Daniel Abut - Citi Saul Martinez - JPMorgan Tito LaBarta - Deutsche Bank Victor Galliano - HSBC Marcelo Telles - Credit Suisse Jason Mollin - Goldman Sachs Larry Vitale - Moore Capital Victor Galliano - HSBC

Ladies and gentlemen, thank you for standing by. This is Itaú Unibanco Holding Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and instructions to participate will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Ms. Francisca Stella Fagá of Financial Investor Relations, Brazil. Please go ahead. Francisca Stella Fagá: Good morning, and welcome to Itaú Unibanco Holding conference call on the third quarter 2010 earnings. This conference call is being broadcast live on www.itau-unibanco.com./ir. A slide presentation is also available on the site. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from those anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors. With us today in this conference call in São Paulo are Alfredo Egydio Setubal, Investor Relations Officer; Sérgio Ribeiro da Costa Werlang, Executive Vice President of Risk Control and Finance; Zacha Jorge, Executive Vice President of Insurance and Marketing; Caio Ibrahim David, Chief Financial Officer; Rogerio Calderon, Corporate Controller and Head of Investor Relations; Marco Antunes, Accounting Director; Rodolfo Henrique Fischer, Itaú BBA Vice President. First, Mr. Alfredo Setubal will comment on the third quarter of 2010 earnings. Afterwards, management will be available for a question-and- answer session. It is now my pleasure to turn the call over to Mr. Alfredo Setubal.

Good morning for those who are in the US Good afternoon for those who are in Europe. We are starting our conference call. For those who are following through the Internet and through the slides, we are starting on slide number two with the highlight from the third quarter. I think the first highlight is important one, is that we finished the branch migration process in reality during this month of October, less than two years after the announcement of the merger between Itaú and Unibanco, one of the very important process. During these two years, many things were done in terms of integration of ATM, integration of people, moving people from one building to another to stay together in different area. And we finished now the integration of the branch and we concluded in October 24 the process of integration of 1,200 Unibanco branches and customer site branches into the Itaú operational system and Itaú brand. It was a huge effort from many areas inside the bank, many providers, and we were able to finish a little bit before schedule in this month of October. We still have some work to be done next year related to the systems and the deactivation of systems of Unibanco that we have to see what we have to keep for fiscal purposes, for customer needs and so on. So during the year of 2011, especially during the first semester of 2011, we’ll be finishing all these systems and then we can turn off all the systems of Unibanco related to the branch network and capture more synergies due to this integration. The second highlight is the net income. We finished with R$3.2 billion, was a increase of 17.5%, the more recurrent numbers when we compare to nine months of last year, to…

Thank you. (Operator Instructions). Our first question comes from Mr. Daniel Abut from Citi.

Alfredo, on the brand migration costs, as you explained in slide 16, you were R$406 million this quarter, almost doubling the amount of the prior quarter. Given that you concluded the process already, but not until the end of October, they’re probably going to be some additional brand migration cost hitting the fourth quarter although they should be significantly lower than the 406 million of the third quarter. Can you give us an indication of how much should we expect in the fourth quarter just to put this expense line finally behind? And second one, on fee income, you highlighted that or you had guided initially 15% type of growth in fee income for the Itaubanco. It’s big in the first nine months, you’re above that, 17%. How should we think about fee income going forward coming into 2011? I remember not so long ago, Brazilian Banks were low in fee income at the 15%, 20% annual base. Then came all these effort by the Central Bank to regulate better fees and tariff, and this line was brought down to single-digit. Is now the pace of growth coming from volumes and new clients and new products, strong enough to sustain growth in fee income going forward in 2011 and beyond, comfortably in double-digit, or is 2010 the exception to the rule given that there was going to be some kind of rebound factor after that new regulation was digested?

Hello, Daniel. Related to your first question, we had this 235 strongly in the second quarter, 406 million in the third quarter related to the migration. And this quarter, we don’t have a precise number, but you can consider something between R$118 million, R$200 million related to these 187 point of sales of Unibanco that we finished during the month of October. We always remember that we have our recurrence expenses of remodeling branches every time. Next year, we are going to remodel 600 branches of Itaú into the new model that we did with Unibanco’s branches. We are going to change the layout, we change the furniture. Of course it’s much, much less expenses when we compare to the migration of Unibanco’s into Itaú’s operational branches, but you have to consider some expenses for next year related to the Itaú’s branches. Fees income, the second question, fee income this year is much higher than we expected. The guidance that we provided 10 to 15, we are 17; this is much more related to volumes of than prices. The prices we’re not increasing, even the competition doesn’t allow, and so to what is growing is that people and companies are using more the bank. We’re expanding also our client bases in terms of in the business and companies and volumes. I think the correct answer is volumes are very high due to the economic growth and good environment. People are using more banks and using more services. I think that’s the most important thing.

So when we think about 2011 and beyond if we assume that the environment will remain benign and more clients and more product and more usage, it’s not unthinkable that the income growth could stay in the double-digit zone that you had guided for this year in the 10% to 15% range.

It’s difficult to forecast, but my guess is that next year, we don’t have yet the budgets done, but my guess is something between 10 and 15 to start with some number I think is totally feasible.

Excuse me; our next question comes from Mr. Saul Martinez from JPMorgan.

My question is on your financial margin, your net interest income from clients only grew 6.7% year-on-year, I think, quarter-on-quarter, the growth was somewhere in the neighborhood of 3%, in spite of year-on-year growth in your loan book, of course 17%. And that’s fine, and I get that credit losses are declining, asset qualities getting better, you’re moving into lower risk segment, which have lower spreads. But you made the comment that you think NPLs will stabilize at a higher level than the historical average at 2.9%. Does it give some cause for concern that as you move forward, competition and spread may continue to reduce. And I think you guys have mentioned that in the past, yet at the same time, there’s less room for continued reduction in credit losses. Doesn’t that suggest that your net interest income growth after provisions will be very light going forward?

Hi Saul, Rogerio speaking. Well, the way we see, the way we forecast is that we should see some additional compression in the net interest margin before the debt and this is going to be highly impacted by the much better credit quality environment in Brazil. So if we look at the risk-adjusted net interest margin spreads, we are not expecting any major change. Although we have a fierce competition, but the players are, the behavior is, tends to be very rational as they are proving to be so far. We are not expecting, and when you look at the total amounts, then definitely, we expect that the volumes growth should more than compensate this likely reduction in net interest margin spreads.

Okay. I’m going to push you on this a little because I’m hearing two somewhat contradictory things from you guys, one is that, over time, credit losses and better risk will reduce your provisioning level, but at the same time, during the commentary, you mentioned that NPLs would kind of stabilize because of a mix shift towards SMEs within the corporate segment. So I guess my question is, which one is, are the two things contradictory because my sense is what you guys have been saying is that your NPL and your provision are going to start to stabilize. But at the same time, you’re saying that over time, it will go down, I’m not sure which one it is.

Now we may have some time effects, but we still see some room for a small adjustment down in NPL, particularly on the individuals portfolio because we are moving actually on the other direction, other direction of the safer portfolios or individuals I mean, I’m talking on mortgage, I’m talking on brand-new vehicles, I’m talking on payroll discounted type of credits. So all said, we should see some additional decrease in the net interest margins in terms of its spreads for individuals. But as I’ve said, Saul, we are not expecting any major change in the risk-adjusted line. So we may have some time effects in the behavior of the line, but it’s already there.

Then just a quick follow-up, can you just give some updated thoughts on international expansion especially in light of what are pretty lofty multiples outside of Brazil and LatAm kind of how you are, any update in terms of kind of how you guys are thinking about growth outside of Brazil?

Saul, its Alfredo. We continue particularly, in the last two years, we have been able to do the migration and all the integration of Unibanco and changing culture. And we did a lot of things inside the bank, and at the same time, we are able to keep the pace of the bank here in Brazil, not losing market share, even gain some market share in some area and some products. And I think this is the trend. Our focus is to continue to focus in Brazil. Brazil is growing; probably it will grow 5% a year, and then in the coming years, if the international environment continues to be good in terms of commodity prices. This will bring new customers to the system because the income of individuals will continue to have real gains in the coming years. So we still believe that Brazil is the best opportunity that we have in terms of growth for the bank in many products, in banking, in credit cards, in insurance and many products because of this (inaudible) of individuals and also because we have seen also growth in terms of company’s number of clients, in terms of companies that we are gain. So the opportunity that we have here in Brazil with good spread and good growth I think is enough to us to really continue to focus here in Brazil. On the other hand, we have presence in other countries. Unibanco has bank in Paraguay and we have bank in other countries as Itaú. And these banks, we continue to operate them; they are not so big. I think our natural growth, if we go internationally, someday you’ll be, Latin America and starting from, if possible, with a country that we already are and we don’t have a very important…

Excuse me. Our next question comes from Mr. Tito LaBarta from Deutsche Bank.

Just there is some comments in the local presses saying that the new government could increase reserve requirements. Just wondered to get your thoughts on which reserve requirements they might increase or what would be the impact to you? Thanks. Sérgio Ribeiro da Costa Werlang: Well yes, there has been some talks that if inflation gets out of the target, one of the instruments that the government may consider to use, additionally to interest rates is to increase reserve requirements. So they can raise again, reserve requirements in either time deposits or in demand deposits. They have been higher in demand deposit they have been much higher. So no, with some other instruments and as always when you do that, the result this is simple, yield curve demand saw an increase in the final in the credit spread. There is no other way because you have less to loan the system as a whole has left alone for the same amount of depositors.

Excuse me, our next question comes from Mr. Victor Galliano from HSBC.

Just a follow-up on some of the cost issues that were raised there. So 600 branches of Itaú are going to be remolded in 2011, can you give us some idea of what the average cost of remodeling for branch is there? And also in terms of the segment contributions from the different divisions in Q3, what we saw was obviously that the RAROC came down in both consumer and consumer financing, commercial banking, this is made up by Itaú BBA really, which came through very strongly. Is this mainly really a one-off in the Itaú BBA side, because I saw clearly that there was some reversal of provisions going on there or can we expect a sustainably high ROE coming through from Itaú BBA going forward in the kind of mid 20s? Thank you.

So, if starting from the cost, you are right Victor where we are expecting to remodel 600 branch, if we take the total costs we had during 2010 regarding migration. We are talking on close to R$1 billion to migrate 1,200 branches and some other customer servicing branches. If we just use the average cost, it would represent something close to 800 and we think that should be maybe 50, 60% of this when we’re talking on remodeling branch at the maximum. So by calculating 600 branch remodeling should be maybe one-third parts of the total we have this year, or close to this is the figure that we don’t have accurately. But it should be close to maybe one-third the total cost we have in 2010, one-thirds, 40% close to that. And I am handing to Rodolfo Henrique in order to address the other questions on Itaú BBA.

In tax, we had some positive numbers in provisions this quarter. That was a result of basically, of negotiations from transactions during the crisis during 2008-2009. We are still in this process. So we might expect another quarter with some reversals, but basically this is not a one off but maybe a two off or three off events. Not only because of renegotiations but also because of upgrades in ratings, we are in a part of the cycle in which we are recovering from the crisis. So we might expect some increases, some upgrades in ratings, going forward. I would say that next year we should go back to our normal level of provisions.

Okay. So you can expect a sort of more normalized return coming through RAROC of around 20% maybe for Itaú BBA?

Yes, yes. Obviously during the second semester of 2008 and 2009, we had large numbers of provisions that we do not expect unless we have a new crisis. But this quarter is an exception. We might expect some another quarter with good positive numbers in provisions and then we go back to our historical returns.

Excuse me. Our next question comes from Mr. Marcelo Telles from Credit Suisse.

My question is to regarding costs. I mean you are finalizing on the integration of Unibanco and I was wondering if there are any additional cost cut initiatives that you could put in place this next year in order to pull a little bit further your operating expense line? Thank you.

Yes, we have some other initiatives. In cost cutting, we have efficient, what we call here, project efficiency, it’s a similar initiative we had in Unibanco some years ago, I remember had talked it to you on that. And our forecast is that we should reach 40-42% in terms of efficiency ratio within three years. So by the end of 2013, we should be close to 40%, that’s our target.

And if you allow me one more question. You said earlier that you expect 15% equities in the loan portfolio in 2011. I know that the budget has not been finalized yet. Could we see that 15% as a floor in terms of loan growth, because one of your competitors mentioned that you are expecting around 15 to 20% loan growth in 2011? And which segments would be the main drivers for next year? Thank you.

Well, sectors similar to those of from this year with some highlights to mortgage that should be at the same path. I’m referring to 50% growth. SME should be also very high. And I agree with you that we could consider 15% as a floor, we have not finished, though, as for next year. And you know that traditionally, we make our guidance for the entire year by the end of the annual conference call. So at that time, we should come up with a more precise figure, but I agree with you, it tends to be 15% as a floor.

Excuse me. Our next question comes from Mr. Jason Mollin from Goldman Sachs.

Most of my general questions have been answered. But maybe some more detailed ones. Specifically, we saw your other operational revenue line come down by approximately R$260 million quarter-on-quarter to 94 million, a big decline. If you can give us some color on what was driving that, if there is anything specific that we should be aware of? And secondly, in Itaú BBA, if you can talk us a little bit about the positive provisioning line. We had a positive contribution or reversal provisions in the quarter, if you can give us some details there? Thank you.

Jason, Rogerio speaking, other operational revenues, as you know we don’t have a recurring level for this line and I think it was maybe too high and too low. Now maybe that if you want to make any calculation and if you take a longer series you are going to end up with maybe 150 or 120 as the average behavior in this line. I should highlight there is really very erratic behavior because it’s a sundries type of line. So it’s quite difficult to make any modeling on that. But if you want to consider, I would suggest around the 100, 120 similar. Jorge could you address?

As I mentioned, this number comes from negotiations after the prices and the business cycles, it doesn’t come from one company or one transaction or few transactions, it comes from different transactions coming from 2008-2009. And we might expect from some another positive number maybe or close to zero number in next quarter, but it will finish eventually. We’ll continue to have some breaking increases, but we might go back to our usual returns.

(Operator Instructions). Excuse me, our next question comes from Mr. Larry Vitale from Moore Capital.

I notice on page 18 of the slides, you’ve changed your capital allocations around by division and one that stands out to me is in the commercial bank. I’m wondering if you can tell us why you’ve allocated another what 2.8 - R$2.7 billion or so to the commercial bank? Thank you.

Larry, we actually made a change of criteria from the second to the third quarter. Expected loss was considered in the different way to allocate capital that may be the result of this major change.

I look forward so that it’s probably too long out, but I look forward to sitting down with you guys, and understanding the reasoning behind that sort of better..

Absolutely. It’s a not big problem.

Excuse me. Our next question comes from Mr. Victor Galliano from HSBC.

Yeah. Hi. Just kind of back to the credit quality questions. I mean you’ve shared that on page 11, and the very close to trend obviously in NPL ratio and also the new NPLs on performing. Do you think we’re kind of hitting a floor here in terms of the new NPL formation on a quarterly basis? And realistically, I mean overall what do you have any expectations, can you give us any guidance into 2011, looking at credit quality, why you expect that overall NPL ratio maybe to be at the year end or mid year 2011?

I think, we should address in two different ways. Macro economically saying, yes we think that this is the end of this cycle. But as we are changing our portfolios, the mix of our portfolios, we could have some additional changing this overall picture particularly when referring to individuals in the downside, in the better side, and if you look towards companies, then it should be on the contrary because we’re moving to high risk portfolios but macro economically saying that should be the end of this cycle.

But you could get little bit more benefit from your change in mix in the consumer side.

In individuals, yes but should be marginally.

Excuse me. This concludes today’s question-and-answer session. Mr. Setubal, at this time you may proceed with your closing statement sir. Alfredo Egydio Setubal, Investor Relations Officer Well, thank you all for the participation in this conference call. I think we should be able to show you very strong results and very strong numbers especially coming from clients that would give us the confidence that we are in the correct way. And we continue to grow the bank especially here in Brazil as I already said very good opportunities due to the growth of the economy in the coming year. Thank you and be together by the beginning of next year to the fourth quarter annual result. Thank you.

Thank you .That does conclude our Itaú Unibanco Holding earnings conference call for today. Thank you very much for your participation, and have a good day.