Espirito Santo Financial Group S.A. Announces Its Un-Audited Consolidated Results for the First Nine Months of 2005

Business Wire, Nov 30, 2005

LUXEMBOURG & LISBON, Portugal -- Espirito Santo Financial Group S.A. (Euronext Lisbon and NYSE: ESF) announced today its un-audited consolidated results for the first nine months of 2005.

Highlights

--Consolidated Net Income reaches 232.9 million Euros against 84.2 million Euros in the same period of the previous year;

--Good growth in consolidated net interest income ( 5.2%), fees and commissions ( 5.4%) and market results ( 33.3%);

--Continuing decline in consolidated staff and administrative costs (-5.2%);

--Significant reinforcement of equity and restructuring of debt, provides ESFG with improved financial prospects;

New Accounting Framework

According with regulation 1606/2002 of the European Council and Parliament, companies having their securities admitted to trading on a regulated market of any Member State should prepare their consolidated accounts for each financial year starting on or after 1st January 2005 in accordance with IFRS.

The IAS 32, IAS 39 and IFRS 4 standards, as applicable, were adopted by Banco Espirito Santo Group, Tranquilidade, ES Seguros and Tranquilidade Vida on 1st January 2005, as permitted by IFRS 1. The other standards, which have lesser impact, were adopted on 1st January 2004. The transition adjustments for the conversion of Generally Accepted Accounting Principles in Portugal (the local principles) to IFRS have been accounted for in Shareholders' Funds on 1st January 2005. However, because the transition adjustments must conform with accounting standards in force on the 31st December 2005, the quantification effects of such transition must be considered provisional and subject to changes which, depending on the actual standards, could be material.

Thus, the comparison between the first nine months results for 2005 and those of the previous year are difficult. In order to somewhat facilitate this comparison, the 2004 accounts have been reclassified in accordance with IFRS, although the numbers have been calculated in accordance with the local principles except for the IFRS standards mentioned in the above paragraph.

For further information please consult the Annex to this document entitled "Transition to the International Accounting Standards (IFRS)".

General Comments

ESFG's consolidated performance in the first nine months of 2005 highlights the continuing strength in the performance of both the banking and the insurance operations in Portugal in spite of subdued economic performance in Portugal in the same period.

Principal Item Analysis

Consolidated Net Interest Income grew 5.2% in the first nine months of 2005, against the same period of 2004, to reach 644.1 million Euros. This was related to the 11.1 per cent growth in consolidated loans and advances to customers in the first nine months of the year when compared to the same period last year. It was also helped by a slight increase in margin and a recovery in 3 months Euribor. Nevertheless, external constraints have been negatively influencing its progress for some time, namely the pressure on credit products spreads, particularly in lower risk segments together with the continuing low level of Euro interest rates.

Consolidated Net Fee and Commission Income posted a 5.4 per cent increase to reach 335.3 million Euros in September 2005. This reflects the performance at the banking subsidiaries in Portugal which was conditioned by the volatile nature of investment banking activities and the adverse effects of fierce competition. The worst affected were the fees and commissions originating from traditional banking services, but there was a positive evolution in cross selling fees and commissions particularly those linked to the bancassurance activities.

Consolidated market results(1), have been showing good growth throughout the year. In the first nine months to September 2005, they increased 33.3 per cent to reach 226.9 million Euros. This reflected particularly strong growth in net gains in available-for-sale financial assets and net gains from foreign exchange differences. As in the past, these results were based on diversification of market risk. Lately, there has been an increased emphasis on emerging markets trading, with a special focus on Latin American countries, where both interest rate and exchange rate performances were favourable (thus compensating the flattening yield curves of European and US markets as well as the weak performance of the Portuguese equity market).

Consolidated Insurance Earned Premiums Net of Reinsurance showed a 21.1 per cent decrease to 675.7 million Euros arising from the adoption by the insurance group of IAS 39 and IFRS 4 in 2005 but not in 2004. According to local Portuguese accounting principles applied consistently, statutory premiums at the level of each of the insurance subsidiaries showed good growth(2). In turn, and for similar reasons, consolidated Insurance Claims and Change on Technical Reserves Net of Reinsurance decreased 22.4 per cent to 696.0 million Euros.

Consolidated Staff Costs and General and Administrative Expenses(3) posted a decline of 5.2% to 643.9 million Euros, as a consequence of the cost containment strategy implemented at all levels of the ESFG group of companies.