伊塔烏聯合銀行 (ITUB) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Banco Itau Holding Financeira Conference Call.

(OPERATOR INSTRUCTIONS)

At this time, I would like to turn the conference over to Ms. Daniela Ueda, of Financial Investor Relations Brazil. Please go ahead.

Good morning, ladies and gentlemen, and welcome to Banco Itau Holding Financeira's Conference Call to discuss the first quarter 2008 earnings results. I would like to remind you that this conference call is being broadcast live in Banco Itau's Investor Relations website, www.etauir.com. A slide presentation is also available on that site.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities and 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 Sao Paulo are Alfredo Setubal, Investor Relations Officer of Itau Holding, Silvio de Carvalho, Executive Director of Controllership of Itau Holding, Eduardo Mazzilli de Vassimon, Executive Vice President of Itau BBA, and Marco Antunes, Director of Accounting of Itau Holding.

First, Mr. Alfredo Setubal will comment on the first quarter 2008 results. 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 who are in the U.S. Good afternoon, for who are in Europe. It is a pleasure for us to present the first quarter results for Banco Itau Holding. For those who are following through the Internet or have the slides printed, we are started slide number two to highlight. The first highlight is net result income itself at [R$2.048 billion] with an annualized ROE of 28.1%. If you [re-analyze] just the recurrent net income, R$1.979 billion, we see an increase of 10.6% when we compare to the fourth quarter, what means an annualized return on equity of 27.2%, what is a very good level for the condition in terms of competition that we have today in the Brazilian financial market.

The second point is the extraordinary items. This quarter we sold our stake in Mastercard International and VISA International and this results on a positive impact of R$55 million in the case of Mastercard sale and R$65 million in the case of VISA International, after tax. The third point is the growth of our credit portfolio, 7.9% in the quarter, showing a very active quarter in terms of demand for credit. The economy is very heated and the level of growth is very good.

We continue to focus our growth in personal loan and special vehicles. Vehicles saw 10.5% increase in the quarter and when we compare with the first quarter of 2007, we see an increase of 65% in terms of vehicles. Small and medium-sized companies up 15.9% in the quarter and up 50% in the 12 months. We continue to focus our strategy in terms of loans in these two segments this year as we did in the last two years.

In slide number three, we see more details of the non-recurring effects in our results. I think we don't need to spend much time here.

In slide number four, highlights, I would say to give you, paying attention in the stockholders equity of R$29.2 billion in the quarter. I would also look at the BIS ratio of 16.6% that continues to be in a very good level. Even the growth of our credit assets we have been able to keep a good ratio of BIS. Efficiency ratio, also a very good number,43.3% in the quarter, very below when we compare to the first quarter of 2007. We expect this level for the year to remain around 45%. Non-performing loans ratio, 4.3%, a little bit lower than in the fourth quarter of 2007, showing the good shape of the Brazilian economy in this year of 2008. We don't see increase in terms of delinquency for the year.

In slide number five, we see here more details of our managerial financial margin. The total financial margin with our customers achieved [R$5.058 billion] with an increase of almost 7% in the first quarter when we compare to the number of December and 15.8% when we compare with the first quarter of 2007. In terms of financial margin with the markets, I would like you to pay attention in our treasury numbers that was finished R$217 million below the first quarter of 2007 when the market was very favorable and below the fourth quarter of 2007. This quarter, we saw more volatility in the markets. We saw some increased interest rates in the interbank market, so all these with the international situation resulted in a lower results in our treasury operations in Itau Holding Financeira.

In terms of banking fees, we are going to talk a little bit more later. We saw some reduction in the quarter, more related to competition and seasonal factors. Our insurance results in pension plans and capitalization, R$706 million. We saw increase of 2% when we compare to the fourth quarter and almost 10% in terms of increase when we compare 12 months ago. Results from loan losses, R$1.583 billion, with an increase of 22% when we compare to the last quarter of 2007. This mainly because of the strong increase in our loan portfolio in this quarter.

As we saw, the level of delinquency remained almost stable, so the nominal increase in reals is due to the increase in the portfolio of the credit portfolio itself. Non-interest expenses, reduction of almost 7% in the quarter when we compare to December. We are going to talk about this a little bit later. So all these result in the recurring net income of R$1.979 billion.

When we analyze slide number six, the loans by kind of customer, we see the total loan portfolio increase, as I said, almost 8% in the quarter. We can see here more details in terms of individual loans. They represent almost one fourth of our total credit portfolio and we believe these trends will continue through this year

In terms of company loans, we will continue to focus more in small and medium-sized companies. We have a very good quarter in these segments this year and we will continue to focus more in this segment whereas we have been seeing Itau has a lack in terms of market share when we compare to the market share that we have in other areas of the financial market in Brazil. In terms of Argentina, Chile and Uruguay, we see also an increase. We have been more active in these three countries, especially in the company segment.

Slide number seven, we can see the trend in terms of non-performing loans. We see that we have almost a stable number when we compare 4.3% in total delinquency ratio for the consolidated operations of Itau Holding when we compare to 4.4% in the last quarter of 2007. We can see here a little increase in terms of delinquency for individuals and a decrease in terms of companies' non-performance ratio. In terms of coverage ratio, almost 150%, what is very comfortable taking into consideration the good environment that we have in Brazil today.

In slide number eight we can see the nominal growth of our provisions for loan losses, but we can see that the ratio of recurring expenses for provision for loan losses when we compare to total credit portfolio remains stable in 1.5%. That's the number that we expect to continue in the coming quarters. In terms of provision for loan losses compared to the total credit portfolio, we continue to decrease, which is also a good sign of soundness of our credit portfolio.

Slide number nine, we can see the funding and resources portfolio that we manage. In terms of funding in terms of deposits, we can see an increase in deposits considering demand, savings, time, and mortgage notes, an increase of almost R$13 billion, what means a 12.2% in terms of funding increase in this quarter. This is important because we are having all these growth in terms of credit portfolio, so we need more deposits to face this growth for the bank. So we increase our deposits in terms of companies and in terms of individuals.

When we analyze the institutional market, we saw in this quarter a little decrease in terms of deposits of the pension funds and other asset managers, what is not important because we continue to have a very good space in this segment if we need to go more to this segment. In this quarter, we used more our directly client-base, especially individuals.

In terms of assets under management, we see the number of investments almost stable. We have seen a transfer from deposit from money market mutual funds to time deposits this quarter. This because the time deposit is paying more for the client than the money market fund, so the main reason why we are seeing the numbers of assets under management almost stable when we see the investment fund, mutual fund. And we saw a little increase in terms of individual portfolios because mainly of the growth of our private banking operations.

In terms of provisions -- technical reserves for our insurance and pension plans and capitalization business -- we saw an increase of 5.5% in terms of technical provisions this quarter mainly because of the growth that continues in the pension plan business. In the total interbank deposits, a little reduction. And the total resources in number four in the last line, we saw an increase of 5.1% in terms of money, considering deposits and investments that the clients have with us, so we continue to have a very good and sound and diversified source of fundings to fund our operations.

On slide number ten, we see the service fees, the total for the quarter R$2.5 billion with a decrease of 6.4% when we compare to the last quarter of 2007 and an increase of 3.3% when we compare to the first quarter of 2007. Going more in details, of course, here we have seasonal effect. The first quarte usually is not the most heated in terms of use of the bank for our clients, so we have a reduction in terms of asset management. As I've said, we have seen some transfers from money market funds to deposits, so this means less revenues here and also less performance fees provisions in the quarter because of the volatility of the market.

In terms of current account services, we can see that the trend of reduction in terms of fees in this line continues because of the competition that is increasing and also because the package that we announced last year in the third quarter, that we reduced a lot of fees and service fees in terms of accounting services for our clients and also because of the new regulation of the central bank, that some of them are already in place.

Credit cards, almost stable when we compare to the last quarter of 2006, always remembering that the last quarter of the year usually is the most active in terms of use of credit card because of the Christmas and holidays. So this number is not bad, but we see more difficulties in terms of growing this business because the competition that is increasing. So when we analyze, we see a comparison with the first quarter of 2007, increase of 4.4%.

In terms of fees generated from our loan operations and guarantees, also some reduction when we compare to the last quarter of 2007, mainly because of the new regulations of the central bank and more competition. The line of collection services in the quarter, we have an increase when we compare to the last quarter of 2007 because in the first quarter usually we have more collection of taxes for the government as that society pays mostly of them in the beginning of the year. So we continue to believe that banking fees will increase around 8% for the year and we saw some seasonal factors affecting the first quarter of 2008.

Slide number 11, non-interest expenses. We have a reduction of almost 7% when we compare to last quarter of 2007. Here also we have some factors that is we have less expenses usually in the first quarter, especially in personnel expenses because of vacations of people we use to have less marketing expenses than others, so usually the first quarter has less expenses.

We continue to believe that the level of expenses for the year will be around 12%, always remembering that we continue our policy of opening new branches. That is a high cost investment for the bank. We expect to open around 140 new branches this year. What means an important growth for the number of branches and always remember that a branch to break even takes around 2.5 years and to be accretive compared to older branches, it takes around 4 to 4.5 years. So the level of investment that we are doing is very high, especially when we consider that we open around 130 branches in the last three years, each year.

This reflects in the efficiency ratio -- on page 12 -- isn't considering all these investments that we are doing the last year,s especially in our retail operation and opening of new branches. We have been able because of the growth of the revenues, especially in terms of credit, to reduce our efficiency ratio in the quarter 43.3% and in 12 months 45.9%. Very good numbers and we expect the year to finish around 45% for the year of 2008 in terms of efficiency ratio.

On slide number 13, we have the unrealized income and losses. We have a total gains unrealized of R$7.1 billion, which is a reduction compared to R$8.4 billion at the end of the year of 2007, mainly because of the reduction in prices of the companies that we have stakes that are listed in the stock market.

On slide 14, we have the traditional segmentation that we usually present to investors and shareholders, Banco Itau, the retail operation, Itau BBA corporate, and investment banking, Itaucred with our non-checking account clients and at Taii and corporation where we allocated the excess of capital of the bank.

If you go to page 15, we see that all these segments have very good returns. Banco Itau, 34% for return of our retail operation. Itau BBA, 26.5%. That's a very good number for wholesale banking. Itaucred, almost 40%, 39%. And the lower is the investment of capital that we have. So all these managerial numbers reflect the 27.2% in terms of return that we have in our recurrent results. I would say that is very good and sound levels of return analyzing the current level of competition that we have today in the Brazilian market.

On page 16, we can see the trends of our results, both in terms of net income and recurring net income, seeing that we continue to grow our [recent] numbers. And the last slide, number 17, with the number of shares that we repurchased in the first quarter, 24.6 million shares was the number of shares that we bought in the first quarter. Using the excess of capital that we have is one way of doing that is buying back shares and we did in a very good pace for the first quarter, taking advantage of a very low level of share price in our view, taking into consideration the long-run return that we can have in the Brazilian operation and Brazilian system in terms of banking.

And another thing is the split of one new share for every four that we have with the maintenance of the level of dividend. So the amount for the dividends that we pay were increased by 25% with this split. And also, we cancelled 25.3 million shares -- 10.3 million common shares and 15 million preferred shares -- in the last shareholders' meeting at the end of last month. So these were the highlights that we would like to present to you and now we are open to questions that you probably have. Thank you.

(OPERATOR INSTRUCTION) Our first question comes from Mario Pierry from Deutsche Bank. Please go ahead.

Yes, good morning. I have two questions. The first one is on your net interest margin. We saw, looking at the data from the Central Bank, we saw that credit spreads were up about 300 basis points during the quarter, but your net interest margin declined 10 basis points. So can you just comment why such a big discrepancy between the data that we see on the Central Bank and what you report.

And the second question has to do with credit growth. Your loans are growing about 38% year-on-year. You're guiding for growth at 25% to 30%. But is there any concern at the bank that the Central Bank in Brazil might take other measures to try to slow down this strong growth that we're seeing in the economy today?

Silvio speaking, Mario. In terms of the net interest margin, the data from Central Bank is the operations that were made during the month or during the quarter. When you look at our net interest margin, is the total portfolio. In reality, you have a mix from the new operations and the old operations. If you'll look at the new operations, the credit that was granted during this period that we have an increase in the spread, but is not sufficient to change the total net interest margin of the quarter.

In relation to the second question, today we do not have any concerns about other measures that Central Bank can take. I think is the measure is done and we are working this scenario.

Let me follow-up on the net interest margin. So what you said is thenyou expect your net interest margin to start trending higher since we're seeing the new credit being granted at higher spreads. But I have a question with regard to your cost of funding. The recent data that we have seen is that funding in Brazil is getting more expensive as well. Are you feeling that pressure? Also, with that in mind, would you still expect margins to trend higher in the next couple of quarters?

No. We also [posted] that the net interest margin will be flat. Our guidance before it was that we expect that the net interest margin will decrease 50 basis points but no anymore. Today we are working the scenario that the net interest margin will be flat during the year, basically because of the increased interest rate. In reality, you have many factors that affect the net interest margin. The mix, the new operations, the increase in interest rate, but the bottom line in net interest margin is that it will be flat, Mario.

Okay. Any comments on the funding?

Yes. The scenario that we are working tomorrow is [effective] today is higher because of the expansion in [credit] and because of the competition and because of the international scenario. That being our vision, we will be more positive the next couple of quarters because of the situation in terms of investment rate. Recent, in the first quarter, the corporate companies come back to the domestic market to borrow money. In thsee next couple of quarters, we are supposed that the international market will be more open.

Thank you very much.

Thank you for your question. Our next question comes from Juan Partida from JPMorgan. Please go ahead.

Hi, good morning. I have two questions. The first is, we saw significant decrease in the securities balance this quarter. I was wondering if you can comment what are the motivations for that. And my second question is, we saw a significant decline in other taxes, in other operating taxes such as PIS and COFINS that seemed to be a higher decline than implied by the elimination of the CPMF tax. Also, there is any reason for that decline and what we should expect for future quarters. Thank you very much.

In terms of the securities portfolio one, is something that is related with the first quarter, again because of the increase in the necessity to provide funds for the bank. You remember that the last year we increased our liquidity and now we are operating the level that's supposed to be necessary level that we need to operate. In terms of other tax, you are right. This is the CPMF effect and the other effect is led with PIS and COFINS. That is normally we have when we paid dividends from one company to another. Probably will have this impact in the second quarter, but is a small amount and not significant. Did not happen in the first quarter when you compare the first quarter with the first quarter '07.

Very helpful. Thank you.

Thank you for your question. Our next question comes from Pedro Fonseca from Nomura. Please go ahead.

Hi. Good evening, everybody. I have a question on funding and another one on commissions. On the funding side and with loans growing so quickly, do you envisage being more aggressive in terms of time deposits to try to encourage additional funding, including from your money market accounts? Hello?

Yes. Remember that in this month, May, the Central Bank will start to collect reserve requirements for the interbank deposits in the leasing operations. It means that we have -- first, an increase in credit, that we need more funds. Second, this to prepare for to the cost of new reserve requirement.

Okay. So you do expect to be more aggressive on the funding side, in terms of -- ?

Yes. We will be more competitive because these reserve requirements will be increased from 5% on May to 25% on January '09. Each two months these reserve requirements will be increased.

Okay. On the commission side, do you envisage any growing pressure in terms of prices on credit card fees?

During this first quarter, we had this impact as today the environment is more competitive, but we are -- suppose that this is the level that we report, we will be in the level that we operate in 2008.

Thank you very much, gentlemen.

Thank you for your question. Our next question comes from Victor Galliano from HSBC. Please go ahead, sir.

Thank you. Yes, my question is regarding asset quality. Obviously, it's pretty attractive right now, but could you give us a bit more detail on what's going on in the individual NPL ratio? What is it that's driven this up slightly? Are you seeing slight deterioration in terms of the asset quality of auto loans, for example? Where is this worsening of the NPL ratio in individuals coming from?

And also, can you give us some idea in terms of your charge-off policy, how you'd see that going forward in '08? We've seen an increase in that in the first quarter of this year as reflected in the coverage ratio coming down. How do you see that going forward? Do you believe you'll be charging off loans more aggressively?

In terms of asset quality, we are supposed that the ratios will be flat. Today, we report 4.3% and we are supposed that to be the ratio will be kept including the expenses in relation the total portfolio. We are not seeing improvement in terms of nominal values. In reality will be flat during the year. That's our vision.

In terms of car loans. In reality, the nominal amount is bigger than before in terms of delinquency, but not in terms of the ratios. We are increase the portfolio very fast. That's the scenario. In terms of the charge-offs, we have here in Brazil to adopt the Central Bank policy and we charge-off the credit after 360 days that they're overdue. In terms of the operations that exceed 36 months and this you have a guarantee, we have to expense the charge-off period for more 360 days.

Okay. But can you tell us which area of individual lending is the one that's responsible for this uptick in non-performing loans in Q1?

Is related with car loans, but is related with the personal loans as well.

Thank you.

Pardon me. This is the operator. Mr. Roberto Attuch from Banco Credit Suisse. You may ask your question.

Hi. Good morning, everyone. I actually have two questions. One is on the economic scenario and what interest rate cycle is. How much more would interest rates have to rise this year to affect your estimates on loan growth? That's the first question and the second question is about your capital policy. What do you plan to continue doing with your excess capital in 2008? Do you still plan to do more shares and how do you see the opportunities in -- for acquisitions in the LatAm space?

In terms of the economic scenario, we are supposed that the interest rate can increase 200 basis points. But because of the first quarter was bigger in growth than we expected, we are keeping our guidance. We are not supposed that the credit in the case of Itau will be affecting our guidance. 25% to 30% is our guidance in credit growth.

The second question about Itau I will pass to Alfredo.

Hello, Roberto.

Hello.

In terms of the use of capital, we consider that buying back shares is important part of our strategy in terms of using capital excess and we analyze because this depends on the price conditions and the market conditions in general. We have an authorization of the Board to buy more shares and this you -- we analyze under the market circumstances. In terms of LatAm expansion, we continue to focus our strategy in Brazil.

We have much more opportunity, the spread, the return on equity is much higher here than in other countries. But we are more active in these countries. Even in Argentina, we have been more active. We increased our credit portfolio especially for companies. We are reshaping all our branches. We are changing the name of the bank there. We will be only Banco Itau -- not anymore Itau Buen Ayre. We are opening more branches in the countryside of Argentina. In Chile, we are also more active. The operation that we bought from Bank of America was very calm. We are more active. We are open and getting more clients.

We have a very low level of attrition with client bases in Chile and Uruguay. So we continue to increase these operations. We are open to [instead] small acquisitions like we did in Uruguay in terms of pension fund company, but our target continues to be the Brazilian market where we can see and we see in the coming years much more opportunities for the bank, especially for banking, and we continue to see much higher returns on equity in Brazil than in other countries.

Okay. Thanks very much. Thanks, Silvio. Thanks, Alfredo.

Pardon me. This is the operator. Saul Marciano from Bear Stearns, you may ask your question.

Hi. This is Saul Martinez from Bear Stearns. I want to dig into the auto loan portfolio a little bit. You've obviously had very, very strong growth now in this past year. And I want to -- first question is have we seen any shift at all in terms of the portfolio between new and used vehicles and how much of new loan origination is coming from new vehicles versus used vehicles. That's my first question.

And the second question is on asset quality in the auto business. I realize you guys indicated that asset quality is stable in auto loans or you indicated that asset quality is stable in auto loans when measured against total loans. However, your loan loss provisions at Itaucred for vehicles rose substantially in the quarter sequentially from R$259 million to R$330 million and E through H loans in the auto loan portfolio did increase sequentially as well. So I'm wondering if you guys are concerned at all given the very strong growth you've had and some concerns industry-wide about underwriting standards in auto lending, whether you're going to see asset quality weakening in the auto book as some of these loans start to season.

Saul, in terms of our car business, the change that we made recently is we become more stringent to grant credit. In terms of the amounts of the proposals, we are selecting more detailed customers. In terms of the mix between brand new cars and used cars is 40% is brand new, 60% used cars. In terms of the credit quality, it's flat. The increase in the total provision, the total portfolio, during this period is related with the portfolio, in synch with the portfolio and you need to make more provisions related towards that. We are not seeing any sign of deterioration.

Yes, I guess my question, though, Silvio, is if I look at loan loss provisioning at Itaucred in the vehicle segment it went from R$260 million in 4Q -- if I'm not mistaken -- to R$330 million. In your loan portfolio, you grew 10%, so that's a pretty substantial increase in provisioning levels there.

In Brazil, we have to make a provision when we grant the credit. When we analyze the operation we have to classify the customers immediately. That's what we call general provision here. The other kind of provision that appear when it's become overdue. That is specific provisions.

Okay.

We are not see any change in our policy.

Okay. Has there been any shift at all between new and used vehicles.

A little bit. It used to be 65 used cars, now changed to 60.

Industry-wide, would you be concerned about asset quality in the used vehicles? Not necessarily talking about your portfolio, but obviously, some of the small banks are growing very quickly there in the used vehicles and some anecdotal data evidence that asset quality, or that underwriting standards, for some may be deteriorating.

It is our policy to become more stringent under the opportunity in the market.

Okay. All right, thank you very much, Silvio.

Okay.

Thank you for your question. Our next question comes from David Henle from DLH Capital Management. Please go ahead.

Yes, my question was on vehicles and you've answered it. Thank you.

Thank you. Our next question will come from [Jaswan Holcar] from Ursa Capital. Please go ahead.

Yes, good afternoon. Hello? Hello?

Go ahead, sir.

Go ahead, please.

Good afternoon. My question is basically about the mortgage portfolio, what your outlook is for that in 2008 and maybe further out, if you can comment. And has that outlook changed given the country going investment-grade?

We didn't change our policy because the country become investment-grade. We are continuing to be very focused in this market and this market starts to grow in Brazil. The portfolio in this quarter grew significantly. Our guidance this year the mortgage loans will grow 50% in our portfolio. We may do one JV with [Ilot], a very important brokerage in Brazil, is one of the most important and we analyze some opportunities in this markets.

Understood. And what does that do over time to your blended NIMs?

Can you repeat, please, the question?

Yes. The question is, as mortgages -- . Or maybe the first question is, do you expect mortgages as a percentage of your total book to increase? And if so, what does that do to your NIMs -- your net interest margins?

We are expecting that the future about consider that Brazil continues in terms of economics in a good shape. The country is continuing to grow. We expect that in 2012/2013 can achieve 10% of our portfolio -- the total mortgage. We'll continue to grow in this space about 50% the portfolio year-by-year. In terms of net interest margin, this year the portfolio continues very small. It will not affect the net interest margin guidance.

Okay. Thank you very much.

Thank you for your question. Our next question comes from [Ian Smith] from Nevsky Capital. Please go ahead, sir.

Hi. I just had two questions. The first one is on the share buyback program. The diluted number of shares has stayed constant from quarter-to-quarter. Is there any reason why the treasury shares haven't been cancelled? For example, they might be used for something or do you expect to cancel those shortly? And then just a follow-up question on Brazil going investment-grade. I suppose a bit of a broad question, but could you give us a few examples of how that might be helpful to the bank going forward?

Regarding your first question, the last shareholders' meeting realized in the end of April, we announced cancellation of 25 million shares for the amount that we had in our books. So we did this cancellation of 25 million shares in this last meeting. We keep part of these shares because we use these shares to serve our stock options program. That's the reason we keep three, four years ahead in terms of estimation that we are going to use in our stock option program. So what we did, we cancelled these 25 million shares that we think is excess that we are not going to use in the coming years in this program of stock options.

In relation to the impact of the investment-grade stocks for Brazil, in our case we expect it to be more activity international market to get money. I think it will be opportunity for Itau to be more present. That's the first impact that you see. The other impact, I think we will be spread out the next couple of years.

Thank you very much. Sorry, I missed that cancellation announcement. Thank you.

Our next question comes from Maria Laura Pessoa from Unibanco. Please go ahead.

Good morning and congratulations for the results. I have two quick questions. First one is, if you plan to give more emphasis on the insurance segment and the second one is related to fee income. As we saw this drop, drop, drop in first [Q 2] and if we look year-over-year it represents a growth of 3%. I wonder if this changes anything regarding the guidance that you gave for this line for this year. Thank you.

Regarding your first question about insurance, we have considered traditional insurance. Our market share is not very high. Some reasons for that -- the main one -- is that we are out of the health insurance. That is almost half of the market. We don't sell this kind of insurance in the last 16, 15 years because we consider this very risk business with a high level of interference of the government in terms of prices, in terms of what can and should be intended by the insurance company. So this explains most of the low presence in terms of market share.

In the other segments of the traditional insurance, we have a reasonable presence in the life insurance and is more than we would like in terms of auto insurance. So we are working. We don't see many opportunities in terms of acquisition. These are very competitive markets, so is not easy to gain market share. To gain market share, you have to reduce price of the insurance so you start to have other risks in terms of results. We have a small, but very profitable insurance business. If possible, we would like to increase by acquisitions, but is not easy because there is not many offers, companies, available to consider in terms of acquisition. So we continue our policy to be profitable, to take care of in terms of underwriting of insurance.

But we know that we have some lack in this business, but we are not comfortable with that, of course. But we don't see, as I said, many opportunities to acquire and as I said also, is difficult to gain market not increasing risk and delinquency of the insured. So we will continue to work in the direction of improving our operation and looking for opportunity.

In terms of the fees, we are keeping our guidance that fees will grow 8%, 2008 in relation to 2007. You know that in this month, in May, the Central Bank implement some measures, but we are not consider that will affect our profitability in relation to the guidance. In reality, basically we had the impact of this change in the first quarter already.. In reality, we will try some other feesthat we didn't try before and that were eliminated two of them already.

Thank you.

Thank you for your question. Our next question comes from [Walter Ramos] from TriCapital. Please go ahead.

Yes, thank you. Good morning. Can you shed a little bit of light on the drop in investment banking fees? And as a second question, what is Itau's corporate strategy with respect to its investment banking operations?

Good morning, Walt. This is Vassimon. The reduction in investment banking fees in the first quarter reflects a more challenging environment. The market was basically closed, especially for equity transactions. But looking ahead, we have a more optimistic view because we believe that the market will start to recover, although still on a selective basis. We have already seen in April a relevant transaction in the equity markets in Brazil led by Itau BBA and so we expect fees to recover in the next quarters.

As general strategy, we see investment banking as a relevant part of our strategy of being a one-stop shop for our corporate customers and I believe in this new environment of investment grade, Brazilian companies will more and more require investment banking services. I think we are well-positioned. We have been among the top three in terms of equity offerings in the past few years and we have been the leading bank in the Brazilian fixed income markets.

Let me do a quick follow-up. With Unibanco's new approach to their investment banking operations of apparently spinning that off, do you guys having any similar idea in the back burner?

I believe that Unibanco's movement was right one and pretty much in line with what we have already established in Itau BBA. In Itau group, as you may know, have this corporate business concentrated in a separate unit to allow a more concentrated focus on this segment. So I see the movement of some of our competitors somehow ratifying the strategy that we took before them a couple of years ago.

Great. Again, congratulations on a great quarter. Thank you very much.

Thank you for your question. Our next question comes from Juan Partida from JPMorgan. Please go ahead.

Thank you. I just wanted to follow-up with a quick question on civil and labor litigation reserves or provisions. We saw them declining quite substantially versus the fourth quarter. Could you give us some indication as to what we should expect for the rest of the year in this line item? Thank you.

In the first quarter, like we mentioned before, is not a very active quarter because of the many people on vacation including the courts. This reduction I think is related with this subject. We are not expecting a reduction the next couple of quarters.

Thank you very much.

Okay.

Thank you. Our next question comes from Victor Galliano from HSBC. Please go ahead. Pardon me, Mr. Galliano. You can ask your question now please?

I'm sorry, I had the mute on. Regarding Itau BBA, we saw a return on capital of 26.5% for the quarter. Do you think this is something that could be sustainable going forward, especially with the investment grade and potentially the impact on your [PCM] issuance business as well as [ECM] issuance business?

Victor, this is Vassimon. I believe that in an investment-grade environment we should expect some reduction in the margins in loans. On the other hand, we should also expect some increase in the fees related to investment banking activities. I think that to reach return on equity above 20% to be a reasonable challenge and a good guidance.

Thank you.

(OPERATOR INSTRUCTIONS) This concludes today's question and answer session. Mr. Setubal, at this time you may proceed with your closing statements.

Thank you for your time being with us. I think we have a very good quarter -- very good in terms of recurrent results. We think we are in very good position to face competition and to face the difficulties and opportunities that we have in the Brazilian market. We continue to be very optimistic about the environment here in Brazil in terms of economic growth, low inflation that will result in a good environment for credit and for loan expansion.

We continue to be optimistic about the results. We continue to see the environment doing good benefits for the bank in industry in the coming quarter, so we expect it to keep the pace in terms of good results in the coming quarters. Thank you for your time and hope to be with you again in the next conference call for the second quarter results. Thank you.

That does conclude Banco Itau's first quarter 2008 earnings results conference call for today. Thank you very much for your participation. You may now disconnect.