, 2009 the exchange rate for euro to real was R$2.73985 per €1.00.


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SELECTED FINANCIAL AND OPERATING DATA
 
Santander Brasil financial data at and for the years ended December 31, 2008 and 2007 have been derived from the audited consolidated financial statements prepared in accordance with IFRS included in this prospectus. Banco Real has been consolidated with our financial statements since August 30, 2008. The Banco Real financial data at and for the year ended December 31, 2007 and for the period from January 1 to August 29, 2008 have been derived from the audited combined financial statements prepared in accordance with IFRS included in this prospectus. Our results of operations for the year ended December 31, 2008 are not comparable to our results of operations for the year ended December 31, 2007 because of the consolidation of Banco Real in our financial statements as from August 30, 2008. See “Operating and Financial Review and Prospects — Acquisition of Banco Real”.
 
The selected consolidated financial data at June 30, 2009 and for the six months ended June 30, 2009 and 2008 for Santander Brasil have been derived from the unaudited consolidated interim financial information included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented. The results for the six months ended June 30, 2009 are not necessarily indicative of the results of operations that you should expect for the entire year ended December 31, 2009 or any other period.
 
The selected combined financial data for the period from January 1 to August 29, 2007 for Banco Real have been derived from unaudited combined interim financial information included elsewhere in this prospectus, which in the opinion of our management, include all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented.
 
Santander Brasil financial data at December 31, 2005 and 2004 and for the years ended December 31, 2006, 2005 and 2004 have been derived from unaudited combined financial statements prepared in accordance with Brazilian GAAP. Santander Brasil financial data at December 31, 2006 has been derived from unaudited consolidated financial statements prepared in accordance with Brazilian GAAP. See “Presentation of Financial and Other Information”. Because of the material differences in criteria and presentation between Brazilian GAAP and IFRS, such information is not comparable with our financial statements prepared in accordance with IFRS. For a discussion of such differences, see note 45 to our financial statements.
 
The pro forma selected financial data for Santander Brasil for the year ended December 31, 2008 and six months ended June 30, 2008 have been derived from the unaudited pro forma consolidated financial information included elsewhere in this prospectus, which gives effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group and the share exchange transaction (incorporação de ações) had occurred as of January 1, 2008. See “Unaudited Pro Forma Consolidated Financial Information.”
 
This financial information should be read in conjunction with our audited and unaudited financial statements and the related notes and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.


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Santander Brasil Income Statement Data in Accordance with IFRS
 
                                 
    Santander Brasil  
    For the Six Months Ended June 30,  
                2008
       
 
  2009     2009     (Pro Forma)(1)     2008  
    (In millions of
    (In millions of R$, except as otherwise indicated)  
    U.S.$, except
       
    as otherwise
       
    indicated)(2)        
 
Interest and similar income
    10,131       19,771       17,405       6,715  
Interest expense and similar charges
    (4,668 )     (9,110 )     (7,978 )     (3,383 )
                                 
Net interest income
    5,463       10,661       9,427       3,332  
Income from equity instruments
    8       15       18       16  
Share of results of entities accounted for using the equity method
    132       257       161       2  
Fee and commission income
    1,774       3,463       3,440       1,881  
Fee and commission expense
    (229 )     (447 )     (500 )     (164 )
Gains/losses on financial assets and liabilities (net)
    1,401       2,734       1,459       686  
Exchange differences (net)
    (531 )     (1,037 )     (470 )     (145 )
Other operating income (expenses)
    (84 )     (163 )     26       (35 )
                                 
Total income
    7,934       15,483       13,561       5,573  
Administrative expenses
    (2,756 )     (5,380 )     (5,535 )     (2,234 )
Depreciation and amortization
    (254 )     (495 )     (546 )     (310 )
Provisions (net)(3)
    (1,004 )     (1,958 )     (934 )     (522 )
Impairment losses on financial assets (net)(4)
    (2,475 )     (4,831 )     (3,194 )     (1,496 )
Impairment losses on other assets (net)
    (35 )     (68 )     (15 )     (9 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    586       1,145       38       32  
Gains/losses on disposal of non-current assets held for sale
    (29 )     (56 )     (14 )     (24 )
                                 
Profit before tax
    1,967       3,840       3,361       1,010  
Income tax
    (714 )     (1,395 )     (1,191 )     (303 )
                                 
Consolidated profit for the period
    1,253       2,445       2,170       707  
                                 
Earnings per share
                               
Basic and diluted earnings per 1,000 shares
                               
Common shares (reais)
            7.17       6.45       5.07  
Preferred shares (reais)
            7.89       7.09       5.58  
Common shares (U.S. dollars)(2)
            3.67       4.05       3.18  
Preferred shares (U.S. dollars)(2)
            4.04       4.45       3.51  
Weighted average shares outstanding (in thousands) — basic and diluted
                               
Common shares
            174,292,416       172,041,961       71,315,968  
Preferred shares
            151,465,867       149,503,808       61,969,586  
 
 
(1) See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(3) Principally provisions for legal and tax contingencies.
 
(4) Net provisions to the credit loss allowance less recoveries of loans previously written off.
 


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    Santander Brasil  
    For the Year Ended December 31,  
    2008
             
 
  (Pro Forma)(1)     2008     2007  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    38,102       23,768       13,197  
Interest expense and similar charges
    (18,872 )     (12,330 )     (7,002 )
                         
Net interest income
    19,230       11,438       6,195  
Income from equity instruments
    39       37       36  
Share of results of entities accounted for using the equity method
    305       112       6  
Fee and commission income
    6,849       4,809       3,364  
Fee and commission expense
    (983 )     (555 )     (266 )
Gains/losses on financial assets and liabilities (net)
    (485 )     (1,286 )     1,517  
Exchange differences (net)
    1,261       1,476       382  
Other operating income (expenses)
    (74 )     (60 )     133  
                         
Total income
    26,143       15,971       11,367  
Administrative expenses
    (11,532 )     (7,185 )     (4,460 )
Depreciation and amortization
    (1,236 )     (846 )     (580 )
Provisions (net)(2)
    (1,702 )     (1,230 )     (1,196 )
Impairment losses on financial assets (net)(3)
    (6,570 )     (4,100 )     (2,160 )
Impairment losses on other assets (net)
    (85 )     (77 )     (298 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    33       7       1  
Gains/losses on disposal of non-current assets held for sale
    22       9       13  
                         
Profit before tax
    5,072       2,549       2,687  
Income tax
    (1,159 )     (170 )     (784 )
                         
Consolidated profit for the year
    3,913       2,379       1,903  
                         
Earnings per share
                       
Basic and diluted earnings per 1,000 share
                       
Common shares (reais)
    11.65       11.59       14.02  
Preferred shares (reais)
    12.81       12.75       15.43  
Common shares (U.S. dollars)(4)
    6.01       5.94       7.18  
Preferred shares (U.S. dollars)(4)
    6.60       6.53       7.91  
Dividends and interest on capital per 1,000 shares(5)
                       
Common shares (reais)
            4.26       16.30  
Preferred shares (reais)
            4.69       17.93  
Common shares (U.S. dollars)(4)
            2.18       8.35  
Preferred shares (U.S. dollars)(4)
            2.40       9.19  
Weighted average shares outstanding (in thousands) — basic and diluted
                       
Common shares
    171,800,386       104,926,194       69,383,705  
Preferred shares
    149,283,961       91,168,064       60,285,449  
 
 
(1) See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2) Principally provisions for legal and tax contingencies.
 
(3) Net provisions to the credit loss allowance less recoveries of loans previously written off.
 
(4) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(5) Includes dividends based on net income and dividends based on reserves.

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Santander Brasil Balance Sheet Data in Accordance with IFRS
 
                                 
    Santander Brasil  
    At June 30,     At June 30,     At December 31,  
 
  2009     2009     2008     2007  
    (In millions
    (In millions of R$)  
    of U.S.$)(1)        
 
Assets
                               
Cash and balances with the Brazilian Central Bank
    12,714       24,813       23,700       22,277  
Financial assets held for trading
    8,101       15,809       19,986       12,293  
Other financial assets at fair value through profit or loss
    3,109       6,068       5,575       1,648  
Available-for-sale financial assets
    15,676       30,593       30,736       9,303  
Loans and receivables
    82,826       161,644       162,725       55,034  
Hedging derivatives
    91       178       106        
Non-current assets held for sale
    30       58       113       32  
Investments
    257       502       634       55  
Tangible assets
    1,845       3,600       3,829       1,111  
Intangible assets
    15,674       30,589       30,995       1,799  
Tax assets
    6,860       13,388       12,920       4,223  
Other assets
    838       1,636       2,871       544  
                                 
Total assets
    148,021       288,878       294,190       108,319  
                                 
Liabilities
                               
Financial liabilities held for trading
    2,504       4,887       11,210       4,650  
Other financial liabilities at fair value through profit or loss
    186       363       307       690  
Financial liabilities at amortized cost
    106,397       207,644       213,973       84,781  
Deposits from the Brazilian Central Bank
    446       870       185        
Deposits from credit institutions
    11,167       21,793       26,325       18,217  
Customer deposits
    79,382       154,922       155,495       55,147  
Marketable debt securities
    5,790       11,299       12,086       2,806  
Subordinated liabilities
    5,634       10,996       9,197       4,210  
Other financial liabilities
    3,978       7,764       10,685       4,401  
Hedging derivatives
    32       63       265        
Provisions(2)
    5,228       10,203       8,915       4,816  
Tax liabilities
    3,767       7,352       6,156       1,719  
Other liabilities
    3,361       6,560       3,527       1,454  
                                 
Total liabilities
    121,476       237,072       244,353       98,111  
                                 
Shareholders’ equity
    26,202       51,136       49,318       8,671  
Minority interests
    3       5       5        
Valuation adjustments
    341       665       514       1,537  
                                 
Total equity
    26,545       51,806       49,837       10,208  
                                 
Total liabilities and equity
    148,021       288,878       294,190       108,319  
                                 
Average assets
    147,558       287,974       163,621       100,243  
Average interest-bearing liabilities
    95,598       186,569       109,455       69,204  
Average shareholders’ equity
    26,000       50,742       23,110       10,521  
 
 
(1) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(2) Provisions for pensions and contingent liabilities.


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Santander Brasil Ratios
 
                                 
    At and for the Six Months Ended June 30,     At and for the Year Ended December 31,  
    2009     2008     2008     2007  
    (In percentages)  
 
Profitability and performance
                               
Net yield(1)(2)
    9.9       7.6       8.6       7.2  
Return on average total assets(1)
    1.7       1.3       1.5       1.9  
Return on average shareholders’ equity(1)
    9.9       14.8       10.3       18.1  
Adjusted return on average shareholders’ equity(1)(3)
    21.9       14.8       16.8       18.1  
Capital adequacy
                               
Average shareholders’ equity as a percentage of average total assets
    17.6       9.4       14.1       10.5  
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(3)
    9.0       9.4       9.2       10.5  
Basel capital adequacy ratio(4)
    17.0       13.6       14.7       14.2  
Asset quality
                               
Non-performing assets as a percentage of total loans(5)
    6.7       4.6       5.4       4.1  
Non-performing assets as a percentage of total assets(5)
    3.3       1.9       2.6       2.2  
Non-performing assets as a percentage of computable credit risk(5)(6)
    5.8       3.3       4.7       3.2  
Allowance for credit losses as a percentage of non-performing assets(5)
    97.1       112.2       105.8       107.5  
Allowance for credit losses as a percentage of total loans
    6.5       5.1       5.7       4.4  
Net loan charge-offs as a percentage of total loans(1)
    3.0       2.9       2.3       4.7  
Non-performing assets as a percentage of shareholders’ equity(5)
    18.4       21.5       15.7       24.1  
Non-performing assets as a percentage of shareholders’ equity excluding goodwill(3)(5)
    39.5       21.5       35.4       24.1  
Liquidity
                               
Total loans, net as a percentage of total funding
    65.3       52.9       66.0       60.7  
Deposits as a percentage of total funding
    88.9       88.7       89.5       91.3  
Other Information
                               
Efficiency
                               
Efficiency ratio(7)
    34.7       40.8       45.0       39.2  
 
 
(1) Six-month ratios are presented on an annualized basis by doubling the earnings component. Annualized ratios are not necessarily indicative of the ratios that would result for the entire year, which may be materially different from the annualized ratios.
 
(2) Net yield is defined as net interest income (including dividends on equity securities) divided by average interest earning assets.
 
(3) “Adjusted return on average shareholders’ equity,” “Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” and “Non-performing assets as a percentage of shareholders’ equity excluding goodwill” are non-GAAP financial measurements which adjust “Return on average shareholders’ equity,” “Average shareholders’ equity as a percentage of average total assets” and “Non-performing assets as a percentage of shareholders’ equity”, to exclude the R$27.5 billion goodwill arising from the acquisition of Banco Real in 2008.
 
The reconciliation below presents the calculation of these non-GAAP financial measurements from their respective most directly comparable GAAP financial measurements. Such reconciliation was made only for the six months ended June 30, 2009 and the year ended December 31, 2008 because goodwill was not material in the six months ended June 30, 2008 or the year ended December 31, 2007 and, accordingly, the ratios presented are unaffected by the exclusion of goodwill.
 


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    At and for the Six
    At and for the Year
 
    Months Ended June 30,
    Ended December 31,
 
    2009     2008  
 
Return on average shareholders’ equity:
               
Net income
    2,445,145       2,378,626  
Average shareholders’ equity
    50,741,631       23,109,873  
                 
Return on average shareholders’ equity
    9.9 %     10.3 %
                 
Adjusted return on average shareholders’ equity:
               
Net income
    2,445,145       2,378,626  
Average shareholders’ equity
    50,741,631       23,109,873  
Average goodwill
    27,289,961       8,924,823  
                 
Average shareholders’ equity excluding goodwill
    23,451,670       14,185,050  
                 
Adjusted return on average shareholders’ equity
    21.9 %     16.8 %
                 
Average shareholders’ equity as a percentage of average total assets:
               
Average shareholders’ equity
    50,741,631       23,109,873  
Average total assets
    287,974,048       163,621,250  
                 
Average shareholders’ equity as a percentage of average total assets
    17.6 %     14.1 %
                 
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill:
               
Average shareholders’ equity
    50,741,631       23,109,873  
Average goodwill
    27,289,961       8,924,823  
Average shareholders’ equity excluding goodwill
    23,451,670       14,185,050  
Average total assets
    287,974,048       163,621,250  
Average goodwill
    27,289,961       8,924,823  
                 
Average total assets excluding goodwill
    260,684,087       154,696,427  
                 
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill
    9.0 %     9.2 %
                 
Non-performing assets as a percentage of shareholders’ equity:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders’ equity
    51,135,477       49,317,582  
                 
Non-performing assets as a percentage of shareholders’ equity
    18.4 %     15.7 %
                 
Non-performing assets as a percentage of shareholders’ equity excluding goodwill:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders’ equity
    51,135,477       49,317,582  
Goodwill
    27,263,159       27,488,426  
                 
Shareholders’ equity excluding goodwill
    23,872,318       21,829,156  
                 
Non-performing assets as a percentage of shareholders’ equity excluding goodwill
    39.5 %     35.4 %
                 
 
Our calculation of these non-GAAP measures may differ from the calculation of similarly titled measures used by other companies. The Bank’s management believes that these non-GAAP financial measures provide useful information to investors because the substantial impact of the R$27.5 billion goodwill arising from the acquisition of Banco Real during the year ended December 31, 2008 obscures the significance of other factors affecting shareholders’ equity and the related ratios. In addition, consistent with the guidance provided by the Basel II framework with respect to capital measurement, in all measures used to manage the Bank, management considers shareholders equity excluding goodwill. Management believes that exclusion of goodwill from shareholders’ equity, in addition to being consistent

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with Basel II, more accurately reflects the economic substance of the Bank’s capital because goodwill is not an asset available to absorb cash losses and is not otherwise taken into account by the Bank in managing its operations. Accordingly, management believes that the non-GAAP measures presented are useful to investors, as well as to management, because they reflect the economic substance of the Bank’s capital. The only limitation associated with the exclusion of goodwill from shareholders’ equity is that it has the effect of excluding a portion of the total investment in the Bank’s assets. Management compensates for this limitation by also considering shareholders’ equity including goodwill, as set forth in the above table.
 
(4) In July 2008, new regulatory capital measurement rules, which implement the Basel II standardized approach, went into effect in Brazil, including a new methodology for credit risk and operational risk measurement, analysis and management. As a result, our capital adequacy ratios as of any date after July 2008 are not comparable to our capital ratios as of any prior date. Our Basel capital adequacy ratios are calculated excluding goodwill, in accordance with the Basel II standardized approach (provided by the “International Convergence of Capital Measurement and Capital Standards — A Revised Framework Comprehensive Version” issued by the Basel Committee on Banking Supervision from the Bank for International Settlements).
 
(5) Non-performing assets include all credits past due by more than 90 days and other doubtful credits.
 
(6) Computable credit risk is the sum of the face amounts of loans and leases (including non-performing assets), guarantees and documentary credits.
 
(7) Efficiency ratio is defined as administrative expenses divided by total income. The ratio for the six months ended June 30, 2008 is presented on a pro forma basis. See “Unaudited Pro Forma Consolidated Financial Information”.


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Santander Brasil Income Statement Data in Accordance with Brazilian GAAP
 
                         
    Santander Brasil  
    For the Year Ended December 31,  
    2006     2005     2004  
    Combined Predecessor Banks  
    (In millions of R$)  
 
Financial income
                       
Lending operations
    6,885       5,420       4,036  
Leasing operations
    83       86       69  
Securities transactions
    5,393       5,100       4,446  
Derivative financial instruments
    828       1,148       723  
Foreign exchange portfolio
    83       242       103  
Compulsory investments
    382       387       276  
                         
Total financial income
    13,654       12,383       9,653  
Financial expenses
                       
Funding operations
    (6,614 )     (5,719 )     (3,743 )
Borrowings and onlendings
    (485 )     (411 )     (304 )
Allowance for loan losses
    (1,523 )     (817 )     (475 )
                         
Total financial expenses
    (8,622 )     (6,947 )     (4,522 )
Total profit from financial operations
    5,032       5,436       5,131  
Other operating (expenses) income
                       
Income from services rendered
    2,964       2,410       1,432  
Personnel expenses
    (1,942 )     (1,949 )     (1,875 )
Other administrative expenses
    (2,591 )     (2,422 )     (2,034 )
Tax expenses
    (706 )     (669 )     (539 )
Investments in affiliates and subsidiaries
    4       1       17  
Other operating income (expenses)
    (1,266 )     (431 )     (153 )
Income (loss) from operations
    1,495       2,376       1,979  
Non-operating income (expense)
    (45 )     (369 )     (29 )
Income (loss) before taxes on income, profit sharing
    1,450       2,007       1,950  
Income and social contribution taxes
    50       (63 )     (60 )
Profit sharing
    (299 )     (258 )     (243 )
                         
Income before minority interest
    1,201       1,686       1,647  
                         
Minority interest
          (34 )     (33 )
                         
Net income (loss)
    1,201       1,652       1,614  
                         


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Santander Brasil Balance Sheet Data in Accordance with Brazilian GAAP
 
                         
    Santander Brasil  
    At December 31,  
    2006     2005     2004  
    Santander Brasil     Combined
 
          Predecessor Banks  
    (In millions of R$)  
 
Current and noncurrent assets
                       
Cash
    1,179       1,592       889  
Interbank investments
    5,309       10,267       7,384  
Securities and derivative financial instruments
    39,631       28,686       23,996  
Credit portfolio, net
    35,887       27,785       20,677  
Other assets
    18,259       14,883       11,619  
Total current and noncurrent assets
    100,265       83,213       64,565  
Permanent assets
    1,762       1,692       2,027  
Total assets
    102,027       84,905       66,592  
Liabilities
                       
Deposits
    31,792       29,799       22,759  
Securities sold under repurchase agreements
    25,475       20,000       10,950  
Funds from acceptance and issuance of securities
    1,435       977       1,736  
Foreign borrowings
    9,960       7,617       6,003  
Other liabilities
    25,389       19,086       16,834  
Total liabilities
    94,051       77,479       58,282  
Stockholders’ equity
    7,976       7,426       8,310  
                         
Total liabilities and stockholders’ equity
    102,027       84,905       66,592  
                         


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Banco Real Combined Income Statement Data in Accordance with IFRS
 
                         
    Banco Real (Combined)  
                For the Year
 
    For the Period
    Ended
 
    from January 1 to August 29,     December 31,  
 
  2008     2007     2007  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    14,007       12,075       19,070  
Interest expense and similar charges
    (6,552 )     (5,211 )     (7,800 )
                         
Interest income
    7,455       6,864       11,270  
Income from equity instruments
    2       13       18  
Income from companies accounted for by the equity method
    193       137       183  
Fee and commission income
    2,040       1,635       2,525  
Fee and commission expense
    (428 )     (479 )     (762 )
Gain/loss on financial assets and liabilities (net)
    798       870       1,744  
Exchange differences (net)
    (215 )     (153 )     (179 )
Other operating income (expenses)
    (17 )     (146 )     (287 )
                         
Total income
    9,828       8,741       14,512  
Administrative expenses
    (4,347 )     (3,760 )     (6,227 )
Depreciation and amortization
    (288 )     (211 )     (339 )
Provision (net)
    (472 )     (303 )     (928 )
Impairment losses on financial assets (net)
    (2,470 )     (1,838 )     (2,897 )
Impairment losses on other assets (net)
    (8 )     (36 )     (33 )
Gain/(losses) on disposal of assets not classified as non-current assets held for sale
    25       20       28  
Gain/(losses) on non-current assets held for sale
    13       36       38  
                         
Operating profit before taxes
    2,281       2,649       4,154  
Income taxes
    (907 )     (1,115 )     (1,721 )
                         
Profit for the year/period
    1,374       1,534       2,433  
                         
Profit attributable to the parent
    1,374       1,534       2,432  
Profit attributable to minority interests
                1  


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Banco Real Combined Balance Sheet Data in Accordance with IFRS
 
         
    Banco Real
 
    (Combined)  
    At December 31,
 
 
  2007  
    (In millions of R$)  
 
Cash and balances with Brazilian Central Bank
    10,949  
Financial assets held for trading
    3,396  
Other financial assets at fair value through profit or loss
    147  
Available for sale financial assets
    12,779  
Loans and receivables
    77,310  
Hedging derivatives
    651  
Non-current assets held for sale
    39  
Investments in associates
    333  
Tangible assets
    1,051  
Intangible assets
    1,207  
Tax assets
    3,980  
Other assets
    985  
         
Total assets
    112,827  
         
Financial liabilities held for trading
    1,725  
Financial liabilities at amortized cost
    90,672  
Hedging derivatives
    5  
Provisions
    3,443  
Tax liabilities
    2,129  
Other liabilities
    1,695  
         
Total liabilities
    99,669  
         
Shareholders’ equity
    13,094  
Issued capital
    9,322  
Reserves
    1,542  
Profit for the year attributable to the parent
    2,432  
Less: Dividends and remuneration
    (202 )
Valuation adjustments
    59  
Minority interests
    5  
         
Total equity
    13,158  
         
Total liabilities and equity
    112,827  
         


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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
 
The unaudited pro forma consolidated financial information presented below is derived from the historical audited consolidated financial statements of Santander Brasil for the year ended December 31, 2008, the historical unaudited consolidated financial statements of Santander Brasil for the six months ended June 30, 2008, the historical audited combined financial statements of Banco Real for the period from January 1 to August 29, 2008, and the historical unaudited combined financial statements of Banco Real for the six months ended June 30, 2008, each included elsewhere in this prospectus, except for the historical unaudited combined financial statements of Banco Real for the six months ended June 30, 2008, which are not included.
 
On July 24, 2008, Santander Spain acquired the indirect majority control of the ABN AMRO Real Group in Brazil. On August 29, 2008, as further described in note 26 to our consolidated financial statements, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became our wholly-owned subsidiaries pursuant to a share exchange transaction (incorporação de ações) approved by the shareholders of Santander Brasil, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. As a result of the foregoing transactions, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became wholly-owned subsidiaries of the Bank. See “Business — History — Banco Real Acquisition.” The historical financial statements used to consolidate Banco Real beginning on August 30, 2008 reflect purchase accounting adjustments recorded on the date that Santander Spain acquired control of Banco Real since as from that date Banco Real came under common control with Santander Brasil. The unaudited pro forma consolidated financial information is based upon the historical audited consolidated financial statements and combined financial statements mentioned above, adjusted to give effect to the acquisition of Banco Real and the share exchange transaction (incorporação de ações) described above as if they had occurred on January 1, 2008. The unaudited pro forma consolidated financial information was prepared based on accounting practices under IFRS. The pro forma assumptions and adjustments are described in the accompanying notes presented below.
 
The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Santander Brasil would have been had the acquisition and the share exchange transaction (incorporação de ações), occurred on the date assumed, nor is it necessarily indicative of the consolidated company’s future consolidated results of operations or financial position.
 
The unaudited pro forma consolidated financial information does not include the anticipated realization of cost savings from any operating efficiencies, synergies or restructurings resulting from the integration of Banco Real and does not contemplate the liabilities that may be incurred in connection with the business combination and any related restructurings.
 
This unaudited pro forma consolidated financial information should be read in conjunction with the accompanying notes presented below and the historical consolidated financial statements and accompanying notes and combined financial statements and accompanying notes of Santander Brasil and Banco Real, respectively, included elsewhere in this prospectus. You should not rely on the unaudited pro forma consolidated financial information as an indication of either (1) the consolidated results of operations or financial position that would have been achieved if the acquisition of Banco Real had taken place on the date assumed or (2) the consolidated results of operations or financial position of Santander Brasil after the completion of such transaction.


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Pro Forma Income Statement Data For the Six Months Ended June 30, 2008
 
                                         
    Santander
                         
    Brasil
    Banco Real
                   
    Consolidated
    Combined
                Pro Forma
 
    Historical
    Historical
    Pro Forma
          Consolidated
 
    Financial Data     Financial Data     Adjustments           Financial Data  
                For the Six
 
                Months Ended
 
    For the Six Months Ended June 30, 2008           June 30, 2008  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    6,715       10,213       435       4 (i)     17,405  
Interest expense and similar charges
    (3,383 )     (4,595 )     42         4 (ii)     (7,978 )
                                         
Net interest income
    3,332       5,618       477               9,427  
Income from equity instruments
    16       2                       18  
Share of results of entities accounted for using the equity method
    2       159                       161  
Fee and commission income
    1,881       1,559                       3,440  
Fee and commission expense
    (164 )     (336 )                     (500 )
Gains/losses on financial assets and liabilities (net)
    686       770       3               1,459  
Exchange differences (net)
    (145 )     (325 )                     (470 )
Other operating income (expenses)
    (35 )     30       31               26  
Total income
    5,573       7,477       511               13,561  
Administrative expenses
    (2,234 )     (3,301 )                     (5,535 )
Personnel expenses
    (1,156 )     (1,607 )                     (2,763 )
Other general administrative expenses
    (1,078 )     (1,694 )                     (2,772 )
Depreciation and amortization
    (310 )     (156 )     (80 )     4 (iii)     (546 )
Provisions (net)
    (522 )     (412 )                     (934 )
Impairment losses on financial assets (net)
    (1,496 )     (1,698 )                     (3,194 )
Impairment losses on other assets (net)
    (9 )     (6 )                     (15 )
Gains/losses on disposal of assets not classified as non-current assets
    32       6                       38  
Gains/losses on disposal of non-current assets held for sale
    (24 )     10                       (14 )
Profit before tax
    1,010       1,920       431               3,361  
Income tax
    (303 )     (742 )     (146 )     4 (iv)     (1,191 )
Profit for the year
    707       1,178       285               2,170  
                                         
Earnings per shares
                                       
Basic and diluted earnings per 1,000 share (reais)
                                       
Common shares
    5.07                               6.45  
Preferred shares
    5.58                               7.09  
Basic and diluted earnings per 1,000 share (U.S. dollars)(1)
                                       
Common shares
    3.18                               4.05  
Preferred shares
    3.51                               4.45  
Weighted average shares outstanding (in thousands) — basic and diluted
                                       
Common shares
    71,315,968                               172,041,961  
Preferred shares
    61,969,586                               149,503,808  
 
 
(1) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
See the accompanying notes to the unaudited pro forma consolidated financial information.


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Pro Forma Income Statement Data For the Year Ended December 31, 2008
 
                                         
    Santander Brasil
    Banco Real
                   
    Consolidated
    Combined
                Pro Forma
 
    Historical
    Historical
    Pro Forma
          Consolidated
 
    Financial Data     Financial Data     Adjustments           Financial Data  
    For the Year
    For the Period
    For the Year
          For the Year
 
    Ended
    from January 1
    Ended
          Ended
 
    December 31,
    to August 29,
    December 31,
          December 31,
 
    2008     2008     2008           2008  
    (In millions of R$, except as otherwise indicated)  
 
Interest and similar income
    23,768       14,007       327       4 (i)     38,102  
Interest expense and similar charges
    (12,330 )     (6,552 )     11       4 (ii)     (18,872 )
Net interest income
    11,438       7,455       338               19,230  
Income from equity instruments
    37       2                     39  
Share of results of entities accounted for using the equity method
    112       193                     305  
Fee and commission income
    4,809       2,040                     6,849  
Fee and commission expense
    (555 )     (428 )                   (983 )
Gains/losses on financial assets and liabilities (net)
    (1,287 )     798       4               (485 )
Exchange differences (net)
    1,476       (215 )                   1,261  
Other operating income (expenses)
    (59 )     (17 )     2               (74 )
Total income
    15,971       9,828       344               26,143  
Administrative expenses
    (7,185 )     (4,347 )                   (11,532 )
Personnel expenses
    (3,548 )     (2,126 )                   (5,674 )
Other general administrative expenses
    (3,637 )     (2,221 )                   (5,858 )
Depreciation and amortization
    (846 )     (288 )     (102 )     4 (iii)     (1,236 )
Provisions (net)
    (1,230 )     (472 )                   (1,702 )
Impairment losses on financial assets (net)
    (4,100 )     (2,470 )                   (6,570 )
Impairment losses on other assets (net)
    (77 )     (8 )                   (85 )
Gains/losses on disposal of assets not classified as non-current assets
    7       25                     32  
Gains/losses on disposal of non-current assets held for sale
    9       13                     22  
Profit before tax
    2,549       2,281       242               5,072  
Income tax
    (170 )     (907 )     (82 )     4 (iv)     (1,159 )
Profit for the year
    2,379       1,374       160               3,913  
                                         
Earnings per shares
                                       
Basic and diluted earnings per 1,000 share (reais)
                                       
Common shares
    11.59                               11.65  
Preferred shares
    12.75                               12.81  
Basic and diluted earnings per 1,000 share (U.S. dollars)(1)
                                       
Common shares
    5.94                               6.01  
Preferred shares
    6.53                               6.60  
Weighted average shares outstanding (in thousands) — basic and diluted
                                       
Common shares
    104,926,194                               171,800,386  
Preferred shares
    91,168,064                               149,283,961  
 
 
(1) Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
See the accompanying notes to the unaudited pro forma consolidated financial information.


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Notes to the unaudited pro forma consolidated financial information
 
1.  Basis of Presentation
 
The unaudited pro forma consolidated financial information presented above is derived from the historical unaudited condensed consolidated financial statements for the six months ended June 30, 2008 of Banco Santander and Banco Real and the audited consolidated financial statements for the year ended December 31, 2008 of Santander Brasil and the historical audited combined financial statements of Banco Real for the period from January 1 to August 29, 2008, each included elsewhere in this prospectus, except for the financial statements of Banco Real for the six months ended June 30, 2008.
 
2.  The Acquisition of Banco Real
 
On July 24, 2008, Santander Spain acquired majority control of the ABN AMRO Real Group in Brazil. On August 29, 2008, as further described in note 26 to our consolidated financial statements, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became our wholly-owned subsidiaries pursuant to a share exchange transaction (incorporação de ações) approved by the shareholders of Santander Brasil, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. As a result of the foregoing transactions, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became wholly-owned subsidiaries of the Bank. Banco Real was consolidated in Santander Brasil’s financial statements as from August 30, 2008. See “Business — History — Banco Real Acquisition”. The historical financial statements used to consolidate Banco Real on August 30, 2008 reflect purchase accounting adjustments recorded on the date that Santander Spain acquired control of Banco Real since as from that date Banco Real came under common control with Santander Brasil.
 
3.  Pro Forma Assumptions and Adjustments
 
The following assumptions and related pro forma adjustments give effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group and the share exchange transaction (incorporação de ações) described above had occurred on January 1, 2008 for purposes of the unaudited pro forma consolidated financial information.
 
  •  The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Santander Brasil would have been had the acquisition of Banco Real occurred on the respective dates assumed, nor is it necessarily indicative of the combined company’s future consolidated results of operations or financial position.
 
  •  Expected future cash cost savings, if any, are not recognized in this unaudited pro forma consolidated financial information.
 
  •  The pro forma adjustments include purchase price accounting adjustments to reflect the acquisition of Banco Real by Santander Spain, as if the control of Banco Real was acquired by Santander Spain on January 1, 2008. The purchase accounting was recorded using the acquisition method in accordance with International Financial Reporting Standard No. 3, “Business Combinations”.
 
Additionally, liabilities may be incurred in connection with any ultimate restructuring activities. These additional liabilities and costs have not been contemplated in the unaudited pro forma consolidated financial information because information necessary to reasonably estimate such costs and to formulate detailed restructuring plans depends on the conclusion of assessments and studies which are still being prepared by Santander Brasil as of the date of this prospectus.


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Notes to the unaudited pro forma consolidated financial information — (Continued)
 
The pro forma purchase price allocation adjustments are estimated based on the following purchase price allocation:
 
                         
    Book Value     Fair Value(1)     Adjustment  
    (In thousands of R$)  
 
Net assets acquired
                       
Assets
    132,301,795       130,930,255       (1,371,540 )
Of which:
                       
Cash and balances with central banks
    12,147,982       12,147,982        
Debt instruments
    21,758,968       21,728,385       (30,583 )
Loans and advances to customers
    69,669,710       68,039,392       (1,630,318 )
Tangible assets
    1,072,896       1,344,375       271,479  
Liabilities
    (119,436,124 )     (120,826,655 )     (1,390,531 )
Of which:
                       
Deposits from credit institutions
    (20,946,768 )     (20,932,165 )     14,603  
Customer deposits
    (75,372,552 )     (75,419,151 )     (46,599 )
Subordinated liabilities
    (3,440,670 )     (3,491,143 )     (50,473 )
Other financial liabilities
    (5,974,858 )     (5,852,833 )     122,025  
Provisions(2)
    (3,536,049 )     (4,968,623 )     (1,432,574 )
                         
Net assets acquired
    12,865,671       10,103,600       (2,762,071 )
Intangible assets(3)
            1,229,716          
                         
Fair value of the assets
            11,333,316          
Total consideration(4)
            38,946,426          
Satisfied by:
                       
Shares
            38,920,753          
Cash
            25,673          
Goodwill
            27,613,110          
 
 
(1) The fair values of the assets and liabilities acquired were determined based on appraisals for the tangible assets, consideration of advice provided by legal counsel for contingent liabilities in provisions, and discounted cash flow analysis for all other assets and liabilities, taking into consideration the expected future economic benefits of the intangible assets.
 
(2) Includes an adjustment of R$124.7 million booked in the six months ended June 30, 2009 with respect to a revision in the fair value of provisions, as permitted under IFRS 3.
 
(3) Amount relates to customer list with an estimated useful life of 10 years.
 
(4) Total consideration is based on amounts paid by the Santander Group for the acquisition of Banco Real.
 
4.  Pro forma adjustments
 
The purpose of the pro forma adjustments is to give the effect to the acquisition of Banco Real and the share exchange transaction (incorporação de ações) as if they had occurred on January 1, 2008. The pro forma adjustments for the year ended December 31, 2008 consider the period from January 1, 2008 to August 29, 2008, as the results for the remaining period of 2008 are already incorporated in the Bank’s historical financial data. On the same basis, the pro forma adjustments for the six months ended June 30, 2008 consider the period from January 1, 2008 to June 30, 2008, as none of the results for this period are incorporated in the Bank’s historical financial data.
 
(i) This pro forma adjustment relates to the unwinding of the fair value adjustments to debt instruments and loans and advances to customers, presented in the purchase price allocation in note 3 to the pro forma financial information, which were calculated separately for each individual contract. This results in an adjustment to the yield curve of the assets that were accounted for at amortized cost. The fair values of these


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Notes to the unaudited pro forma consolidated financial information — (Continued)
 
contracts were below or above their book values depending on whether market rates of interest were above or below the contractual rates on the date of the acquisition. The unwinding of the difference between amortized cost and fair value is calculated based on the contractual maturities of each of the related financial instruments, which vary from 2008 to 2015.
 
For the pro forma income statement for the year ended December 31, 2008, the unwinding of the fair value adjustments to the debt instruments and loans and advances to customers is based on eight months of the amount which is expected to unwind during the year ended December 31, 2009, amounting to R$491 million.
 
For the pro forma income statement for the six months ended June 30, 2008, the unwinding of the fair value adjustments to the debt instruments and loans and advance to customers is based on the actual amounts recorded in the last four months of 2008 in the amount of R$354 million plus the actual amounts recorded during the first two months of 2009 amounting to R$81 million.
 
(ii) This pro forma adjustment relates to the amortization of the fair value adjustment to financial liabilities, presented in the purchase price allocation in note 3 to the pro forma financial information, which was calculated separately for each individual contract. This results in an adjustment to the yield curve of the financial liabilities that were accounted for at amortized cost. The fair values of these contracts were below or above their book values depending on whether market rates of interest were above or below the contractual rates on the date of the acquisition. The unwinding of the difference between amortized cost and fair value is based on the contractual maturities of each of the related financial instruments, which vary from 2008 to 2015.
 
For the pro forma income statement for the year ended December 31, 2008, the unwinding of the fair value adjustments to financial liabilities is based on eight months of the amount which is expected to unwind during the year ended December 31, 2009, amounting to R$16 million.
 
For the pro forma income statement for the six months ended June 30, 2008, the unwinding of the fair value adjustments to financial liabilities is based on the actual amounts recorded during the last four months of 2008 in the amount of R$39 million plus the actual amounts recorded during the first two months of 2009, amounting to R$3 million.
 
(iii) The pro forma adjustment relates to the amortization of the fair value adjustment to tangible assets and the amortization of the identifiable and measurable intangible assets recognized in the purchase price allocation, which are presented in note 3 to the pro forma financial information, using the estimated useful liv