3rd Quarter Results

LUXEMBOURG/PORTUGAL--(BUSINESS WIRE)--

ESPÍRITO SANTO FINANCIAL GROUP S.A. ANNOUNCES ITS UNAUDITED CONSOLIDATED RESULTS FOR THE FIRST NINE MONTHS OF 2013

Luxembourg/Portugal – 18 November 2013 - Espírito Santo Financial Group S.A. (“ESFG” or the “Company”) (NYSE Euronext Lisbon: ESF; Bloomberg: ESF PL; Reuters: ESF LS) today announces its unaudited consolidated results for the first nine months of 2013. The report is compiled under IFRS as implemented by the EU.

HIGHLIGHTS FOR THE REPORTING PERIOD

ESFG’s banking and insurance operations remain constrained by the economic contraction in Portugal. Recent indicators however point to a positive economic picture coupled with a significant improvement in the external balance of credit.

The deleverage programme at ESFG’s principal banking subsidiary Banco Espírito Santo (BES) continues with the LtD ratio at 129% by the end of the third quarter and is well on its way to achieving the 120% required level by 2014. Consolidated deposits remain robust whilst the Bank undertakes disciplined financial measures through deleveraging. Despite negative results for the period, reflecting continued provisioning, quarterly results show an improvement in operating trends.

• Consolidated Commercial Banking Income at ESFG declined by 15.1% year-on-year to EUR 1.36 billion, (EUR 1.61 billion in September 2012);
• Consolidated Net Interest Income reached to EUR 809.0 million, (EUR 964.5 million in September 2012), a 16.1% decline year-on-year;
• Consolidated Net Fees and Commissions fell 13.6% year-on-year to EUR 553.5 million, (EUR 640.7 million in September 2012);
• Consolidated Market Results¹ declined to EUR 74.8 million, (EUR 288.9 million in September 2012);
• Consolidated Insurance Earned Premiums (Net of Reinsurance) rose 16.1% year-on-year to EUR 349.3 million, (EUR 300.7 million in September 2012);
• Consolidated Claims Incurred (Net of Reinsurance) declined by 20.5% to EUR 352.3 million, (EUR 443.4 million in September 2012);
• Consolidated Operating Expenses rose by 5.5% year-on-year to EUR 2.43 billion, (EUR 2.30 billion in September 2012), despite a 34.3% year-on-year rise in provisioning;
• Consolidated Staff Costs and General Administrative Expenses decreased by 6.3% year-on-year to EUR 898.2 million, (EUR 958.3 million in September 2012);
• As of the 30 September 2013 ESFG’s Core Tier 1 ratio reached 10.3% which exceeds the Bank of Portugal’s requirement of 10.0%. Under EBA ESFG’s Core Tier 1 remained at 9.5%

CONTENTS

1. Income Statement Summary 3

2. Macroeconomic Environment 4

3. Overview of Operations 5

4. Operating Structure 11

5. Income Analysis

5.1 Banking 12

5.2 Insurance 13

5.3 Other Income 14

6. Cost Analysis

6.1 Operating Costs 15

7. Solvency and Liquidity

7.1 Solvency 16

7.2 Basel III 17

7.3 Liquidity – External Debt 17

7.4 Credit Rating 18

8. Developments in 9M13 and Subsequent Events 19

9. Consolidated Financial Statements 20

CONFERENCE CALL

A conference call for investors and analysts will be held on Tuesday 19 November at 3:00 PM (UK & Portugal) / 4:00PM (CET) / 10:00AM (Eastern). An instant replay of the call will be available for two weeks. For details, please contact Miles Chapman at King Worldwide on telephone number [phone].

1. INCOME STATEMENT SUMMARY

Fig. I

(EUR Thousands)	9M12	9M13	% ∆
+ Net Interest Income	964 475	809 363	(16.1%)
+ Net Fees and Commissions	640 671	553 484	(13.6%)
= Commercial Banking Income	1 605 146	1 362 847	(15.1%)
+ Capital Markets Results	288 905	74 826	(74.1%)
+ Other Operating Income	401 416	91 605	(77.2%)
+ Insurance Earned Premiums (Net of Reinsurance)	300 746	349 253	16.1%
+ Dividend Income	71 166	55 442	(22.1%)
= Operating Income	2 667 379	1 933 973	(27.5%)
- Staff Costs and General Expenses	958 321	898 210	(6.3%)
- Claims incurred (Net of Reinsurance)	443 378	352 290	(20.5%)
- Change in Technical Reserves (Net of Reinsurance) & Insurance Commissions	(197 103)	(208 068)	5.6%
- Depreciation, Provisioning and Impairments	857 651	1 151 492	34.3%
- Other Expenses	242 664	238 283	(1.8%)
= Operating Expenses	2 304 911	2 432 207	5.5%
Profit before Tax (Inc. Gains from Financial Investments & Share of profit of Associates)	458 467	(489 090)	-
- Direct Taxes	99 141	129 359	-
- Deferred Taxes	27 797	(244 147)	-
- Minority Interests	77 155	(266 751)	-
= Net Income	254 374	(107 551)	-

2. MACROECONOMIC ENVIRONMENT

The third quarter of 2013 saw a moderate recovery in global growth, with positive signs coming from all the main economies. The quarter started with an increase in volatility in the financial markets, resulting from political and military tensions in Syria, which drove up the price of oil, (with Brent crude up by almost 7.0%, to USD 109 per barrel), as well as the uncertainty over the reduction of monetary stimuli by the US Federal Reserve. The Fed’s decision, on 18 September 2013, to delay this tapering of quantitative easing, contributed to an improvement in investor sentiment and to a greater propensity for risk by the end of the quarter.

In the US, the Dow Jones, Nasdaq and S&P 500 indices advanced in the quarter by 1.5%, 10.8% and 4.7%, respectively, while in Europe the DAX, CAC 40 and IBEX gained 8.0%, 10.8% and 18.3%. In the Eurozone, sentiment was also boosted by the ECB’s unprecedented ‘forward guidance’ policy, which signalled that key interest rates would stay low for a long period of time. The 3-month Euribor remained stable during the period, at around 0.22%. The Fed’s postponement of QE tapering and positive activity signs in the Eurozone contributed to the EUR’s appreciation during the quarter (4.0% against the dollar, to EUR/USD 1.353). The Fed’s decision also benefited the emerging markets’ assets, which had been under great pressure in the preceding months. In Brazil, the Bovespa index gained 10.3% in the quarter. In China, signs of growth stabilisation (GDP grew by 7.8% YoY), supported a 9.9% rise in the Shanghai Composite index.

In Portugal, GDP registered a further increase in the quarter (0.2%, after reaching 1.1% in the second quarter), supported by the strong performance of exports, (services in particular), and a slowdown in the contraction of domestic demand. From January to September the Bank of Portugal’s coincident indicator of economic activity fell by 1.5% YoY. The increase in domestic savings permitted an improvement in the net lending position of the economy, with the external accounts reaching an estimated surplus of 2.5% of GDP in the period from January to July. A period of political instability and difficulties in the fiscal consolidation process drove up the yield on the 10-year Portuguese public debt securities to 7.51% in early July. The stabilisation of the political scenario and a new positive review of the Economic and Financial Adjustment Process by the IMF/EC/ECB subsequently allowed the 10-year yield curve to fall to 6.3% by the beginning of the fourth quarter. The PSI-20 followed the European trend, gaining 7.1% in the quarter.

3. OVERVIEW OF OPERATIONS

ESFG’s unaudited consolidated net results for the first nine months of 2013, attributable to equity holders of the Company fell to -EUR 107.6 million from EUR 47.8 million when compared on a like-for-like basis. In 2012, net results for the first nine months of EUR 254.4 million included EUR 206.6 million of extraordinary gains recognised through the re-evaluation of the life insurance investment further to the purchase of the outstanding 50.0% stake in BES Vida by BES.

Results of ESFG’s core operations were constrained by the challenges of the Eurozone crisis and the impact of the Financial Adjustments’ Programme adopted by Portugal. The performance of ESFG’s principal banking investment, Banco Espírito Santo (BES), was affected by the rise of insolvencies in Portugal, impacting on impairment levels and the need to provide adequate provisions. Recent quarterly banking income results however show clear improvements. Consolidated contributions from ESFG’s other banking operations remain positive, though reduced when compared to the first nine months of 2012. ESFG’s consolidated life and non-life financial results, through BES and Tranquilidade, improved during the reporting period.

Consolidated Banking Income at ESFG declined year-on-year to EUR 1.36 billion. Strong growth in customer deposits at BES during the first half of the year were tapered in the third quarter. The year’s deposit growth, coupled with a decline in corporate and mortgage loans in the third quarter consequently improved the Bank’s Loan to Deposit ratio (LtD) from 142% to 129%. Net interest income at BES, which improved in the second quarter of 2013, rose by a further 19.0% in the third quarter with positive contributions from both its Portuguese and its international operations. When compared year-on-year ESFG’s consolidated NII results declined by 16.1%.

Consolidated Fees and Commissions (net of expenses) at ESFG totalled EUR 553.5 million, a decline of 13.6% year-on-year. Results include the significant cost of guarantees provided by the Portuguese state for certain debt instruments issued by BES but which expected to end in 2015. Fees and Commission income reported by the Bank declined year-on-year by 15.5% to EUR 529.0 million. Positive quarterly trends, seen in the Bank’s NII business, were also seen in Fees and Commissions which rose by 9.0% quarter-on-quarter. Capital market’s results, including interest rate, credit and FX as well as equity trading, consolidated at ESFG declined to EUR 74.8 million.

Despite the difficult operating environment, and consequently the consolidated losses for the period, ESFG’s Core Tier 1 remains above the Bank of Portugal’s and the EBA’s minimum requirements of 10.0% and 9.0% at 10.3% and 9.5% respectively. The capital position of BES, which is fully consolidated at ESFG, remained stable at 10.4% and 9.7% respectively, despite negative results. ESFG is recognised by the European Banking Authority (‘EBA’) as one of the leading European banking groups and is regulated as such.

ESFG’s un-audited consolidated net results reflect the challenges faced by BES and its measures to mitigate them, namely the 43.2% year-on-year increase in provisioning charges during the first nine months of the year to EUR 1.07 billion. The increase in provisions for credit to EUR 3.30 billion has seen the credit provisions over gross customer loans rise to 6.6% from 5.1% a year earlier.

Consolidated operating expenses during the period grew by 5.5% year-on-year on the back of increased provisioning. Staff costs were contained, however, falling by 12.3% year-on-year to EUR 516.1 million from EUR 588.6 million a year earlier. ESFG’s continued organic drive towards business outside of its traditional markets remains a central strategy, with staff and administrative costs in its established markets declining whilst rising in international markets.

Total consolidated assets at ESFG declined by 4.1%, from EUR 87.57 billion at the end of September 2012 to EUR 83.95 billion at the end of the September 2013. Consolidated Risk Weighted Assets at ESFG fell to EUR 62.10 billion by the end of the period.

Group Banco Espírito Santo

The results of ESFG’s banking subsidiary, BES, reflect the difficult operating environment of its principal market of Portugal. Results for the first nine months of 2013, fell to –EUR 381.0 million, as the Bank strengthens its balance sheet through continued deleveraging and reinforcement of provisions. Pre-provisioning profit in the third quarter of 2013, however, saw a 46.0% quarter-on-quarter increase. Commercial banking income grew by 15.0% quarter-on-quarter to EUR 482.7 million from EUR 419.8 million in H113. Commercial banking over the first 3 quarters has risen accumulatively by 23.0%. Quarterly improvements were coupled with a stable cost base. Despite pressures to further strengthen the balance sheet, operating costs during the nine months fell by only 0.5%. Further improvements in macro conditions will allow results at the Bank to recover in the coming quarters.

Despite the negative results for the period the Core Tier I ratio remained stable at 10.4 %, meeting the Bank of Portugal’s requirement (minimum of 10%); under the EBA calculation method, the Core Tier I ratio is 9.7%, also above the minimum 9.0% established by the European Banking Authority. At the end of the second quarter BES Life insurance subsidiary BES Vida completed a monetisation transaction of its life risk portfolio which contributed to the Bank’s results. During the fourth quarter BES is expected to benefit from the approved capital increase at BES Angola, which is expected to raise the Bank’s Core Tier 1 to 10.7%. RWA’s at BES fell by EUR 2.5 billion from the beginning of the year to EUR 59.2 billion, or 79.1% of total assets.

The deleveraging programme at BES, which began in 2010, and pre-empted the Portuguese Government’s request for assistance, has continued through the third quarter. ESFG’s banking subsidiary’s LtD ratio at the end of 9M13 reached 129% from 142% a year earlier, a decrease of some 13 percentage points. The marked improvement in the LtD (Bank of Portugal methodology) was supported by the increase in the year’s customer deposits though a quarter-on-quarter decline resulted from a reduction in large corporate and institutional deposits. Deposits reached EUR 36.0 billion, an increase of EUR 2.8 billion from the end of September 2012. Overall customer funds, including deposits and other on and off balance sheet products, rose by 5.3% year-on-year from EUR 2.3 billion to EUR 45.6 billion

Although overall asset quality remained resilient, the worsened economic situation has had its effect on the levels of overdue loans both in Portugal and internationally. Non-Performing Loans (NPL) of over 30 days rose from 3.7% at the end of the third quarter 2012 to 6.0% by the end of the same period in 2013, the balance of provisions for credit increased by 28.0% during the same period to EUR 3.31 billion, 6.6% of gross loans. The first three quarters of the year saw encouraging, improving, signs with a 50.0% decrease of net entries in credit at risk. The Cost of Risk declined to 1.81% in 3Q13 from 2.16% in H113). NPL formation is slowing gradually.

Operating costs at BES fell by 0.1% year-on-year (-1.1% when incorporating recent consolidations); staff costs fell by 2.4% year-on-year. Operating costs in Portugal fell by 3.3% year-on-year to EUR 565.0 million. Operating costs outside of Portugal however increased by 7.2% year-on-year to EUR 280.0 million (principally reflecting the costs relating to the reorganisation of the Bank’s Angolan operations). BES continues to implement a cost cutting programme in Portugal between 2013 and 2015 with expected savings of up to EUR 100.0 million.

Consolidated international operations through BES play a key role in Espírito Santo Financial Group’s strategy of diversification. Spain, Brazil and Africa make up BES’ strategic banking triangle, when adding its other international interests, namely the UK and the USA, international contributions remain positive, but to a lesser degree when compared to a year earlier. Results reached EUR 30.9 million following a rise in provisions. International net interest income rose by 31.4% year-on-year to EUR 355.7 million driven by the Bank’s Angolan operations. Fees and Commissions, however, declined to EUR 139.8 million. International commercial banking rose by 1.1% year-on-year.

The increase in international net interest income helped counter the 35.3% decline in domestic NII. Combined international and domestic commercial banking income at BES fell by -15.5%. Consolidated banking income at BES, including capital markets and other results, fell to EUR 1.43 billion from EUR 1.87 billion in 9M12, a decline of 23.7%. Developments at BES’ international operations include the recovery in the United Kingdom driven by the expansion of wholesale funding; the positive evolution in the USA, France and Luxembourg were countered by lower contributions from African operations and the negative impact of the EU crisis on the Bank’s operations in Spain.

At Banco Espírito Santo de Angola (BESA), in which BES has a 51.9% stake and management control, total assets reached EUR 8.4 billion, a year-on-year rise of 6.0%, and its credit portfolio rose by 17.0% to EUR 5.8 billion. Customer funds, by the end of the third quarter rose by 8.0%. Net income reached EUR 48.6 million with NII rising by 76.0% to EUR 192.0 million. Results were however affected by a reduction in fees and commission and a reinforcement of provisions.

BES reinforced its position in Moza Banco during the first half of the year by acquiring 24.0% of the capital of Grupo Geocapital and now holds 49.0% of the share capital of Moza Banco. The Mozambican bank’s operations continued to grow during the third quarter with deposits doubling year-on-year.

Investment banking activities at Espírito Santo Investment Bank (BESI), include advisory services in project finance, mergers and acquisitions, restructuring and consolidation of liabilities, preparation and public or private placement of shares, bonds and other fixed-income and equity instruments, stock broking and other investment banking services. In addition, the bank offers traditional banking services to corporate and institutional clients.

Banking Income at BESI reached EUR 177.5 million, a decline of 7.7% with the non-Portuguese business accounting for 58.0% of total business. Capital markets and other results however rose by 5.5% to EUR 38.7 million. Pre-tax profits for the period fell to EUR 5.6 million as provisioning increased to EUR 35.2 million, a rise of 14.1% year-on-year. Operating costs declined by 2.3% year-on-year to EUR 127.2 million.

ESFG’s consolidated international operations also include the Group’s other directly owned Private and Commercial banking operations

ESFG’s Swiss private banking operations, Banque Privée Espírito Santo (‘BPES’), contributed positively to ESFG’s consolidated results in the first nine months of the year, with individual net income up 18.0% year-on-year to CHF 3.8 million. The strength of the Bank’s commercial activity is reflected in Assets under Management (AuM) which now exceed CHF 5.0 billion, an increase of 5.5% YoY. Net new money rose by CHF190.0 million from the beginning of the year. Banking Income was up by 5.5% to CHF 36.8 million.

BPES strengthened its focus on wealth management by acquiring the LATAM unit of Hyposwiss Privatbank AG. The Hyposwiss team will join BPES in a newly opened Zurich branch office during the last quarter of 2013. ESFG considers this to be an important step in BPES’ development strategy of expanding operations within the European Union. The acquisition is subject to regulatory approval. At Espírito Santo Wealth Management (Europe) S.A. (ES Wealth Management), controlled through BPES, AuM has reached CHF 100.0 million after only nine months of activity and was recently granted the authorization to begin operations in Spain and will open a branch in Madrid by year end.

Net Income at ES Bankers (Dubai) Limited (ESBD) reached USD 3.0 million against USD 5.9 million a year earlier, a decrease of 49.0% year-on-year. The reduction in profitability reflects the Bank’s new strategy and repositioning for the future. Fees and Commissions rose by over 25.0% when compared to the previous year, from USD 7.1 million in 9M12 to USD 8.9 million in 9M13. ESBD closed the period with Total Equity of USD 40.2 million, an increase of 2.0% year-on-year generating a ROE of 12.6%. Total assets increased to USD 278.2 million by the end of the period. AuM, focusing solely on private accounts, rose by 20.0 % to USD 1.5 billion.

Banking activity at Espírito Santo Bank of Panama (ESBP) remains positive. Individual net income declined to USD 13.1 million from USD 14.5 million, a decrease of 10.1%. NII rose by 6.0% to EUR 13.5 million during the period. Fees and Commissions however declined leading to a 4.3% decline in Banking Income to EUR 16.2 million. Staff costs and general administrative expenses rose as ESBP develops new business channels.

At Banque Espírito Santo et de la Vénétie (BESV) (France) gross operating income rose by 16.0% year-on-year to EUR 14.3 million. Banking income rose by 10.0% to EUR 34.8 million. Operating costs however were up by 6.0% driven by the Bank’s reorganisation programme, including the reform of commercial operations and the outsourcing of services. The French Bank’s pre-tax profit for the period reached EUR 6.6 million.

Banco BEST, principally owned through BES but in which ESFG owns a 9.0% direct stake, reported a net individual net income for the first nine months of the year of EUR 8.6 million, a rise of 33.0% year-on-year. The internet banking operation focuses on the provision of online trading and investment services. The Bank reported EUR 2.2 billion of Assets under Custody.

Tranquilidade Insurance Group, BES Vida and BES Seguros

ESFG's insurance operations contributed positively to ESFG's third quarter results of 2013 despite continued economic difficulties in Portugal. ESFG’s consolidated operations remain the largest privately owned insurance group in Portugal with a consolidated market share, by premiums, of 19.4%, ranked only by the state insurer, and which compares favourably with the Group’s market share in the third quarter 2012 of 15.3%. ESFG's market share in the non-Life sector, through Tranquilidade Group and BES Seguros reached 10.6%. The combined market share in the Life business of T-Vida and BES Vida stood at 23.4%.

In the first six months of the year, as reported by the Portuguese Insurance Institute (ISP), ESFG’s consolidated insurance income represented 57.0% of total results for the Portuguese insurance sector. ESFG’s consolidated Non-Life net results represented 88.0% of its sector whilst the Life operations represented 56.0% of its respective market. Outside of Portugal ESFG’s insurance operations are present in Spain, Angola, Mozambique, Cape Verde, Brazil, Argentina and Chile.

Tranquilidade's net individual income reached EUR 15.8 million. Technical results fell during the period by 8.0% to EUR 43.8 million. These results were affected by storms in the first quarter, which affected continental Portugal. Financial results stood at EUR 23.6 million, with operating costs down by 0.1% year-on-year to EUR 48.8 million. Tranquilidade's individual market share stood at 8.3%. Tranquilidade's market share in workers compensation, fire and other damage and motor reached at 10.8%, 8.3% and 8.5% in the first nine months of 2013.

T-Vida reported an individual net income of EUR 3.1 million, a year-on-year increase of 1.0%. Premiums at Tranquilidade's Life business increased by 61.3%.

BES Vida posted an individual net income of EUR 211.9 million (including the extraordinary gains of approximately EUR 150.0 million associated with the non-recurrent reinsurance transaction announced at the end of the first half of the year). BES Vida, a fully owned subsidiary of BES, posted strong premium growth of 80.0% year-on-year to EUR 1.55 billion on the back of increased unit-linked, savings and pension product growth. Claims saw a sharp decline of 47.3% year-on-year following BES' return to full management control and a sharp reduction in financial product redemptions.

Solvency margins at ESFG' direct insurance operations remained strong with Tranquilidade's solvency margin reaching 578%. T Vida's solvency position improved over the period to 155%. At BES Vida and BES Seguros solvency margins reached 207.0% and 201.8% respectively by the end of the period.

ESFG's assurfinance programme of cross-selling banking products through its agents accounted for 19.4% of new clients at BES and represents 12.1% of the total increase in retail Assets under Management. Tranquilidade's distribution network is made up of more than 1.800 points of sale, of which 37 are own branches and 169 tied agent stores.

4. OPERATING STRUCTURE – 30 September 2013

Fig. II

[ Object omitted ]

5. INCOME ANALYSIS

5.1 Banking Income

Consolidated Net Interest Income (NII) declined by 16.1% year-on-year to EUR 809.4 million from EUR 964.5 million in 9M12. The reduction in NII at BES was domestically driven and relates to the impact of the weak economic picture in Portugal and the volatility in interest rates. NII generate outside of Portugal, particularly in Angola, saw a 31.4% year-on-year increase to EUR 355.7 million. Interest earning business remains unchanged, when compared to a year earlier at close to EUR 69.0 billion with loans to customers focusing primarily on the corporate sector with loans to individuals continuing to shrink through lower demand and amortisation of mortgage loans. The average rate of interest on financial assets fell (-51 bps) but exceeded the decrease in the average rate of liabilities received (-26 bps). Net Interest Margin (NIM) therefore fell by 26 bps year-on-year from 1.75% to 1.49%.

BES’ domestic credit portfolio decreased by EUR 900.0 million which included a 2.0% decrease in the corporate loans, individual loans fell by 4.0%. International loans rose by EUR 500.0 million with a 4.0% rise in international corporate loans and a 6.0% rise in loans to individuals abroad highlighting the support provided by BES to its corporate clients and more specifically to the exporting firms.

Net Interest Income results also reflect the limited access to the medium and long-term debt markets. BES has redeemed, net of issues, EUR 19.6 billion of wholesale debt over the past 3 years. As of 30 September 2013 BES’ net use of ECB funding fell to EUR 9.2 billion from a high of EUR 13.7 billion in June 2012.

Consolidated Fees and Commissions (Net of Expenses) declined by 13.6% year-on-year to EUR 553.5 million in 9M13 from EUR 640.7 million in 9M12. Results include fees generated by BES as well as from asset management and securities related fees from the private banking operations directly owned by ESFG namely Banque Privée Espírito Santo and ES Bankers (Dubai). The first nine months of 2013 saw strong growth in fees on documentary credit as well as asset management fees. Commissions on documentary credit increased by 33.6% and asset management fees by 14.9%. When excluding the cost of government guaranteed bonds (GGB) and other non-recurrent fees, issued by BES and guaranteed by the Republic of Portugal, fees and commissions fell by only 1.8% year-on-year.

Fees and commissions linked to corporate business, namely financings (collections and loans), project finance and documentary credits declined however, reflecting the economic conditions as well as the Group’s deleveraging programme. Commission income from credit cards and account management (commissions on current accounts, transfers, and payment orders) were also impacted by the current austerity policies. Commissions on Bancassurance activity declined year-on-year, though quarterly improvements were noted.

Consolidated Capital Markets totalled EUR 74.8 million in 9M13 from EUR 288.9 million reported in 9M12. Capital market results reflect the consolidated trading activity, of primarily BES. BES’ exposure, by the end of September 2013 to both Portuguese and Spanish sovereign debt, and to a smaller extent Italy, reached EUR 6.9 billion. 40.0% of sovereign exposure was in T-bills and a further 18.0% in debt of between 1 and 5 years; this reflects the well-considered duration profile of the Bank’s asset allocation. The Bank’s sovereign portfolio contributed positively to capital markets’ results. Concerns during the period over the US Federal Reserve’s willingness to withdraw QE incentives, as well as the need to readjust for risk in countries suffering social instability, weighed on asset prices and currencies alike.

5.2 Insurance Income

Income generated from the Group's insurance operations are consolidated from both ESFG's fully owned Companhia de Seguros Tranquilidade, S.A. (Tranquilidade) operations and through BES' recent, fully acquired, consolidation of its life business; BES Vida, Companhia de Seguros (BES Vida). By the end of the reporting period ESFG's consolidated life and non-life operations remain the largest privately owned insurance group in Portugal with a combined market share of 19.4%.

Consolidated Insurance Earned Premiums (Net of Reinsurance) rose by 16.1% to EUR 349.3 million in the first nine months of 2013 from EUR 300.7 million a year earlier. Consolidated Claims Incurred (Net of Reinsurance) decreased by 20.5% to EUR 352.3 million from EUR 443.4 million in 9M12. The net change in technical reserves (Net of Reinsurance) increased to EUR 0.1 million from -EUR 8.4 million a year earlier, the contribution of the Groups to net results improved during the period.

Tranquilidade's net individual income reached EUR 15.8 million. The combined ratio at Tranquilidade rose from 100.5% to 102.3% due to storm claims in the first quarter. The expense ratio stood at 29.8%, reflecting the ongoing cost reduction programme which includes a 0.1% fall in expenses. Tranquilidade's direct insurance business, LOGO, reported that its customer base had reached 115,058 clients and gross written premium of EUR 14.8 million. The claims ratio continued to improve (7.7 p.p.) allowing for a 31.4% improvement in the net income for the period though the figure remains negative.

T-Vida reported an individual net income of EUR 3.1 million, a year-on-year increase of 1.0%. Premiums increased by 61.3%. Risk products continue to be the main focus for ESFG's insurance operations in its Life business. The largest growth however was in PPR products (retirement savings plans). The technical margin decreased by 1.6% (EUR 4.9 million in 9M12 to EUR 4.8 million by 9M13), mainly due to an increase in premiums but also an increase in claims over the third quarter of the year. Operating costs increased by 7.0% year-on-year to EUR 4.7 million.

ESFG's Angolan and Mozambican insurance operations, through Tranquilidade, which began in 2012, report individual results of -EUR 0.3 million and -EUR 0.5 million respectively but are expected to contribute positively to full year results in 2013.

At BES Vida, fully owned by BES, results were positively influenced by the reinsurance of its life risk portfolio under which all the inherent risks were transferred though BES Vida maintained the management of the contracts and the relations with clients. The operation contributed approximately EUR 150.0 million to the Company's individual results of EUR 211.9 million. Results were further boosted by an increase in insurance production, which reached EUR 1.45 billion in premium volume, close to a fivefold improvement year-on-year. Unit-linked products and pension plans saw strong growth while claims’ volume fell sharply (-47.3%) as financial products' redemption volume declined.

AdvanceCare, ESFG's managed care platform for healthcare insurers provides the link between the Company's insurance and healthcare operations. AdvanceCare continues to provide positive results, and in the period net individual income increased by 29.0% to EUR 1.8 million from EUR 1.4 million a year earlier.

Tranquilidade's assistance service provider, Europ-Assistance (Portugal), reported a 43.0% increase in individual results to EUR 3.2 million in 9M13 from EUR 2.2 million a year earlier. Tranquilidade has a 47.0% economic stake in the operations.

5.3 Other Income

Consolidated Net Other Operating Income decreased to EUR 91.6 million from EUR 401.4 million following non recurrent gains at BES in 2012.

Dividend Income declined to EUR 55.4 million from EUR 71.2 million in 9M12 as payments remain constrained reflecting the current macroeconomic picture in the Eurozone, reduced dividend policies and the reduction in certain equity investments at BES

6. COST ANALYSIS

6.1 Operating Expenses

Consolidated Operating Expenses for the period ending the 30 September 2013 rose by 5.5% to EUR 2.43 billion from EUR 2.30 billion a year earlier.

Consolidated Staff Costs and General Administrative Expenses fell by 6.3% to EUR 898.1 million from EUR 958.3 million in 9M12. A 12.3% fall in staff costs resulted from ESFG Group’s strict control over variable salaries in Portugal. International staff costs at BES however rose by 1.1% year-on-year as the Bank focuses on the reorganisation of its Angolan operations, staff costs in Portugal fell by 4.2% year-on-year.

General administration expenses at ESFG rose by 3.4% as costs relating to further international growth rose. BES has implemented a EUR 100.0 million cost-cutting plan to be executed between 2013 and 2015. The Bank’s cost reduction, including employment and running costs (such as IT and advertising) is aligned with cost-cutting programmes of ESFG’s other subsidiaries. Retail banking at BES is supported by a domestic branch network of 647 branches in Portugal and a net reduction of 19 branches since the beginning of the year. The branch network includes 43 on-site branches in partnership with insurance agents under the Group’s assurfinance programme. The streamlining process permitted a 0.1% reduction in operating costs at the Bank.

Consolidated Costs due to Depreciation, Provisioning and Impairments rose by 34.3% year-on-year to EUR 1.15 billion from EUR 857.7 million in 9M12. Despite improved economic conditions in ESFG’s principal market, Portugal, the balance of provisions for credit registered on the balance sheet at BES has increased to EUR 3.31 billion in the period, a year-on-year rise of 28.3% with the credit provisions/gross customer loans ratio rising to 6.6% (5.1% in 9M12). Increased provisioning at BES rose by 42.1% or EUR 1.07 billion by the third quarter. ESFG considers that the actions taken by BES, through their strong provisioning effort, represent a conservative approach to the current environment.

Other Expenses fell year-on-year by 1.8% to EUR 238.3 million from EUR 242.7 million in 9M12.

7. SOLVENCY AND LIQUIDITY

7.1 Solvency

ESFG is approved by the Bank of Portugal to use the Internal Ratings Based (‘IRB’) method for calculating minimum core capital requirements to cover credit risk. The authorisation covers ESFG and its subsidiaries, BES and BESI and their respective subsidiaries. ESFG provides information on regulatory capital and capital ratios under the BIS IRB II.

ESFG’s capital ratios under Basel II at the end of the reporting period are estimated at: Core Tier 1: 10.3%, Tier 1: 10.1% and Total Solvency: 11.5%. Under the EBA method, ESFG achieved a Core Tier 1 ratio of 9.5%. The respective ratios meet the minimum requirements set by the two regulators. Capital preservation remains central to ESFG’s strategy.

Fig. III

Solvency (Basel II IRB Foundation)	FY11	FY12	9M13
Core Tier I	8.3%	10.1%	10.3%
Core Tier I (EBA)	-	9.6%	9.5%
Tier I	8.6%	10.1%	10.1%
Total	9.4%	11.4%	11.5%
RWA (EUR million)	66,967	65,044	62,099

In 2012 ESFG’s capital position saw a significant improvement in its Core Capital following the successful completion of a EUR 500 million capital increase and a EUR 1.01 billion rights issue at its fully consolidated banking subsidiary BES. ESFG’s solvency position remains above the regulators minimum capital requirements, despite the negative consolidated results, on the back of a reduction Risk Weighted Assets (RWA’s) and the re-insurance agreement of BES Vida’s life risk portfolio which added approximately 40 basis points to the Group Core Tier 1 position.

On the 25 October 2013 BES published its capital indicators for the period: despite the negative results for the period the Core Tier I ratio 10.4 %, meeting the Bank of Portugal’s requirement (minimum of 10.0%); under the EBA calculation method, the Core Tier I ratio is 9.7 %, also above the minimum 9.0% established by the European authority. A reduction in RWA’s offset a decrease of EUR 287.0 million in CET1 at BES. The authorised capital increase of USD 500 million at BES Angola, once completed, is expected to improve BES’ pro forma CET1 to 10.7%, with the positive impact consolidated at ESFG.

7.2 Basel III

Financial institutions that fall under the Basel Committee on Banking Supervision have a transitory period from 1 January 2013 to 1 January 2019 to comply with the approved rules, aimed at strengthening financial institutions and preventing new financial crises in the future. Basel III rules have established the following regulatory framework to be gradually implemented by January 1st, 2019:

• Minimum Core Tier 1 of 7.0%, 4.5% minimum common equity and 2.5% capital conservation buffer;
• Minimum Tier 1 of 8.5%, 6.0% minimum and 2.5% capital conservation buffer;
• Total solvency ratio of 10.5%;
• Introduction of a countercyclical buffer, ranging from 0% to 2.5% of common equity, under conditions to be defined by the national regulatory authorities;
• Transitory period defined for the absorption of deductions to capital not eligible under BIS III and for the new deductions to capital;
• Definition of the leverage and liquidity ratios (short and long term) in certain conditions, to be defined.

The approval of EU Regulation no.575/2013 and Directive 2013/36/EU by the European Parliament and the Council of Europe on 26 June 2013 sets out the prudential requirements for credit institutions and investment firms. The new regulations however have yet to be transposed into Portuguese law. The ESFG Group closely follows the development process of the future regulatory framework, as well as all the efforts carried out to define the final rules for new capital ratios in the European Union.

7.3 Liquidity – External Debt

ESFG’s external debt at the end of the period remained stable at EUR 716.3 million (falling from a high of EUR 1.3 billion in the last quarter of 2011). ESFG continues to minimise interest costs recognising the current economic downturn and the reduced dividend income from its subsidiaries.

ESFG’s EMTN and ECP programmes remain in place. These programmes support the provision of liquidity to its fully owned subsidiary Espírito Santo Financière (ESFIL). In the quarter 2013 ESFIL launched and priced a senior EUR 200 million two-year note. The transaction was guaranteed by ESFG.

7.4 Credit Rating

ESFG is rated by two international rating agencies; DBRS and Moody’s. The ratings are:

Fig. IV

	Short Term	Long Term	Comment	Date of Rating
DBRS	R-2 (Middle)	BBB (Low)	Neg. Outlook	07/05/13
Moody’s	NP	B2	Neg. Outlook	18/07/13

8. DEVELOPMENTS DURING 9M13 AND SUBSEQUENT EVENTS

• On 18 July 2013 Moody’s confirmed ESFG’s long term debt rating at B2 (Neg).
• On 27 June 2013 Banque Privée Espírito Santo (BPES) announced the acquisition of LATAM unit of Hyposwiss Privatbank AG. Following the acquisition BPES will open a branch in Zurich.
• On 7 May 2013 DBRS confirmed ESFG’s long term rating at BBB (low) and short term rating at R-2 (middle).
• On 29 April ESFG announced the results of the AGM, held in Luxembourg on that date.
• On 23 April 2013 ESFG announced the successful issuance of the EUR 200 million ESFG guaranteed ESFIL two year senior note which will mature in June 2015.
• On 18 March 2013 ESFG published its un-consolidated annual accounts for 2012.

CONTACTS

Espírito Santo Financial Group	King Worldwide
Filipe Worsdell	Faisal Kanth
[phone]	[phone]
[e-mail]	[e-mail]

For objects omitted, please go to www.esfg.com for the complete release.

The Espírito Santo Financial Group provides, through its subsidiaries, a global and diversified range of financial services to its clients including Commercial banking, Insurance, Investment banking, Stock-brokerage, Healthcare services and Asset management in Portugal and internationally. For additional information on Espírito Santo Financial Group, its subsidiaries, operations and results, please visit the Company’s website on www.esfg.com.

ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2013, 30 SEPTEMBER 2012 AND 31 DECEMBER 2012
	9/30/2013	9/30/2012	12/31/2012
	Unaudited	Unaudited	Audited
	(in thousands of euro)
Assets
Cash and deposits at central banks	1 092 699	1 226 134	1 444 831
Deposits with banks	1 099 466	1 167 007	1 126 853
Financial assets held for trading	2 963 117	4 017 877	3 981 845
Other financial assets at fair value through profit or loss	3 522 829	2 589 188	2 603 463
Available-for-sale financial assets	12 477 206	12 261 366	11 041 235
Loans and advances to banks	991 286	1 582 426	4 548 247
Loans and advances to customers	49 234 379	51 087 670	50 692 878
Held-to-maturity investments	1 405 067	1 144 604	1 119 047
Derivatives for risk management purposes	366 579	483 150	516 520
Non-current assets held for sale	3 527 346	2 198 689	3 280 185
Property and equipment	979 623	1 265 359	982 617
Investment properties	694 953	763 120	797 323
Intangible assets	584 225	806 912	703 210
Investments in associates	630 362	534 011	640 614
Technical reserves of reinsurance ceded	82 596	68 304	70 773
Current income tax assets	26 309	33 680	28 811
Deferred income tax assets	1 003 586	699 936	760 953
Other assets	3 265 868	4 073 710	3 234 655
Total assets	83 947 496	86 003 143	87 574 060
Liabilities
Deposits from central banks	10 169 012	11 271 547	10 941 325
Financial liabilities held for trading	1 432 263	2 191 170	2 124 225
Deposits from banks	5 459 432	5 170 225	5 065 980
Due to customers	36 837 717	34 165 770	35 625 474
Debt securities issued	12 627 644	15 928 240	15 952 870
Derivatives for risk management purposes	134 640	117 906	125 199
Investment contracts	4 020 562	2 687 224	3 844 020
Non-current liabilities held for sale	152 660	156 243	175 945
Provisions	205 336	238 140	255 601
Technical reserves of direct insurance	2 433 382	2 589 048	2 488 328
Current income tax liabilities	139 025	106 170	253 406
Deferred income tax liabilities	150 415	161 399	154 736
Subordinated debt	1 183 828	1 186 267	1 176 482
Other liabilities	1 550 621	1 842 214	1 268 442
Total liabilities	76 496 537	77 811 563	79 452 033
Equity
Share capital	207 075	207 075	207 075
Treasury shares	( 3 441)	( 3 434)	( 35 965)
Share premium	884 856	885 381	884 456
Preference shares	51 628	56 163	55 978
Other equity components	58 574	57 663	58 100
Capital reserve not available for distribution	700 970	700 970	700 970
Fair value reserve	( 16 579)	( 7 278)	25 771
Other reserves and retained earnings	285 405	52 774	( 10 282)
Result for the period attributable to equity holders of the Company	( 107 551)	254 374	313 633
Total equity attributable to equity holders of the Company	2 060 937	2 203 688	2 199 736
Non-controlling interest	5 390 022	5 987 892	5 922 291
Total equity	7 450 959	8 191 580	8 122 027
Total equity and liabilities	83 947 496	86 003 143	87 574 060

ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTH PERIODS ENDED 30 SEPTEMBER 2013 AND 2012
	9/30/2013	9/30/2012
	Unaudited	Unaudited
	(in thousands of euro)
Interest and similar income	2 737 829	3 144 587
Interest expense and similar charges	1 928 466	2 180 112
Net interest income	809 363	964 475
Dividend income	55 442	71 166
Fee and commission income	704 356	786 597
Fee and commission expenses	( 150 872)	( 145 926)
Net gains / (losses) from financial assets and financial liabilities at fair value through profit or loss	( 197 122)	( 15 457)
Net gains / (losses) from available-for-sale financial assets	268 279	337 368
Net gains from foreign exchange differences	5 091	1 141
Net gains / (losses) from the sale of other assets	( 1 422)	( 34 147)
Insurance earned premiums net of reinsurance	349 253	300 746
Other operating income	91 605	401 416
Operating income	1 933 973	2 667 379
Staff costs	516 105	588 645
General and administrative expenses	382 105	369 676
Claims incurred net of reinsurance	352 290	443 378
Change on the technical reserves net of reinsurance	( 56 482)	( 225 521)
Insurance commissions	( 151 586)	28 418
Depreciation and amortisation	88 217	114 791
Provisions net of reversals	( 24 997)	33 249
Loans impairment net of reversals and recoveries	769 598	604 883
Impairment on other financial assets net of reversals	95 478	33 644
Impairment on other assets net of reversals	223 196	71 084
Other operating expenses	238 283	242 664
Operating expenses	2 432 207	2 304 911
Result on disposal of investments in subsidiaries and associates	-	1 874
Gains arising on business combinatons achieved in stages	-	87 273
Share of profit of associates	9 144	6 852
Profit before income tax	( 489 090)	458 467
Income tax
Current tax	129 359	99 141
Deferred tax	( 244 147)	27 797
	( 114 788)	126 938
Profit for the period	( 374 302)	331 529
Attributable to equity holders of the company	( 107 551)	254 374
Attributable to non-controlling interest	( 266 751)	77 155
	( 374 302)	331 529

¹Aggregate of Net Gains/Losses from Financial Assets at Fair Value through Profit and Loss; Net Gains on Available for Sale Financial Assets, Net Gains from Foreign Exchange Differences and Net Gains/Losses from the Sale of Other Assets

Category Code: QRT

Sequence Number: 398265

Time of Receipt (offset from UTC): 20131118T153314+0000