Board of Directors

Itaú Unibanco’s Board of Directors is comprised of 14 members.

Elected at the Stockholders Meeting on November 28, 2008, the Board members have a one-year term and were chosen based on their knowledge of macroeconomics and executive business experience.

The Board of Directors determines the general direction of the institution’s business, elects and removes executive directors and establishes their responsibilities, oversees the administration of line directors and convenes Stockholder Meetings. It is also the body of responsible for disclosing for management report and company financial statements, it selects and removes independent auditors, decides on the payment of interim dividends and the payment of interest on capital. The Board is also responsible for decisions on share repurchases and on the buying and/or granting of call and put options. It elects and removes members of the Advisory and International Advisory boards and for the following committees: Nominating and Compensation, Audit, Risk and Capital Management, Accounting Policies and Disclosure and Trading.

Finally, the Board of Directors approves the operating rules of the Audit Committee and monitors its activities. It also monitors the activities and authorizes the decisions of the following committees: Risk and Capital Management, Accounting Policy and Disclosure and Trading; and endorses the decisions of the Nominating and Compensation Committee.

Board of Directors

Executive Committees

There are two executive committees responsible for company administration and representation: the Itaú Unibanco Executive Committee is responsible for all group operations except those of the wholesale bank, which are under the responsibility of the Itaú BBA Executive Committee. Both committees answer to the Itaú Unibanco Board of Directors.

Members of both committees are former directors of Itaú, Unibanco and Itaú BBA and were chosen for their skills at executing their strategies to lead the performance of the new bank.

Itaú Unibanco Executive Committee

Itaú BBA Executive Committee

Management and Reporting Practices

Itaú Unibanco inherits from its founding institutions the tradition of being aligned with the market’s best practices in corporate governance and reporting. Throughout their history Itaú and Unibanco established corporate policies, management structures and transparency procedures designed to ensure impartiality in decision making and rapid responses to changing market conditions. The market recognizes these efforts in different ways: both institutions were part of the São Paulo Securities, Commodities and Futures Exchange (BM&FBOVESPA) Corporate Sustainability Index in 2008, while Itaú is the only Latin American bank to have been on the Dow Jones Sustainability Indexes since this metric was introduced in 1999.

Itaú Unibanco’s professional management structures feature independent members of the Board of Directors and other councils and committees. Its shareholdings are widely held, thanks to its issuing of shares that trade on the São Paulo, Buenos Aires and New York stock exchanges, which underlines the institution’s democratic nature.

Transparent reporting to the market is based on compliance with the BM&FBOVESPA’s Level 1 corporate governance standards and the Sarbanes-Oxley Act, which require the adoption of a number of internal control and risk management procedures. Our disclosure policy includes the publication of quarterly results and timely releases, as well as holding conferences, road-shows and periodic public meetings with analysts.

Itaú Unibanco employs internal procedures to ensure ethical conduct by its employees and partners, including policies for internal controls, investor relations, information security and prevention of money laundering, among others. Staff members regularly participate in training sessions focusing on these procedures and the ethical principles to be followed in their daily activities. In 2008, for example, about 40,000 Itaú Unibanco employees received training in anti-corruption procedures and policies.

During the year Itaú released its Corporate Anti-Corruption and Bribery Policy, which covers 100% of the group’s business units. In 2009 compliance monitoring practices for the Policy will be put in place. At Unibanco, six units (bank, securities brokerage, cards companies, insurance, pensions and capitalization) underwent corruption risk assessments through monitoring by Money Laundering Prevention Compliance.

In 2008 Itaú Unibanco did not register a single case of corruption involving employees or partners. All reports are subject to in-depth investigation and, where there is compelling evidence and material proof or witness statements, employees are dismissed with just cause and commercial partner relations with the bank are terminated.

The Operating Rules Policy for the Trading of Treasury Shares establishes the parameters which Itaú Unibanco must observe when trading its own shares either on the cash or options market, for maintaining them in treasury, or for cancellation or disposal. The Policy’s rules are designed to assure all stakeholders and the market of the company’s commitment to the highest standards of corporate governance, transparency and integrity when conducting these transactions.

Risk Management

Risk management is an essential tool in optimizing the use of capital and selecting the best business opportunities to provide shareholders with the best risk-return. Itaú Unibanco’s risk management process uses analysis tools that allow us to safely undertake sophisticated and profitable operations.

With the merger between Itaú and Unibanco, the new bank’s risk area combines the best solutions adopted by both institutions. The Risk and Capital Management Committee is the most senior body within this structure and employs corporate governance practices recommended by leading international organizations and by Basel II. It is responsible for establishing exposure limits for different risk categories and tracking the implementation of management policies and methodologies.

Two executive boards – Operational Risk, Efficiency and Project Integration, and Risk and Finance – are responsible for unifying risk management practices under a single business vision, and report to senior management on the results of this monitoring.

With this structure the risk management area supports all of the bank’s operations, measuring the default risk of each loan, required guarantees, the spread to be charged and the cost of capital for allocation of resources to comply with Basel II. This allows us to price each transaction individually, which provides a fair cost to customers and greater security for shareholders.

Main Categories

Credit Risk

Credit risk is the risk of loss due to a debtor’s non-payment of a loan or other line of credit, including the principal and/or interest. It is usually the main risk faced by banks and is associated with the probability of default. It arises from every activity in which success depends on borrowers to meet their obligations.

At Itaú Unibanco credit risk management means: identifying existing and potential risks in a transaction; establishing and monitoring credit risk at levels deemed acceptable by senior management; setting a rigid structure of committees and approval standards; approving policies, procedures and methodologies consistent with the limits of previously established risk; and properly allocating sufficient capital to safeguard against potential loan losses.

Market and Liquidity Risk

Market risk is the risk that the value of assets and liabilities will decrease due to changes in stock prices, interest rates, foreign exchange rates or commodity prices.

Itaú Unibanco’s strategy to manage this risk balances the bank’s business objectives with its risk appetite, based on prevailing political, economic and market conditions, the bank’s market risk portfolio, and its expertise at operating in specific markets. These procedures are subject to periodic review to maintain their alignment with best market practices and compliance with the bank’s continual improvement process.

Liquidity risk is the risk that an institution’s reserves may be temporarily insufficient to meet its timely obligations due to cash flow constraints. This can occur when payments received are less than or later than expected.

Despite the international financial crisis Itaú Unibanco maintained comfortable levels of liquidity in Brazil and abroad at the end of 2008. Its solvency (Basel) ratio was approximately 16.1%, well above the 11% minimum required by the Central Bank of Brazil. This was possible due to its solid, diversified funding bases on the interbank market and from customers, and the resizing of its securities portfolio, undertaken in 2008.

Market Risk Indicators

The Value at Risk table below consolidates Itaú Unibanco’s total VaR, covering the portfolios of Unibanco, Itaú BBA, Banco Itaú Europa, Banco Itaú Argentina, Banco Itaú Chile, Banco Itaú Uruguay and Itaú’s structural portfolio (loans and pre-fixed debt/equity instruments). Itaú and Itaú BBA portfolios are combined, broken down by risk factor.

On a consolidated basis Itaú Unibanco maintained its policy of operating within relatively low limits. The consolidated average and maximum risk values were affected by the volatility of the main internal and external risk factors, which varied greatly over the second half of 2008, reaching their peak in late November and early December, returning, however, to lower levels by year-end, shown in the VaR values at December 31, 2008.

The diversification of risks of the business units is significant, allowing the group to maintain a very low total exposure to market risk, compared with its capital.

Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Itaú Unibanco’s strategy to minimize operational risk includes a set of principles, procedures and instruments which ensure the suitable ongoing management of risk with respect to the nature and complexity of its products, services, activities, processes and systems.

Itaú Unibanco employs a financial assessment management model for each business line, which uses statistical modeling to quantify the operational risks incurred. This allows the bank to provision reserves for expected losses and to allocate capital for unexpected losses. This proprietary mechanism enables greater refinement of the pricing process for our products and services, and allows the bank to meet the criteria of the New Basel Capital Accord within the timeframe set by the regulator.

Underwriting Risk

This is the risk associated with the probability of error in the price of retail products and/or in the calculation of technical reserves for insurance products, based on the value of the premiums. Similar to Basel II, the International Association of Insurance Supervisors (IAIS) guides insurance companies on employing risk management systems which supplement their minimum capital and solvency margin systems.

Itaú and Unibanco have been using models to manage their insurance activity since 2006. Itaú began allocating sufficient capital even prior to legislation introduced by Brazil’s Superintendence of Private Insurance (Susep), which benefits companies that use internal risk management models. The new bank’s internal models go beyond the segments addressed by the national regulator, and comprise virtually the entire range of insurance related products.

Socio-environmental Risk

Equator Principles

Unibanco and Itaú Holding became signatories to the Equator Principles in 2004, and Unibanco was the first financial institution from an emerging economy to adopt the Principles. Participating institutions commit to finance projects which are developed in a socio-environmentally responsible manner, based on the internationally recognized criteria of the International Finance Corporation’s (IFC) Performance Standards. The Equator Principles are also applied when the bank simply acts as an adviser in structuring projects. The guidelines cover the analysis and socio-environmental monitoring of large projects (equal to or greater than US$10 million in value), and which bring benefits to the bank, its customers and society as a whole.

In September 2008, Itaú, the first Brazilian bank to apply socio-environmental criteria to its project assessments, was appointed to take on the leadership position for the Equator Principles worldwide, acting as Chair of the Steering Committee for a one year term. This was the first time that a financial services institution from an emerging economy had been asked to lead this group.

Combining the responsibilities of this new role with its ongoing commitment to increase socio-environmental awareness, add value to discussions and help push the financial sector in this direction, Itaú led a partnership between the IFC and Brazilian bank signatories to the Equator Principles to organize the Regional Latin American Meeting to celebrate the fifth anniversary of the Equator Principles. Held in Rio de Janeiro in December 2008, the event attracted key players from the global socio-environmental scene, who discussed the future and challenges of the Principles.

The training of professionals is critical to properly apply the Equator Principles to granting credit. In 2008 the Itaú Unibanco team responsible for socio-environmental analysis and monitoring of project finance was fully trained by the (IFC) International Finance Corporation and the United Nations Environment Program Finance Initiative (UNEP-FI) to apply the performance standards.

In 2008 the bank spread awareness of the subject by helping oversee the translation of the Equator Principles into Portuguese, which is now available on the Principles website, and into Spanish, which will be completed in 2009.

The Equator Principles
Examples of issues assessed

• Protection of human rights and community health, safety and security
• Protection of cultural property and heritage
• Land acquisition and involuntary resettlement
• Impacts on indigenous peoples, and their unique cultures, systems and values
• Pollution prevention and waste minimization, pollution controls and solid and chemical waste management

Socio-Environmental Credit Risk Policy

Itaú Unibanco applies sustainability principles to its products and services, and incorporates socio-environmental criteria into its credit analysis processes to help mitigate the risks of the operation, encourage customers to adopt responsible practices and contribute to sustainable development. The bank seeks to go beyond the identification of socio-environmental risks and compliance with legal requirements. We want to build a relationship with our customers that conveys our inclusiveness, and as a multiplier and developer of best socio-environmental practices.

In keeping with its Socio-environmental Risk Policy, since December 2007 Itaú has adopted socio-environmental criteria in its analyses of loans of over R$5 million for its commercial banking clients in Brazil. For Banco Itaú Chile S.A., Banco Itaú Uruguay S.A., Banco Itaú Buen Ayre S.A. and Banco Itaú Europa S.A., analysis tools will be developed in 2009 and 2010, based on the unique nature of each institution. Like the other policies developed separately by Itaú and Unibanco, the new bank’s Socio-environmental Risk Policy for Corporate Credit will be combined in 2009 to cover all Itaú and Unibanco corporate credit operations.

Itaú’s socio-environmental analysis team comprises industry specialists, and is kept abreast of key issues. This year the bank plans a greater number of socio-environmental training events for areas related to credit and commercial clients.

Socio-Environmental Risk Analysis – Examples of issues assessed:

• The harmful and/or exploitative use of child labour
• Companies on the list of employers that have kept workers in conditions similar to slavery (Decree 540 of 15.10.2004, Ministry of Labour and Employment)
• Sector Guidelines
• Public Information
• Socio-environmental questionnaire answered by the company

As shown below, Itaú Unibanco employs an innovative classification for the socioenvironmental analysis of companies to be financed, based on their socioenvironmental management capability.

Itaú Unibanco uses the Equator Principles and its own policies, documents and socio-environmental information, as well as on-site inspection and requests for public information. It also carries out audits for situations requiring the Risks Policy and the Equator Principles.

Socio-environmental analysis categories

Ethics Management

The management of ethics is strategic for Itaú Unibanco and leads to the systematic adherence of its corporate values by employees, a factor that directly influences the image of the organization and the security of its operations. In recent years Itaú and Unibanco have invested in establishing policies and codes of conduct, disseminating recommendations to all areas of each bank, and developing monitoring mechanisms for such practices.

At Unibanco the Code of Professional Conduct and Ethics was established to guide relationships and activities involving employees, customers, investors, suppliers and competitors. It ensures that the interests of the institution and its employees are aligned with the interests of current and potential customers. Human rights are also protected under this document. In 2008 a working group comprised of representatives from various bank areas was formed to review the code. Their revised version is now more objective and presents new guidelines.

At Itaú the Corporate Ethics Policy was drafted in accordance with the group’s corporate values, vision and external commitments, as well as the requirements of the AA1000 and SA8000 standards and the sustainability indices of the New York and São Paulo stock exchanges. The policy was designed to embed the guidelines from internal (corporate and sector) and external (trade and professional associations) codes of ethics into the corporate culture. The Senior Ethics Commission, comprised of executives from the organization, uses two programs to monitor compliance with this policy.

The Ethical Commitments Management Program gives managers and other employees the tools and information to resolve ethical dilemmas and conflicts of interest, while the Continuing Education in Ethics Program spreads the bank’s principles, values and standards of conduct to staff members.

In 2008 Itaú conducted its second external assessment of the Corporate Ethics Policy, which involved interviews with representatives of the Board of Directors and the Executive Board, as well as working with focus groups, cross-matching components of the Itaú ethics system with American and European benchmarks, and aligning corporate policies with ethics ratings requirements plus national and international principles. The results of this assessment will be used by Itaú Unibanco to review its corporate ethics performance.

All Itaú and Unibanco employees receive a copy of the code, which is also available on the company intranet and website, while specific bodies monitor its implementation in the organization.