Base Prospectus
CAIXA ECONÓMICA MONTEPIO GERAL
(a Savings Bank (Caixa Económica) established under the laws of the Portuguese Republic)
acting through its Head Office or its Cayman Islands Branch
€6,000,000,000
Euro Medium Term Note Programme
On 19 May 2000, Montepio and the Issuer (both as defined below) entered into a €2,000,000,000 Euro Medium Term Note Programme (the “Programme”) which has been increased and
updated from time to time. Any Notes to be issued after the date hereof under the Programme are issued subject to the provisions set out herein save that Notes which are to be consolidated and
form a single series with Notes issued prior to the date hereof will be issued subject to the Conditions of the Notes applicable on the date of issue for the first tranche of Notes of such series.
Subject as aforesaid, this does not affect any Notes issued prior to the date hereof.
Under the Programme, Caixa Económica Montepio Geral (“Montepio” and the “Issuer”), acting through its Head Office or its Cayman Islands Branch, subject to compliance with all relevant
laws, regulations and directives, may from time to time issue Euro Medium Term Notes (the “Notes”). The aggregate nominal amount of Notes outstanding will not at any time exceed
€6,000,000,000 (or the equivalent in other currencies).
Application has been made to the Commission de Surveillance du Secteur Financier (the “CSSF”) in its capacity as competent authority under the Luxembourg Act dated 10 July 2005 relating
to prospectuses for securities (loi relative aux prospectus pour valeurs mobilières) as amended (the “Luxembourg Act”) for the approval of this base Prospectus (the “Base Prospectus”) as a
base prospectus for the purposes of Article 5.4 of Directive 2003/7 I/EC as amended (the “Prospectus Directive”). Pursuant to article 7(7) of the Luxembourg Act, by approving this Base
Prospectus the CSSF assumes no responsibility as to the economic and financial soundness of the Notes to be issued thereunder or the quality or solvency of the Issuer.
Application has also been made to the Luxembourg Stock Exchange for Notes issued under the Programme to be admitted to the Official List of the Luxembourg Stock Exchange (the “Official
List”) and admitted to trading on the regulated market of the Luxembourg Stock Exchange (the “Market”). References in this Base Prospectus to Notes being “listed” (and all related
references) shall mean that such Notes have been admitted to the Official List and admitted to trading on the Market. The Market is a regulated market for the purposes of Directive 2004/39/EC
of the European Parliament and of the Council on markets in financial instruments. However, unlisted Notes may be issued pursuant to the Programme. The relevant Final Terms (as defined
below) in respect of the issue of any Notes will specify whether or not such Notes will be listed on the Official List and admitted to trading on the Market (or any other stock exchange).
Each Series (as defined herein) of Notes in bearer form will be represented on issue by a temporary global note in bearer form (each a “temporary Global Note”) or a permanent global note in
bearer form (each a “permanent Global Note”). Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent Global Note on or after the date 40
days after the later of the commencement of the offering and the relevant issue date, upon certification as to non-U.S. beneficial ownership. If the Global Notes are stated in the applicable Final
Terms to be issued in new global note (“NGN”) form they are intended to be eligible collateral for Eurosystem monetary policy and the Global Notes will be delivered on or prior to the
original issue date of the relevant Tranche to a common safekeeper (the “Common Safekeeper”) for Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme
(“Clearstream Luxembourg”) (each a “Common Depositary”).
Global notes which are not issued in NGN form (“Classic Global Notes” or “CGNs”) will be deposited on the issue date of the relevant tranche with a common depositary on behalf of
Euroclear and Clearstream, Luxembourg.
The provisions governing the exchange of interests in Global Notes for other Global Notes and definitive Notes are described in “Outline of Provisions Relating to the Notes while in Global
Form”.
In addition, the Issuer acting through its Head Office may issue Notes in book-entry form and registered form that will be integrated in and held through Interbolsa – Sociedade Gestora de
Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A., as management entity of the Portuguese Centralised System, Central de Valores Mobiliários.
The Programme has been rated: B1, with a stable outlook (senior unsecured) /Caa1, with a stable outlook (subordinated) /Caa2, with a stable outlook (junior subordinated) /NP (short-term) by
Moody’s Investor Service España, S.A. (“Moody’s”), B+, with a stable outlook (senior unsecured) /B (subordinated) /B (short-term) by Fitch Ratings Ltd. (“Fitch”) and BB (high) with a rating
trend negative (senior unsecured)/BB (subordinated), with a rating trend negative / R-3 with a rating trend negative (short-term) by DBRS Inc. (“DBRS”). Moody’s and Fitch are established in
the EU and registered under Regulation (EC) No 1060/2009 (the “CRA Regulation”). DBRS Inc. is not established in the EU but the above ratings it has given are endorsed by DBRS Ratings
Limited, which is established in the EU and registered under the CRA Regulation.
Tranches of Notes (as defined in “General Description of the Programme”) to be issued under the Programme will be rated or unrated. Where a Tranche of Notes is to be rated, such rating will
not necessarily be the same as the rating assigned to the Programme and/or the Notes already issued. Where a Tranche of Notes is rated, the applicable rating(s) will be specified in the relevant
Final Terms. Whether or not a rating in relation to any Tranche of Notes will be treated as having been issued by a credit rating agency established in the European Union and registered under
the CRA Regulation will be disclosed in the relevant Final Terms. A list of rating agencies registered under the CRA regulation can be found at www.esma.europa.eu/pageAist-registered-andcertified-CRAs.
A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
In the case of any Notes which are to be admitted to trading on a regulated market within the European Economic Area or offered to the public in a Member State of the European Economic
Area (an “EEA State”) in circumstances which require the publication of a prospectus under the Prospectus Directive, the minimum specified denomination shall be €100,000 (or its equivalent
in any other currency as at the date of issue of the Notes).
Prospective investors should have regard to the risk factors described under the section headed “Risk Factors” in this Base Prospectus. This Base Prospectus does not describe all of the risks
of an investment in the Notes.
Arranger
BofA Merrill Lynch
Dealers
BNP PARIBAS
Caixa Económica Montepio Geral
Crédit Agricole CIB
Deutsche Bank
ING
Société Générale Corporate & Investment Banking
0
The date of this Base Prospectus is 29 January 2016
BofA Merrill Lynch
Citigroup
Credit Suisse
DZ BANK AG
Natixis
The Royal Bank of Scotland
UniCredit Bank
This document comprises a base prospectus for the purposes of Article 5.4 of the Prospectus
Directive and for the purpose of giving information with regard to Montepio and its subsidiaries
and affiliates taken as a whole (the “Group”) and the Notes which, according to the particular
nature of the Issuer and the Notes, is necessary to enable investors to make an informed
assessment of the assets and liabilities, financial position, profit and losses and prospects of the
Issuer.
The Issuer accepts responsibility for the information contained in this Base Prospectus (including
in relation to the Issuer, for the avoidance of doubt, any information contained in the Final Terms
relating to an issue of Notes by the Issuer). To the best of the knowledge of the Issuer (having
taken all reasonable care to ensure that such is the case) the information contained in this Base
Prospectus is in accordance with the facts and does not omit anything likely to affect the import of
such information.
This Prospectus has been prepared on the basis that any offer of Notes in any Member State of the
European Economic Area which has implemented the Prospectus Directive (each, a “Relevant
Member State”) will be made pursuant to an exemption under the Prospectus Directive, as
implemented in that Relevant Member State, from the requirement to publish a prospectus for
offers of Notes. Accordingly any person making or intending to make an offer in that Relevant
Member State of Notes which are the subject of an offering contemplated in this Prospectus as
completed by final terms in relation to the offer of those Notes may only do so in circumstances in
which no obligation arises for the Issuer or any Dealer to publish a prospectus pursuant to Article
3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus
Directive, in each case, in relation to such offer.
This Base Prospectus is to be read in conjunction with all documents which are incorporated
herein by reference (see “Documents Incorporated by Reference”).
No person has been authorised to give any information or to make any representation other than
those contained in this Base Prospectus in connection with the issue or sale of the Notes and, if
given or made, such information or representation must not be relied upon as having been
authorised by the Issuer or any of the Dealers or the Arranger (as defined in “General Description
of the Programme”). Neither the delivery of this Base Prospectus nor any sale made in connection
herewith shall, under any circumstances, create any implication that there has been no change in
the affairs of the Issuer since the date hereof or the date upon which this Base Prospectus has been
most recently supplemented or that there has been no adverse change in the financial position of
the Issuer since the date hereof or the date upon which this Base Prospectus has been most
recently supplemented or that any other information supplied in connection with the Programme
is correct as of any time subsequent to the date on which it is supplied or, if different, the date
indicated in the document containing the same.
The distribution of this Base Prospectus and the offering or sale of the Notes in certain
jurisdictions may be restricted by law. Persons into whose possession this Base Prospectus comes
are required by the Issuer, the Dealers and the Arranger to inform themselves about and to
observe any such restrictions. The Notes have not been and will not be registered under the United
States Securities Act of 1933 (the “Securities Act”) or with any securities regulatory authority of
any state or other jurisdiction of the United States and include Notes in bearer form that are
subject to U.S. tax law requirements. Notes may not be offered, sold or delivered within the United
States or to, or for the account or benefit of, U.S. persons as defined in the U.S. Internal Revenue
Code of 1986, as amended, and regulations thereunder. For a description of certain restrictions on
offers and sales of Notes and on distribution of this Base Prospectus, see “Subscription and Sale”.
2
This Base Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer,
the Arranger or the Dealers to subscribe for, or purchase, any Notes.
To the fullest extent permitted by law, none of the Dealers (excluding Montepio acting in its
capacity as Issuer) or the Arranger accept any responsibility for the contents of this Base
Prospectus or for any other statement, made or purported to be made by the Arranger or a Dealer
or on its behalf in connection with the Issuer or the issue and offering of the Notes. The Arranger
and each Dealer accordingly disclaims all and any liability whether arising in tort or contract or
otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or
any such statement. Neither this Base Prospectus nor any other financial statements are intended
to provide the basis of any credit or other evaluation and should not be considered as a
recommendation by any of the Issuer, the Arranger or the Dealers that any recipient of this Base
Prospectus or any other financial statements should purchase the Notes. Each potential purchaser
of Notes should determine for itself the relevance of the information contained in this Base
Prospectus and its purchase of Notes should be based upon such investigation as it deems
necessary. None of the Dealers or the Arranger undertakes to review the financial condition or
affairs of the Issuer during the life of the arrangements contemplated by this Base Prospectus nor
to advise any investor or potential investor in the Notes of any information coming to the attention
of any of the Dealers or the Arranger.
In connection with the issue of any Tranche (as defined in “General Description of the
Programme”), the Dealer or Dealers (if any) named as the stabilising manager(s) (the “Stabilising
Manager(s)”) (or persons acting on behalf of any Stabilising Manager(s)) in the applicable Final
Terms may over-allot Notes or effect transactions with a view to supporting the market price of
the Notes at a level higher than that which might otherwise prevail. However, there is no assurance
that the Stabilising Manager(s) (or persons acting on behalf of a Stabilising Manager) will
undertake stabilisation action. Any stabilisation action may begin on or after the date on which
adequate public disclosure of the final terms of the offer of the relevant Tranche is made and, if
begun, may be ended at any time, but it must end no later than the earlier of 30 days after the
issue date of the relevant Tranche and 60 days after the date of the allotment of the relevant
Tranche. Any stabilisation action or over-allotment must be conducted by the relevant stabilising
manager(s) (or person(s) acting on behalf of any Stabilising Manager(s)) in accordance with all
applicable laws and rules.
In this Base Prospectus, unless otherwise specified or the context otherwise requires, references to
“€” and “euro” are to the currency introduced at the start of the third stage of European
economic and monetary union pursuant to the Treaty establishing the European Community, as
amended from time to time. Certain amounts that appear in this Base Prospectus have been
subject to rounding adjustments. Accordingly, the figures shown as totals in certain tables may not
be an arithmetic aggregation of the figures that precede them and amounts expressed as
percentages may not total 100 per cent. when aggregated.
This Base Prospectus may contain forward-looking statements. Montepio may also make written
forward-looking statements in their audited annual financial statements, in their interim financial
statements, in their offering circulars, in press releases and other written materials and in oral
statements made by their officers, directors or employees to third parties. Statements that are not
historical facts, including statements about Montepio’s beliefs and expectations, are forwardlooking statements. These statements are based on current plans, estimates and projections and
such statements reflect Montepio’s judgement at the date of this document and are not intended to
give any assurances as to future results. Forward-looking statements speak only as of the date they
3
are made, and Montepio undertakes no obligation to update publicly any of them in light of new
information or future events. Montepio will comply with their obligations to publish updated
information as required by law or by any regulatory authority but assume no further obligation to
publish additional information.
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SUPPLEMENT TO THE BASE PROSPECTUS
The Issuer has given an undertaking to the Dealers and the Luxembourg Stock Exchange that if at any
time during the duration of the Programme there is a significant new factor, mistake or material
inaccuracy relating to information contained in this Base Prospectus which is capable of affecting the
assessment of any Notes whose inclusion would reasonably be required by investors and their
professional advisers, and would reasonably be expected by them to be found in this Base Prospectus,
for the purpose of making an informed assessment of the assets and liabilities, financial position, profits
and losses and prospects of the Issuer, and the rights attaching to the Notes, the Issuer shall prepare a
supplement to this Base Prospectus or publish a replacement Base Prospectus for use in connection with
any subsequent offering of the Notes and shall supply to each Dealer and the Luxembourg Stock
Exchange such number of copies of such supplement hereto as such Dealer and the Luxembourg Stock
Exchange may reasonably request.
5
TABLE OF CONTENTS
RISK FACTORS ................................................................................................................................................ 7
DOCUMENTS INCORPORATED BY REFERENCE.................................................................................... 42
GENERAL DESCRIPTION OF THE PROGRAMME ................................................................................... 45
TERMS AND CONDITIONS OF THE NOTES ............................................................................................. 53
OUTLINE OF PROVISIONS RELATING TO NOTES CLEARED THROUGH EUROCLEAR OR
CLEARSTREAM WHILE IN GLOBAL FORM .................................................................................... 83
BOOK-ENTRY NOTES HELD THROUGH INTERBOLSA......................................................................... 88
USE OF PROCEEDS....................................................................................................................................... 90
DESCRIPTION OF THE ISSUER .................................................................................................................. 91
BOARD OF DIRECTORS AND OTHER CORPORATE BODIES OF THE ISSUER.................................115
CAIXA ECONÓMICA MONTEPIO GERAL AND ITS RELATIONSHIP WITH MGAM ....................... 125
OUTLINE OF THE PERFORMANCE OF THE GROUP’S COMPANIES ................................................. 126
THE PORTUGUESE BANKING SECTOR.................................................................................................. 130
TAXATION .................................................................................................................................................... 139
SUBSCRIPTION AND SALE ....................................................................................................................... 148
FORM OF FINAL TERMS............................................................................................................................ 153
GENERAL INFORMATION ......................................................................................................................... 161
6
RISK FACTORS
The Issuer believes that the following factors may affect its ability to fulfil its obligations under Notes
issued under the Programme. All of these factors are contingencies which may or may not occur and the
Issuer is not in a position to express a view on the likelihood of any such contingency occurring.
Factors which the Issuer believes may be material for the purpose of assessing the market risks
associated with Notes issued under the Programme are also described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in
Notes issued under the Programme, but the Issuer may be unable to pay interest, principal or other
amounts on or in connection with any Notes for other reasons and the Issuer does not represent that the
risks of holding any Notes are exhaustive. Prospective investors should also read the detailed
information set out elsewhere in this Base Prospectus or incorporated by reference herein and reach
their own views prior to making any investment decision.
Risk factors relating to Montepio’s business
As a result of its business activities, Montepio is exposed to a variety of risks, the most significant of
which are credit risk, market risk, operational risk and liquidity risk. Failure to control these risks may
result in a material adverse effect on Montepio’s financial condition and results of operations.
The impact of the financial and credit crisis
The capital and credit markets have experienced volatility and disruption for the past few years. The
market dislocations have led to the failure of several substantial financial institutions, causing
widespread liquidation of assets and further constraining credit markets. These asset sales, along with
asset sales by other leveraged investors, including some hedge funds, have driven down prices and
valuations across a wide variety of traded asset classes. Asset price deterioration has a negative effect on
the valuation of many of the asset categories represented on the balance sheet of Montepio, and reduces
its ability to sell assets at prices deemed acceptable.
Additionally, the recent market volatility has produced downward pressure on stock prices and credit
capacity for financial market participants generally. If current levels of market disruption and volatility
continue or worsen, Montepio’s ability to access the capital markets and obtain the necessary funding to
support its business activities on acceptable terms may be adversely affected. Among other things, an
inability to refinance assets on the balance sheet or maintain appropriate levels of capital to protect
against deteriorations in their value could force Montepio to liquidate assets held at depressed prices or
on unfavourable terms.
These factors could have an adverse effect on the business, financial condition and results of operations
of Montepio.
Economic activity in Portugal
As Montepio currently conducts the majority of its business in Portugal, its performance is influenced
by the level and cyclical nature of business activity in Portugal, which is in turn affected by both
domestic and international economic and political events. Thus, a decline in Portuguese economic
activity may have a material effect on Montepio’s financial condition and on the results of its operations.
Montepio’s business activities are dependent on the level of banking and financial services required by
its customers and borrowers in Portugal which are, in turn, based on the evolution of the economic
activity, saving levels, investment and employment. In particular, levels of borrowing are heavily
7
dependent on customer confidence, employment trends, and the condition of the Portuguese economy
and market interest rates.
The average unemployment rate, which was 5.5 per cent. in the period from 1990-2006, has risen from
2006 to 2013, , reaching a high of 17.5 per cent. in the first quarter of 2013. Structural factors, such as
the slow adaptation of some sectors to the increasing external competition, as well as labour laws and
the low levels of qualification of a material portion of the workforce, combined with a period of very
poor economic growth and the implementation of measures to reduce public deficit concerning the
Portuguese “Financial Assistance Programme” (“FAP”), have contributed to this rise in the
unemployment rate, placing it at a historically high level.
The drastic deterioration in the labour market was reflected in, and subsequently amplified by, the
country's economic recession. The decline in investment also detrimentally impacted the unemployment
rate. Despite this trend continuing over the first half of 2013, the economy experienced growth in the
second half of 2013 and the unemployment rate has improved since then, shifting from 16.4 per cent. in
the second quarter of 2013 to 13.7 per cent. in the first quarter of 2015. In the second quarter of 2015,
unemployment fell again to 11.9 per cent. This represented the lowest rate since the fourth quarter of
2010 but, although it is still at an objectively high level, the rate has remained distant from the
maximum of 17.5 per cent. recorded in the first quarter of 2013, according to the quarterly series
published by Bank of Portugal started in 1977. In quarter-on-quarter terms, the unemployment rate stood
at 11.9 per cent. in the third quarter of 2015, confirming the decline in year-on-year terms by 1.8
percentage points from the first to the second quarter of 2015. On an annual basis, the unemployment
rate decreased to 13.9 per cent. in 2014, from 16.2 per cent. in 2013. As of 30 September 2015, the
unemployed population stood at 633,600, while the employed population stood at 4,448,200.
In May 2011, the FAP was agreed between the European Central Bank (“ECB”), the International
Monetary Fund (“IMF”) and the European Commission (“EC”) – together, the “Troika” – and
implemented in 2012. The FAP comprised a total funding of €78 billion to be allocated during the period
from 2011 to 2014. The FAP’s main objectives, were to return the Portuguese economy to a path of
sustained growth within a framework of financial stability and to restore the confidence of participants
in the international financial markets. To this end, the FAP focused its assistance in three main areas: (i)
a set of significant structural reforms to increase potential growth, create jobs and improve the
economy's competitiveness, (ii) a strategy for credible fiscal consolidation, based on measures of a
structural nature and greater budgetary control over all the obligations of the State, and (iii) a process of
orderly deleveraging of the financial sector through market mechanisms and supported by a fund to
finance the recapitalisation of banks.
17 May 2014 marked the conclusion of the FAP and constituted an important moment in the evolution of
the Portuguese economy. During its period of implementation, there was notable progress in the
correction of certain macroeconomic imbalances and measures of a structural nature were put in place in
many areas. Notwithstanding this progress, the return of normal conditions in market funding to the
Portuguese economy will require sustained product growth. Such product growth will also be crucial to
bringing about a reduction in the persistently high level of unemployment observed in the Portuguese
economy.
Portugal initiated the early repayment of part of its IMF loan facility. A total tranche of Special Drawing
Rights (“SDR”) of 5.108 billion was repaid over three dates (13, 16 and 18 March 2015), discharging all
scheduled IMF principal repayment obligations that were originally to fall due from November 2015 to
October 2017. This first tranche represents 22 per cent. of Portugal’s SDR 22.942 billion IMF loan
facility, associated to the 2011-2014 FAP.
8
Following Portugal’s exit from the FAP, it became subject to Post-Programme Surveillance (“PPS”) by
the EC and ECB and to Post-Program Monitoring (“PPM”) by the IMF. The first PPS-PPM period
started on 28 October 2014 and was concluded on 4 November 2014. Meetings were held with the EC,
ECB and IMF representatives which focused on discussing and monitoring developments in fiscal
policy and on the Portuguese economy more generally. Further to this, the EC, the ECB, and the IMF
expressed, in their initial conclusions, concerns in respect of certain macroeconomic and budget
forecasts included in the State Budget for 2015 (“SB 2015”). Notwithstanding this, the Government
reaffirmed its commitment to respect the deadline set for 2015 for Portugal to exit the Excessive Deficit
Procedure. The Excessive Deficit Procedure is the mechanism that is triggered when Member States fail
to meet the fiscal discipline of the Stability and Growth Pact, which is an agreement, among the 28
Member States of the European Union, to facilitate and maintain the stability of the Economic and
Monetary Union.
The SB 2015 was submitted to the Portuguese Parliament on 15 October 2014, approved in 25
November 2014 and published on 31 December 2014 (Law no. 82-B/2014 of 31 December 2014).
Changes to the Government’s proposal were minor and did not impact the budget balance.
The SB 2015 complies with the European System of National and Regional Accounts (“ESA 2010”) and
aims to bring about: i) a reduction of the general Government deficit during 2015 to 2.7 per cent. of
GDP thereby complying with the Excessive Deficit Procedure’s threshold of 3 per cent. of GDP; ii) a
reduction of a third consecutive primary surplus of about 2.2 per cent. of GDP, resulting in a cumulative
correction of 10.4 percentage points in the 2010-2015 period and iii) a decrease in the debt-to-GDP
ratio.
At the end of April 2015, the Government submitted the Stability Program for 2015-2019 (the “SP 20152019”) describing the medium-term macroeconomic scenario and budgetary plan for Portugal to the
European Commission, and reinforced its commitments regarding the fiscal targets for 2015 presented in
the SB 2015.
The SP 2015-2019 forecasts a recovery of the economy supported by strong domestic and external
demand and a gradual recovery of investment and labour market conditions. Gross domestic product is
projected to grow 1.6 per cent. in 2015, 2 per cent. in 2016 and 2.4 per cent. from 2017 to 2019. The
unemployment rate is projected to continue in a downward trajectory, falling from 13.9 per cent. in 2014
to 13.2 per cent. in 2015 and gradually decreasing to 11.1 per cent. in 2019.
With respect to the fiscal adjustment strategy, the Portuguese government reaffirmed its commitment to
reduce the budget deficit to below 3 per cent. of GDP in 2015, to allow the end of the 2015 Excessive
Deficit Procedure (“EDP”). This would also allow the Portuguese government to reach the medium term
objective for the structural deficit in 2016, one year earlier than scheduled in the last medium-term fiscal
strategy document. The 2015 fiscal consolidation relied on the following measures, amounting to 0.7 per
cent. of GDP (€1.2 billion): expenditure measures resulting from the ongoing streamlining of the public
sector (€0.5 billion net of partial reversion of wage and pension cuts); revenue measures targeted to
specific sectors of the economy (€0.5 billion) and other one-off measures (€0.2 billion).
In relation to fiscal adjustment, according to Instituto Nacional de Estatistica’s (“INE”) first notification
of EDP to Eurostat, the 2014 General Government (“GG”) deficit stood at 4.5 per cent. of gross
domestic product (“GDP”) (€7.717 billion), falling below the 2013 GG deficit of 4.8 per cent. of GDP
(€8.181 billion). Excluding one-off operations, the 2014 GG deficit stood at 3.4 per cent. of GDP (which
compares with 5.1 per cent. of GDP in 2013). This represents the actual starting point for adjustment in
2015, and falls below the estimate considered in the 2015 State Budget by 0.3 percentage points
Portugal recorded a primary surplus for the second consecutive year. Following the 0.1 per cent. of GDP
9
surplus observed in 2013, the primary balance increased to 0.54 per cent. of GDP in 2014. The GG
Gross Debt stood at 130.2 per cent. of GDP at the end of 2014 (129.7 per cent. of GDP in 2013).
According to the Stability Program’s 2015-2019 projections, published in April 2015, the debt-to-GDP
ratio is expected to reduce further, reaching 124.2 per cent. of GDP at the end of 2015. In making its
predictions the INE did not consider any impact from the capitalisation of Novo Banco by the
Resolution Fund in the third quarter of 2014 and stressed the provisional nature of such treatment
During the first four months of 2015, the general Government budget deficit on a cash basis stood at
€1,553 million, decreasing by €692 million when compared to the previous year. Overall, revenue and
expenditure both increased, by €1,235 million and €543 million respectively. The primary balance
recorded an overall surplus of €881 million, substantially improving from a deficit of €347 million in the
first four months of 2014. Adjusting the GG perimeter for comparability, Central Government
expenditure grew by 4.7 per cent. when compared to the previous year. This profile is due to increased
interest charges (which are highly concentrated in February) and investment expenditure (given the PPP
payments’ calendar). State tax revenue (in net terms) up to April increased by 4.1 per cent. when
compared to the previous year. VAT revenue grew by 9.2 per cent., underpinned by the ongoing
economic recovery and increased effectiveness of new measures against tax fraud and evasion. With
respect to direct taxes, the corporate income tax (“CIT”) revenue increased by 3.6 per cent., while
personal income tax (“PIT”) revenue declined by 1.5 per cent. (thus recovering from the 1.8 per cent.
decrease registered up to March 2015). Social Security recorded a surplus of €567 million. Compared to
the first four months of 2014, the balance improved by €517 million, underpinned by higher revenue and
lower expenditure. This performance also reflects the recovery of economic activity as social
contributions grew by 2.5 per cent. and expenditure with unemployment benefits decreased by 22.9 per
cent. over the previous year.
The current comprehensive reform of the tax system continued in 2015. The CIT reform implemented in
January 2014 resulted in a further two percentage point reduction in the statutory rate, to 21 per cent.
The Government also submitted proposals on environmental tax reform ( “ETR”) and PIT reform which
aim to achieve a fiscally neutral result by allocating additional revenues from “green taxes” to the
reduction of personal income tax for households with children in 2015.
Recently, Instituto de Gestão do Crédito Público (“IGCP”), the Portuguese treasury and debt
management agency, published recent macro-economic developments as well as fiscal consolidation
data. In the first three quarters of 2015, the average GDP year-on-year growth was 1.5 per cent., up from
0.9 per cent. in 2014 due to the positive contribution of the domestic demand, while the contribution of
the net external demand remained negative. Private consumption is growing at a steady pace (2.3 per
cent. year-on-year in the third quarter) with investment picking up as well (5 per cent. on average in the
first three quarters), mainly in transport equipment for the corporate sector. Exports grew at an average
of over 6 per cent. in the first three quarters of 2015, driven by both goods and services, and supported a
positive external balance for the third consecutive year. This new growth cycle is based on a gradual
recovery of investment, sustainable domestic and external demand and employment creation.
A sizable structural fiscal adjustment is underway, with a primary surplus in 2014, excluding one-offs, of
1.5 per cent. of GDP, for the first time since 1997 (2 per cent. in 2015). The 2014 overall balance was
revised in September 2015 from -4.5 per cent. to 7.2 per cent. of GDP, as a result of the classification of
the capitalisation of Novo Banco as capital expenditure. With respect to the 2015 overall balance, it is
expected to stay at -4.2 per cent. of GDP as a result of the classification of the capitalisation of Banco
Internacional do Funchal (“Banif”), amounting to 1.2 per cent. of GDP, as capital expenditure. Between
2010 and 2014, the GG deficit was reduced by 4.0 percentage points to 7.2 per cent. of GDP in 2014 (4.4
per cent. excluding the resolution of Banco Espirito Santo), reflecting a revenue increase of 3.9
10
percentage points and a primary expenditure reduction of 2.1 percentage points (4.9 percentage points
excluding Banco Espirito Santo). For more information, see the section entitled “The Portuguese
Banking Sector” below.
According to a recently approved government programme, the overall deficit is expected to stand at 4.2
per cent. of GDP in 2015 and steadily decline to 1.5 per cent. of GDP in 2019. The GG deficit on a cash
basis is expected to stand at €5.1 billion in 2015, declining € 2 billion from 2014.
Public debt is projected to decline over time, with the debt-to-GDP ratio standing at 128.2 per cent. of
GDP at the end of 2015. Given the current high level of government debt, Portugal currently appears to
face high fiscal sustainability risks in the medium term, however, in the long term, the country faces low
fiscal sustainability risks due to the positive structural primary balances since 2012.
There are continued external risks to the Portuguese economy which include geopolitical uncertainty in
the Middle East and Eastern Europe, which has detrimentally affected the Eurozone economy.
Domestically, risks have arisen, and may continue to arise, from the recent Espírito Santo Group's crisis.
The instability around the Espirito Santo Group caused a lowering in the value of shares of Banco
Espírito Santo and the majority of Portuguese companies stocks. Government bonds also saw their
spread widen against the German public debt (although from early December 2014 such spread fell to its
lowest level since May 2010). The confidence of economic agents was affected and direct effects were
felt by customers and shareholders in terms of credit restrictions and wealth loss which impacted
consumption and investment decisions. However, in general, the effects of the Espirito Santo Group’s
crisis are now barely visible (from a statistical point of view) in the main macroeconomic variables of
Portugal.
In contrast to the increase in the domestic risk from the Espirito Santo Group crisis, there are a number
of positive indicators linked to the larger than expected growth in the Spanish economy. Portugal’s
traditionally strong trading relationship with Spain (in 2015 it represented 25 per cent. of the Portuguese
export market) means that a growth in performance of the Spanish economy could provide an important
stimulus for economic growth in Portugal in 2016.
Since the second quarter of 2013, Portugal has been experiencing an inversion of the decline in
economic activity it had been undergoing since the end of 2010. Despite this, a 0.5 per cent. reduction in
GDP quarter-on-quarter occurred in the beginning of 2014 due to several factors which negatively
affected economic activity in first quarter of 2014. Among these were: i) exceptionally adverse weather
conditions, which negatively impacted sectors such as fisheries, agriculture and construction; ii) the
slowdown of growth in the Eurozone in the first quarter of 2014, which detrimentally affected
Portuguese exports and iii) the closure for maintenance of the Galp Sines refinery for half of the first
quarter of 2014 which impacted on the country's exports due to its strategic significance. The second
quarter of 2014 saw a return to growth, with GDP expanding by 0.5 per cent. In the third quarter of
2014, GDP growth was 0.2 per cent. compared to the previous quarter and, as mentioned above, net
exports had a negative contribution (minus 0.8 per cent.) to the GDP compared to the previous quarter,
with the growth of imports more than offsetting the growth in exports. In the last quarter of 2014, GDP
increased by 0.4 per cent. compared to the previous quarter. This performance was better than the euro
area’s (+0.3 per cent. growth) and the European Union’s (+0.4 per cent. growth). In the first quarter of
2015, GDP increased also by 0.4 per cent. compared to the previous quarter, the same growth of the
previous quarter and the same as presented by the euro area’s (+0.4 per cent. growth).
GDP grew by 0.9 per cent. in 2014, confirming a turnaround after three years of negative performance (1.8 per cent. in 2011, -4.0 per cent. in 2012, -1.6 per cent. in 2013). GDP growth results from a positive
contribution from domestic demand (+2.1 p.p.) and a negative contribution from net exports (-1.2 p.p.).
11
The overall gradual improvement in domestic demand during 2014 was limited by continuing fiscal
consolidation, the private sector deleveraging process and strong growth in exports. Domestic demand
performance was underpinned by the recovery of private consumption (2.2 per cent. growth, compared
to minus 1.5 per cent. in 2013) and also investment (5.3 per cent. growth, compared to minus 6.7 per
cent. in 2013). This led to an acceleration of import growth (6.4 per cent. growth, compared to 3.9 per
cent. in 2013), which surpassed the increase in exports (3.3 per cent. growth, compared to 6.4 per cent.
in 2013).
In 2014, the Portuguese economy registered a net lending position of 1.9 per cent of GDP. The positive
performance recorded through this indicator since late 2012 contrasts with a history of consecutive net
borrowing positions. Exports are expected to grow during 2015, due to increasing foreign demand and
also the net external financing capacity of the economy. The correction of external imbalances is one of
the characteristics of Portuguese economy’s adjustment process and is expected to lead to trade balance
surpluses in the following years.
The average rate of change of the Portuguese consumer price index (“CPI”), was negative in 2014, at
minus 0.3 per cent., which is the second lowest value, surpassed only by the fall of 0.9 per cent.
registered in 2009, following the collapse in oil prices. It was a decrease compared to growth of 0.3 per
cent. in 2013 and after the previous year have already registered a sharp slowdown (2.8 per cent. in
2012). But the negative inflation in 2014 was due largely to changes in commodity prices in
international markets. Indeed, despite the annual fall of 0.3 per cent. of the CPI, the CPI core (excluding
energy and unprocessed food) decreased only slightly from an average growth rate of 0.2 per cent. in
2013 to 0.1 per cent. in 2014. In addition to the slowdown in core inflation, the reduction of general
inflation between 2013 and 2014 was mainly determined by the price of unprocessed food (decreased
from 2.6 per cent. in 2013 to minus 2.1 per cent. in 2014, mainly due to the subgroups of fruits and
vegetables). Energy products also contributed to the decrease in the CPI in 2014, recording a minus 1.4
per cent growth rate in 2014 (minus 0.7 per cent in 2013), mainly due to the decrease in fuel prices. In
2014, there was a higher average annual growth of services prices than that observed for the prices of
goods. Indeed, in 2014, prices of services rose 0.8 per cent. (0.7 per cent. and 3.1 per cent. respectively
in 2013 and 2012), while the prices of goods decreased by 1.1 per cent. (0.0 per cent. and 2.5 per cent.
respectively in 2013 and 2012). The limited change in prices reflects the maintenance of low inflationary
pressures from moderate global recovery and on-going adjustment in the Portuguese economy. In
addition to a recent improvement in the labour market, there has been a moderate growth in private
sector salaries which has, in turn, limited the increase in unit labour costs. After the negative inflation in
2014, we anticipate a return to growth in inflation in 2015, but only of 0.2 per cent. and to around 1.0
per cent. in 2016.
The incumbent coalition government (consisting of a centre-right coalition of the Social Democratic
Party (“PSD”) and the People’s Party (“CDS-PP”)) won the general legislative elections on 4 October
2015 but did not achieve an absolute majority, obtaining 38.4 per cent. of the votes versus the Socialist
Party’s (“PS”) 32.3 per cent. These results translated into 107 seats in parliament, short of the 116 seats
needed for an absolute majority, and as a consequence, the opposition parties started a series of meetings
and discussions to form a centre-left coalition government with the majority seats in the parliament. The
new government in Portugal has, to date, carried out fundamental changes in economic policy compared
to its predecessor, some of which are as follows: (i) the reinstatement of four public holidays which had
been removed by the previous government; (ii) the cancellation of some of the austerity measures (such
as the gradual revocation of the 10 per cent. cut to public-sector salaries of over €1,500 a month, which
will reach their former levels again by the end of the year); (iii) the abolishment of a portion of
additional taxes for average incomes and the whole of the tax for lower incomes; (iv) the increase of
pension payments and (v) ending the privatisation of the public transport sector. Further measures are to
12
follow, such as the reduction of the social contributions burden on low income employees and an
increase in the minimum wage. Moreover, the liberalisation of the labour market might be rolled back
partly by strengthening collective pay agreements and some of the latest privatisations – e.g. of the
airline TAP – might be reversed. The new government is likely to adopt a more expansionary financial
policy and a greater role of the state in the economy, rather than rely on liberalisation and deregulation
to revive the economy.
Therefore, the Portuguese economy’s current situation continues to reveal the risks related to budget
approval and the lack of availability of credit. These risks threaten to deprive even well-established
companies in the country of funding. Such companies have been important to an economy facing weak
internal demand.
Despite signs of recovery, further deterioration in the external environment could constrain the
commitment that the Portuguese authorities have made to achieve the goals and measures agreed at
budget level, which may adversely affect the desired sustained economic recovery and Montepio’s
activity and performance.
On 20 March 2015, Standard & Poor’s improved Portugal’s outlook to positive from stable, while
maintaining the rating unchanged. On 27 March 2015, Fitch affirmed Portugal’s rating and confirmed a
positive outlook.
Portugal recorded the second-highest increase in the 2015 World Competitiveness Ranking, prepared
each year by the International Institute for Management Development (“IMD”). Portugal moved up by
seven positions and is the 36th most competitive country, out of a total of 61 countries. Portugal
recorded upright movements in all competiveness factors: economic performance, government
efficiency, business efficiency and infrastructure.
Legislation for the protection of borrowers in a very difficult financial condition
Legislation that intends to protect borrowers of residential mortgage loans that are in a very difficult
financial condition was enacted in 2012, namely in Law no. 58/2012, of 9 November 2012.
This legislation requires credit institutions to adopt protective measures mainly in relation to residential
mortgage loans where borrowers belong to low income households in which one of the members is
unemployed or has suffered a reduction of 35 per cent. or more of his/her gross annual income. The
adoption of measures aimed at protecting this type of borrower is in some circumstances mandatory for
the credit institutions, and those may include, inter alia, the adoption of alternative repayment
arrangements, the postponement of the payment of instalments and the extension of the term of the
concerned mortgage loans.
This legislation may have a negative impact on the mortgage credit portfolio of the Issuer, since it aims
at safeguarding the position of certain borrowers facing serious financial difficulties.
Legislation on management of default risks and procedures for collection of debt in default
Decree-Law no. 227/2012, of 25 October 2012, establishes the principles and rules that credit
institutions should adopt to follow default risk situations and extrajudicial default settlement of any
loans with individual customers. In order for the fulfilment of these objectives, Decree-Law no.
227/2012 of 25 October 2012, determines the creation of the Pre-arrears Action Plan (“PARI”) and the
extrajudicial settlement procedure for borrowers in default situation (“PERSI”).
Regulatory Notice (“Aviso”) 17/2012 determines the public information disclosure duties, related with
the default of credit agreements, and to the extrajudicial support network, and rules and criteria are
established for contact with borrowers in default risk or delay in fulfilment of their obligations, as well
13
as the evaluation of their financial capability; additionally, rules and proceedings are set for the PARI
information report to the Bank of Portugal and of the internal documentation prepared by the credit
institutions regarding the PERSI implementation.
In order to anticipate and prevent potential indebtedness situations in mortgages, Montepio identifies
possible cases of serious debt situations in order to act proactively by providing credit renegotiation
solutions that will reduce the risk of default.
Therefore, Montepio has implemented the PARI, with new rules, procedures and measures which allow
for:
- Early detections of signs of delinquency risk, implementing systems to identify default risk;
- Control of borrowers who report financial difficulties;
- The adoption of measures to prevent arrears;
- The evaluation of evidence of default risk;
- Repayment solutions proposals, whenever the risk of failure is caused by temporary and specifically
defined circumstances;
- Evaluation of the financial capacity of the client; and
- Contract restructuring or credit agreements consolidation proposals, in cases where the risk of default
is assumed to be permanent.
Montepio has also created PERSI, with several measures intended to automatically detect customers in
default and propose timely contractual changes and restructurings, including:
- The notification of customer arrears and amounts due, to the borrower and guarantors;
- Registration of the reasons for non-compliance and assessment of the financial capacity of the client;
- Reporting clients about the evaluation of failure; and
- Contractual remedies proposals, adequate to each borrower financial situation.
Also, under PERSI, as a general rule, credit institutions may not declare anticipated maturity or take any
legal action before ninety days after the customer is under PERSI, which may only occur if the customer
is in delay.
Therefore, PERSI may bear consequences to the recovery of the defaulted assets. Such legislation may
therefore have a material adverse effect on the Issuer’s business, financial condition and results.
Legislation on calculation of default interest
Decree-Law no. 58/2013, of 8 May, applies to credit institutions and has established detailed rules on the
calculation of default interest, compounding of interest, and charging of expenses and fees in connection
with default under finance agreements. It is noteworthy to mention that, according to this new regime,
(i) accrued and unpaid interest cannot be compounded for periods of less than one month; (ii) credit
institutions shall not charge default interest higher than an annual rate of 3 per cent. on top of the
applicable ordinary interest, reducing the annual rate from 4 per cent. to 3 per cent.; (iii) fees for
recovery of outstanding debt under credit agreements shall not be higher than 4 per cent. of the unpaid
instalment (no limit was previously in force on this type of fees); and (iv) credit institutions shall only be
entitled to request reimbursement of expenses, insofar as they have been incurred with third parties (e.g.
land registries) for the account of the defaulting borrower and are duly evidenced.
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Some of the provisions described in the preceding paragraph limit the rights of credit institutions in
connection with a default of their clients, hence having a negative impact on the Issuer’s mortgage asset
pool.
Guidelines of Bank of Portugal on the implications of negative Euribor
The Bank of Portugal has issued guidelines (carta circular) no. 26/2015/DSC, which address the matter
of how the negative Euribor shall be reflected in existing finance agreements whose interest rate is
calculated based on Euribor.
In those guidelines, the Bank of Portugal has disclosed the following understanding: (i) in relation to
existing financing agreements which have not contemplated a regime applying in a scenario of negative
Euribor, the credit institutions shall not construe their clauses as implicitly entitling them to limit the
effects of such negative Euribor; (ii) in the future, credit institutions are prohibited from setting forth any
floors in contracts entered into with the clients, with a view to limit the effects of negative Euribor in the
contractual interest rate; and (iii) nonetheless, credit institutions and their counterparties under the
agreements are allowed to take certain (not defined in detail) precautionary measures in order to address
the risk of negative Euribor.
The Bank of Portugal’s guidelines are not mandatory in nature, however, they are usually followed by
all regulated credit and financial entities, including in relation to all credit and financing agreements
with consumers or other banking customers, including mortgage loans, financial leasing and factoring,
being also likely to influence the decisions of courts.
Regulation of Portuguese Financial Industry
The Portuguese financial industry is regulated by three supervisors, with responsibility for the three
sectors of banking: capital markets, and insurance and pension funds. Under this supervision model, the
Bank of Portugal acts as the central bank and as the entity responsible for the supervision of Portuguese
banks and financial companies, focusing on the stability of the financial system, while the Portuguese
Securities Market Commission (“CMVM”) has responsibility for supervising the securities market,
derivative instruments and the activities of agents and financial intermediaries, and the Insurance and
Fund Pension Supervisory Authority (“ASF”) is responsible for the supervision of insurance and
pension funds.
The Bank of Portugal is currently responsible for the prudential and market conduct supervision of
banks with the aim of ensuring the stability, efficiency and soundness of the financial system. The Bank
of Portugal monitors and supervises the compliance with the rules of conduct and transparency
requirements towards bank customers, thereby ensuring the solvency and creditworthiness of banks and
thereby, maintaining the stability of the financial system, the safety of deposits and the protection of
consumer interests against losses stemming from bad management, fraud or bankruptcy of financial
services suppliers or providers. The powers and responsibilities of the Bank of Portugal as a supervisory
authority are stipulated in its “Organic Law” and in the Regime Geral das Instituições de Crédito e
Sociedades Financeiras (the “RGICSF”), approved by Decree-Law 298/92 of 31 December 1992 (as
amended and republished by Decree-Law no. 157/2014 of 24 October 2014.
Banking activities in Portugal are therefore governed by the RGICSF, which regulates banking business
such as the acceptance of deposits or other repayable funds from the public, granting credit, or any form
of lending, including the granting of guarantees and other payment commitments, financial leasing and
factoring, namely, through notices, instructions and orientations. The RGICSF sets out the capital
requirements of financial institutions, disclosure requirements on salaries and compensation packages of
15
employees and members of the board, as well as the terms and conditions to be included in the financial
institutions’ internal control policies.
The RGICSF plays an important role in prudential regulation, by transposing the EU Directives on
financial activities into the Portuguese legal framework. It is a set of harmonised rules covering a wide
range of subjects such as the capital adequacy regime, banking and financial activities and the applicable
codes of conduct, the limits on risk concentration and the rules on balance sheet consolidation, as well as
the supervision conducted on a consolidated basis.
The banking activities of Montepio are therefore subject to extensive regulation by the European Central
Bank and the Bank of Portugal, mainly relating to liquidity levels, solvency and provisioning. During
2009 and 2010, the following Directives were implemented: (i) Directive 2007/44/EC, amending several
Directives regarding procedural rules and evaluation criteria for the prudential assessment of
acquisitions and increased holdings in the financial sector; (ii) Directive 2009/27/EC (amending certain
Annexes to Directive 2006/49/EC) regarding technical provisions concerning risk management; and (iii)
Directive 2009/11 I/EC regarding banks affiliated with central institutions, certain own funds items,
heightened exposure, supervisory arrangements and crisis management.
In December 2010, the Basel Committee on Banking Supervision published the Basel III rules,
providing for the details of global regulatory standards on bank capital adequacy and liquidity ratios,
setting out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio and
the establishment of two global liquidity standards. On 20 July 2011, the European Commission
published two proposals to amend and replace the existing capital requirement directives with two new
legislative instruments: a regulation establishing prudential requirements that institutions need to respect
and a directive governing access to deposit-taking activities which transpose the Basel III agreement
into EU law. The new Basel III framework which is expected to be implemented in stages, between 1
January 2013 and 1 January 2019 (and subsequently transposed into the national laws), will affect the
real economy, credit market and the banking system, with significant impact on economic players and
may have an adverse impact in the capital resources and requirements of Montepio.
In 2011, the European authorities approved a new set of supervision legislation for the banking sector
which includes the creation of a European Banking Authority charged with the development of a single
rulebook for banks in the EU, while national authorities remain responsible for the supervision of
financial institutions. At the end of 2011, the ECB announced measures to support bank lending and
money market activity, including the reduction of the reserve ratio from 2 per cent. to 1 per cent. Recent
legislative measures were discussed in the Euro Area Summit of 29 June 2012, namely the
implementation of a single supervisory mechanism for the Euro Area Banks and the direct
recapitalisation of banks by the European Stability Mechanism.
The financial market tensions and increasing difficulties in the transmission mechanism of the
Eurosystem monetary policy have created the need for the establishment of integrated supervision in the
euro area (the “Single Supervisory Mechanism”) as a first step towards a banking union and the
materialisation of a true economic and monetary union. The Banking Union should rely – in the long
term – on three complementary pillars: the Single Supervisory Mechanism, a European single resolution
mechanism and a common system of deposit protection. The Single Supervisory Mechanism, whose
regulation entered into force in November 2013, became operational one year after, in November 2014;
it is composed of the European Central Bank (“ECB”) and competent national authorities. The ECB will
be responsible for the prudential supervision of credit institutions in the euro area, with a view to
contributing to the safety and soundness of credit institutions and the stability of the financial system
within the EU and each Member State, with full regard and duty of care for the unity and integrity of the
internal market. Credit institutions established in other Member States may also be overseen by the
16
ECB, in the scope of reinforced cooperation mechanisms that may be established with the relevant
authorities. The single resolution mechanism of banks will contribute to the resolution of institutions
without affecting systemic stability and the financial situation of the countries where they operate. A
common system of deposit protection will help reduce the likelihood of potential deposit runs, which, in
a contagion situation, would rapidly constrain banking system liquidity. These three pillars of the
banking union are based on the assumption that a single prudential rulebook will be maintained, which
may be made more flexible for macro-prudential policy purposes, under European Union coordination.
In Portugal, as a consequence of the financial and sovereign crisis and the FAP, financial institutions’
solvency ratios needed to be strengthened which triggered the publishing and disclosure of a new set of
legislation and activity requirements to be imposed on the Portuguese financial sector.
The FAP set targets for deleveraging and increasing capital and liquidity in the financial system in
general and the banking sector in particular. In order to achieve these targets, the eight largest banking
groups were required to draw up a Funding & Capital Plan to remain in effect until 2015. It imposed
goals of reducing the leverage ratio to 120 per cent. by 2014, reducing recourse to refinancing from the
European Central Bank and increasing the Core Tier 1 solvency ratio to a minimum of 9 per cent. by the
end of 2011 and 10 per cent. by the end of 2012 and subsequent years, as set out in Bank of Portugal
Notice (Aviso) 3/2011 (subsequently amended by Notice (Aviso) 8/2011 and by Notice (Aviso) 4/2012).
On 22 July 2013, EBA issued a new Recommendation on capital preservation, revoking the 2011
Recommendations. Accordingly, banks shall keep a capital amount (in Euros) necessary to comply with
the capital requirements as set out in the previous Recommendation at 30 June 2012. The possibility to
maintain a lower capital level is also taken into account, provided that a 7.0 per cent. Common Equity
Tier 1 ratio is fulfilled according to the Capital Requirements Directive IV (“CRD IV”) fully
implemented rules.
On 23 October 2013, the ECB announced the details vis-à-vis the complete assessment to be done as
prelude to its upcoming supervision responsibilities within the single supervisory mechanism. The
assessment begun in November 2013 and shall last for 12 months. The reference ratio value for such
assessment will be 8 per cent. Common Equity Tier 1, according to the CRD IV definitions taking into
account transitional arrangements.
Furthermore, the European Authorities approved a new legislative package to strengthen the regulation
of the banking sector and to implement the Basel III agreement in the EU legal framework, replacing the
former Capital Requirements Directives (2006/48/EC and 2006/49/EC): Regulation 575/2013 of the
European Parliament and of the Council of 26 June 2013 establishing new and detailed prudential
requirements that institutions need to respect (the Capital Requirements Regulation or “CRR”) and
Directive 2013/36/EU of the European Parliament and of the Council of 27 June 2013 on access to the
activity of credit institutions and the prudential supervision of credit institutions CRD IV. The package
entered into force on 1 January 2014, while some of the new provisions will be phased-in between 2014
and 2019.
By 31 December 2013, EU Member States were required to adopt and publish the laws, regulations and
administrative provisions necessary to comply with CRD IV. The provisions of the CRD IV have
already been transposed in Portugal, with only certain administrative provisions yet to be adopted and
published.
The CRR includes provisions regarding, for instance, own funds requirements, minimum capital ratios,
liquidity ratios.
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With reference to liquidity risks, the Basel III recommendations (transposed into CRD IV) endorse the
implementation of the liquidity coverage ratios known as Liquidity Coverage Ratio (short term ratio in a
severe stress scenario) and Net Stable Funding Ratio (medium term). The Liquidity Coverage Ratio is
expected to be introduced gradually starting from October 2015 and be fully implemented by January
2018 comprising the minimum required rate of 100 per cent., one year earlier than the Basel Committee
had recommended. The Net Stable Funding Ratio (minimum of 100 per cent.) is to be implemented in
2018.
Banks strategies are becoming more focused on liquidity compliance and a more sustainable balance
sheet. In order to fulfil liquidity regulation some adjustments have been made or are in progress and
negative effects on banks’ profitability are expected in order to favour liquidity.
Regarding capital ratios, in accordance with the CRR and Bank of Portugal Regulations, the banks were
obliged to maintain minimum compliance levels with a gradual increase until 1 January 2019 (Core Tier
1 of 4.5 per cent., Tier 1 of 6 per cent. and a total ratio of 8 per cent. in 2019).
CRD IV includes general rules and supervision powers, wages, governance and disclosure requirements,
as well as an introduction of 5 additional capital buffers:
-
A capital conservation buffer of 2.5 per cent. of risk-weighted assets;
-
A countercyclical capital buffer rate between 0 and 2.5 per cent. of Core Tier 1 assets,
pursuant to the conditions to be established by the competent authorities; and
-
A systemic risk buffer: i) applicable to the institutions with a global systemic importance:
between 1 and 3.5 per cent.; ii) applicable to other institutions with a systemic importance:
between 0 and 2 per cent.; and iii) macroprudential systemic risk: between 1 and 3 per cent.
or between 3 and 5 per cent. depending on the economical conjecture.
These buffers, apart from the macroprudential systemic risk, are predicted to be applied gradually from
2016, although Member States may introduce them earlier.
Considering the minimum capital levels already defined in both the CRR and CRD IV, banks and credit
institutions shall comply with the:
-
Minimum Common Equity Tier 1 Ratio: 7 per cent. (4.5 per cent. base value and an
additional 2.5 per cent. of capital conservation buffer);
-
Minimum Tier 1 Ratio: 8.5 per cent. (6 per cent. base value and an additional 2.5 per cent.
capital conservation buffer);
-
Total Ratio: 10.5 per cent. (8.0 per cent. base value and an additional 2.5 per cent. capital
conservation buffer).
A 5 year transitory period was projected in order to adapt the previous applicable rules to the new
regulations.
The Bank of Portugal has determined a minimum Common Equity Tier 1 ratio of 7.0 per cent. calculated
with transitional arrangements and to be complied with from the 1 January 2014 onwards (Regulatory
Notice (“Aviso”) 6/2013).
As at 31 December 2014, the Total Capital ratio of the Issuer, on a consolidated basis, was 8.67 per cent.
(phasing-in) (7.21 per cent. upon full implementation) and the Common Equity Tier 1 ratio was 8.51 per
cent. (phasing-in) (6.98 per cent. upon full implementation). As at 30 September 2015, the Common
Equity Tier 1 ratio, calculated pursuant to the CRD IV/CRR phasing-in rules, improved in relation to 31
18
December 2014, to 9.30 per cent.. The reinforcement of the Participation Fund by €200 million (the
second issue) contributed to the Total Capital ratio of the Issuer being greater than the Bank of Portugal
7 per cent. minimum requirement. Moreover, the Total Capital ratio (phasing-in) increased to 10.32 per
cent.. The Issuer has adopted Strategic Guidelines for the period 2015-2017 for the strengthening of the
capital ratios, as stated in its Funding and Capital Plan 2015-2017 submitted to the Bank of Portugal.
This plan aims to achieve capital cushions that allow capital ratios to be set in excess of the CRR and
CRD IV requirements by 2018.
Portugal implemented a new set of rules in respect of the reinforcement of the banking system
capitalisation levels – Law No. 4/2012, of 11 January 2012 (“Law 4/2012”). In respect of the banks’
capitalisation plan, Law 4/2012 complemented by Ordinance (Portaria) 150-A/2012, dated 17 May
2012 (as amended by Ordinance (Portaria) 421-A/2012, dated 21 December 2012, currently revoked by
Ordinance (Portaria) no. 140/2014, of 8 July 2014), implemented measures to be adopted pursuant to
the FAP, amending Law 63-A/2008, of 24 November 2008 (as last amended and republished by Law
no.1/2014 of 16 January 2014), with the aim of reinforcing the financial solvency of banking institutions
and contributing to the strengthening of their levels of core Tier I capital. The accepted methods to the
capitalisation process are the purchase by the state of the credit institution’s shares (or, if the institution
is not a public limited company, other securities representative of its capital) or an increase in capital of
the credit institution, whereby the purchased shares by public investment are automatically converted
into a new class of ‘special shares’ or through the subscription (by the Portuguese Republic) of issues of
contingent convertible securities representing core Tier 1 by virtue of being fully subscribed by the state.
More recently Decree-Law no. 157/2014 of 24 October 2014, adopted (i) Regulation (EU) no. 575/2013,
of the European Parliament and of the Council, dated 26 June 2013, relating to prudential requirements
for credit institutions and investment firms (Basel III) and (ii) Directive no. 2013/36/EU, of the
European Parliament and of the Council, dated 26 June 2013, regarding access to the activity of credit
institutions and the prudential supervision of credit institutions and investment firms.
In addition, the Bank of Portugal has established minimum provisioning requirements regarding current
loans, non-performing loans, overdue loans, impairment for securities and equity holdings, sovereign
risk and other contingencies. Therefore, any change in these requirements could have an adverse impact
on the results of operations of Montepio.
Activity, liquidity and capital adequacy requirements applicable to Montepio limit its ability to advance
loans to customers and may require it to raise additional capital in the future, namely through the
increase of its institutional capital or of the Participation Fund. This may affect Montepio’s future
activities, its results of operations and the cost of and its ability to obtain funds that could be classified
as “own funds” and the repayment of the existing subordinated debt.
Montepio is subject to supervision by the Bank of Portugal and by the CMVM, as well as other
competent regulators of jurisdictions in which it operates. Changes to supervisory rules and regulations
in respect of Montepio’s activities, particularly in Portugal, may have a negative impact on Montepio’s
business, the products and services it offers or the value of its assets. Future regulatory changes, changes
in tax laws or other alterations may be unpredictable and are outside Montepio’s control and may
adversely affect Montepio’s financial conditions and the results of its operations.
Supervision by the CMVM focuses on the monitoring of all products and securities that are trading or
placed in organised capital markets and on the granting of licences and permits that are necessary for the
professional exercise of financial intermediaries’ activities, as well as on the level of compliance by
these entities with market rules and the requirements for the operation of capital markets generally. The
CMVM also has the capacity to publish rules and regulations dealing with the relevant segments of
financial activity and there are various instructions issued by the CMVM regarding the disclosure of
19
information imposed on issuers of securities, on the activities of financial intermediaries and on complex
financial products. In its supervising capacity and within its powers, the CMVM complies with the main
goals as supervising entity for the capital markets, namely, fostering the protection of investors,
particularly those designated as ‘not professional’ or ‘not qualified’, by promoting efficiency, equity,
security and transparency of financial markets.
Banking Markets and Competition
In 2014, the activity of the Portuguese financial system was carried out in a context of economic
recovery and correction of macroeconomic imbalances. In particular, debt of the non-financial private
sector was reduced, which was reflected on the maintenance of domestic net lending.
Interest rates remained broadly low, partly as a result of the accommodative stance of monetary policy,
which promoted favourable conditions for the continued deleveraging of the economy. Maintaining this
situation for a long period, however, may raise risks for financial stability, namely by acting as a
disincentive to savings, which are essential to finance productive investment and reduce the high
external debt.
Net income in the banking sector, strongly dependent on the net interest income, was negative again,
although recovering in most banks (excluding BES and Novo Banco). The adjustment of the banking
sector continued, partly reflecting the adjustment of the other sectors of the economy.
The continued decline in assets across the Portuguese banking industry largely reflecting developments
in credit to customers, and the increase in deposits taken in Portugal was a cause of the continued fall in
the loan-to-deposits ratio. The recourse to Eurosystem financing decreased and there was an
improvement in liquidity position, financial operations income and net interest income, the latter as a
consequence of the decline in the average cost of deposits.
The sector continues to be under much pressure however from low profitability levels, reflecting
reduced interest rates, the still low demand levels and the historically high impairment levels, in the
context of still high levels of non performing loans. Low sector profitability, if extended, jeopardises
future capital accumulation, posing new challenges to the banking business. Montepio looks to continue
to improve its efficiencies and to ensure appropriate risk management at the time of granting credit and
during its lifetime, based on an appropriate assessment of the particular projects' profitability, of the
assets pledged as collateral and of the interest rates applicable in the future, if substantially different
from current ones.
Montepio’s main competitors in the Portuguese banking market are Portuguese commercial banks,
savings and investment banks and foreign banks, namely Caixa Geral de Depósitos, Millennium BCP,
Novo Banco (previous Banco Espirito Santo), Banco BPI and Santander Totta.
The Issuer provides a wide range of products and services in the markets where it operates, including
banking, financial, mutual products and services. Montepio has increased its share in the Portuguese
market (7.3 per cent. market share in total deposits in 2014 against 7.0 per cent. in 2013; 6.8 per cent.
market share in total credit in 2014 against 6.4 per cent. in 2013; 6.2 per cent. market share in credit to
corporates (excluding real estate) in 2014 against 4.9 per cent. in 2013) (Source: Bank of Portugal,
Statistics Bulletin – Monetary and Financial Statistics) and maintains its international expansion and in
sectors outside the real estate area. The acquisition in December 2010 of Finibanco-Holding, SGPS, was
important, as it reinforced the presence of the bank in Portugal as well as Angola. Montepio continued
its international diversification via the acquisition of 44.5 per cent of Banco Terra S.A. of Mozambique
and expects that this will result in an increased ability to capitalise on new business opportunities.
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Regulators monitoring the activity of the Issuer
The Issuer is subject to supervision by the Bank of Portugal and by the CMVM (including, as an
insurance intermediary (type 1)) and supervision by the Insurance and Pension Funds Supervisory
Authority (“ASF”), and supervised by other competent regulators of jurisdictions in which it operates.
Changes to supervisory rules and regulations in respect of the Issuer’s activities, in particular in
Portugal, may have a negative impact on the Issuer’s business, the goods and services it offers and/or the
value of its assets. Although the Issuer cooperates closely with the regulators and continuously monitors
the evolution of the regulatory rules to which it is subject, future regulatory changes, changes in tax laws
or other alterations may be unpredictable and are outside the Issuer’s control.
Legislation on Bank Recovery and Resolution
On 10 February 2012, the Decree-Law no. 31-A/2012 introduced the legal framework for the adoption
of resolution measures into the RGICSF.
Such resolution framework has been further amended by Decree Law no. 114-A/2014, of 1 August
2014, Decree Law no. 114-B/2014, of 4 August 2014, and Law no. 23-A/2015, of 26 March 2015, which
have transposed the Directives 2014/49/UE of 16 April 2014 on deposit guarantee schemes and
2014/59/UE of 15 May 2014, which establishes a framework for the recovery and resolution of credit
institutions (the “EU Crisis Management Directive” or “BRRD”).
The reorganisation regime previously in force that governed credit institutions was extensively reviewed
and was replaced with a new approach by the Bank of Portugal as regards the intervention on credit
institutions and investment firms in financial distress. The measures set out in the new regime aim at
recovering or preparing the orderly winding-up of credit institutions and certain financial companies in
situations of financial distress. The new toolbox includes three stages of intervention by the Bank of
Portugal: preparatory and preventive measures, prior supervision intervention, and instruments and
powers of resolution. The implementation of these measures and the exercise of these powers will
directly affect the rights of shareholders and creditors.
Credit institutions are required to produce suitable recovery plans to resolve problems with liquidity,
solvency, or overall exposure to risk, and to keep such plans up-to-date. To complement the resolution
plans, the Bank of Portugal has been given preventive powers, including the powers to limit or modify
exposure to risk, require additional information, set restrictions or prohibitions on certain activities and
changes to group structures.
Within the scope of preventive interventions, the Bank of Portugal has been given powers to prohibit the
distribution of dividends to shareholders, to replace managers or directors and to require credit
institutions to transfer assets that constitute an excessive or undesirable risk to the soundness of the
institution. These actions may have a direct effect on shareholders and the Issuer’s expected returns and
additional indirect impacts through changes to such institutions’ business activities.
As a result of an implementation of Article 34 of BRRD, Article 145-D of the RGISCF determines, as
general principles applying to the resolution measures, that (i) the shareholders of the institution bear
losses with priority in relation to other creditors, (ii) creditors of the institution other than the
shareholders under resolution bear losses in accordance with the order of priority of their claims, (iii) no
shareholder or creditor of the institution shall, as a result of the resolution measures, bear losses higher
than the ones that would arise should the institution be subject to liquidation and (iv) the depositors shall
not suffer losses in relation to deposits covered by the Deposit Guarantee Fund.
Further, pursuant to Article 145-E of RGICSF, resolution measures may be applied if the following
cumulative conditions are met: (a) when a credit institution or an investment firm covered by the
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resolution regime has been declared by the Bank of Portugal as being insolvent, or at a risk of becoming
insolvent; (b) when it is not foreseeable that the insolvency situation of such institution can be remedied
through measures adopted by the institution, or by corrective intervention measures or other measures
aimed at conversion or reduction of own funds instruments; (c) the implementation of such measures is
considered necessary and proportional for the pursuance of at least one of the following objectives:
ensure the continuity of essential financial services; prevent systemic risk; safeguard public funds and
taxpayers’ interests; safeguard depositors’ confidence; protection of other funds and assets held by
institutions for the account of their clients; and (d) the winding up of the institution is not capable of
achieving the goals described in (c) more effectively than the resolution measures.
An institution is deemed to be insolvent for the purposes of adoption of resolution measures, if one of
the following situations occurs, or when sufficient reasons exist to suggest that they may occur in the
short run: the institution (i) ceases to comply with the requirements for preserving the banking license,
including if it incurs losses capable of significantly absorbing its own funds; (ii) the institution’s assets
have become lower than its liabilities; (iii) the institution is unable to meet its obligations; (iv) the
institution is in need of extraordinary public funding, save when such assistance is aimed at preventing
or containing a serious economic crisis and preserve financial stability and fulfils certain other criteria
(Article 145-E of RGICSF).
There are four types of resolution measures admitted (Article 145-E of RGISF), namely: (i) the total or
partial sale of the assets, liabilities, off-balance items and assets under management, as well as shares
representing the share capital of the distressed financial institution to one or more financial institutions
authorised to operate in the market, (ii) the creation of a bridge bank and the transfer of all or part of the
assets and liabilities of the institution in financial distress to that bank, (iii) asset segregation tool,
whereby all or part of the distressed institution’s activity is transferred to an asset management vehicle,
and (iv) bail-in through an internal recapitalisation of such institution. Along with these measures, by
default the members of the institutions’ corporate bodies and chartered accountant shall be replaced by
members and a chartered accountant designated by the Bank of Portugal.
The measures described above may be wholly or partially be funded through the Resolution Fund, in
accordance with the relevant provisions of RGICSF.
Within its powers as authority in charge of resolution measures, the Bank of Portugal is also entitled to
adopt, individually or jointly with the above mentioned resolution measures, other measures aimed at
reducing or eliminating the insufficiency of own funds in the credit institution, including (a) reduction of
its share capital (amortisation or reduction nominal value of shares), (b) removal of nominal value of
shares, (c) reduction of nominal value of credits attached to other financial instruments or contracts
which are eligible for own funds purposes according to the legislation and regulation in force and (d)
increase of share capital via conversion of credits referred in (c) into share capital. In order to adopt the
measures described in this paragraph, certain conditions must be met, as described in Article 145-I of the
RGICSF. In its decision to adopt resolution measures, the Bank of Portugal shall abide by the rules on
creditors ranking set forth in the Portuguese Insolvency Code, thus not being allowed to affect a class of
creditors which rank above another class that are not wholly or substantially affected.
Furthermore, to the extent necessary to ensure the effectiveness of a resolution measure, the Bank of
Portugal may exercise inter alia the following powers: (i) suspension of payment or delivery obligations
of the institution under existing agreements; (ii) suspension of enforcement rights benefiting holders of
any security over assets of the institution; (iii) suspension of the rights to accelerate, terminate, or
otherwise decide the termination under existing agreements; (iv) closing of agencies of the institution;
(v) exercise of rights attached to shares and other instruments representing share capital of the affected
institution; (vi) amendment of terms applicable to debt instruments and other eligible claims held vis-à-
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vis the institution, such as clauses on maturity dates and payable interest; (vii) liquidation and
termination of financial agreements and derivative agreements; and (viii) suspension of the negotiation
of a financial instrument (Article 145-AB of RGICSF).
The Bank of Portugal and Resolution Fund also have the right to recover their expenses resulting of the
resolution measures through either a deduction of the consideration payable by any transferee in relation
to the acquisition of the institution’s assets, share capital or other instruments representative of debt or
equity, from the institution itself, or from the profits generated by it or the vehicle managing its assets (a
legal privilege is attached to the claim held by the Bank of Portugal and Resolution Fund).
According to Article 145-AC of the RGICSF, when the Bank of Portugal decides on the partial transfer
of rights and obligations of a distressed institution, transition bank or asset management vehicle in
favour of another entity, or when such regulator decides to amend the terms and conditions under a
contract to which such institution is a party (or transfer the rights and obligations thereunder to a third
party), such regulator is not allowed to (a) partially transfer the rights and obligations under covered
notes and structured financing arrangements to which the credit institution is a party, which involve the
creation of security by a party under the agreement or third party, including securitisation transactions
and transactions where a cover pool is used with a view to secure the whole debt until the maturity date
of the notes, and a legal privilege is attached to the asset pool in order to secure the claims in relation to
payment of principal and interest; (b) modify or extinguish the rights and obligations in relation to the
notes and contracts described in the point (a).
The aforesaid is without prejudice of the powers held by the Bank of Portugal under Article 145-AB of
the RGICSF, as well as the derogation of certain terms and conditions of the relevant contracts and notes
(e.g. in respect of cross default or enforcement of security) in connection with the adoption of the
recovery measures, as set forth in Article 145-AV of the RGICSF. In addition, the relevant contracts and
notes may by way of exception be amended or transferred, insofar as necessary in order to ensure the
availability of the deposits covered by the Deposits Guarantee Fund.
The Resolution Fund is a public-law legal person designed to provide financial support to the
application of the resolution measures ordered by Bank of Portugal. It is fully funded by the financial
sector through initial and periodical contributions from member institutions, including the Issuer, whose
amount shall be fixed on annual basis, as set out in Decree Law no. 24/2013, of 19 February 2013, and
the revenue arising from the contribution over the banking sector. These institutions may also be
requested to make extraordinary contributions, if necessary in connection with the adoption of any
resolution measures. The financial assistance provided by the Resolution Fund may include, among
others, the transfer of cash to the acquirer bank or to the bridge bank, the provision of guarantees, the
granting of loans, and the paying-up of the capital stock of bridge banks.
The Issuer’s pro rata share in the Resolution Fund will vary from time to time according to the Issuer’s
liabilities and own funds, when compared to the other participating institutions. Contribution to the
Resolution Fund is adjusted to the risk profile and the systemic relevance of each participating
institution considering its solvency situation. Also, banks (including the Issuer) may be required to
contribute to the deposit guarantee systems in amounts that are higher than the current contributions.
The Deposit Guarantee Fund (“Fundo de Garantia de Depósitos”) may also provide financial assistance
for the implementation of resolution measures, but only in the case of the transfer of deposits placed
with the institution in distress to another credit institution authorised to take deposits or to a bridge bank,
and only to the amount needed to cover the difference between the amount of covered deposits and the
value of the assets sold or transferred. Moreover, funding by the Deposit Guarantee Fund shall in no
circumstances exceed the cost of a direct reimbursement to the depositors.
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The implementation of resolution measures is not subject to the prior consent of the credit institution’s
shareholders nor of the contractual parties related to assets, liabilities, off-balance-sheet items and assets
under management to be sold or transferred.
If the Issuer is subject to a resolution measure, the Bank of Portugal may:
(a) require the full transfer of all the assets, liabilities and off balance sheet items of the Issuer, in which
case the whole of the rights and obligations under the Programme (including the Programme
Documents) and any Covered Bonds issued thereunder shall be transferred to another duly licensed
entity or a bridge institution or segregated and transferred to an asset management vehicle;
(b) require the partial transfer of all the assets, liabilities and off balance sheet items of the Issuer, in
connection with such partial transfer, and that the obligations and liabilities under the Programme
(including the Programme Documents) and any Covered Bonds issued thereunder remain as a liability of
the Issuer: in such instance, depending of the financial condition and other factors relating to the Issuer,
the Bank of Portugal may additionally revoke the license of, and determine the opening of liquidation
proceedings against, the Issuer (for a discussion on the implications of the Issuer’s liquidation and
insolvency, please refer to the section headed “Insolvency of the Issuer”).
(c) determine that the creditors of the Issuer are subject to bail-in measures: in such case, it is expressly
stated in the RGICSF that the adoption of such type of resolution tool shall not encompass obligations
having the benefit of security (“garantia real”) over the assets of the Issuer up to the amount of the
security assets; conversely, if such amount of such obligations exceeds the value of the assets charged as
security thereof, then such excess may be affected by the relevant bail in measures.
In addition to the measures set out above, the BRRD also requires that all institutions should meet
minimum requirement for own funds and eligible liabilities ("MREL"), calculated as a percentage of
total liabilities and own funds and set by the relevant resolution authorities. Items eligible for inclusion
in MREL will include an institution's own funds, along with "eligible liabilities".
The criteria for determining what constitutes MREL, its calculation methodologies and related measures
are subject to confirmation of the European Banking Authority (the "EBA") and the European
Commission. Pending such confirmation, the precise impact of the MREL requirements on the Bank is
uncertain. It is also unclear whether proposals published in November 2014 by the FSB for a new
international standard on total loss absorbing capacity for globally systemically important banks will
affect the way in which the authorities implement the MREL regime.
The manner in which the MREL requirements are implemented by the EBA could have a significant
impact on Montepio, including but not limited to requiring the Bank to issue liabilities that are eligible
for MREL at a time when the cost of such funding is high or issuing such liabilities is challenging. The
criteria for determining MREL, once set, may require Montepio to issue different types of capital or to
make changes to the legal structure of the Group, in order for such instruments to qualify as MREL.
These proposals and/or requirements could have an adverse effect on the business, financial condition
and results of operations of Montepio.
The resolution measure applied to Banco Espírito Santo S.A. prejudice investors’ and economic agents’
positive perception of the Portuguese financial system and the Issuer as a participant thereto.
On 4 August 2014, the Governor of the Bank of Portugal announced the imposition of a resolution
measure on Banco Espírito Santo, consisting of a transfer of business to a bridge bank, the so-called
Novo Banco, S.A. (“Novo Banco”), which was specifically set up for this purpose with management
appointed by the Bank of Portugal.
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The €4.9 billion share capital of the Novo Banco was fully underwritten by the Resolution Fund. Of this,
€3.9 billion come from a loan granted by the Portuguese State (which, in turn, was financed with
available funds under the FAP) to be repaid and remunerated by the Resolution Fund, primarily from the
proceeds obtained with the sale of the Novo Banco. The remaining amount was funded by the own funds
of the Resolution Fund and from loans granted by the credit institutions, including the Issuer,
participating in the Resolution Fund, in the total amount of €700 million. The Issuer’s share of this loan
was €70 million.
The future contributions remain uncertain and will largely depend upon the consideration to be paid in
the ongoing process of sale of Novo Banco. It is impossible to predict the extent of potential
consequences to the Issuer arising therefrom.
The Issuer’s share in the Resolution Fund will vary from time to time according to its own liabilities and
funds, when compared to the other participating institutions comprised in the Resolution Fund.
Bank of Portugal Aviso 1/2013 (as amended by Aviso 14/2014) sets forth the methodology to calculate
periodic contributions to the Resolution Fund. Such methodology involves the application of a
contributive rate to the end of month outstanding balance of liabilities, deducted by own funds and
deposits already included in the Deposit Guarantee Fund.
The rate to be applied is set by a regulatory instruction issued by the Bank of Portugal. For 2015, the
rate is 0.015 per cent., as defined in the Instrução 33/2014 issued by the Bank of Portugal.
Pursuant to Decree-Law 24/2013 of 19 February 2013, which establishes the calculation method of the
initial, periodic and special contributions of the participating institutions to the Resolution Fund, the
Issuer estimates, on the date hereof, that its participation in the Resolution Fund should be around 6 per
cent. This is an estimation only as the determination of the exact participation is influenced by a number
of factors which make a more accurate estimate impossible. The participation of the Issuer in the €700
million loan corresponded to 10 per cent.
Reliance on Montepio Geral Associação Mutualista as equity provider
Montepio was established as a dependent entity (entidade anexa) of Montepio Geral Associação
Mutualista (“MGAM”) in 1844, with a view to paying MGAM its annual net profits (subject to any
deduction required by Montepio’s Articles of Association) so as to enable MGAM to meet its own
objectives as a mutual benefit association. MGAM is a “private institution of social support” (i.e. a
mutual benefits association) whose principal purposes are to promote and develop initiatives designed to
ensure the social protection and welfare of its members, their families and other beneficiaries nominated
by them.
Montepio relies on MGAM as an almost exclusive equity provider. MGAM can only provide equity to
Montepio by increasing its institutional capital (currently €1,500,000,000) or by subscribing securities
(unidades de participação) representing its participation fund (Fundo de Participação da Caixa
Económica Montepio Geral). MGAM subscribed €200,000,000 of these securities in a private
placement (the second issue) in June 2015.
Montepio issued €200,000,000 of securities (unidades de participação) representing its participation
fund (Fundo de Participação da Caixa Económica Montepio Geral) through a public offer in December
2013 (the first issue).
MGAM’s ability to provide further equity to Montepio may be impaired by a number of factors such as
its own financial condition or potentially new regulations (e.g. concentration ratios).
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The inability of MGAM to capitalise Montepio in the future may have a material adverse effect on the
Issuer’s condition, ability to pursue its business and results of its operations.
The performance of MGAM may adversely affect the Issuer’s activity
Montepio was established by MGAM as a dependent entity of MGAM with a view to paying MGAM its
annual net profits (as per Montepio’s Articles of Association) and to enable MGAM to meet its own
objectives as a mutual benefit association. As such, all of the 638,647 members of MGAM (as of 30
September 2015) are Montepio’s customers.
MGAM’s main source of funds is membership revenues and the subscribed members’ savings plans.
These funds are invested by MGAM in a diversified set of financial and non financial assets, including
different types of securities and equity participations, (including its interest in the Issuer) and properties.
As of 31 December 2014, MGAM held €1.6 billion of notes issued by Montepio, which represents ca.7
per cent. of Montepio’s liabilities.
The deterioration of MGAM’s performance, either financial or reputational, may adversely impact
Montepio’s activity and profitability.
Change in the supervisory entity and rules applicable to Montepio Geral Associação Mutualista
MGAM is currently supervised by the Ministry of Solidarity, Employment and Social Security in
accordance with the provisions set forth in the Mutual Associations Code (Código das Associações
Mutualistas).
As a consequence of European legislation, it is possible that MGAM may become subject to the
supervision of Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisão de
Seguros e Fundos de Pensões).
In this case, the Issuer cannot predict how any newly applicable supervision rules may affect its
relationship with the Issuer. Notwithstanding the foregoing, the imposition of concentration ratios to
MGAM could lead to the sale of Issuer’s capital to third parties. Such a sale would require the prior
amendment of the Issuer’s current legal nature, so that it becomes a Portuguese company of the type
sociedade anónima, considering that its current institutional capital is not represented by shares and
cannot be disposed of by MGAM.
In case the basis for the amendment of Montepio’s current legal framework into a sociedade anónima is
not well perceived by the market, investors and clients alike, it may have a material adverse effect on the
Issuer’s condition, ability to pursue its business and results of its operations.
Please refer to the section “Change in legal framework of the Issuer” for a description of the possible
consequences arising of the change of CEMG’s legal nature into a sociedade anónima.
Impact of regulatory changes
The Issuer is subject to financial services laws, regulations, administrative actions and policies in each
location where it operates. Changes in supervision and regulation, in particular in Portugal, could
materially affect the Issuer’s business, the products and services it offers or the value of its assets.
Although the Issuer works closely with its regulators and continually monitors the situation, future
changes in regulation, fiscal or other policies can be unpredictable and are beyond the control of the
Issuer.
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Regulators’ audit
Pursuant to article 116, no. 2, of the RGICSF, the Bank of Portugal may designate independent entities
to conduct special audits to credit institutions generally. The Issuer, in its capacity as a credit institution,
may be subject to such audits.
The result of such audits, which are subject to the Bank of Portugal’s discretion, may, inter alia, result in
corrections to the Issuer’s accounts with material adverse consequences on the Issuer’s financial
condition.
European Central Bank – Single Supervisory Mechanism
The Council Regulation (EU) No. 1024/2013 established the Single Supervisory Mechanism (SSM)
composed of the European Central Bank (ECB) and the national competent authorities (NCAs) of
participating Member States. The SSM is further regulated by Regulation (EU) no 468/2014, of the
European Central Bank, dated of 16 April 2014.
The SSM may apply to the Issuer, if the Issuer is considered of significant relevance to the Portuguese
domestic economy, or is considered within the scope of less significant institutions specified in a
framework adopted and published by the ECB in consultation with national competent authorities.
Change in legal framework of the Issuer
Following the approval of the new savings banks act by Decree-Law no. 190/2015, of 10 September
2015 (“Savings Banks Act”), which entered into force on 10 October 2015, savings banks (“caixas
económicas”) with assets equal or greater than €50,000,000.00 (fifty million euro) are classified as full
service savings banks (“caixas económicas bancárias”) (as opposed to affiliated savings banks (“caixas
económicas anexas”)) and must adopt the form of public limited liability companies (“sociedades
anónimas”) with a public ownership structure.
In accordance with the above asset criteria, the Issuer shall be characterised as a full service savings
bank (“caixa económica bancária”) upon the entry into force of the Savings Bank Act. However, the
Issuer is not currently organised in the form of a public limited liability company (“sociedade
anónima”); nevertheless, the Savings Banks Act provides that, unless otherwise determined at any time
by the Bank of Portugal, full service savings banks already in existence upon the entry into force of the
new legislation shall not be automatically required to arrange for their conversion into public limited
liability companies (“sociedade anónimas”).
In relation to full service savings banks, the Savings Banks Act further requires that the majority of the
share capital or voting rights thereof are held by the respective owner institutions. The owner institutions
may only be mutual associations (as it is the case, in relation to the Issuer, of Montepio Geral
Associação Mutualista), charities (misericórdias) or beneficence institutions.
Insofar as the corporate bodies of full service savings banks (caixas económicas bancárias) are
concerned, it is expressly determined that the Companies Code (Código das Sociedades Comerciais)
will apply. The Savings Banks Act further requires that the management and supervisory boards of full
service savings banks are separate and independent from their respective owner institution, specifically
prohibiting ex officio appointments. As to the separation and independence between the Issuers’s
management and supervisory boards and the related corporate bodies of its institutional owner
(Montepio Geral Associação Mutualista), certain changes have been implemented by the Issuer in order
to ensure such separation, thereby improving its corporate governance structure (for more details on this
matter, please refer to the section headed “Executive Board of Directors and other Corporate Bodies of
the Issuer” below); however, the Issuer cannot at this stage represent that no further changes will be
required as a result of the entry into force of the new legislation.
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Other than as stated above, the Issuer is not in a position to anticipate, or to make any assessment of, the
implications, adverse or not, that may arise for itself, for the owner of its institutional capital, the holders
of Securities (unidades de participação) representative of its participation fund (fundo de participação),
the holders of the Notes and for its creditors generally as a result of its conversion into a public limited
liability company (sociedade anónima), if so required by the Bank of Portugal, or of the need to comply
with any other aspects of the new legislation. However, in line with the principles enshrined in the
Constitution of the Portuguese Republic, the Issuer does not expect that any changes in its status or
organisation required by the Savings Banks Act and related regulations have an impact on the validity or
effectiveness of the Notes issued and then outstanding under the Programme.
Finibanco Angola
The Issuer has a subsidiary in Angola, Finibanco Angola, S.A.. The operation of Finibanco Angola
accounts for 2.7 per cent. of the Issuer’s consolidated net assets, as of 31 December 2014, and
contributed €12.9 million to the consolidated results in 2014. The Issuer’s operation in Angola, through
Finibanco Angola, S.A., is exposed to the risk of adverse political, governmental or economic
developments in this country. These factors could have a material adverse effect on the Issuer’s financial
condition, business and its results of operations.
Sovereign Debt and Sovereign Risk
Despite a strong improvement in the interest of international investors for Portuguese sovereign debt, as
evidenced by the narrowing of the spread between the respective yield and those of the German public
debt with equivalent maturities, there is no guarantee that this trend will continue. The high level of
indebtedness of the Portuguese Republic, combined with uncertainty regarding the long-term growth
potential of the domestic economy may result in a deterioration in the sovereign risk premium for
Portuguese public debt securities in access to the secondary debt markets and access of the Portuguese
Republic to primary debt markets. Such risk could be exacerbated by a reduced confidence in
international financial markets or be triggered by a weak performance of the domestic economy or
disturbances in the local political environment.
Should the foregoing occur, the resulting substantial worsening of sovereign debt risk could negatively
impact the Issuer’s liquidity position, both through funding difficulties and the reduction of the pool of
assets eligible for discount at the ECB, in addition to funding costs and the Issuer’s capacity to increase
its loan and asset portfolio with a negative impact on the financial condition, credit quality and operating
results of the Issuer. These circumstances could be further aggravated by persistent volatility in the
financial sector and capital markets or by financial difficulties, including the possible default of one or
more financial institutions or sovereigns, which could lead to significant liquidity problems in the
market in general, and to losses and defaults by other institutions.
The Issuer maintains trading and investment positions in debt securities, foreign exchange, equity and
other markets. The most relevant exposure of the Issuer is in relation to Portuguese sovereign debt,
comprised in its proprietary portfolio. On 31 December 2014, the exposure of the Issuer to Portuguese
sovereign debt was around €1,814 million, comprising €1,808 million in the assets available for sale and
€6.2 million in the held-to-maturity portfolio. These positions could be adversely affected by volatility
in Portuguese sovereign debt, creating a risk of substantial losses.
The gains in 2014 pertaining to the portfolio of fixed income securities portfolio, namely in Portuguese
public debt, were €374.4 million (€44.0 million in 2013) and during the third quarter of 2015 amounted
to €77.9 million, however, a reversal of the recent downward trend in Portuguese government bond
yields that led to the positive results observed in 2014 and during the nine month period ended 30
September 2015 will likely not repeat in the future, and there is a risk that losses may arise.
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Real Estate market
The Issuer is exposed to a contraction of the Portuguese real estate market given its high exposure to
mortgage loans, loans granted to construction companies, assets obtained in lieu of payment (the noncurrent assets held for sale), properties for securing loans or related to its operations, funding of real
estate development projects and through the exposure to closed-ended real estate funds (disclosed in the
Issuer’s balance sheet as Investment Properties).
As of 31 December 2014, the total outstanding amount of the Investment Properties was €715.7 million.
The real estate properties owned by “Finipredial - Fundo de Investimento Aberto”, "Montepio
Arrendamento – Fundo de Investimento Imobiliário Fechado para Arrendamento Habitacional",
“Montepio Arrendamento II – Fundo de Investimento Fechado para Arrendamento Habitacional”,
“Montepio Arrendamento III – Fundo de Investimento Fechado para Arrendamento Habitacional”,
“Polaris – Fundo de Investimento Imobiliário Fechado de Subscrição Particular”, “Portugal Estates Fund
– Fundos de Investimento Imobiliário Fechado de Subscrição Particular” and “Carteira Imobiliária –
Fundo Especial de Investimento Imobiliário Aberto” have been subject to full consolidation.
The non-current assets held for sale arising from recovered loans amounted to €799.7 million as of 31
December 2014 and include buildings and other assets resulting from the foreclosure of loans to
customers, originated by (i) delivery of the assets, with option to repurchase or leasing, accounted with
the celebration of the contract or the promise to deliver the asset and the respective irrevocable power of
attorney issued by the customer in the name of the Issuer; or (ii) the adjudication of the assets as a result
of a judicial process of guarantees execution, accounted with the title of adjudication or following the
adjudication request after the record of the first (payment prosolvency). According to the Issuer’s
expectation, these assets are available for sale in a period of less than one year and the Issuer has a
strategy for its sale. Nevertheless, given the current market conditions, in some situations it is not
possible to conclude these sales before the expected deadline. This balance includes buildings and other
assets for which the Issuer has already established contracts for the sale in the amount of €9.3 million.
Although Portugal did not experience a housing bubble during recent years as in other European
countries, such as Ireland and Spain, the economic and financial crisis still had an impact on the real
estate market. Portuguese banks have refrained from granting new mortgage loans with very low
spreads, and real estate developers have encountered a difficult market for sellers. Moreover, there was a
reduction in public works activity, which severely affected construction companies, who had to redirect
their activities to foreign markets. All of the abovementioned effects have increased delinquency among
construction companies and real estate developers, impacting the Issuer’s non-performing loans and
contributing to the increase in impairment charges.
A significant devaluation of prices in the Portuguese real estate market may lead to impairment losses in
directly held assets and increased exposure in counterparty risk for loans guaranteed by real estate
collateral. Accordingly, the Issuer is vulnerable to a contraction in the real estate market and any of the
foregoing could have a materially adverse effect on the Issuer’s business, financial condition and results
of operations.
Amendment of the Tax Status of the Issuer
Until 31 December 2011, the Issuer was exempt from Corporate Income Tax in Portugal, according to
article 10(1)(b) of the Portuguese Corporate Income Tax Code. The abovementioned exemption was
recognised by the Order of 3 December 1993, issued by the Secretary of State for Tax Affairs, and
confirmed by Law no. 10-B/96 of 23 March 1996, which approved the Portuguese State Budget for
1996.
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The Portuguese State Budget for 2012, approved by Law no. 64-B/2011, revoked the exemption of
Corporate Income Tax applicable to entities attached to private entities of social solidarity, with effect
from January 2012. Thus, the Issuer, as an entity attached to Montepio Geral – Associação Mutualista, is
currently subject to the general rules established by the Portuguese Corporate Income Tax Code.
Therefore, and based on the applicable law, the temporary differences between accounting profits and
taxable income acceptable for Corporate Income Tax purposes are eligible for the recognition of
deferred tax, whenever there is a reasonable probability that said taxes will be paid or recovered in the
future.
Income tax recorded in profit and losses includes current taxes and deferred taxes. The income tax is
recognised in the profit and losses statement, except if it relates to items recognised in equity, in which
case income tax should be recognised in equity. Deferred taxes recognised in equity resulting from the
revaluation of financial assets available for sale and derivative hedging cash flows are subsequently
recognised in profit and loss when gains or losses which gave rise to those deferred taxes are recognised
in profit and loss.
Current tax is the tax calculated in respect of the taxable income for the relevant year, taking into
account the tax rates in force or the tax rates approved by the legal authorities on the balance sheet date
and any other adjustments to tax related to previous years.
Since 2012, the revocation of the exemption of Corporate Income Tax applicable to entities attached to
private entities of social solidarity has introduced a potentially negative impact on the profits of the
Issuer.
Deferred Tax Assets Regime
In its capacity as a caixa económica, which was not incorporated and is not organised under a sociedade
anónima legal framework, the Issuer cannot benefit from the Deferred Tax Asset Regime approved by
Law no. 61/2014, of 26 August 2014. This law, which approved the special regime applicable to deferred
tax assets (“DTA”) arising from the non deduction of expenses and negative asset variations regarding
impairment losses and post-employment benefits or long term benefits (“DTA special regime”),
followed the entry into force of Regulation (EU) n.o 575/2013, from the European Parliament and the
Council, dated of 26 June 2013 – in the implementation of “Basel III” – which, inter alia, determined
that DTAs are generally deducted from the Tier 1 capital of credit institutions, with negative implications
on their capital levels as of 1 January 2014.
The DTA regime is applicable to expenses and negative asset variations accounted in tax periods that
begin in, or after, 1 January 2015, and to DTA registered in the tax payer annual accounts of the last tax
period of 2014. In 2014, the Issuer had registered DTAs of €355.9 million and in the third quarter of
2015 of €427.3 million. The Issuer may not generate enough future profits to allow for the deduction of
the DTAs.
The proposed financial transactions tax (“FTT”)
The European Commission published a proposal (the “Commission’s Proposal”) for a Directive for a
common financial transaction tax in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria,
Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since
stated it will not participate.
However, the FTT proposal remains subject to negotiation between participating Member States and its
scope is uncertain. Additional EU Member States may decide to participate. Prospective holders of
Notes are advised to seek their own professional advice in relation to the FTT.
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The proposed FTT has very broad, potentially extraterritorial scope. It would apply to financial
transactions where at least one party is a financial institution, and (a) one party is established in a
participating Member State or (b) the financial instrument which is subject to the transaction is issued in
a participating Member State. A financial institution may be, or be deemed to be, "established" in a
Member State in a broad range of circumstances.
A person transacting with a financial institution which fails to account for FTT would be jointly and
severally liable for that tax.
Furthermore, the Portuguese Government has been granted an authorisation from the Portuguese
parliament, in the State Budget Law for 2015 (as occurred in 2013 and 2014), to create the FTT.
However, the authorisation was granted before the proposal for a Directive for a common financial
transaction tax was published and it is not expected that the FTT is created in Portugal before the above
mentioned Directive enters into force.
The FTT proposal remains subject to negotiation between the Member States, and may therefore be
altered. Additional Member States may decide to participate. Prospective holders of the Covered Bonds
are strongly advised to seek their own professional advice in relation to the FTT.
Infrastructure Risk
Montepio faces the risk that computer or telecommunications systems could fail, despite its efforts to
maintain these systems in good working order. Given the high volume of transactions Montepio
processes on a daily basis, certain errors may be repeated or compounded before they are discovered and
successfully rectified. Shortcomings or failures of Montepio’s internal processes, employees or systems,
including any of Montepio’s financial, accounting or other data processing systems, could lead to
financial loss and damage to Montepio’s reputation. In addition, despite the contingency plans Montepio
has in place, Montepio’s ability to conduct business may be adversely affected by a disruption in the
infrastructure that supports its operations and the communities in which it does business.
Credit risk
Risks arising from changes in credit quality and the recoverability of loans and amounts due from
borrowers and counterparties are inherent in Montepio’s business. Adverse changes in the credit quality
of Montepio’s borrowers and counterparties or a general deterioration in Portuguese or global economic
conditions, or arising from systemic risks in financial systems, could affect the recoverability and value
of its assets and require an increase in Montepio’s provision for bad and doubtful debts and other
provisions, and accordingly would have a material adverse effect on Montepio’s financial condition and
on the results of its operations, including the value of its debt securities in issue. Montepio has credit
risk models and reports in place, contributing to the decision processes and specialised teams dedicated
to the recovery process.
Market risk
Market risk reflects the potential loss that can be registered in a given asset portfolio as a result of
changes in the market interest and exchange rates and/or in the market prices of the various financial
instruments which comprise that asset portfolio, taking into account the correlation and volatilities
between those assets.
As disclosed in note 57 “Segmental Reporting”, subsection “Risk Management” on page 210 of the
English version of the Issuer’s financial statements for 31 December 2014, the risk analysis and
management is performed on an integrated basis, involving the whole Group, by Montepio’s risk
division (Direcção de Risco - DRI).
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Notwithstanding the existence of these risk management and monitoring mechanisms, it is difficult to
predict with accuracy changes in economic or market conditions and to anticipate the effect that such
changes could have on Montepio’s financial condition and on the results of its operations.
The most significant market risks Montepio faces are interest rate, foreign exchange, real estate price
and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the
interest rate margin realised between lending and borrowing costs. Changes in exchange rates affect the
value of assets and liabilities denominated in foreign currencies and may affect income from foreign
exchange dealing. The performance of financial markets, including the real estate market, may cause
changes in the value of Montepio’s investment and trading portfolios.
Montepio’s balance sheet management also involves the Assets and Liabilities Committee (“ALCO”),
where an assessment of the interest rate, exchange rate and liquidity risks is made, in particular
regarding Montepio’s compliance with internal limits for static and dynamic interest rate gaps, exchange
rate and liquidity risks (static interest rate gap meaning the difference between assets and liabilities
components of the current portfolio considering only contractual reimbursements and maturities, not
taking into account projections for new business, and assuming a run-off level for current deposits; the
dynamic interest rate gap also incorporates the projections for new business).
For interest rate risk measurement purposes, assets and liabilities sensitivity to interest rate changes are
aggregated by time bands according to their respective repricing dates, and the balance-sheet interest
rate mismatch is calculated. As of 31 December 2014, the interest rate gap was €1,713.8 million,
compared to €638.6 million as of 31 December 2013.
On a regular basis the Issuer also performs an assets and liabilities sensitivity analysis to changes in the
levels of market interest rates. The impacts of parallel shifts on the yield curve on own funds and on net
interest income are assessed and reported for internal management purposes on a monthly basis and
every six months to the Bank of Portugal (according to Bank of Portugal Notice (“Instrução”) 19/2005).
By the end of 2014, the 12-months static accumulated gap was estimated at €3.6 billion and an
instantaneous positive variation in the interest rates by 100 basis points would cause an increase in the
own funds by €28 million and in the income statement by €40 million.
Exchange rate risk stems essentially from any existing mismatches between the maturities of
investments and those of resources, given that, as a rule, resources attracted in any foreign currency are
invested in that same currency.
A significant downward movement in global capital markets could have an adverse impact on
Montepio’s activity and performance, and on the value of the assets comprising Montepio’s investment
portfolio. This could also impact on the value of the assets that comprise Montepio’s pension fund
portfolio, which could increase the need to contribute more funds to the pension fund portfolio and,
consequently, on Montepio’s ability to allocate its net profit to the development of its business activity.
In order to mitigate this risk, Montepio continues to focus on binomial liquidity/risk, which means that
investments must be centered, predominantly, on investment-grade issuers, in sectors least exposed to
the effects of the current economic crisis, a policy which has translated into the acquisition of securities
which comply with ECB’s eligibility criteria for Eurosystem credit operations (published at
http://www.ecb.int/mopo/assets/html/index.en.html) (the “ECB Eligibility Criteria”), increasing the
Issuer’s on-balance sheet stored liquidity.
The most relevant exposure of the Issuer is in relation to Portuguese sovereign debt, comprised in its
proprietary portfolio. On 31 December 2014, the exposure of the Issuer to Portuguese sovereign debt
stood at approximately €1,814 million, being €1,808 million in the assets available for sale and €6.2
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million in the held-to-maturity portfolio. On 30 September 2015, the exposure of the Issuer to
Portuguese sovereign debt was of around €1,464 million, being €1,457.6 million in assets available for
sale and €6.4 million in assets which are to be held to maturity.
Trading and available-for-sale financial instruments are measured at fair value and their changes are
registered against fair value reserves until impairment signs emerge or until sold – in this case,
accumulated losses and gains recognised as fair value reserves are transfered to results. Potential
depreciations in the fair value of the trading and of the available-for-sale portfolios of sovereign debt
may influence negatively the Issuer’s financial situation and results.
With respect to held-to-maturity securities, these are initially measured at fair value and, subsequently,
measured at their amortized cost, with any impairment losses being transferred to results.
Operational risk
Montepio’s business is dependent on its ability to process a very large number of transactions efficiently
and accurately. Operational risk and losses can result from fraud, errors by employees, failure to
document transactions properly or to obtain proper internal authorisation, failure to comply with
regulatory requirements and conduct of business rules, equipment failures, natural disasters or the failure
of external systems, for example, those of Montepio’s suppliers or counterparties. Although the Issuer
has implemented risk controls and loss mitigation actions, and substantial resources are devoted to
developing efficient procedures and to staff training, it is not possible to implement procedures which
are fully effective in controlling each of the operational risks.
Liquidity risk
Liquidity risk of the Issuer reflects the incapability of the Issuer to fulfil its obligation upon maturity
without significant losses arising from a deterioration of the financing conditions (financing risk) and/or
from the sale of its assets for a value inferior to market values (market liquidity risk).
The Issuer seeks the preservation of its necessary liquidity balance, especially focusing on the basic
function of intermediation. The Issuer’s practices reflect the utilisation of diversified financing sources,
favoring the stability of resources and the encouragement of savings, as well as the maintenance of
highly liquid assets, which comply with the ECB Eligibility Criteria.
The focus on retail deposits growth, favoring the resources stability, combined with the credit portfolio
restraint has allowed the mitigation of the commercial gap (difference between deposits and granted
loans) and the improvement of the structural liquidity position ratios – i.e., the levels of conversion of
deposits and clients’ resources (including securities placed in clients) into credit. The Issuer continued
the deleveraging process that it began in 2008 by increasing customer deposits, especially small and
medium savings while reducing its credit portfolio. This process benefited the commercial gap, which
was reduced during the past periods, and therefore the transformation into credit of customers' deposits
and resources, including securities placed with customers (leveraging ratio). In December 2014 the net
credit to customers / total customer deposit ratio was reduced to 106.5 per cent., from 110.2 per cent. in
2013, maintaining the most recent year’s decreasing tendency. If securities placed in clients are added to
clients’ total deposits (resulting in clients’ total resources), the conversion ratio was, in December 2014,
92.5 per cent.
The improvement of the balance liquidity profile has triggered an increase in the enlarged liquidity
indicator, which associates the coverage of financial liability and cash availability added to assets that
may be discounted with the ECB.
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The control of liquidity levels has as a goal the maintenance of a satisfactory level of available funds to
face financial needs in the short, medium and long term. Scheduled cash flows on a relevant time frame
are carefully monitored by the Issuer’s Assets and Liabilities Committee.
The Issuer has been demonstrating positive liquidity dynamic gaps (algebraic difference between cash
flows rising out of the existing assets and liabilities, added to the projection of the granting of new
credits and of the constitution of new deposits and respective amortisation profiles), with accumulated
positive mismatches for the different time lags until 12 months.
At the end of 2014, the accumulated liquidity dynamic gap for the last twelve months was €2,654
million.
The Issuer’s core activity is retail banking, representing 72.8 per cent. of the Issuer’s total financing in
2014 (as opposed to 70.8 per cent. total at the end of 2013). The progressively reduced weight of capital
markets resources in the funding of the Issuer, together with a potential decrease of clients’ resources,
driven by highly competitive fund-raising in the retail market, may bring about an adverse impact on the
Issuer’s liquidity.
To mitigate potential liquidity gaps derived from its balance sheet structure, the Issuer has been
increasing its asset portfolio that meets the ECB’s Eligibility Criteria. These assets (securities) constitute
a readily available source of liquidity.
The value of eligible assets deposited at the ECB went from €5.8 billion in December 2013 to €4.2
billion in December 2014. The observed decrease was mainly due to the sale of assets representing
sovereign Portuguese debt as well as to the decision to exclude from the collateral pool the credit claims
that had been previously incorporated (following the temporary measures decided by ECB in December
2011).
Factors which are material for the purpose of assessing the market risks associated with
Notes issued under the Programme
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:
(i)
have sufficient knowledge and experience to make a meaningful evaluation of the relevant Notes,
the merits and risks of investing in the relevant Notes and the information contained or
incorporated by reference in this Base Prospectus or any applicable supplement;
(ii)
have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the relevant Notes and the impact such investment
will have on its overall investment portfolio;
(iii)
have sufficient financial resources and liquidity to bear all of the risks of an investment in the
Notes, including Notes where the currency for principal or interest payments is different from the
currency in which such investor’s financial activities are principally denominated;
(iv)
understand thoroughly the terms of the relevant Notes and be familiar with the behaviour of any
relevant indices and financial markets; and
(v)
be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
34
Investors generally purchase financial instruments as a way to reduce risk or enhance yield with an
understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should
not invest in Notes unless it has the expertise (either alone or with the assistance of a financial adviser)
to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of
such Notes and the impact this investment will have on the potential investor’s overall investment
portfolio.
Risks related to the structure of a particular issue of Notes
A wide range of Notes may be issued under the Programme. A number of these Notes may have features
which contain particular risks for potential investors. Set out below is a description of certain of those
features:
Notes subject to optional redemption by the Issuer
An optional redemption feature is likely to limit the market value of Notes. During any period when the
Issuer may elect to redeem Notes, the market value of such Notes generally will not rise substantially
above the price at which they can be redeemed. This also may be true prior to any redemption period.
The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate
on the Notes. At those times, an investor generally would not be able to reinvest the redemption
proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may
only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk
in light of other investments available at that time.
Notes issued at a substantial discount or premium
The market value of securities issued at a substantial discount or premium to their nominal amount tends
to fluctuate more in relation to general changes in interest rates than do prices for conventional interestbearing securities. Generally, the longer the remaining term of the securities, the greater the price
volatility as compared to conventional interest-bearing securities with comparable maturities.
The obligations of the Issuer under Subordinated Notes are subordinated
The Issuer’s obligations under Subordinated Notes will be unsecured and subordinated. In the event of
the bankruptcy or winding-up of the Issuer, the Noteholders’ claims shall be subordinated in right of
payment to the claims of all unsubordinated creditors of such Issuer, including claims of depositors.
Accordingly, no payments of amounts due under the Subordinated Notes will be made to the
Noteholders in the event of bankruptcy or winding up of the Issuer (to the extent permitted by Cayman
Islands and/or Portuguese law, as the case may be) except where all sums due from the Issuer in respect
of the claims of all unsubordinated creditors of the Issuer are paid in full, as more fully described in
Condition 2(b).
Holders of the Subordinated Notes will have limited remedies
The sole remedy available against Montepio for recovery of any amounts owing in respect of any nonpayment of any amount that has become due and payable under the Subordinated Notes is, subject to
certain conditions and to the provisions set forth in Conditions 9(b) and 11 below, for the Trustee to
institute proceedings against Montepio.
Remedies under the Subordinated Notes are more limited than those typically available to our
unsubordinated creditors.
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Risks related to withholding tax
Under Portuguese law, income derived from the Book Entry Notes integrated in and held through
Interbolsa – Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores
Mobiliários, S.A. (“Interbolsa”), as management entity of the Portuguese Centralised System, Central
de Valores Mobiliários held by non-resident investors (both individual and corporate) eligible for the
debt securities special tax exemption regime which was approved by Decree-Law no. 193/2005, of 7
November 2005, as amended, (“Decree-Law no. 193/2005”) and in force as from 1 January 2006, may
benefit from an up-front withholding tax exemption, provided that certain procedures and certification
requirements are complied with (see “Taxation – The Portuguese Republic – Montepio acting through its
head office within the scope of Decree-Law no. 193/2005 (Special tax regime applicable to debt
securities)”, for these procedures and certification requirements). Failure to comply with these
procedures and certifications will result in the application of the Portuguese domestic withholding rate
of 28 per cent., for individuals and 25 per cent. for legal persons or if applicable, in reduced withholding
tax rates, pursuant to tax treaties signed by Portugal, provided that the procedures and certification
requirements established by the relevant tax treaty are complied with. A withholding tax rate of 35 per
cent. also applies in case of interest on investment income (rendimentos de capitais) paid to individuals
or legal persons resident in a country, territory or region listed in Ordinance (Portaria) 150/2004, of 13
February 2004 (as amended) (see “Taxation – The Portuguese Republic – Montepio acting through its
head office outside the scope of Decree-Law no. 193/2005 (General tax regime applicable to debt
securities)”).
Risks related to procedures for collection of Noteholders’ details
It is expected that the direct registering entities (entidades registadoras directas), the participants and
the clearing systems will follow certain procedures to facilitate the collection from the effective
beneficiary of the Notes (the “Beneficiary”) of the information referred to in “Risks related to
withholding tax” above required to comply with the procedures and certifications required by DecreeLaw no. 193/2005. Under Decree-Law no. 193/2005, the obligation of collecting from the Beneficiaries
proof of their non-Portuguese resident status and of the fulfilment of the other requirements for the
exemption rests with the direct registering entities (entidades registadoras directas), the participants and
the entities managing the international clearing systems. Details of those procedures are set out in
“Taxation – The Portuguese Republic – Montepio acting through its head office within the scope of
Decree-Law no. 193/2005 (Special tax regime applicable to debt securities)”. Such procedures may be
revised from time to time in accordance with applicable Portuguese laws and regulations, further
clarification from the Portuguese tax authorities, regarding such laws and regulations, and the
operational procedures of the clearing systems. While the Notes are registered by Interbolsa.
Beneficiaries must comply with such procedures in order to receive payments under the Notes free of
any withholding, if applicable. Beneficiaries must seek their own advice to ensure that they comply with
all applicable procedures and to ensure the correct tax treatment of their Notes. None of the Issuer, the
Arranger, the Dealers, the paying agents or the clearing systems assume any responsibility therefor.
Risks related to Notes generally
Set out below is a brief description of certain risks relating to the Notes generally:
Modification, waivers and substitution
The Terms and Conditions of the Notes and the Trust Deed contain provisions for calling meetings of
Noteholders to consider matters affecting their interests generally. These provisions permit defined
majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant
meeting and Noteholders who voted in a manner contrary to the majority.
36
The Terms and Conditions of the Notes also provide that the Trustee may, without the consent of
Noteholders, agree to (i) any modification of any of the provisions of the Trust Deed that is in its
opinion of a formal, minor or technical nature or is made to correct a manifest error, and (ii) any other
modification of (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach
or proposed breach of, any of the provisions of the Conditions or of the Trust Deed that is in the opinion
of the Trustee not materially prejudicial to the interests of the Noteholders. The Trustee may also agree,
subject to such amendment of the Trust Deed and such other conditions as the Trustee may require, but
without the consent of the Noteholders, to the substitution of an Issuer successor in business or any
subsidiary of the Issuer or its successor in business in place of such Issuer, or of any previous substituted
company, as principal debtor under any Notes, in the circumstances described in Condition 10(c) of the
Notes.
Change of law
The Terms and Conditions of the Notes and any non-contractual obligations arising out of or in
connection with them are governed by English law (except Condition 2(b) and, with respect to Book
Entry Notes only, the form (representação formal) and transfer of the Notes, the creation of security
over the Notes and the Interbolsa procedures for the exercise of rights under the Notes, all of which are
governed by Portuguese law), in effect as at the date of issue of the relevant Notes. No assurance can be
given as to the impact of any possible judicial decision or change to English law or Portuguese law or
administrative practice in either of those jurisdictions after the date of issue of the relevant Notes.
Integral multiples of less than €100,000
Notes may be issued which have a denomination consisting of the minimum Specified Denomination of
€100,000 plus integral multiples of €1,000 in excess thereof (up to €199,000) (or the equivalent in
another currency). In such a case, should definitive Notes be printed, Noteholders who hold amounts
that are not integral multiples of a Specified Denomination may not receive a definitive Note in respect
of such holding and would need to purchase or sell a principal amount of Notes such that their holding is
an integral multiple of a Specified Denomination. If definitive Notes are issued, holders should be aware
that definitive Notes which have a denomination that is not an integral multiple of €100,000 may be
illiquid and difficult to trade and would need to purchase a principal amount of Notes such that it holds
an amount equal to one or more Specified Denominations.
U.S. Foreign Account Tax Compliance Withholding
Whilst the Notes are in global form and held within Euroclear Bank or Clearstream, Luxembourg
(together, the “ICSDs”), in all but the most remote circumstances, it is not expected that the reporting
regime and potential withholding tax imposed by Sections 1471 to 1474 of the U.S. Internal Revenue
Code of 1986 (the "Code"), any current or future regulations or official interpretations thereof, any
agreement entered into pursuant to Section 1471(b) of the Code, or any U.S. or non-U.S. fiscal or
regulatory legislation, rules, guidance notes or practices adopted pursuant to any intergovernmental
agreement entered into in connection with the implementation of such sections of the Code or analogous
provisions of non-U.S. law (“FATCA”) will affect the amount of any payment received by the ICSDs
(see “Taxation – U.S. Foreign Account Tax Compliance Withholding”). However, FATCA may affect
payments made to custodians or intermediaries (including any clearing system other than Euroclear or
Clearstream, Luxembourg) in the payment chain leading to the ultimate investor if any such custodian or
intermediary generally is unable to receive payments free of FATCA withholding. It also may affect
payments to any ultimate investor that is a financial institution that is not entitled to receive payments
free of withholding under FATCA, or an ultimate investor that fails to provide its broker (or other
custodian or intermediary from which it receives a payment) with any information, forms, other
documentation or consents that may be necessary for the payments to be made free of FATCA
37
withholding. Investors should choose the custodians or intermediaries with care (to ensure each is
compliant with FATCA or other laws or agreements related to FATCA, including any legislation
implementing intergovernmental agreements relating to FATCA, if applicable), and provide each
custodian or intermediary with any information, forms, other documentation or consents that may be
necessary for such custodian or intermediary to make a payment free of FATCA withholding. Investors
should consult their own tax adviser to obtain a more detailed explanation of FATCA and how FATCA
may affect them. The Issuer’s obligations under the Notes are discharged once it has paid the common
depositary or common safekeeper for the ICSDs (as bearer or registered holder of the Notes) and the
Issuer has therefore no responsibility for any amount thereafter transmitted through hands of the ICSDs
and custodians or intermediaries.
The interest rate on Reset Notes (as defined in “Terms and Conditions of the Notes”) will reset on
each Reset Date, which can be expected to affect the interest payment on an investment in Reset
Notes and could affect the market value of Reset Notes
Reset Notes will initially bear interest at the Initial Rate of Interest until (but excluding) the First Reset
Date. On the First Reset Date, the Second Reset Date (if applicable) and each Subsequent Reset Date (if
any) thereafter, the interest rate will be reset to the sum of the applicable Mid-Swap Rate and the First
Margin or Subsequent Margin (as applicable) as determined by the Calculation Agent on the relevant
Reset Determination Date (each such interest rate, a “Subsequent Reset Rate”). The Subsequent Reset
Rate for any Reset Period could be less than the Initial Rate of Interest or the Subsequent Reset Rate for
prior Reset Periods and could affect the market value of an investment in the Reset Notes.
The Notes may be written down or converted into ordinary shares
The Basel Committee on Banking Supervision (the “Basel Committee”) proposed a number of
fundamental reforms to the regulatory capital framework for internationally active banks designed, in
part, to ensure that capital instruments issued by such banks fully absorb losses before burdening
taxpayers are exposed to loss (the “Basel III Reforms”). These proposals are being implemented in
Europe through Directive 2014/59/EU dated 15 May 2014, known as the Banking Recovery and
Resolution Directive of the European Parliament and Council, as amended, (the “BRRD”) which
establishes a framework for the recovery and resolution of credit institutions and investment firms.
The BRRD requires Member States to ensure that regulatory authorities have, amongst other things,
powers to intervene in failing banks. The BRRD also provides for regulatory authorities to be given
powers to require institutions and groups to make structural changes to ensure legal and operational
separation of “critical functions” or to require institutions to limit or cease, existing or proposed
activities in certain circumstances. The exercise of these powers may require Montepio to change its
current structure or operations. Any such change may have negative consequences for Montepio’s
strategy and may mean Montepio incurs potentially significant costs. The BRRD requires
implementation by Member States as of 1 January 2015, with bail-in provisions to enter into force by 1
January 2016.
In Portugal, Decree-Law 31-A/2012, dated 10 February 2012, as amended, introduced the legal
framework for the adoption of resolution measures. However, as described below, the decree does not
implement the BRRD in its entirety.
The powers granted to resolution authorities under the BRRD include (but are not limited to) the
introduction of a statutory “write-down and conversion power” and a “bail-in power,” which will give
the relevant Portuguese resolution authority the power to cancel all, or a portion of, the principal amount
of, or interest on, certain unsecured liabilities (which could include the Notes) of a failing financial
38
institution and/or to convert certain debt claims (which could include the notes) into another security,
including ordinary shares of the surviving entity, if any. Insofar as the Issuer is concerned, the
conversion into ordinary shares would not be possible unless the Issuer is converted from a caixa
económica into a sociedade anónima beforehand. As referred to above, the majority of measures set out
in the BRRD (including the write-down and conversion powers relating to Tier 1 capital instruments and
Tier 2 capital instruments, such as the Subordinated Notes) were required to be implemented with effect
from 1 January 2015, with the bail-in power for other eligible liabilities to apply from 1 January 2016 at
the latest. In addition to the “write-down and conversion power” and the “bail-in power,” the powers
granted to the relevant Portuguese resolution authority under the BRRD include the power to (i) direct
the sale of the relevant financial institution or the whole or part of its business on commercial terms
without shareholder consent or compliance with procedural requirements that would otherwise apply,
(ii) transfer all or part of the business of the relevant financial institution to a “bridge bank” (a publicly
controlled entity) and (iii) transfer the impaired or problematic assets of the relevant financial institution
to an asset management vehicle to allow for them to be managed over time. In addition, among the
broader powers granted to the relevant resolution authority under the BRRD, is the power to amend the
maturity date and/or any interest payment date of debt instruments or other eligible liabilities of the
relevant financial institution and/or impose a temporary suspension of payments.
Until fully implemented, it is not possible to assess the full impact of the BRRD on Montepio and on
holders of the Notes. Moreover, there can be no assurance that, once it is implemented, the manner in
which it is implemented or the taking of any actions taken by the relevant Portuguese resolution
authority contemplated in the BRRD would not adversely affect the rights of holders of the Notes, the
price or value of an investment in the Notes and/or our ability to satisfy Montepio’s obligations under
the Notes.
The exercise of any such power or any suggestion of such exercise could, therefore, materially adversely
affect the value of any Notes subject to the BRRD and could lead to the holders of the Notes losing
some or all of their investment in the Notes.
As mentioned above, Decree-Law 31-A/2012 of 10 February 2012, introduced the legal framework for
the adoption of resolution measures into the Regime Geral das Instituições de Crédito e das Sociedades
Financeiras. The resolution framework was further amended by Decree-Law 114-A/2014 of 1 August
2014, and Decree-Law 114-B/2014, of 4 August 2014. The possible resolution measures include the
transfer to a bridge bank of all, or part, of the activity of the relevant institution. In such cases, the newly
incorporated bridge bank created shall be funded through the resolution fund (fundo de resolução), in
accordance with articles 145-H no. 6 and 153-C of Regime Geral das Instituições de Crédito e das
Sociedades Financeiras. Furthermore, in accordance with articles 153-D, 153-G and 153-H, credit
institutions with, amongst other things, their head office in Portugal, shall be obliged to make initial and
periodic contributions to the resolution fund (fundo de resolução), such amounts being fixed on an
annual basis, as set out in Decree-Law 24/2013, dated 19 February 2013.
The resolution fund (fundo de resolução) created pursuant to Decree-Law 31-A/2012, of 10 February
2012, and the funding of such resolution fund (fundo de resolução) depends upon contributions from
authorised Portuguese banking institutions, including Montepio. Part of the resolution fund’s funding
has been temporarily provided by the Portuguese Government and will be recouped from future
contributions made by Portuguese banking institutions. At this stage there is no indication as to the
amount that Montepio, or the rest of the banks within the Portuguese banking system, may be required
to contribute. As a result, Montepio is unable to assess the amount of such required future contributions
or the potential consequences on its business or operations.
39
Subordinated Notes, Remedies for Non-Payment
The sole remedy against the Issuer available to the Trustee or any Noteholder or Couponholder for
recovery of amounts owing in respect of any payment of principal or interest in respect of any
Subordinated Notes will be the institution of proceedings for the winding up of the Issuer and/or proving
in any winding up of the Issuer. As such, the remedies available to holders of Subordinated Notes are
more limited than those typically available to holders of senior-ranking securities, including Senior
Notes, which may make enforcement more difficult.
Risks related to the market generally
Set out below is a brief description of certain market risks, including liquidity risk, exchange rate risk,
interest rate risk and credit risk.
The secondary market generally
Notes may have no established trading market when issued, and one may never develop. If a market
does develop, it may not be liquid. Therefore, investors may not be able to sell their Notes easily or at
prices that will provide them with a yield comparable to similar investments that have a developed
secondary market. This is particularly the case for Notes that are especially sensitive to interest rate,
currency or market risks, are designed for specific investment objectives or strategies or have been
structured to meet the investment requirements of limited categories of investors. These types of Notes
generally would have a more limited secondary market and more price volatility than conventional debt
securities. Illiquidity may have a severely adverse effect on the market value of Notes.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain
risks relating to currency conversions if an investor’s financial activities are denominated principally in
a currency or currency unit (the “Investor’s Currency”) other than the Specified Currency. These
include the risk that exchange rates may significantly change (including changes due to devaluation of
the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with
jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in
the value of the Investor’s Currency relative to the Specified Currency would decrease (1) the Investor’s
Currency-equivalent yield on the Notes, (2) the Investor’s Currency equivalent value of the principal
payable on the Notes and (3) the Investor’s Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls
that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or
principal than expected, or no interest or principal.
Interest rate risks
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates may
adversely affect the value of the Fixed Rate Notes.
Credit ratings may not reflect all risks
One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may
not reflect the potential impact of all risks related to structure, market, additional factors discussed
above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation
to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
40
Legal considerations may restrict certain investments
The investment activities of certain investors are subject to investment laws and regulations, or review
or regulation by certain authorities. Each potential investor should consult its legal advisers to determine
whether and to what extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for
various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Notes.
Financial institutions should consult their legal advisers or the appropriate regulators to determine the
appropriate treatment of Notes under any applicable risk-based capital or similar rules.
41
DOCUMENTS INCORPORATED BY REFERENCE
This Base Prospectus should be read and construed in conjunction with:
1.
the interim unaudited consolidated financial statements of Montepio for the nine-months
ended 30 September 2015, together with the limited review report thereon (the “Third Quarter
Results 2015”);
2.
the audited consolidated annual financial statements of Montepio for the financial year ended
31 December 2014, together with the audit report thereon;
3.
the audited consolidated annual financial statements of Montepio for the financial year ended
31 December 2013, together with the audit report thereon;
4.
the Base Prospectus dated 16 June 2004 relating to the Programme;
5.
the Base Prospectus dated 21 September 2005 relating to the Programme;
6.
the Base Prospectus dated 29 December 2006 relating to the Programme;
7.
the Base Prospectus dated 28 September 2007 relating to the Programme;
8.
the Base Prospectus dated 4 November 2008 relating to the Programme;
9.
the Base Prospectus dated 6 November 2009 relating to the Programme;
10. the Base Prospectus dated 5 November 2010 relating to the Programme;
11. the Base Prospectus dated 4 November 2011 relating to the Programme;
12. the Base Prospectus dated 30 November 2012 relating to the Programme; and
13. the Base Prospectus dated 20 December 2013 relating to the Programme.
The documents listed above have been previously published or are published simultaneously with this
Base Prospectus and have been filed with the CSSF. Such documents shall be incorporated by reference
in, and form part of, this Base Prospectus, save that any statement contained in a document which is
incorporated by reference herein shall be modified or superseded for the purpose of this Base Prospectus
to the extent that a statement contained herein modifies or supersedes such earlier statement (whether
expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so
modified or superseded, constitute a part of this Base Prospectus. Copies of documents incorporated
herein by reference may be obtained free of charge at the specified offices of the Issuer and each of the
Paying Agents and will also be available to view on the website of the Luxembourg Stock Exchange
(www.bourse.lu).
For ease of reference, the tables below set out the relevant page references for the financial statements,
the notes to the financial statements and the auditors’ reports of Montepio for the Third Quarter Results
2015 and the years ended 31 December 2014 and 31 December 2013 and the Base Prospectuses relating
to the Programme dated 16 June 2004, 21 September 2005, 29 December 2006, 28 September 2007, 4
November 2008, 6 November 2009, 5 November 2010, 4 November 2011, 30 November 2012 and 20
December 2013.
42
THIRD QUARTER RESULTS 2015
Consolidated Balance Sheet .....................................................................................................
17
Consolidated Income Statement...............................................................................................
18
Consolidated Statement of Cash Flows....................................................................................
23
Consolidated Statement of Changes in Equity .........................................................................
24
Notes to the Interim Consolidated Financial Statements..........................................................
29-111
2014 CONSOLIDATED FINANCIAL STATEMENTS AND AUDIT REPORT
Consolidated Balance Sheet .....................................................................................................
60
Consolidated Income Statement...............................................................................................
61
Consolidated Statement of Cash Flows....................................................................................
66
Consolidated Statement of Changes in Equity .........................................................................
67
Notes to the Interim Consolidated Financial Statements..........................................................
70-237
Audit Report.............................................................................................................................
238-240
2013 CONSOLIDATED FINANCIAL STATEMENTS AND AUDIT REPORT
Consolidated Balance Sheet .....................................................................................................
56
Consolidated Income Statement...............................................................................................
57
Consolidated Statement of Cash Flows....................................................................................
58
Consolidated Statement of Changes in Equity .........................................................................
59
Notes to the Consolidated Financial Statements ......................................................................
69-186
Audit Report.............................................................................................................................
187-189
BASE PROSPECTUS DATED 16 JUNE 2004 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
12-34
BASE PROSPECTUS DATED 21 SEPTEMBER 2005 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
43
19-44
BASE PROSPECTUS DATED 29 DECEMBER 2006 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
21-47
BASE PROSPECTUS DATED 28 SEPTEMBER 2007 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
21-49
BASE PROSPECTUS DATED 4 NOVEMBER 2008 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
21-49
BASE PROSPECTUS DATED 6 NOVEMBER 2009 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
21-49
BASE PROSPECTUS DATED 5 NOVEMBER 2010 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
24-52
BASE PROSPECTUS DATED 4 NOVEMBER 2011 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
24-52
BASE PROSPECTUS DATED 30 NOVEMBER 2012 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
26-54
BASE PROSPECTUS DATED 20 DECEMBER 2013 RELATING TO THE PROGRAMME
Terms and Conditions ..............................................................................................................
32-58
The information incorporated by reference that is not included in the above list, is considered to be additional
information and is not required by the relevant schedules of Regulation (EC) No 809/2004 of 29 April 2004
implementing Directive 2003/71/EC.
44
GENERAL DESCRIPTION OF THE PROGRAMME
The following general description of the Programme is qualified in its entirety by the remainder of this
Base Prospectus.
Issuer
Caixa Económica Montepio Geral (“Montepio” and the
“Issuer”), acting through its Head Office or its Cayman Islands
Branch.
Description
Euro Medium Term Note Programme.
Size
Up to €6,000,000,000 (or the equivalent in other currencies at
the date of issue) aggregate nominal amount of Notes
outstanding at any one time.
Arranger
Merrill Lynch International
Dealers
BNP Paribas
Caixa Económica Montepio Geral
Citigroup Global Markets Limited
Crédit Agricole Corporate and Investment Bank
Credit Suisse Securities (Europe) Limited
Deutsche Bank AG, London Branch
DZ BANK AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt am Main
ING Bank N.V.
Merrill Lynch International
Natixis
The Royal Bank of Scotland plc
Société Générale
UniCredit Bank AG
The Issuer may from time to time terminate the appointment of
any dealer under the Programme or appoint additional dealers
either in respect of one or more Tranches or in respect of the
whole Programme. References in this Base Prospectus to
“Permanent Dealers” are to the persons listed above as Dealers
and to such additional persons that are appointed as dealers in
respect of the whole Programme (and whose appointment has
not been terminated) and references to “Dealers” are to all
Permanent Dealers and all persons appointed as a dealer in
respect of one or more Tranches.
Trustee
Deutsche Trustee Company Limited
Issuing and Paying Agent
Deutsche Bank AG, London Branch
Portuguese Paying Agent
Caixa Económica Montepio Geral
Method of Issue
The Notes will be issued on a syndicated or non-syndicated
basis. The Notes will be issued in series (each a “Series”)
having one or more issue dates and on terms otherwise identical
(or identical other than in respect of the first payment of
interest), the Notes of each Series being intended to be
45
interchangeable with all other Notes of that Series. Each Series
may be issued in tranches (each a “Tranche”) on the same or
different issue dates.
Issue Price
Notes may be issued at their nominal amount or at a discount or
premium to their nominal amount.
Form of Notes
The Notes (other than Book Entry Notes (as defined below)),
may be issued in bearer form only. Each Tranche of Notes
(other than Book Entry Notes) will be represented on issue by a
temporary Global Note if (i) definitive Notes are to be made
available to Noteholders following the expiry of 40 days after
their issue date or (ii) such Notes have an initial maturity of
more than one year and are being issued in compliance with the
D Rules (as defined in “General Description of the Programme
— Selling Restrictions”), otherwise such Tranche will be
represented by a permanent Global Note.
In addition, Montepio acting through its Head Office may issue
Notes in book-entry form and registered form (“Book Entry
Notes”) that will be integrated in and held through Interbolsa –
Sociedade Gestora de Sistemas de Liquidação e de Sistemas
Centralizados de Valores Mobiliários, S.A., as management
entity of the Portuguese Centralised System, Central de Valores
Mobiliários, if so specified in the relevant Final Terms. The
terms and conditions of each series of Book-Entry Notes shall
be the terms and conditions set out in this Base Prospectus, as
supplemented and/or completed in the relevant Final Terms.
The Book Entry Notes are constituted by a deed poll given by
Montepio in favour of the holders of the Book Entry Notes
dated 29 January 2016 (the “Instrument”).
Clearing Systems
Clearstream, Luxembourg, and Euroclear for Notes and
Interbolsa, Clearstream, Luxembourg, Euroclear for Book
Entry Notes and, in relation to any Tranche, such other clearing
system as may be agreed between the Issuer, the Issuing and
Paying Agent, the Trustee and the relevant Dealer.
Initial Delivery of Notes
On or before the issue date for each Tranche, if the relevant
Global Note is intended to be recognised as eligible collateral
for Eurosystem monetary policy and intra-day credit
operations, the Global Note will be delivered to a Common
Safekeeper for Euroclear and Clearstream, Luxembourg. On or
before the issue date for each Tranche, if the relevant Global
Note is not intended to be recognised as eligible collateral for
Eurosystem monetary policy and intra-day credit operations,
the Global Note representing Notes may (or, in the case of
Notes admitted to trading on the Market, shall) be deposited
with a common depositary for Euroclear and Clearstream,
Luxembourg. Global Notes relating to Notes that are not
admitted to trading on the Market may also be deposited with
46
any other clearing system or may be delivered outside any
clearing system provided that the method of such delivery has
been agreed in advance by the Issuer, the Issuing and Paying
Agent, the Trustee and the relevant Dealer.
Currencies
Subject to compliance with all relevant laws, regulations and
directives, Notes may be issued in any currency agreed between
the Issuer and the relevant Dealers except Book Entry Notes
which may only be issued in EUR (“euro”), USD (“United
States Dollar”), GBP (“British Pound Sterling”), JPY
(“Japanese Yen”), CHF (“Swiss Franc”), AUD (“Australian
Dollar”) and CAD (“Canadian Dollar”), or any other currency
as Interbolsa accepts for registration and clearing securities.
Maturities
Subject to compliance with all relevant laws, regulations and
directives and as permitted by the relevant central bank (or
equivalent body) and subject as provided below, any maturity
as may be agreed between the Issuer and the relevant Dealer(s).
Unless otherwise permitted by then current laws, regulations
and directives, Subordinated Notes will have a maturity of not
less than five years.
Book Entry Notes shall not be issued with a maturity of less
than one year.
According to the Luxembourg Act relating to prospectuses for
securities (the “Luxembourg Act”), the CSSF is not competent
to approve prospectuses for the listing of money market
instruments having a maturity at issue of less than 12 months
and which also comply with the definition of securities in the
Luxembourg Act.
Specified Denomination
Definitive Notes and Book Entry Notes will be in such
denominations as may be specified in the relevant Final Terms,
save that (i) in the case of any Notes which are to be admitted
to trading on a regulated market within the European Economic
Area or offered to the public in an EEA State in circumstances
which require the publication of a prospectus under the
Prospectus Directive, the minimum specified denomination
shall be €100,000 (or its equivalent in any other currency as at
the date of issue of the Notes); and (ii) unless otherwise
permitted by then current laws and regulations, Notes
(including Notes denominated in British Pound Sterling) which
have a maturity of less than one year and in respect of which
the issue proceeds are to be accepted by the Issuer in the United
Kingdom or whose issue otherwise constitutes a contravention
of section 19 of the Financial Services and Markets Act 2000
(the “FSMA”) will have a minimum specified denomination of
£100,000 (or its equivalent in other currencies).
Fixed Rate Notes
Fixed interest will be payable in arrear on the date or dates in
each year specified in the relevant Final Terms.
47
Reset Notes
Reset Notes will, in respect of an initial period, bear interest at
the initial fixed rate of interest specified in the applicable Final
Terms. Thereafter, the fixed rate of interest will be reset on one
or more date(s) specified in the applicable Final Terms by
reference to a mid-market swap rate for the relevant Specified
Currency, and for a period equal to the reset period, as adjusted
for any applicable margin, in each case as may be specified in
the applicable Final Terms. Such interest will be payable in
arrear on the Interest Payment Date(s) specified in the
applicable Final Terms or determined pursuant to the Terms and
Conditions.
Floating Rate Notes
Floating Rate Notes will bear interest determined separately for
each Series as follows:
(i)
on the same basis as the floating rate under a notional
interest rate swap transaction in the relevant Specified
Currency governed by an agreement incorporating the
2006 ISDA Definitions as published by the International
Swaps and Derivatives Association, Inc.; or
(ii) by reference to LIBOR or EURIBOR as adjusted for any
applicable margin.
Interest periods will be specified in the relevant Final Terms.
Zero Coupon Notes
Zero Coupon Notes may be issued at their nominal amount or
at a discount to it and will not bear interest.
Interest Periods and Interest Rates
The length of the interest periods for the Notes and the
applicable interest rate or its method of calculation may differ
from time to time or be constant for any Series. Notes may have
a maximum interest rate, a minimum interest rate, or both. The
use of interest accrual periods permits the Notes to bear interest
at different rates in the same interest period.
Redemption
The relevant Final Terms will specify the redemption amounts
payable. Unless permitted by then current laws and regulations,
Notes (including Notes denominated in British Pound Sterling)
which have a maturity of less than one year and in respect of
which the issue proceeds are to be accepted by the Issuer in the
United Kingdom or whose issue otherwise constitutes a
contravention of Section 19 of the FSMA must have a
minimum redemption amount of £100,000 (or its equivalent in
other currencies). Any early redemption of a Subordinated Note
will be subject to the prior consent of the Bank of Portugal.
Optional Redemption
The Final Terms issued in respect of each issue of Notes will
state whether such Notes may be redeemed prior to their stated
maturity at the option of the Issuer (either in whole or in part)
and/or the holders, and if so the terms applicable to such
redemption, although this will not apply in any event to
Subordinated Notes (as defined in Condition 5).
48
Status of the Senior Notes
The Senior Notes and the relative Coupons (if any) will
constitute direct, unconditional, unsecured (subject to the
provisions of Condition 3) and unsubordinated obligations of
the Issuer and will rank pari passu among themselves and with
all present and future unsecured (subject as aforesaid) and
unsubordinated obligations of such Issuer, save for those that
have been accorded by law preferential rights.
Status of the Subordinated Notes
The Subordinated Notes and the relative Coupons (if any) will
constitute direct, unsecured and subordinated obligations of the
Issuer, and will rank pari passu among themselves. The claims
of the holders of the Subordinated Notes and the relative
Coupons (if any) will, in the event of the bankruptcy or the
winding up of such Issuer (to the extent permitted by Cayman
Islands and/or Portuguese law, as the case may be), be
subordinated in right of payment in the manner provided in
Condition 2(b) and in the Trust Deed or, in the case of Book
Entry Notes, the Instrument to the claims of all unsubordinated
creditors of that Issuer including claims of depositors, to the
claims of all Senior Creditors of the Issuer but shall rank (a) at
least pari passu with the claims of holders of all obligations of
the Issuer which constitute, or would but for any applicable
limitation on the amount of such capital constitute, Tier 2
Capital of the Issuer and in priority to (1) the claims of holders
of all obligations of the Issuer which constitute Tier 1 Capital of
the Issuer, (2) the claims of holders of all undated or perpetual
subordinated obligations of the Issuer and (3) the claims of
holders of all share capital of the Issuer.
Negative Pledge
Applicable to Senior Notes only. See “Terms and Conditions of
the Notes — Negative Pledge in relation to the Senior Notes”.
Cross Default
Applicable to Senior Notes only. See “Terms and Conditions of
the Notes — Events of Default”.
Limited Rights of Acceleration
The Trustee’s rights to accelerate Subordinated Notes are
limited to winding up. See “Terms and Conditions of the Notes
— Events of Default”.
49
Ratings
The Programme has been rated: B1, with a stable outlook
(senior unsecured) /Caa1, with a stable outlook (subordinated)
/Caa2, with a stable outlook (junior subordinated) /NP (shortterm) by Moody’s Investor Service España, S.A. (“Moody’s”),
B+, with a stable outlook (senior unsecured) /B (subordinated)
/B (short-term) by Fitch Ratings Ltd. (“Fitch”) and BB (high)
with a rating trend negative (senior unsecured) /BB with a
rating trend negative (subordinated) /R-3 with a rating trend
negative (short-term) by DBRS Inc. (“DBRS”). Moody’s and
Fitch are established in the EU and registered under Regulation
(EC) No 1060/2009 (the “CRA Regulation”). DBRS Inc. is not
established in the EU but the above ratings it has given are
endorsed by DBRS Ratings Limited, which is established in the
EU and registered under the CRA Regulation. Tranches of
Notes (as defined in “General Description of the Programme”)
may be rated or unrated. Where a Tranche of Notes is to be
rated, such rating will not necessarily be the same as the rating
assigned to the Programme and/or the Notes already issued.
Where a Tranche of Notes is to be rated, such ratings will be
specified in the relevant Final Terms. Whether or not a rating in
relation to any Tranche of Notes will be treated as having been
issued by a credit rating agency established in the European
Union and registered under the CRA Regulation will be
disclosed in the relevant Final Terms. A rating is not a
recommendation to buy, sell or hold securities and may be
subject to suspension, reduction or withdrawal at any time by
the assigning rating agency.
Early Redemption
Except as provided in “Optional Redemption” above, Notes
will be redeemable at the option of the Issuer prior to maturity
only for tax reasons. See “Terms and Conditions of the Notes —
Redemption, Purchase and Options”.
Withholding Tax
All payments of principal and interest in respect of the Notes
will be made free and clear of withholding taxes in the Cayman
Islands and Portugal, as the case may be, unless the
withholding is required by law. In such event, the Issuer shall,
subject to customary exceptions, pay such additional amounts
as shall result in receipt by the Noteholder of such amounts as
would have been received by it had no such withholding been
required, all as described in and in accordance with DecreeLaw no. 193/2005, of 7 November 2005 (as amended), in
respect of Book Entry Notes (See “Taxation – The Portuguese
Republic – Montepio, acting through its head office within the
scope of Decree-Law no. 193/2005 (Special tax regime
applicable to debt securities)”).
At present, payments of interest and other investment income to
be made directly to non-Portuguese resident entities would be
subject to Portuguese withholding tax at the rate of 28 per cent.
50
for individuals and 25 per cent. for legal persons (which may be
reduced according to applicable double taxation treaties entered
into by the Portuguese Republic and other countries, subject to
certain formalities being met, or eliminated (if certain
exemptions are applicable) (See “Taxation – The Portuguese
Republic – Montepio, acting through its head office outside the
scope of Decree-Law no. 193/2005 (General tax regime
applicable to debt securities)”).
All payments of interest and other investment income arising
from Notes made to residents for tax purposes in Portugal or to
a non-Portuguese resident having a permanent establishment
therein to which income is imputable will be subject to
withholding tax at a rate of 28 per cent., for individuals and 25
per cent. for legal persons except where the Noteholder is either
a Portuguese resident financial institution (or a non-resident
financial institution having a permanent establishment in the
Portuguese territory to which income is imputable) or benefits
from a reduction or a withholding tax exemption as specified
by current Portuguese tax law (See “Taxation – The Portuguese
Republic – Montepio, acting through its head office outside the
scope of Decree-Law no. 193/2005 (General tax regime
applicable to debt securities)”).
In relation to Noteholders who are individuals resident in
Portuguese territory, withholding tax at the rate of 28 per cent.
shall be considered as final. Such Noteholders may, however
and subject to certain requirements, elect to declare said
income, together with certain other types of income, in its
respective tax returns (“englobamento”) subject to progressive
rates up to a 48 per cent. rate for income in excess of €80,000.
In this case the domestic withholding tax will constitute a
payment on account of final personal income tax liability.
An additional income tax will be due on the part of the taxable
income exceeding €80,000 as follows: (i) 2.5 per cent. on the
part of the taxable income exceeding €80,000 up to €250,000
and (ii) 5 per cent. on the remaining part (if any) of the taxable
income exceeding €250,000.
Interest or other investment income (rendimentos de capitais)
paid or made available to accounts opened in the name of one
or more resident accountholders or non resident accountholders
with a permanent establishment in Portugal acting on behalf of
one or more unidentified third parties is subject to a final
withholding tax rate of 35 per cent., unless the relevant
beneficial owner(s) of the income is/are identified and as a
consequence the tax rates applicable to such beneficial
owner(s) will apply.
A withholding tax rate of 35 per cent., also applies in case of
51
interest or investment income (redimentos de capitais)
payments to individual or legal persons resident in a country,
territory or region subject to a clearly more favourable tax
regime listed in Ordinance (Portaria) no. 150/2004, of 13
February 2004 (as amended).
Governing Law
English law, save that Conditions 2(b) and Clause 5 of the Trust
Deed (insofar as it relates to Subordinated Notes) and the
corresponding provisions of the Instrument will be governed by
and construed in accordance with Portuguese law and save that,
with respect to Book Entry Notes only, the form (forma de
representação) and transfer of the Notes, the creation of
security over the Notes and the Interbolsa procedures for the
exercise of rights under the Notes are governed by, and shall be
construed in accordance with, Portuguese law.
Listing and Admission to Trading
Application has been made to list the Notes on the Official List
of the Luxembourg Stock Exchange and to admit the Notes to
trading on the Regulated Market of the Luxembourg Stock
Exchange. As specified in the relevant Final Terms, a Series of
Notes may be unlisted.
Selling Restrictions
The United States, the Public Offer Selling Restriction under
the Prospectus Directive (in respect of Notes having a specified
denomination of less then €100,000 or its equivalent in any
other currency as at the date of issue of the Notes), the United
Kingdom, the Cayman Islands, the Portuguese Republic, Japan
and France. See “Subscription and Sale”.
The Issuer is Category 2 for the purposes of Regulation S under
the Securities Act, as amended.
The Notes will be issued in compliance with U.S. Treas. Reg.
§1.163-5(c)(2)(i)(D) (the “D Rules”) unless (i) the relevant
Final Terms states that Notes are issued in compliance with
U.S. Treas. Reg. §1.163-5(c)(2)(i)(C) (the “C Rules”) or (ii) the
Notes are issued other than in compliance with the D Rules or
the C Rules but in circumstances in which the Notes will not
constitute “registration required obligations” under the United
States Tax Equity and Fiscal Responsibility Act of 1982
(“TEFRA”), which circumstances will be referred to in the
relevant Final Terms as a transaction to which TEFRA is not
applicable.
52
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions that, subject to completion in accordance with the
provisions of Part A of the relevant Final Terms, shall be applicable to the Notes, in definitive form (if
any) issued in exchange for the Global Note(s) or in book entry form, representing each Series of Notes
issued by the Issuer. Either (i) the full text of these terms and conditions together with the relevant
provisions of Part A of the Final Terms or (ii) these terms and conditions as so completed (and subject to
simplification by the deletion of non-applicable provisions), shall be endorsed on such definitive Notes.
All capitalised terms that are not defined in these Conditions will have the meanings given to them in
Part A of the relevant Final Terms. Those definitions will be endorsed on the definitive Notes. References
in the Conditions to “Notes” are to the Notes of one Series only, not to all Notes that may be issued
under the Programme and include, for the avoidance of doubt, Notes in book entry form (“Book Entry
Notes”).
The Notes (other than Book Entry Notes) are constituted by an amended and restated Trust Deed dated
29 January 2016 (as modified and/or supplemented and/or restated as at the date of issue of the Notes
(the “Issue Date”), the “Trust Deed”) between Caixa Económica Montepio Geral (the “Issuer”), acting
through its Head Office or its Cayman Islands Branch, and Deutsche Trustee Company Limited (the
“Trustee”, which expression shall include all persons for the time being the trustee or trustees under the
Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions include
summaries of, and are subject to, the detailed provisions of the Trust Deed. The Book Entry Notes are
constituted by registration in the Interbolsa book-entry system and governed by these terms and
conditions and by a deed poll given by the Issuer in favour of the holders of Book Entry Notes as
amended and restated on 29 January 2016 (the “Instrument”), which includes the form of the Notes,
Coupons and Talons referred to below. An amended and restated Agency Agreement dated 5 November
2010 (as amended and/or supplemented and/or restated as at the Issue Date, the “Agency Agreement”)
has been entered into in relation to the Notes between the Issuer, the Trustee, Deutsche Bank AG,
London Branch as initial issuing and paying agent and the other agents named in it. The issuing and
paying agent, the paying agents and the calculation agent(s) for the time being (if any) are referred to
below respectively as the “Issuing and Paying Agent”, the “Paying Agents” (which expression shall
include the Issuing and Paying Agent) and the “Calculation Agent(s)”. Copies of the Trust Deed and the
Agency Agreement are available for inspection during usual business hours at the registered office of the
Trustee (presently at Winchester House, 1 Great Winchester Street, London EC2N 2DB) and at the
specified offices of the Paying Agents. In the case of Book Entry Notes, Caixa Económica Montepio
Geral will be the paying agent in Portugal.
The Noteholders, the holders of the interest coupons (the “Coupons”) relating to interest bearing Notes
and, where applicable in the case of such Notes, talons for further Coupons (the “Talons”) (the
“Couponholders”) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the
provisions of the Trust Deed or, in the case of holders of Book Entry Notes, the Instrument, and are
deemed to have notice of those provisions applicable to them of the Agency Agreement.
1
Form, Denomination and Title
(a)
Notes issued by Caixa Económica Montepio Geral acting through its Cayman Islands
branch
Notes issued by Montepio acting through its Cayman Islands branch are issued in bearer form in
the Specified Denomination(s) shown hereon provided that in the case of any Notes which are to
53
be admitted to trading on a regulated market within the European Economic Area or offered to
the public in a Member State of the European Economic Area in circumstances which require the
publication of a prospectus under the Prospectus Directive, the minimum Specified
Denomination shall be €100,000 (or its equivalent in any other currency as at the date of issue of
the relevant Notes) as specified hereon.
This Note is a Senior Note or a Subordinated Note as specified hereon.
This Note is a Fixed Rate Note, a Reset Note, a Floating Rate Note or a Zero Coupon Note, a
combination of any of the foregoing or any other kind of Note, depending upon the Interest and
Redemption/Payment Basis shown hereon.
The Notes are serially numbered and are issued with Coupons (and, where appropriate, a Talon)
attached, save in the case of Zero Coupon Notes in which case references to interest (other than
in relation to interest due after the Maturity Date), Coupons and Talons in these Conditions are
not applicable.
Title to the Notes and the Coupons and Talons shall pass by delivery. Except as ordered by a
court of competent jurisdiction or as required by law, the holder (as defined below) of any Note,
Coupon or Talon shall be deemed to be and may be treated as its absolute owner for all purposes
whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it,
any writing on it or its theft or loss and no person shall be liable for so treating the holder.
In these Conditions, “Noteholder” for the purposes of the Global Notes or bearer Notes issued in
definitive form means the bearer of any Note, “holder” (in relation to a Note, Coupon or Talon)
means the bearer of any Note, Coupon or Talon and capitalised terms have the meanings given to
them hereon, the absence of any such meaning indicating that such term is not applicable to the
Notes.
(b)
Notes issued by Caixa Económica Montepio Geral acting through its Head Office
Notes issued by Montepio acting through its Head Office are issued in dematerialised book-entry
(forma escritural) and registered nominative (nominativas) form, in the Specified Denomination
as specified hereon provided that in the case of any Notes which are to be admitted to trading on
a regulated market within the European Economic Union or offered to the public in a Member
State of the European Economic Area in circumstances which require the publication of a
prospectus under the Prospectus Directive, the minimum Specified Denomination shall be
€100,000 (or its equivalent in other currencies as at the date of issue of the relevant Notes) as
specified hereon.
The Notes will be registered by Interbolsa – Sociedade Gestora de Sistemas de Liquidação e de
Sistemas Centralizados de Valores Mobiliários, S.A. (“Interbolsa”) as management entity of the
Portuguese Centralised System of Registration of Securities (Central de Valores Mobiliários)
(“CVM”).
The Notes shall be issued in registered not bearer form, whether in definitive bearer form or
otherwise.
Each person shown in the individual securities account held with an affiliated member of
Interbolsa as having an interest in the Notes shall be considered the holder of the principal
amount of Notes recorded. One or more certificates in relation to the Notes (each a
“Certificate”) will be delivered by the relevant affiliated member of Interbolsa in respect of its
registered holding of Notes upon the request by the relevant Noteholder and in accordance with
54
that affiliated member’s procedures and pursuant to article 78 of the Portuguese Securities Code
(Código dos Valores Mobiliários).
Title to the Notes passes upon registration in the individual securities account held with an
affiliated member of Interbolsa. Any Noteholder will (except as otherwise required by law) be
treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any
notice of ownership, trust or any interest or any writing on, or the theft or loss of, the Certificate
issued in respect of it) and no person will be liable for so treating the Noteholder.
This Note is a Senior Note or a Subordinated Note as specified hereon.
This Note is a Fixed Rate Note, a Reset Note, a Floating Rate Note or Zero Coupon Note, a
combination of any of the foregoing or any other kind of Note, depending upon the Interest and
Redemption/Payment Basis shown hereon.
In these Conditions, “Noteholder” for the purposes of Notes in book entry form and (in relation
to a Note) “holder” means the person in whose name a Note is registered in the records of an
affiliated member of Interbolsa.
2
Status
(a)
Status of Senior Notes
The Senior Notes and the relative Coupons (if any) are direct, unconditional, unsecured (subject
to the provisions of Condition 3) and unsubordinated obligations of the Issuer and rank and will
rank pari passu among themselves and with all present and future unsecured (subject as
aforesaid) and unsubordinated obligations of the Issuer, save for those that have been accorded
by law preferential rights.
(b)
Status of Subordinated Notes
The Subordinated Notes and the relative Coupons (if any) are direct and unsecured obligations of
the Issuer subordinated as provided below and rank and will rank pari passu among themselves.
The claims of the holders of the Subordinated Notes and the relative Coupons (if any) against the
Issuer in respect of payments pursuant to the Subordinated Notes and the relative Coupons will,
in the event of the bankruptcy or winding up of the Issuer, (to the extent permitted by Cayman
Islands and/or Portuguese law, as the case may be) be subordinated in right of payment in the
manner provided in this Condition 2(b) and in the Trust Deed, to the claims of all Senior
Creditors of the Issuer but shall rank (a) at least pari passu with the claims of holders of all
obligations of the Issuer which constitute, or would but for any applicable limitation on the
amount of such capital constitute, Tier 2 Capital of the Issuer and in priority to (1) the claims of
holders of all obligations of the Issuer which constitute Tier 1 Capital of the Issuer, (2) the claims
of holders of all undated or perpetual subordinated obligations of the Issuer and (3) the claims of
holders of all share capital of the Issuer.
For the purposes of this paragraph (b):
“Senior Creditors” means in respect of the Issuer (a) creditors of the Issuer whose claims are
admitted to proof in the winding-up or administration of the Bank and who are unsubordinated
creditors of the Issuer and (b) creditors of the Issuer whose claims are or are expressed to be
subordinated to the claims of other creditors of the Issuer (other than those whose claims relate to
obligations which constitute, or would, but for any applicable limitation on the amount of such
55
capital, constitute Tier 1 Capital or Tier 2 Capital of the Issuer, or whose claims rank or are
expressed to rank pari passu with, or junior to, the claims of holders of the Subordinated
Notes).“Tier 1 Capital” has the meaning given to it by Bank of Portugal from time to time.
“Tier 2 Capital” has the meaning given to it by Bank of Portugal from time to time.
(c)
No Set Off in respect of Subordinated Notes
Subject to applicable law, no holder of a Subordinated Note or a Coupon relating thereto (if any)
may exercise or claim any right of set-off in respect of any amount owed by it to the Issuer
arising under or in connection with the Subordinated Notes and the Coupons relating thereto (if
any) and each holder of a Subordinated Note or a Coupon relating thereto (if any) shall, by virtue
of its subscription, purchase or holding of any such Note or Coupon, be deemed to have waived
all such rights of setoff.
3
Negative Pledge in relation to the Senior Notes
(a)
Restriction
So long as any of the Senior Notes or Coupons (if any) remains outstanding (as defined in the
Trust Deed) neither the Issuer nor any of its Subsidiaries (as defined in Condition 9) shall create
or permit to subsist any mortgage, charge, pledge, lien or other form of encumbrance or security
interest (“Security”) upon the whole or any part of its undertaking, assets or revenues present or
future to secure any Relevant Indebtedness, or any guarantee of or indemnity in respect of any
Relevant Indebtedness unless, at the same time or prior thereto, the Issuer’s obligations under the
Senior Notes, Coupons (if any) and the Trust Deed (A) are secured equally and rateably therewith
in the same manner or to the satisfaction of the Trustee or benefit from a guarantee or indemnity
in substantially identical terms thereto, as the case may be, in each case to the satisfaction of the
Trustee or (B) have the benefit of such other security, guarantee, indemnity or other arrangement
as the Trustee in its absolute discretion shall deem to be not materially less beneficial to the
Noteholders or as shall be approved by an Extraordinary Resolution of the Senior Noteholders.
(b)
Relevant Indebtedness
For the purposes of this Condition, “Relevant Indebtedness” means any present or future (actual
or contingent) indebtedness for money borrowed or raised in the form of, or represented by,
bonds, notes, debentures, debenture stock, loan stock, certificates or other instruments that are, or
are capable of being, quoted, listed or traded on any stock exchange, or other securities market
(including, without limitation, any over-the-counter market) (other than an issue which is placed
in Portugal in an amount greater than 50 per cent. of its aggregate principal amount). For the
avoidance of doubt, “indebtedness for money borrowed or raised”, for the purpose of this
definition, does not include preference shares or any other equity securities or Covered Bonds (as
defined below).
“Covered Bonds” means any mortgage-backed bonds and/or covered bonds or notes issued by
the Issuer, the obligations of which benefit from a special creditor privilege (privilégio creditório
especial) as a result of them being collateralised by a defined pool of assets comprised of
mortgage loans or other loans permitted by applicable Portuguese legislation to be included in the
pool of assets and where the requirements for that collateralisation are regulated by applicable
Portuguese legislation.
56
4
Interest and other Calculations
(a)
Interest on Fixed Rate Notes
Each Fixed Rate Note bears interest on its outstanding nominal amount from the Interest
Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of
Interest, such interest being payable in arrear on each Interest Payment Date. The amount of
interest payable shall be determined in accordance with Condition 4(g).
(b)
(i)
Interest on Reset Notes
Rates of Interest and Interest Payment Dates
Each Reset Note bears interest:
(A)
from (and including) the Interest Commencement Date specified hereon to (but
excluding) the First Reset Date at the rate per annum equal to the Initial Rate of Interest;
(B)
from (and including) the First Reset Date to (but excluding) the Second Reset Date or, if
no such Second Reset Date is specified hereon, the Maturity Date at the rate per annum
equal to the First Reset Rate of Interest; and
(C)
for each Subsequent Reset Period thereafter (if any), at the rate per annum equal to the
relevant Subsequent Reset Rate of Interest,
payable, in each case, in arrear on the date(s) so specified in the applicable Final Terms on
which interest is payable in each year (each, an “Interest Payment Date”) and on the Maturity
Date if that does not fall on an Interest Payment Date. The Rate of Interest and the Interest
Amount payable shall be determined by the Calculation Agent, (A) in the case of the Rate of
Interest, at or as soon as practicable after each time at which the Rate of Interest is to be
determined, and (B) in the case of the Interest Amount, in accordance with the provisions for
calculating amounts of interest in Condition 4(g) and, for such purposes, references in
Condition 4(a) to “Fixed Rate Notes” shall be deemed to be to “Reset Notes” and Condition
4(a) shall be construed accordingly.
(ii)
Fallbacks
If on any Reset Determination Date the Relevant Screen Page is not available or the Mid-Swap
Rate does not appear on the Relevant Screen Page, the Calculation Agent shall request each of
the Reference Banks (as defined below) to provide the Calculation Agent with its Mid-Market
Swap Rate Quotation as at approximately 11.00 a.m. in the principal financial centre of the
Specified Currency on the Reset Determination Date in question.
If two or more of the Reference Banks provide the Calculation Agent with Mid-Market Swap
Rate Quotations, the First Reset Rate of Interest or the Subsequent Reset Rate of Interest (as
applicable) for the relevant Reset Period shall be the sum of the arithmetic mean (rounded, if
necessary, to the nearest 0.001 per cent. (0.0005 per cent. being rounded upwards)) of the
relevant Mid-Market Swap Rate Quotations and the First Margin or Subsequent Margin (as
applicable), all as determined by the Calculation Agent.
If on any Reset Determination Date only one or none of the Reference Banks provides the
Calculation Agent with a Mid-Market Swap Rate Quotation as provided in the foregoing
provisions of this paragraph, the First Reset Rate of Interest or the Subsequent Reset Rate of
Interest (as applicable) shall be determined to be the Rate of Interest as at the last preceding
57
Reset Date or, in the case of the first Reset Determination Date, the First Reset Rate of Interest
shall be the Initial Rate of Interest.
For the purposes of this Condition 4(b)(ii) “Reference Banks” means the principal office in the
principal financial centre of the Specified Currency of four major banks in the swap, money,
securities or other market most closely connected with the relevant Mid-Swap Rate as selected
by the Issuer on the advice of an investment bank of international repute.
(iii)
Notification of First Reset Rate of Interest, Subsequent Reset Rate of Interest and Interest
Amount
The Calculation Agent will cause the First Reset Rate of Interest, any Subsequent Reset Rate of
Interest and, in respect of a Reset Period, the Interest Amount payable on each Interest Payment
Date falling in such Reset Period to be notified to the Issuer, the Issuing and Paying Agent and
any stock exchange or other relevant authority on which the relevant Reset Notes are for the
time being listed and notice thereof to be published in accordance with Condition 15 as soon as
possible after their determination but in no event later than the fourth London Business Day
(where a “London Business Day” means a day (other than a Saturday or a Sunday) on which
banks and foreign exchange markets are open for business in London) thereafter. So long as the
Notes are listed on the Luxembourg Stock Exchange, the Issuer will notify the Luxembourg
Stock Exchange of any reset Rate of Interest and relevant Interest Amount(s) no later than the
first day of each Reset Period.
(iv)
Determination or Calculation by Trustee
If for any reason the Calculation Agent defaults in its obligation to determine the First Reset
Rate of Interest, a Subsequent Reset Rate of Interest or to calculate any Interest Amount in
accordance with this Condition 4(b), the Trustee (or an agent appointed by it on its behalf) shall
determine the First Reset Rate of Interest or the Subsequent Reset Rate of Interest (as
applicable) at such rate as, in its absolute discretion (having such regard as it shall think fit to
the foregoing provisions of this Condition 4 and to any terms specified in the applicable Final
Terms), it shall deem fair and reasonable in all the circumstances or, as the case may be, the
Trustee (or its agent) shall calculate the Interest Amount(s) in such manner as it shall deem fair
and reasonable in all the circumstances and each such determination or calculation shall be
deemed to have been made by the Calculation Agent.
(v)
Certificates to be final
All certificates, communications, opinions, determinations, calculations, quotations and
decisions given, expressed, made or obtained for the purposes of the provisions of this
Condition 4(b), whether by the Calculation Agent or the Trustee shall (in the absence of wilful
default, bad faith and manifest error) be binding on the Issuer, the Issuing and Paying Agent, the
Calculation Agent, the Trustee, the other Paying Agents and all Noteholders and Couponholders
and (in the absence of bad faith and wilful default) no liability to the Issuer, the Trustee, the
Noteholders or the Couponholders shall attach to either the Calculation Agent or the Trustee in
connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant
to such provisions.
58
(c)
Interest on Floating Rate Notes
(i)
Interest Payment Dates
Each Floating Rate Note bears interest on its outstanding nominal amount from the Interest
Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of
Interest, such interest being payable in arrear on each Interest Payment Date. The amount of
interest payable shall be determined in accordance with Condition 4(g). Such Interest Payment
Date(s) is/are either shown hereon as Specified Interest Payment Dates or, if no Specified
Interest Payment Date(s) is/are shown hereon, Interest Payment Date shall mean each date
which falls the number of months or other period shown hereon as the Specified Period after the
preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the
Interest Commencement Date.
(ii)
Business Day Convention
If any date referred to in these Conditions that is specified to be subject to adjustment in
accordance with a Business Day Convention would otherwise fall on a day that is not a
Business Day, then, if the Business Day Convention specified is (A) the Floating Rate Business
Day Convention, such date shall be postponed to the next day that is a Business Day unless it
would thereby fall into the next calendar month, in which event (x) such date shall be brought
forward to the immediately preceding Business Day and (y) each subsequent such date shall be
the last Business Day of the month in which such date would have fallen had it not been subject
to adjustment, (B) the Following Business Day Convention, such date shall be postponed to the
next day that is a Business Day, (C) the Modified Following Business Day Convention, such
date shall be postponed to the next day that is a Business Day unless it would thereby fall into
the next calendar month, in which event such date shall be brought forward to the immediately
preceding Business Day or (D) the Preceding Business Day Convention, such date shall be
brought forward to the immediately preceding Business Day.
(iii)
Rate of Interest for Floating Rate Notes
The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period shall be
determined in the manner specified hereon and the provisions below relating to either ISDA
Determination or Screen Rate Determination shall apply, depending upon which is specified
hereon.
(A)
ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified hereon as the manner in which the Rate of
Interest is to be determined, the Rate of Interest for each Interest Accrual Period shall be
determined by the Calculation Agent as a rate equal to the relevant ISDA Rate plus or
minus (as indicated hereon) the Margin (if any). For the purposes of this sub-paragraph
(A), “ISDA Rate” for an Interest Accrual Period means a rate equal to the Floating Rate
that would be determined by the Calculation Agent under a Swap Transaction under the
terms of an agreement incorporating the ISDA Definitions and under which:
(x)
the Floating Rate Option is as specified hereon
(y)
the Designated Maturity is a period specified hereon and
(z)
the relevant Reset Date is the first day of that Interest Accrual Period unless
otherwise specified hereon.
59
For the purposes of this sub-paragraph (A), “Floating Rate”, “Calculation Agent”,
“Floating Rate Option”, “Designated Maturity”, “Reset Date” and “Swap
Transaction” have the meanings given to those terms in the ISDA Definitions.
(B)
Screen Rate Determination for Floating Rate Notes
(x)
Where Screen Rate Determination is specified hereon as the manner in which the
Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual
Period will, subject as provided below, be either:
(1)
the offered quotation; or
(2)
the arithmetic mean of the offered quotations (rounded, if necessary, to the
nearest 0.001 per cent. (0.0005 per cent. being rounded upwards),
(expressed as a percentage rate per annum) for the Reference Rate which appears
or appear, as the case may be, on the Relevant Screen Page as at either 11.00 a.m.
(London time in the case of LIBOR or Brussels time in the case of EURIBOR) on
the Interest Determination Date in question as determined by the Calculation
Agent.
If five or more of such offered quotations are available on the Relevant Screen
Page, the highest (or, if there is more than one such highest quotation, one only of
such quotations) and the lowest (or, if there is more than one such lowest
quotation, one only of such quotations) shall be disregarded by the Calculation
Agent for the purpose of determining the arithmetic mean of such offered
quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes is
specified hereon as being other than LIBOR or EURIBOR, the Rate of Interest in
respect of such Notes will be determined as specified hereon.
(y)
If the Relevant Screen Page is not available or if, sub-paragraph (x)(l) applies and
no such offered quotation appears on the Relevant Screen Page or if subparagraph (x)(2) above applies and fewer than three such offered quotations
appear on the Relevant Screen Page in each case as at the time specified above,
subject as provided below, the Calculation Agent shall request, if the Reference
Rate is LIBOR, the principal London office of each of the Reference Banks or, if
the Reference Rate is EURIBOR, the principal Euro-zone office of each of the
Reference Banks, to provide the Calculation Agent with its offered quotation
(expressed as a percentage rate per annum) for the Reference Rate if the
Reference Rate is LIBOR, at approximately 11.00 a.m. (London time), or if the
Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time) on the
Interest Determination Date in question. If two or more of the Reference Banks
provide the Calculation Agent with such offered quotations, the Rate of Interest
for such Interest Period shall be the arithmetic mean of such offered quotations as
determined by the Calculation Agent.
(z)
If paragraph (y) above applies and the Calculation Agent determines that fewer
than two Reference Banks are providing offered quotations, subject as provided
below, the Rate of Interest shall be the arithmetic mean of the rates per annum
(expressed as a percentage) as communicated to (and at the request of) the
Calculation Agent by the Reference Banks or any two or more of them, at which
60
such banks were offered, if the Reference Rate is LIBOR, at approximately 11.00
a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately
11.00 a.m. (Brussels time) on the relevant Interest Determination Date, deposits
in the Specified Currency for a period equal to that which would have been used
for the Reference Rate by leading banks in, if the Reference Rate is LIBOR, the
London inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone
inter-bank market, as the case may be, or, if fewer than two of the Reference
Banks provide the Calculation Agent with such offered rates, the offered rate for
deposits in the Specified Currency for a period equal to that which would have
been used for the Reference Rate, or the arithmetic mean of the offered rates for
deposits in the Specified Currency for a period equal to that which would have
been used for the Reference Rate, at which, if the Reference Rate is LIBOR, at
approximately 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR,
at approximately 11.00 a.m. (Brussels time), on the relevant Interest
Determination Date, any one or more banks (which bank or banks is or are in the
opinion of the Trustee and the Issuer suitable for such purpose) informs the
Calculation Agent it is quoting to leading banks in, if the Reference Rate is
LIBOR, the London inter-bank market or, if the Reference Rate is EURIBOR, the
Euro-zone inter-bank market, as the case may be, provided that, if the Rate of
Interest cannot be determined in accordance with the foregoing provisions of this
paragraph, the Rate of Interest shall be determined as at the last preceding Interest
Determination Date (though substituting, where a different Margin or Maximum
or Minimum Rate of Interest is to be applied to the relevant Interest Accrual
Period from that which applied to the last preceding Interest Accrual Period, the
Margin or Maximum or Minimum Rate of Interest relating to the relevant Interest
Accrual Period, in place of the Margin or Maximum or Minimum Rate of Interest
relating to that last preceding Interest Accrual Period.
(C)
Linear Interpolation
Where Linear Interpolation is specified in the relevant Final Terms as applicable in
respect of an Interest Accrual Period, the Rate of Interest for such Interest Accrual
Period shall be calculated by the Calculation Agent by straight line linear interpolation
by reference to two rates based on the relevant Reference Rate (where Screen Rate
Determination is specified in the relevant Final Terms as applicable) or the relevant
Floating Rate Option (where ISDA Determination is specified in the relevant Final
Terms as applicable), one of which shall be determined as if the Applicable Maturity
were the period of time for which rates are available next shorter than the length of the
relevant Interest Accrual Period and the other of which shall be determined as if the
Applicable Maturity were the period of time for which rates are available next longer
than the length of the relevant Interest Accrual Period provided however that if there is
no rate available for the period of time next shorter or, as the case may be, next longer,
then the Calculation Agent shall determine such rate at such time and by reference to
such sources as it determines appropriate.
“Applicable Maturity” means: (a) in relation to Screen Rate Determination, the period
of time designated in the Reference Rate, and (b) in relation to ISDA Determination, the
Designated Maturity.
61
(d)
Zero Coupon Notes
Where a Note the Interest Basis of which is specified to be Zero Coupon is repayable prior to the
Maturity Date and is not paid when due, the amount due and payable prior to the Maturity Date shall
be the Early Redemption Amount of such Note. As from the Maturity Date, the Rate of Interest for any
overdue principal of such a Note shall be a rate per annum (expressed as a percentage) equal to the
Amortisation Yield (as described in Condition 5(b)(i)(B).
(e)
Accrual of Interest
Interest shall cease to accrue on each Note on the due date for redemption unless, upon due
presentation, payment is improperly withheld or refused, in which event interest shall continue to
accrue (as well after as before judgment) at the Rate of Interest in the manner provided in this
Condition 4 to the Relevant Date (as defined in Condition 7).
(f)
(g)
Margin, Maximum/Minimum Rates of Interest and Redemption Amounts and Rounding
(i)
If any Margin is specified hereon (either (x) generally, or (y) in relation to one or more Interest
Accrual Periods), an adjustment shall be made to all Rates of Interest, in the case of (x), or the
Rates of Interest for the specified Interest Accrual Periods, in the case of (y), calculated in
accordance with Condition 4(c) above by adding (if a positive number) or subtracting the
absolute value (if a negative number) of such Margin, subject always to the next paragraph.
(ii)
If any Maximum or Minimum Rate of Interest or Redemption Amount is specified hereon, then
any Rate of Interest or Redemption Amount shall be subject to such maximum or minimum, as
the case may be.
(iii)
For the purposes of any calculations required pursuant to these Conditions (unless otherwise
specified), (x) all percentages resulting from such calculations shall be rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point (with halves being rounded up), (y)
all figures shall be rounded to seven significant figures (with halves being rounded up) and (z)
all currency amounts that fall due and payable shall be rounded to the nearest unit of such
currency (with halves being rounded up), save in the case of yen, which shall be rounded down
to the nearest yen. For these purposes “unit” means the lowest amount of such currency that is
available as legal tender in the countries of such currency.
Calculations
The amount of interest payable per Calculation Amount in respect of any Note for any Interest Accrual
Period shall be equal to the product of the Rate of Interest, the Calculation Amount specified hereon,
and the Day Count Fraction for such Interest Accrual Period, unless an Interest Amount (or a formula
for its calculation) is applicable to such Interest Accrual Period, in which case the amount of interest
payable per Calculation Amount in respect of such Note for such Interest Accrual Period shall equal
such Interest Amount (or be calculated in accordance with such formula). Where any Interest Period
comprises two or more Interest Accrual Periods, the amount of interest payable per Calculation
Amount in respect of such Interest Period shall be the sum of the Interest Amounts payable in respect
of each of those Interest Accrual Periods.
(h)
Determination and Publication of Rates of Interest, Interest Amounts, Final Redemption
Amounts, Early Redemption Amounts and Optional Redemption Amounts
The Calculation Agent shall, as soon as practicable on each Interest Determination Date, or such other
time on such date as the Calculation Agent may be required to calculate any Rate or amount, obtain
62
any quotation or make any determination or calculation, determine such rate and calculate the Interest
Amounts in respect of each Specified Denomination of the Notes for the relevant Interest Accrual
Period, calculate the Final Redemption Amount, Early Redemption Amount or Optional Redemption
Amount, obtain such quotation or make such determination or calculation, as the case may be, and
cause the Rate of Interest and the Interest Amounts for each Interest Period and the relevant Interest
Payment Date and, if required to be calculated, the Final Redemption Amount, Early Redemption
Amount or Optional Redemption Amount to be notified to the Trustee, the Issuer, each of the Paying
Agents, the Noteholders, any other Calculation Agent appointed in respect of the Notes that is to make
a further calculation upon receipt of such information and, if the Notes are listed on a stock exchange
and the rules of such exchange so require, such exchange as soon as possible after their determination
but in no event later than (i) the commencement of the relevant Interest Period, if determined prior to
such time, in the case of notification to such exchange of a Rate of Interest and Interest Amount, or (ii)
in all other cases, the fourth Business Day after such determination. Where any Interest Payment Date
or Interest Period Date is subject to adjustment pursuant to Condition 4(c)(ii), the Interest Amounts and
the Interest Payment Date so published may subsequently be amended (or appropriate alternative
arrangements made with the consent of the Trustee by way of adjustment) without notice in the event
of an extension or shortening of the Interest Period. If the Notes become due and payable under
Condition 9, the accrued interest and the Rate of Interest payable in respect of the Notes shall
nevertheless continue to be calculated as previously in accordance with this Condition but no
publication of the Rate of Interest or the Interest Amount so calculated need be made unless the
Trustee otherwise requires. The determination of any rate or amount, the obtaining of each quotation
and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence
of manifest error) be final and binding upon all parties.
(i)
Determination or Calculation by Trustee
If the Calculation Agent does not at any time for any reason determine or calculate the Rate of Interest
for an Interest Accrual Period or any Interest Amount, Final Redemption Amount, Early Redemption
Amount or Optional Redemption Amount, the Trustee shall do so (or shall appoint an agent on its
behalf to do so) and such determination or calculation shall be deemed to have been made by the
Calculation Agent. In doing so, the Trustee shall apply the foregoing provisions of this Condition, with
any necessary consequential amendments, to the extent that, in its opinion, it can do so, and, in all
other respects it shall do so in such manner as it shall deem fair and reasonable in all the
circumstances.
(j)
Definitions
In these Conditions, unless the context otherwise requires, the following defined terms shall have the
meanings set out below:
“Business Day” means:
(i)
in the case of a currency other than euro, a day (other than a Saturday or Sunday) on which
commercial banks and foreign exchange markets settle payments in the principal financial
centre for such currency and/or
(ii)
in the case of euro, a day on which the TARGET system is operating (a “TARGET Business
Day”) and/or
(iii)
(iii) in the case of a currency and/or one or more Additional Business Centres a day (other than
a Saturday or a Sunday) on which commercial banks and foreign exchange markets settle
63
payments in such currency in the Additional Business Centre(s) or, if no currency is indicated,
generally in each of the Additional Business Centres.
“Day Count Fraction” means, in respect of the calculation of an amount of interest on any Note for
any period of time (from and including the first day of such period to but excluding the last) (whether
or not constituting an Interest Period or Interest Accrual Period, the “Calculation Period”):
(i)
if “Actual/Actual” or “Actual/Actual — ISDA” is specified hereon, the actual number of days
in the Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a
leap year, the sum of (A) the actual number of days in that portion of the Calculation Period
falling in a leap year divided by 366 and (B) the actual number of days in that portion of the
Calculation Period falling in a non-leap year divided by 365)
(ii)
if “Actual/365 (Fixed)” is specified hereon, the actual number of days in the Calculation Period
divided by 365
(iii)
if “Actual/360” is specified hereon, the actual number of days in the Calculation Period divided
by 360
(iv)
if “30/360”, “360/360” or “Bond Basis” is specified hereon, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[
(
)] [
(
)] (
)
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;
“M2” is the calendar month, expressed as number, in which the day immediately following the
last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless such
number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless such number would be 31 and D1 is greater than 29, in which
case D2 will be 30
(v)
if “30E/360” or “Eurobond Basis” is specified hereon, the number of days in the Calculation
Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[
(
–
)] –
(
–
)
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
64
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless such
number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless such number would be 31, in which case D2 will be 30
(vi)
if “30E/360 (ISDA)” is specified hereon, the number of days in the Calculation Period divided
by 360, calculated on a formula basis as follows:
Day Count Fraction =
[
(
–
)] [
(
–
)] (
–
)
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last day
included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the Calculation
Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless (i) that
day is the last day of February or (ii) such number would be 31, in which case D1 will be 30;
and
“D2” is the calendar day, expressed as a number, immediately following the last day included in
the Calculation Period, unless (i) that day is the last day of February but not the Maturity Date
or (ii) such number would be 31, in which case D2 will be 30
(vii)
if “Actual/Actual-ICMA” is specified hereon,
(a)
if the Calculation Period is equal to or shorter than the Determination Period during
which it falls, the number of days in the Calculation Period divided by the product
of (x) the number of days in such Determination Period and (y) the number of
Determination Periods normally ending in any year; and
(b)
if the Calculation Period is longer than one Determination Period, the sum of:
(x)
the number of days in such Calculation Period falling in the Determination Period
in which it begins divided by the product of (1) the number of days in such
Determination Period and (2) the number of Determination Periods normally
ending in any year; and
(y)
the number of days in such Calculation Period falling in the next Determination
Period divided by the product of (1) the number of days in such Determination
Period and (2) the number of Determination Periods normally ending in any year
where:
65
“Determination Period” means the period from and including a Determination
Date in any year to but excluding the next Determination Date and
“Determination Date” means the date specified as such hereon or, if none is so
specified, the Interest Payment Date.
“EURIBOR” means the euro interbank offered rate administered by the European Money Markets
Institute.
“Euro-zone” means the region comprised of member states of the European Union that adopt the
single currency in accordance with the Treaty establishing the European Community as amended from
time to time.
“First Margin” means the margin specified as such hereon.
“First Reset Date” means the date specified hereon.
“First Reset Period” means the period from (and including) the First Reset Date until (but excluding)
the Second Reset Date or, if no such Second Reset Date is specified hereon, the Maturity Date.
“First Reset Rate of Interest” means, in respect of the First Reset Period and subject to Condition
4(b)(ii) and 4(b)(iv), the rate of interest determined by the Calculation Agent on the relevant Reset
Determination Date as the sum of the relevant Mid-Swap Rate and the First Margin.
“Initial Rate of Interest” has the meaning specified hereon.
“Interest Accrual Period” means the period beginning on (and including) the Interest
Commencement Date and ending on (but excluding) the first Interest Period Date and each successive
period beginning on (and including) an Interest Period Date and ending on (but excluding) the next
succeeding Interest Period Date.
“Interest Amount” means:
(i)
in respect of an Interest Accrual Period, the amount of interest payable per Calculation Amount
for that Interest Accrual Period and which, in the case of Fixed Rate Notes, and unless
otherwise specified hereon, shall mean the Fixed Coupon Amount or Broken Amount specified
hereon as being payable on the Interest Payment Date ending the Interest Period of which such
Interest Accrual Period forms part; and
(ii)
in respect of any other period, the amount of interest payable per Calculation Amount for that
period.
“Interest Commencement Date” means the Issue Date or such other date as may be specified hereon.
“Interest Determination Date” means, with respect to a Rate of Interest and Interest Accrual Period,
the date specified as such hereon or, if none is so specified, (i) the first day of such Interest Accrual
Period if the Specified Currency is British Pound Sterling or (ii) the day falling two Business Days in
London for the Specified Currency prior to the first day of such Interest Accrual Period if the Specified
Currency is neither British Pound Sterling nor euro or (iii) the day falling two TARGET Business Days
prior to the first day of such Interest Accrual Period if the Specified Currency is euro.
“Interest Period” means the period beginning on (and including) the Interest Commencement Date
and ending on (but excluding) the first Interest Payment Date and each successive period beginning on
(and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest
Payment Date.
66
“Interest Period Date” means each Interest Payment Date unless otherwise specified hereon.
“ISDA Definitions” means the 2006 ISDA Definitions, as published by the International Swaps and
Derivatives Association, Inc., unless otherwise specified hereon.
“LIBOR” means the London interbank offered rate administered by ICE Benchmark Administration
Limited.
“Mid-Market Swap Rate” means for any Reset Period the mean of the bid and offered rates for the
fixed leg payable with a frequency equivalent to the frequency with which scheduled interest payments
are payable on the Notes during the relevant Reset Period (calculated on the day count basis customary
for fixed rate payments in the Specified Currency as determined by the Calculation Agent) of a fixedfor-floating interest rate swap transaction in the Specified Currency which transaction (i) has a term
equal to the relevant Reset Period and commencing on the relevant Reset Date, (ii) is in an amount that
is representative for a single transaction in the relevant market at the relevant time with an
acknowledged dealer of good credit in the swap market and (iii) has a floating leg based on the MidSwap Floating Leg Benchmark Rate for the Mid-Swap Maturity (as specified in the applicable Final
Terms) (calculated on the day count basis customary for floating rate payments in the Specified
Currency as determined by the Calculation Agent).
“Mid-Market Swap Rate Quotation” means a quotation (expressed as a percentage rate per annum)
for the relevant Mid-Market Swap Rate.
“Mid-Swap Floating Leg Benchmark Rate” means EURIBOR if the Specified Currency is euro or
LIBOR for the Specified Currency if the Specified Currency is not euro.
“Mid-Swap Rate” means, in relation to a Reset Determination Date and subject to Condition 4(b)(ii),
either:
(i)
if Single Mid-Swap Rate is specified hereon, the rate for swaps in the Specified Currency:
(A)
with a term equal to the relevant Reset Period; and
(B)
commencing on the relevant Reset Date,
which appears on the Relevant Screen Page; or
(ii)
if Mean Mid-Swap Rate is specified hereon, the arithmetic mean (expressed as a percentage
rate per annum and rounded, if necessary, to the nearest 0.001 per cent. (0.0005 per cent. being
rounded upwards)) of the bid and offered swap rate quotations for swaps in the Specified
Currency:
(A)
with a term equal to the relevant Reset Period; and
(B)
commencing on the relevant Reset Date,
which appear on the Relevant Screen Page,
in either case, as at approximately 11.00 a.m. in the principal financial centre of the Specified
Currency on such Reset Determination Date, all as determined by the Calculation Agent.
“Rate of Interest” means, in the case of Reset Notes, the Initial Rate of Interest, the First Reset Rate
of Interest or the Subsequent Reset Rate of Interest, as applicable, and in any other case, the rate of
interest payable from time to time in respect of this Note and that is either specified or calculated in
accordance with the provisions hereon.
67
“Reference Banks” means, in the case of a determination of LIBOR, the principal London office of
four major banks in the London inter-bank market and, in the case of a determination of EURIBOR,
the principal Euro-zone office of four major banks in the Euro-zone inter-bank market, in each case
selected by the Calculation Agent or as specified hereon.
“Reference Rate” means the rate, being either LIBOR or EURIBOR, specified as such hereon.
“Relevant Screen Page” means such page, section, caption, column or other part of a particular
information service as may be specified hereon, or such replacement page on that service which
displays the information.
“Reset Date” means the First Reset Date, the Second Reset Date and each Subsequent Reset Date (as
applicable), in each case as adjusted (if so specified hereon) in accordance with Condition 4(a) as if the
relevant Reset Date was an Interest Payment Date.
“Reset Determination Date” means, in respect of the First Reset Period, the second Business Day
prior to the First Reset Date, in respect of the first Subsequent Reset Period, the second Business Day
prior to the Second Reset Date and, in respect of each Subsequent Reset Period thereafter, the second
Business Day prior to the first day of each such Subsequent Reset Period.
“Reset Period” means the First Reset Period or a Subsequent Reset Period, as the case may be.
“Second Reset Date” means the date specified hereon.
“Specified Currency” means the currency specified as such hereon or, if none is specified, the
currency in which the Notes are denominated.
“Subsequent Margin” means the margin specified as such hereon.
“Subsequent Reset Date” means the date or dates specified hereon.
“Subsequent Reset Period” means the period from (and including) the Second Reset Date to (but
excluding) the next Subsequent Reset Date, and each successive period from (and including) a
Subsequent Reset Date to (but excluding) the next succeeding Subsequent Reset Date.
“Subsequent Reset Rate of Interest” means, in respect of any Subsequent Reset Period and subject to
Condition 4(b)(ii), the rate of interest determined by the Calculation Agent on the relevant Reset
Determination Date as the sum of the relevant Mid-Swap Rate and the relevant Subsequent Margin
“TARGET System” means the Trans-European Automated Real-Time Gross Settlement Express
Transfer (known as TARGET2) System which was launched on 19 November 2007 or any successor
thereto.
(k)
Calculation Agent
The Issuer shall procure that there shall at all times be one or more calculation agents if provision is
made for them hereon and for so long as any Note is outstanding (as defined in the Trust Deed). Where
more than one Calculation Agent is appointed in respect of the Notes, references in these Conditions to
the Calculation Agent shall be construed as each Calculation Agent performing its respective duties
under the Conditions. If the Calculation Agent is unable or unwilling to act as such or if the
Calculation Agent fails duly to establish the Rate of Interest for an Interest Period or Interest Accrual
Period or to calculate any Interest Amount, Final Redemption Amount, Early Redemption Amount or
Optional Redemption Amount, as the case may be, or to comply with any other requirement, the Issuer
shall (with the prior written approval of the Trustee) appoint a leading bank or investment banking firm
engaged in the interbank market (or, if appropriate, money, swap or over-the-counter index options
68
market) that is most closely connected with the calculation or determination to be made by the
Calculation Agent (acting through its principal London office or any other office actively involved in
such market) to act as such in its place. The Calculation Agent may not resign its duties without a
successor having been appointed as aforesaid.
5
Redemption, Purchase and Options
(a)
Final Redemption
(i)
(b)
Unless previously redeemed, purchased and cancelled as provided below, each Senior Note or
Subordinated Note shall be finally redeemed on the Maturity Date specified hereon at its Final
Redemption Amount (which is its nominal amount). Subordinated Notes will have a minimum
maturity of at least five years. For the avoidance of doubt, no payments of principal under the
Notes will be made in instalments.
Early Redemption
(i)
Zero Coupon Notes
(A)
The Early Redemption Amount payable in respect of any Zero Coupon Note, the Early
Redemption Amount of which is not linked to an index and/or a formula, upon
redemption of such Note pursuant to Condition 5(c) or upon it becoming due and
payable as provided in Condition 9 shall be the Amortised Face Amount (calculated as
provided below) of such Note unless otherwise specified hereon.
(B)
Subject to the provisions of sub-paragraph (C) below, the Amortised Face Amount of
any such Note shall be the scheduled Final Redemption Amount of such Note on the
Maturity Date discounted at a rate per annum (expressed as a percentage) equal to the
Amortisation Yield (which, if none is shown hereon, shall be such rate as would produce
an Amortised Face Amount equal to the issue price of the Notes if they were discounted
back to their issue price on the Issue Date) compounded annually.
(C)
If the Early Redemption Amount payable in respect of any such Note upon its
redemption pursuant to Condition 5(c) or upon it becoming due and payable as provided
in Condition 9 is not paid when due, the Early Redemption Amount due and payable in
respect of such Note shall (subject, in the case of Subordinated Notes, to the provisions
of Condition 2(b) and provided the Bank of Portugal’s consent has been obtained in
relation to the early redemption of Subordinated Notes) be the Amortised Face Amount
of such Note as defined in sub-paragraph (B) above, except that such subparagraph shall
have effect as though the date on which the Note becomes due and payable were the
Relevant Date. The calculation of the Amortised Face Amount in accordance with this
sub-paragraph shall continue to be made (both before and after judgment) until the
Relevant Date, unless the Relevant Date falls on or after the Maturity Date, in which
case the amount due and payable shall be the scheduled Final Redemption Amount of
such Note on the Maturity Date together with any interest that may accrue in accordance
with Condition 4(c).
Where such calculation is to be a made for a period of less than one year, it shall be made on
the basis of the Day Count Fraction shown hereon.
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(ii)
Other Notes
The Early Redemption Amount payable in respect of any Note (other than Notes described in
(i) above), upon redemption of such Note pursuant to Condition 5(c) or upon it becoming due
and payable as provided in Condition 9, shall be the Final Redemption Amount (together with
any accrued interest).
(c)
Redemption for Taxation Reasons
The Notes may be redeemed at the option of the Issuer in whole, but not in part, (but subject to consent
thereto having been obtained from the Bank of Portugal in the case of Subordinated Notes) on any
Interest Payment Date (if this Note is not a Floating Rate Note), on giving not less than 30 nor more
than 60 days’ notice to the Noteholders (which notice shall be irrevocable) at their Early Redemption
Amount (as described in Condition 5(b) above) (together with interest accrued to the date fixed for
redemption), if (i) the Issuer satisfies the Trustee immediately before the giving of such notice that it
has or will become obliged to pay additional amounts as described under Condition 7 as a result of any
change in, or amendment to, the laws or regulations of the Cayman Islands and/or Portugal or any
political subdivision or any authority thereof or therein having power to tax, or any change in the
application or official interpretation of such laws or regulations, which change or amendment becomes
effective on or after the Issue Date, and (ii) such obligation cannot be avoided by the Issuer taking
reasonable measures available to it, provided that no such notice of redemption shall be given earlier
than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional
amounts were a payment in respect of the Notes then due. Before the publication of any notice of
redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee (1) a certificate signed by
two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a
statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have
occurred and (2) an opinion of independent legal advisers of recognised standing to the effect that the
Issuer has or will become obliged to pay such additional amounts as a result of such change or
amendment and the Trustee shall be entitled to accept such certificate as sufficient evidence of the
satisfaction of the condition precedent set out in (ii) above without further enquiry and without
liability, in which case it shall be conclusive and binding on the Noteholders and Couponholders. Upon
the expiry of any such notice as is referred to in this Condition 5(c), the Issuer shall be bound to
redeem the Notes in accordance with this Condition 5(c).
This Condition 5(c) shall only apply in the case of Subordinated Notes if the circumstance that entitles
the Issuer to exercise such right of redemption was not reasonably foreseeable at the Issue Date and the
Issuer demonstrates to the satisfaction of the Bank of Portugal (or applicable competent authority) that
the circumstance involves a material change in tax treatment.
(d)
Redemption at the Option of the Issuer
If Call Option is specified hereon, such Call Option cannot occur earlier than five years from the
relevant Issue Date in the case of Subordinated Notes (but subject to consent thereto having been
obtained from the Bank of Portugal in the case of Subordinated Notes), the Issuer may, on giving not
less than 15 nor more than 30 days’ irrevocable notice to the Noteholders (or such other notice period
as may be specified hereon) redeem all or, if so provided, some of the Notes on any Optional
Redemption Date. Any such redemption of Notes shall be at their Optional Redemption Amount
together with interest accrued to the date fixed for redemption. Any such redemption or exercise must
relate to Notes of a nominal amount at least equal to the Minimum Redemption Amount to be
redeemed specified hereon and no greater than the Maximum Redemption Amount to be redeemed
specified hereon.
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All Notes in respect of which any such notice is given shall be redeemed on the date specified in such
notice in accordance with this Condition.
In the case of a partial redemption, the notice to Noteholders shall also contain the certificate numbers
of the Notes to be redeemed which shall have been drawn in such place as the Trustee may approve
and in such manner as it deems appropriate, subject to compliance with any applicable laws and stock
exchange or other relevant authority requirements.
(e)
Redemption due to a Change in Regulatory Capital Treatment
Subordinated Notes may be redeemed at the option of the Issuer in whole, but not in part, (but subject
to consent to redeem having been obtained from the Bank of Portugal) before five years of the Issue
Date and at any time thereafter (but which shall be on an Interest Payment Date if this Subordinated
Note is a Floating Rate Note), on giving not less than 30 nor more than 60 days’ notice to Noteholders
(which notice shall be irrevocable) at their Early Redemption Amount (together with interest accrued
to the date fixed for redemption) if, as a result of any change or prospective change in the regulatory
classification of the Subordinated Notes, the Subordinated Notes would be excluded from the Issuer’s
own funds or have a lower quality form of own funds (excluding, for these purposes, any nonrecognition as a result of applicable regulatory amortisation in the five years immediately preceding
maturity) and, if the Subordinated Notes are to be redeemed before five years have elapsed since the
Issue Date, both the following conditions apply:
(f)
(i)
the Bank of Portugal considers the referred change to be sufficiently certain; and
(ii)
the Issuer demonstrates to the satisfaction of the Bank of Portugal that the change in regulatory
classification was not reasonably foreseeable at the Issue Date.
Redemption at the Option of Noteholders
If, in relation to Senior Notes only, Put Option is specified hereon, the Issuer shall, at the option of the
holder of any such Note, upon the holder of such Note giving not less than 15 nor more than 30 days’
notice to the Issuer (or such other notice period as may be specified hereon) redeem such Note on the
Optional Redemption Date(s) at its Optional Redemption Amount together with interest accrued to the
date fixed for redemption.
To exercise such option the holder must deposit during normal office hours such Note (together with
all unmatured Coupons and unexchanged Talons) provided that no deposit of Notes will be required in
respect of Book Entry Notes with any Paying Agent at its specified office, together with a duly
completed option exercise notice (“Exercise Notice”) in the form obtainable during normal office
hours from any Paying Agent within the notice period. No Note so deposited and option exercised may
be withdrawn (except as provided in the Agency Agreement) without the prior consent of the Issuer.
(g)
Purchases
The Issuer and any of its Subsidiaries (with the consent of the Bank of Portugal and not before year
five in the case of Subordinated Notes) may at any time purchase Notes (provided that all unmatured
Coupons (if any) and unexchanged Talons relating thereto are attached thereto or surrendered
therewith) in the open market or otherwise at any price.
(h)
Cancellation
All Notes purchased by or on behalf of the Issuer or any of its Subsidiaries may be surrendered for
cancellation by surrendering each such Note together with all unmatured Coupons (if any) and all
unexchanged Talons (if any) to the Issuing and Paying Agent or in accordance with Interbolsa
71
regulations in case of Book Entry Notes and if so surrendered, shall, together with all Notes redeemed
by the Issuer, be cancelled forthwith (together with all unmatured Coupons (if any) and unexchanged
Talons (if any) attached thereto or surrendered therewith). Any Notes so surrendered for cancellation
may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be
discharged.
6
Payments and Talons
(a)
Payments of Principal and Interest
Payments of principal and interest in respect of Notes shall, subject as mentioned below, be made
against presentation and surrender of the relevant Notes (in the case of all other payments of principal
and, in the case of interest, as specified in Condition 6(e)(vi)) or Coupons (in the case of interest, save
as specified in Condition 6(e)(ii)), as the case may be, at the specified office of any Paying Agent
outside the United States by a cheque payable in the relevant currency drawn on, or, at the option of
the holder, by transfer to an account denominated in such currency with, a Bank. “Bank” means a
bank in the principal financial centre for such currency or, in the case of euro, in a city in which banks
have access to the TARGET System.
Payments in respect of Book Entry Notes will be made by transfer to the registered account of the
Noteholders maintained by or on behalf of it with a bank that processes payments in euro, details of
which appear in the records of the relevant affiliated member of Interbolsa at the close of business on
the Payment Business Day (as defined below) before the due date for payment of principal and or
interest.
“Payment Business Day” means a day which (subject to Condition 8):
(b)
(a)
is or falls before the due date for payment of principal and or interest; and
(b)
is a TARGET Business Day.
Payments in the United States
Notwithstanding the foregoing, if any Notes are denominated in U.S. dollars, payments in respect
thereof may be made at the specified office of any Paying Agent in New York City in the same manner
as aforesaid if (i) the Issuer shall have appointed Paying Agents with specified offices outside the
United States with the reasonable expectation that such Paying Agents would be able to make payment
of the amounts on the Notes in the manner provided above when due, (ii) payment in full of such
amounts at all such offices is illegal or effectively precluded by exchange controls or other similar
restrictions on payment or receipt of such amounts and (iii) such payment is then permitted by United
States law, without involving, in the opinion of the Issuer, any adverse tax consequence to the Issuer.
(c)
Payments subject to Fiscal Laws
Save as provided in Condition 7, all payments are subject in all cases to any applicable fiscal or other
laws, regulations and directives in the place of payment or other laws to which the Issuer or its agents
agree to be subject and the Issuer will not be liable for any taxes or duties of whatever nature imposed
or levied by such laws, regulations, directives or agreements. No commission or expenses shall be
charged to the Noteholders or Couponholders in respect of such payments.
(d)
Appointment of Agents
The Issuing and Paying Agent, the Paying Agents and the Calculation Agent initially appointed by the
Issuer and their respective specified offices are listed below. The Issuing and Paying Agent, the Paying
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Agents and the Calculation Agent act solely as agents of the Issuer and do not assume any obligation
or relationship of agency or trust for or with any Noteholder or Couponholder. The Issuer reserves the
right at any time with the prior written approval of the Trustee to vary or terminate the appointment of
the Issuing and Paying Agent, any other Paying Agent or the Calculation Agent(s) and to appoint
additional or other Paying Agents, provided that the Issuer shall at all times maintain (i) an Issuing and
Paying Agent, (ii) one or more Calculation Agent(s) where the Conditions so require, (iii) Paying
Agents having specified offices in at least two major European cities (including Luxembourg) so long
as the Notes are listed on the Luxembourg Stock Exchange and (iv) such other agents as may be
required by the rules of any other stock exchange on which the Notes may be listed in each case, as
approved by the Trustee.
In addition, the Issuer shall forthwith appoint a Paying Agent in New York City in respect of any Notes
denominated in U.S. dollars in the circumstances described in paragraph (b) above.
Notice of any such change or any change of any specified office shall promptly be given to the
Noteholders in accordance with Condition 15.
Caixa Económica Montepio Geral will be the paying agent in Portugal in respect of Book Entry Notes.
(e)
Unmatured Coupons and unexchanged Talons
(i)
Upon the due date for redemption of Notes which comprise Fixed Rate Notes (other than any
Fixed Rate Notes where the total value of the unmatured coupons appertaining thereto exceeds
the nominal amount of such Note) should be surrendered for payment together with all
unmatured Coupons (if any) relating thereto, failing which an amount equal to the face value of
each missing unmatured Coupon (or, in the case of payment not being made in full, that
proportion of the amount of such missing unmatured Coupon that the sum of principal so paid
bears to the total principal due) shall be deducted from the Final Redemption Amount, Early
Redemption Amount or Optional Redemption Amount, as the case may be, due for payment.
Any amount so deducted shall be paid in the manner mentioned above against surrender of such
missing Coupon within a period of 10 years from the Relevant Date for the payment of such
principal (whether or not such Coupon has become void pursuant to Condition 8).
(ii)
Upon the due date for redemption of any Note comprising a Floating Rate Note or, a Fixed Rate
Note where the total value of the unmatured coupons exceeds the nominal amount of such Note,
unmatured Coupons (if any) relating to such Note (whether or not attached) shall become void
and no payment shall be made in respect of them.
(iii)
Upon the due date for redemption of any Note, any unexchanged Talon (if any) relating to such
Note (whether or not attached) shall become void and no Coupon (if any) shall be delivered in
respect of such Talon.
(iv)
Where any Note that provides that the relative unmatured Coupons(if any) are to become void
upon the due date for redemption of those Notes is presented for redemption without all
unmatured Coupons (if any), and where any Note is presented for redemption without any
unexchanged Talon (if any) relating to it, redemption shall be made only against the provision
of such indemnity as the Issuer may require.
(v)
Other than in respect of Book Entry Notes if the due date for redemption of any Note is not a
due date for payment of interest, interest accrued from the preceding due date for payment of
interest or the Interest Commencement Date, as the case may be, shall only be payable against
presentation (and surrender if appropriate) of the relevant Note. Interest accrued on a Note that
73
only bears interest after its Maturity Date shall be payable on redemption of such Note against
presentation of the relevant Note.
(f)
Talons
On or after the Interest Payment Date for the final Coupon forming part of a Coupon sheet issued in
respect of any Note, the Talon (if any) forming part of such Coupon sheet may be surrendered at the
specified office of the Issuing and Paying Agent in exchange for a further Coupon sheet (and if
necessary another Talon for a further Coupon sheet) (but excluding any Coupons (if any) that may
have become void pursuant to Condition 8).
(g)
Non-Business Days
If any date for payment in respect of any Note or Coupon (if any) is not a business day, the holder shall
not be entitled to payment until the next following business day nor to any interest or other sum in
respect of such postponed payment. In this paragraph, “business day” means a day (other than a
Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the
relevant place of presentation or in Portugal in case of Book Entry Notes, in such jurisdictions as shall
be specified as “Financial Centres” hereon and:
7
(i)
(in the case of a payment in a currency other than euro) where payment is to be made by
transfer to an account maintained with a bank in the relevant currency, on which foreign
exchange transactions may be carried on in the relevant currency in the principal financial
centre of the country of such currency or
(ii)
(in the case of a payment in euro) which is a TARGET Business Day.
Taxation
All payments of principal and interest by or on behalf of the Issuer in respect of the Notes and the Coupon (if
any) shall (subject to the conditions and limitations set out below) be made free and clear of, and without
withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature
imposed, levied, collected, withheld or assessed by or within the Cayman Islands and/or Portugal or any
political subdivision or any authority therein or thereof having power to tax, unless such withholding or
deduction is required by law. Payments of interest and other types of remuneration on the Notes and the
Coupons will be made without withholding or deduction for or on account of taxes imposed or levied by the
Portuguese Republic where the relevant proof of non-residence status has been provided by the Noteholders
or the Couponholders to the direct registration entities prior to the Relevant Date. In the event that any
withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature
imposed, levied, collected, withheld or assessed by or within the Cayman Islands and/or Portugal or any
political subdivision or any authority therein or thereof having power to tax is required by law, the Issuer shall
pay such additional amounts as shall result in receipt by the Noteholders and Couponholders of such amounts
as would have been received by them had no such withholding or deduction been required, except that no
such additional amounts shall be payable with respect to any Note or Coupon (if any):
(a)
Other connection
to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessments or
governmental charges in respect of such Note or Coupon by reason of his having some connection
with the Cayman Islands and/or Portugal other than the mere holding of the Note or Coupon (if any) or
74
(b)
Lawful avoidance of withholding
(i) to, or to a third party on behalf of, the effective beneficiary of the Notes in respect of whom the
information (which may include certificates) required in order to comply with Decree-Law no.
193/2005, of 7 November 2005 (as amended), and any implementing legislation, is not received; or (ii)
to, or to a third party on behalf of, the effective beneficiary of the Notes (a) in respect of whom the
information and documentation required by Portuguese law in order to comply with any applicable tax
treaty is not received before the Relevant Date, and (b) who is resident in one of the states which is
party to any such applicable tax treaty; or (iii) to, or to a third party on behalf of, the effective
beneficiary of the Notes resident in a tax haven jurisdiction as defined in Ordinance (Portaria) no.
150/2004, of 13 February 2004 (as amended from time to time), with the exception of central banks
and governmental agencies, or non resident legal entities held directly or indirectly in more than 20 per
cent. by entities resident in Portugal or
(c)
Presented to a Paying Agent
presented for payment to a Paying Agent where presentation to another Paying Agent would not have
resulted in such withholding or deduction or where additional amounts are payable only because Notes
or Coupons (if any) are being presented for payment effectively at the counter of a Paying Agent.
As used in these Conditions, “Relevant Date” in respect of any Note or Coupon (if any) means the
date on which payment in respect of it first becomes due or (if any amount of the money payable is
improperly withheld or refused) the date on which payment in full of the amount outstanding is made
or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon
further presentation of the Note or Coupon (if any) being made in accordance with the Conditions,
such payment will be made, provided that payment is in fact made upon such presentation. References
in these Conditions to (i) “principal” shall be deemed to include any premium payable in respect of
the Notes, all Final Redemption Amounts, Early Redemption Amounts, Optional Redemption
Amounts, Amortised Face Amounts and all other amounts in the nature of principal payable pursuant
to Condition 5, (ii) “interest” shall be deemed to include all Interest Amounts and all other amounts
payable pursuant to Condition 4 and (iii) “principal” and/or “interest” shall be deemed to include any
additional amounts that may be payable under this Condition or any undertaking given in addition to or
in substitution for it under the Trust Deed.
8
Prescription
Claims against the Issuer for payment in respect of the Notes and Coupons (which, for this purpose, shall not
include Talons) shall be prescribed and become void unless made within twenty years (in the case of
principal) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.
9
Events of Default
(a)
Senior Notes
In the case of Senior Notes if any of the following events (“Events of Default”) occurs and is
continuing, the Trustee at its discretion may, and if so requested by holders of at least one-fifth in
nominal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall,
subject in each case to being indemnified and/or secured and/or prefunded to its satisfaction give
notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their
Early Redemption Amount together with accrued interest:
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(i)
Non-Payment
Default is made for more than 10 days (in the case of interest) or seven days (in the case of
principal) in the payment on the due date of interest or principal in respect of any of the Notes
or
(ii)
Breach of Other Obligations
The Issuer does not perform or comply with any one or more of its other obligations in the
Notes or the Trust Deed which default is, in the opinion of the Trustee, incapable of remedy or,
if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied
within 30 days after written notice of such default shall have been given to the Issuer by the
Trustee or
(iii)
Cross-Default
(A) any other present or future indebtedness of the Issuer or any of its Subsidiaries (as defined
below) for or in respect of moneys borrowed or raised becomes (or becomes capable of being
declared) due and payable prior to its stated maturity by reason of any actual or potential
default, event of default or the like (howsoever described), or (B) any such indebtedness is not
paid when due or, as the case may be, within any originally applicable grace period, or (C) the
Issuer or any of its Subsidiaries fails to pay when due any amount payable by it under any
present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised,
provided that the amount of the relevant indebtedness, guarantees and/or indemnities in respect
of which one or more of the events mentioned above in this paragraph (iii) have occurred,
individually or in the aggregate, exceeds €5,000,000 or its equivalent (as reasonably determined
by the Trustee) or
(iv)
Enforcement Proceedings
One or more judgment(s) or order(s) for the payment of any amount is rendered against the
Issuer or any of its Subsidiaries or a distress, attachment, execution or other legal process is
levied, enforced or sued out on or against any part of the property, assets or revenues of the
Issuer or any of its Subsidiaries and in any of the above cases, is not discharged or stayed
within 60 days or, if later, the date specified therein for payment or
(v)
Security Enforced
Any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed
by the Issuer or any of its Subsidiaries becomes enforceable and any step is taken to enforce it
(including the taking of possession or the appointment of a receiver, manager or other similar
person) or
(vi)
Insolvency
Any of the Issuer or any of its Subsidiaries (i) is (or is, or could be, deemed by law or a court to
be) insolvent or bankrupt or unable to pay its debts, (ii) stops, suspends or threatens to stop or
suspend payment of all or a material part (in the opinion of the Trustee) of (or of a particular
type of) its debts or (iii) proposes or makes a general assignment or an arrangement or
composition with or for the benefit of the relevant creditors in respect of any of such debts or a
moratorium is agreed or declared in respect of or affecting all or any part of (or of a particular
type of) the debts of the Issuer or any of its Subsidiaries or
76
(vii)
Winding-up
An order is made or an effective resolution passed for the winding-up or dissolution or
administration of the Issuer or any of its Subsidiaries, or the Issuer or any of its Subsidiaries
shall apply or petition for a winding-up or administration order in respect of itself or ceases or
through an official action of its board of directors threatens to cease to carry on all or
substantially all (in the opinion of the Trustee) of its business or operations, in each case except
for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or
consolidation (i) on terms previously approved by the Trustee in writing or by an Extraordinary
Resolution (as defined in the Trust Deed) of the Noteholders or (ii) in the case of a Subsidiary,
whereby the undertaking and assets of the Subsidiary are transferred to or otherwise vested in
the Issuer or another of its Subsidiaries or
(viii) Authorisation and Consents
Any action, condition or thing (including the obtaining or effecting of any necessary consent,
approval, authorisation, exemption, filing, licence, order, recording or registration) at any time
required to be taken, fulfilled or done in order (i) to enable the Issuer lawfully to enter into,
exercise its rights and perform and comply with its obligations under the Notes and the Trust
Deed, (ii) to ensure that those obligations are legal, valid, binding and enforceable and (iii) to
make the Notes, the Coupons and the Trust Deed admissible in evidence in the courts of the
Cayman Islands and/or Portugal, as the case may be, is not taken, fulfilled or done or
(ix)
Illegality
It is or will become unlawful for the Issuer to perform or comply with any one or more of its
obligations under any of the Notes or the Trust Deed or
(x)
Analogous Events
Any event occurs that under the laws of any relevant jurisdiction has an analogous effect to any
of the events referred to in any of the foregoing paragraphs provided that except in the case of
paragraphs (i) and (vii) the Trustee shall have certified that in its opinion such event is
materially prejudicial to the interests of the Noteholders.
For the purpose of these Conditions:
“Subsidiary” means any entity of which the Issuer has control and “control” for the purpose of
this definition means the beneficial ownership whether direct or indirect of the majority of the
issued and/or voting share capital or the right to direct the management and policies of such
entity, whether by the ownership of share capital, contract or otherwise. A certificate by any two
authorised officers of the Issuer listing the entities that are Subsidiaries at any time shall, in the
absence of manifest error, be conclusive and binding on all parties.
The Trust Deed provides that the Trustee may call for and rely on a certificate of the Auditors
(as defined in the Trust Deed) as to those entities which, as at the last day of the last financial
year of the Issuer or as at any date specified by the Trustee in its request for such information,
were Subsidiaries.
(b)
Subordinated Notes
In the case of Subordinated Notes if any one or more of the following events (each an “Event of
Default”) shall occur:
77
(i)
bankruptcy or insolvency proceedings are commenced by a court against the Issuer or the Issuer
institutes such proceedings or suspends payments or makes a general arrangement for the
benefit of its creditors; or
(ii)
if otherwise than for the purposes of a reconstruction or amalgamation on terms previously
approved in writing by the Trustee or by an Extraordinary Resolution of the Noteholders an
order is made or an effective resolution is passed for the winding up of the Issuer
the Trustee may at its discretion, and if so requested by holders of at least one-fifth in nominal amount
of the Notes then outstanding or if so directed by an Extraordinary Resolution shall, subject in each
case to being indemnified and/or secured and/or prefunded to its satisfaction, give notice to the Issuer
that the Subordinated Notes are, and they shall accordingly thereby forthwith become, immediately
due and repayable at their Early Redemption Amount together with accrued interest as provided in the
Trust Deed.
Without prejudice to Conditions 9(b)(i) and 9(b)(ii) above, if the Issuer breaches any of its obligations
under the Trust Deed or the Subordinated Notes or relative Coupons of the relevant series (other than
any payment obligation of the Issuer under or arising from the Trust Deed or the Subordinated Notes
or relative Coupons of the relevant series, including, without limitation, payment of any principal or
interest in respect of the Subordinated Notes or relative Coupons and any damages awarded for breach
of any obligations) then the Trustee, may, subject as provided below, at its discretion and without
further notice, bring such proceedings as it may think fit to enforce the obligation in question provided
that the Issuer shall not, as a result of the bringing of any such proceeding, be obliged to pay any sum
sooner than the same would otherwise have been payable by it. However, nothing in this Condition
9(b) shall prevent the Trustee instituting proceedings for the winding-up of the Issuer and/or proving in
any winding-up of the Issuer in respect of any payment obligations of the Issuer arising from the
Subordinated Notes, the Coupons relating thereto, or the Trust Deed (including any damages awarded
for breach of any such obligation).
For the purposes of this Condition 9(b) only, notwithstanding the Trustee having given notice that the
Subordinated Notes are immediately due and repayable, the Issuer may only redeem such Notes prior
to maturity with the prior approval of the Bank of Portugal.
There can be no assurance that the Bank of Portugal will give its approval to any such
redemption. Noteholders should be aware that the Bank of Portugal approval will, among other
things (as described in Conditions 5(c) and 5(e)), depend on the capital adequacy of the Issuer.
(c)
Senior Notes and Subordinated Notes
In the case of both Senior Notes and Subordinated Notes:
(i)
The Trustee shall be bound to take action as referred to in paragraphs (a) and/or (b) above only
if (aa) it shall have been so requested in writing by Noteholders holding not less than one-fifth
in nominal amount of the Notes then outstanding or if so directed by an Extraordinary
Resolution of the Noteholders and (bb) in each case only if it shall have been indemnified or
secured (whether by payment in advance or otherwise) to its satisfaction.
(ii)
No Noteholder shall be entitled to proceed directly against the Issuer unless the Trustee, having
become bound so to proceed, fails to do so within a reasonable period and such failure is
continuing. No Noteholder shall be entitled to institute proceedings for the winding up of the
Issuer or to submit a claim in such winding up, except that if the Trustee, having become bound
to institute such proceedings as aforesaid, fails to do so or, being able and bound to submit a
78
claim in such winding up, fails to do so, in each case within a reasonable period and such
failure is continuing, then any such holder may, on giving an indemnity and/or security and/or
prefunding satisfactory to the Trustee, in the name of the Trustee (but not otherwise), himself
institute proceedings for the winding up of the Issuer and/or submit a claim in such winding up
to the same extent (but no further or otherwise) that the Trustee would have been entitled to do.
10
Meetings of Noteholders, Modification, Waiver and Substitution
(a)
Meetings of Noteholders
The Trust Deed and, in relation to Book Entry Notes only, the Instrument contains provisions for
convening meetings of Noteholders to consider any matter affecting their interests, including the
sanctioning by Extraordinary Resolution (as defined in the Trust Deed) of a modification of any of
these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by
Noteholders holding not less than 10 per cent. in nominal amount of the Notes for the time being
outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution shall be
two or more persons holding or representing a clear majority in nominal amount of the Notes for the
time being outstanding, or at any adjourned meeting two or more persons being or representing
Noteholders whatever the nominal amount of the Notes held or represented, unless the business of
such meeting includes consideration of proposals, inter alia, (i) to amend the dates of maturity or
redemption of the Notes or any date for payment of interest or Interest Amounts on the Notes, (ii) to
reduce or cancel the nominal amount of, or any premium payable on redemption of, the Notes, (iii) to
reduce the rate or rates of interest in respect of the Notes or to vary the method or basis of calculating
the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the
Notes, (iv) if a Minimum and/or a Maximum Rate of Interest or Redemption Amount is shown hereon,
to reduce any such Minimum and/or Maximum, (v) to vary any method of, or basis for, calculating the
Final Redemption Amount, the Early Redemption Amount or the Optional Redemption Amount,
including the method of calculating the Amortised Face Amount, (vi) to vary the currency or
currencies of payment or denomination of the Notes, or (vii) to modify the provisions concerning the
quorum required at any meeting of Noteholders or the majority required to pass the Extraordinary
Resolution, in which case the necessary quorum shall be two or more persons holding or representing
not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in nominal amount of
the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding
on Noteholders (whether or not they were present at the meeting at which such resolution was passed)
and on all Couponholders.
(b)
Modification of the Trust Deed
The Trustee may agree, without the consent of the Noteholders or Couponholders, to (i) any
modification of any of the provisions of the Trust Deed that is in its opinion of a formal, minor or
technical nature or is made to correct a manifest error, and (ii) any other modification (except as
mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of
any of the provisions of the Conditions or of the Trust Deed that is in the opinion of the Trustee not
materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or
waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such
modification shall be notified to the Noteholders as soon as practicable. The Trustee may agree,
without the consent of the Noteholders or Couponholders, on or after the Specified Date (as defined
below) to such modifications to the Notes, the Coupons and the Trust Deed in respect of
redenomination of the Notes in euro and associated reconventioning, renominalisation and related
matters in respect of the Notes as may be proposed by the Issuer (and confirmed by an independent
79
financial institution approved by the Trustee to be in conformity with then applicable market
conventions and to provide for redemption at the euro equivalent of the sterling principal amount of
the Notes). For these purposes, “Specified Date” means the date on which the United Kingdom
participates in the third stage of European economic and monetary union pursuant to the Treaty
establishing the European Community or otherwise participates in European economic and monetary
union in a manner with an effect similar to such third stage.
(c)
Substitution
The Trust Deed contains provisions permitting the Trustee to agree, subject to such amendment of the
Trust Deed and such other conditions as the Trustee may require, but without the consent of the
Noteholders or the Couponholders, to the substitution of the Issuer’s successor in business or any
subsidiary of the Issuer or its successor in business in place of the Issuer, or of any previous substituted
company, as principal debtor under the Trust Deed and the Notes. In the case of such a substitution the
Trustee may agree, without the consent of the Noteholders or the Couponholders, to a change of the
law governing the Notes, the Coupons, the Talons and/or the Trust Deed provided that such change
would not in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders.
(d)
Entitlement of the Trustee
In connection with the exercise of its functions (including but not limited to those referred to in this
Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have
regard to the consequences of such exercise for individual Noteholders or Couponholders and the
Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim,
from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise
upon individual Noteholders or Couponholders.
11
Enforcement
At any time after the Notes become due and payable, the Trustee may, at its discretion and without further
notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed,
the Notes and the Coupons (if any), but it need not take any such proceedings unless (a) it shall have been so
directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-fifth in
nominal amount of the Notes outstanding, and (b) it shall have been indemnified and/or secured and/or
prefunded to its satisfaction. No Noteholder or Couponholder may proceed directly against the Issuer unless
the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is
continuing.
12
Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from
responsibility. The Trustee is entitled to enter into business transactions with the Issuer and any entity related
to the Issuer without accounting for any profit.
13
Replacement of Notes, Coupons and Talons
If a Note (other than Book Entry Notes), Coupon (if any) or Talon (if any) is lost, stolen, mutilated, defaced or
destroyed, it may be replaced, subject to applicable laws, regulations and stock exchange or other relevant
authority regulations, at the specified office of the Issuing and Paying Agent in Luxembourg or such other
Paying Agent, as may from time to time be designated by the Issuer for the purpose and notice of whose
designation is given to Noteholders, in each case on payment by the claimant of the fees and costs incurred in
80
connection therewith and on such terms as to evidence, security and indemnity (which may provide, inter
alia, that if the allegedly lost, stolen or destroyed Note, Coupon (if any) or Talon (if any) is subsequently
presented for payment or, as the case may be, for exchange for further Coupons (if any), there shall be paid to
the Issuer on demand the amount payable by the Issuer in respect of such Notes, Coupons or further Coupons)
and otherwise as the Issuer may require. Mutilated or defaced Notes, Coupons or Talons (if any) must be
surrendered before replacements will be issued.
14
Further Issues
The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue
further securities either having the same terms and conditions as the Notes in all respects (or in all respects
except for the first payment of interest on them) and so that such further issue shall be consolidated and form
a single series with the outstanding securities of any series (including the Notes) or upon such terms as the
Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless
the context requires otherwise) any other securities issued pursuant to this Condition and forming a single
series with the Notes. Any further securities forming a single series with the outstanding securities of any
series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other
securities may (with the consent of the Trustee), be constituted by the Trust Deed. The Trust Deed and, in
relation to Book Entry Notes only, the Instrument contains provisions for convening a single meeting of the
Noteholders and the holders of securities of other series where the Trustee so decides.
15
Notices
Notices to the holders of Notes shall be valid if published in a daily newspaper of general circulation in
London (which is expected to be the Financial Times) and so long as the Notes are admitted to trading on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, in a daily
newspaper with general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the
internet site of the Luxembourg Stock Exchange (www.bourse.lu). If in the opinion of the Trustee any such
publication is not practicable, notice shall be validly given if published in another leading daily English
language newspaper with general circulation in Europe. Any such notice shall be deemed to have been given
on the date of such publication or, if published more than once or on different dates, on the first date on which
publication is made, as provided above.
The Issuer shall also comply with Portuguese law in respect of Notices relating to Book Entry Notes.
Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the
holders of Notes in accordance with this Condition.
16
Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of
Third Parties) Act 1999.
17
Governing Law and Jurisdiction
(a)
Governing Law
The Trust Deed (except Clause 5 insofar as it relates to Subordinated Notes), the Notes (except
Condition 2(b)), the Coupons (if any) and the Talons (if any) and any non-contractual obligations
arising out of or in connection with them are governed by, and shall be construed in accordance with,
English law save that, with respect to Book Entry Notes only, the form (representação formal) and
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transfer of the Notes, creation of security over the Notes and the Interbolsa procedures for the exercise
of rights under the Notes and any non-contractual obligations arising out of or in connection therewith
are governed by, and shall be construed in accordance with, Portuguese law. Clause 5 of the Trust
Deed (insofar as it relates to Subordinated Notes) and Condition 2(b) and any non-contractual
obligations arising out of or in connection therewith are governed by, and shall be construed in
accordance with Portuguese Law.
(b)
Jurisdiction
The Courts of England are to have jurisdiction to settle any disputes that may arise out of or in
connection with any Notes, Coupons (if any) or Talons (if any) and accordingly any legal action or
proceedings arising out of or in connection with any Notes, Coupons (if any) or Talons (if any)
(“Proceedings”) may be brought in such courts. The Issuer has in the Trust Deed irrevocably
submitted to the jurisdiction of such courts.
(c)
Service of Process
The Issuer has irrevocably appointed Hackwood Secretaries Limited at its offices presently located at
One Silk Street, London EC2Y 8HQ as its agent in England to receive, for it and on its behalf, service
of process in any Proceedings in England.
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OUTLINE OF PROVISIONS RELATING TO NOTES CLEARED THROUGH
EUROCLEAR OR CLEARSTREAM WHILE IN GLOBAL FORM
Initial Issue of Notes
If the Global Notes are stated in the applicable Final Terms to be issued in NGN form they are intended to be
eligible collateral for Eurosystem monetary policy and the Global Notes will be delivered on or prior to the
original issue date of the Tranche to a Common Safekeeper. Delivering the Global Notes to the Common
Safekeeper does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem
monetary policy and intra-day credit operations by the Eurosystem either upon issue, or at any or all times
during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria.
Global notes which are issued in CGN form may be delivered on or prior to the original issue date of the
Tranche to a Common Depositary.
If the Global Note is a CGN, upon the initial deposit of a Global Note with a common depositary for
Euroclear and Clearstream, Luxembourg (the “Common Depositary”), Euroclear or Clearstream,
Luxembourg will credit each subscriber with a nominal amount of Notes equal to the nominal amount thereof
for which it has subscribed and paid. If the Global Note is an NGN, the nominal amount of the Notes shall be
the aggregate amount from time to time entered in the records of Euroclear or Clearstream, Luxembourg. The
records of such clearing system shall be conclusive evidence of the nominal amount of Notes represented by
the Global Note and a statement issued by such clearing system at any time shall be conclusive evidence of
the records of the relevant clearing system at that time. The relevant clearing system will be notified whether
or not the relevant Notes are intended to be held in a manner which would allow Eurosystem eligibility.
Notes that are initially deposited with the Common Depositary may also be credited to the accounts of
subscribers with (if indicated in the relevant Final Terms) other clearing systems through direct or indirect
accounts with Euroclear and Clearstream, Luxembourg held by such other clearing systems. Conversely,
Notes that are initially deposited with any other clearing system may similarly be credited to the accounts of
subscribers with Euroclear, Clearstream, Luxembourg or other clearing systems.
Relationship of Accountholders with Clearing Systems
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or any other clearing system
as the holder of a Note represented by a Global Note must look solely to Euroclear, Clearstream, Luxembourg
or such clearing system (as the case may be) for his share of each payment made by the Issuer to the bearer of
such Global Note and in relation to all other rights arising under the Global Notes, subject to and in
accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg, or such clearing
system (as the case may be). Such persons shall have no claim directly against the Issuer in respect of
payments due on the Notes for so long as the Notes are represented by such Global Note and such obligations
of the Issuer will be discharged by payment to the bearer of such Global Note in respect of each amount so
paid.
Exchange
1
Temporary Global Notes
Each temporary Global Note will be exchangeable, free of charge to the holder, on or after its Exchange Date:
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(i)
if the relevant Final Terms indicates that such Global Note is issued in compliance with the C Rules or
in a transaction to which TEFRA is not applicable (as to which, see “General Description of the
Programme – Selling Restrictions”), in whole, but not in part, for the Definitive Notes defined and
described below; and
(ii)
otherwise, in whole or in part upon certification as to non-U.S. beneficial ownership in the form set out
in the Agency Agreement for interests in a permanent Global Note or, if so provided in the relevant
Final Terms, for Definitive Notes.
2
Permanent Global Notes
Each permanent Global Note will be exchangeable, free of charge to the holder, on or after its Exchange Date
in whole but not, except as provided under “Partial Exchange of Permanent Global Notes”, in part for
Definitive Notes (1) if the permanent Global Note is held on behalf of Euroclear or Clearstream, Luxembourg
or any other clearing system (an “Alternative Clearing System”) and any such clearing system is closed for
business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or
announces an intention permanently to cease business or in fact does so or (2) if principal in respect of any
Notes is not paid when due, by the holder giving notice to the Issuing and Paying Agent of its election for
such exchange.
In the event that a Global Note is exchanged for Definitive Notes, such Definitive Notes shall be issued in
Specified Denomination(s) only. Noteholders who hold Notes in the relevant clearing system in amounts that
are not integral multiples of a Specified Denomination may need to purchase or sell, on or before the relevant
Exchange Date, a principal amount of Notes such that their holding is an integral multiple of a Specified
Denomination.
3
Delivery of Notes
If the Global Note is a CGN, on or after any due date for exchange the holder of a Global Note may surrender
such Global Note or, in the case of a partial exchange, present it for endorsement to or to the order of the
Issuing and Paying Agent. In exchange for any Global Note, or the part thereof to be exchanged, the Issuer
will (i) in the case of a temporary Global Note exchangeable for a permanent Global Note, deliver, or procure
the delivery of, a permanent Global Note in an aggregate nominal amount equal to that of the whole or that
part of a temporary Global Note that is being exchanged or, in the case of a subsequent exchange, endorse, or
procure the endorsement of, a permanent Global Note to reflect such exchange or (ii) in the case of a Global
Note exchangeable for Definitive Notes, deliver, or procure the delivery of, an equal aggregate nominal
amount of duly executed and authenticated Definitive Notes or (iii) if the Global Note is a NGN, the Issuer
will procure that such exchange be entered pro rata in the records of the relevant clearing system. In this Base
Prospectus, “Definitive Notes” means, in relation to any Global Note, the Definitive Notes for which such
Global Note may be exchanged (if appropriate, having attached to them all Coupons in respect of interest that
have not already been paid on the Global Note and a Talon). Definitive Notes will be security printed in
accordance with any applicable legal and stock exchange requirements in or substantially in the form set out
in the Schedules to the Trust Deed. On exchange in full of each permanent Global Note, the Issuer will, if the
holder so requests, procure that it is cancelled and returned to the holder together with the relevant Definitive
Notes.
4
Exchange Date
“Exchange Date” means, in relation to a temporary Global Note, the day falling after the expiry of 40 days
after its issue date and, in relation to a permanent Global Note, a day falling not less than 60 days, or in the
case of failure to pay principal in respect of any Notes when due 30 days, after that on which the notice
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requiring exchange is given and on which banks are open for business in the city in which the specified office
of the Issuing and Paying Agent is located and in the city in which the relevant clearing system is located.
Amendment to Conditions
The temporary Global Notes and permanent Global Notes contain provisions that apply to the Notes that they
represent, some of which modify the effect of the terms and conditions of the Notes set out in this Base
Prospectus. The following is a outline of certain of those provisions:
1
Payments
No payment falling due after the Exchange Date will be made on any Global Note unless exchange for an
interest in a permanent Global Note or for Definitive Notes is improperly withheld or refused. Payments on
any temporary Global Note issued in compliance with the D Rules before the Exchange Date will only be
made against presentation of certification as to non-U.S. beneficial ownership in the form set out in the
Agency Agreement. All payments in respect of Notes represented by a Global Note in CGN form will be
made against presentation for endorsement and, if no further payment falls to be made in respect of the Notes,
surrender of that Global Note to or to the order of the Issuing and Paying Agent or such other Paying Agent as
shall have been notified to the Noteholders for such purpose. If the Global Note is a CGN, a record of each
payment so made will be endorsed on each Global Note, which endorsement will be prima facie evidence that
such payment has been made in respect of the Notes. If the Global Note is a NGN, the Issuer shall procure
that details of each such payment shall be entered pro rata in the records of the relevant clearing system and
in the case of payments of principal, the nominal amount of the Notes recorded in the records of the relevant
clearing system and represented by the Global Note will be reduced accordingly. Payments under the NGN
will be made to its holder. Each payment so made will discharge the Issuer’s obligations in respect thereof.
Any failure to make the entries in the records of the relevant clearing system shall not affect such discharge.
For the purposes of any payments made in respect of the temporary Global Note and the permanent Global
Note, the words “in the relevant place of presentation or” shall not apply in the definition of “business day” in
Condition 6(g) (Non-Business Days).
2
Prescription
Claims against the Issuer in respect of Notes that are represented by a permanent Global Note will become
void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in
the case of interest) from the appropriate Relevant Date (as defined in Condition 7).
3
Meetings
The holder of a permanent Global Note shall (unless such permanent Global Note represents only one Note)
be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders
and, at any such meeting, the holder of a permanent Global Note shall be treated as having one vote in respect
of each integral currency unit of the Specified Currency of the Notes.
4
Cancellation
Cancellation of any Note represented by a permanent Global Note that is required by the Conditions to be
cancelled (other than upon its redemption) will be effected by reduction in the nominal amount of the relevant
permanent Global Note.
5
Purchase
Notes represented by a permanent Global Note may only be purchased by the Issuer or any of its subsidiaries
if they are purchased together with the rights to receive all future payments of interest thereon.
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6
Issuer’s Option
Any option of the Issuer provided for in the Conditions of any Notes while such Notes are represented by a
permanent Global Note shall be exercised by the Issuer giving notice to the Noteholders within the time limits
set out in and containing the information required by the Conditions, except that the notice shall not be
required to contain the serial numbers of Notes drawn in the case of a partial exercise of an option and
accordingly no drawing of Notes shall be required. In the event that any option of the Issuer is exercised in
respect of some but not all of the Notes of any Series, the rights of accountholders with a clearing system in
respect of the Notes will be governed by the standard procedures of Euroclear and/or Clearstream,
Luxembourg (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor
or a reduction in nominal amount, at their discretion) or any other clearing system (as the case may be).
7
Noteholders’ Options
Any option of the Noteholders provided for in the Conditions of any Notes while such Notes are represented
by a permanent Global Note may be exercised by the holder of the permanent Global Note giving notice to
the Issuing and Paying Agent within the time limits relating to the deposit of Notes with a Paying Agent set
out in the Conditions substantially in the form of the notice available from any Paying Agent, except that the
notice shall not be required to contain the serial numbers of the Notes in respect of which the option has been
exercised, and stating the nominal amount of Notes in respect of which the option is exercised and at the same
time where the permanent Global Note is a CGN, presenting the permanent Global Note to the Issuing and
Paying Agent, or to a Paying Agent acting on behalf of the Issuing and Paying Agent, for notation. The rights
of accountholders with a clearing system in respect of the Notes will be governed by the standard procedures
of Euroclear, Clearstream, Luxembourg or any other clearing system (as the case may be). Where the Global
Note is a NGN, the Issuer shall procure that details of such exercise shall be entered pro rata in the records of
the relevant clearing system and the nominal amount of the Notes recorded in those records will be reduced
accordingly.
8
NGN Nominal Amount
Where the Global Note is a NGN, the Issuer shall procure that any exchange, payment, cancellation, exercise
of any option or any right under the Notes, as the case may be, in addition to the circumstances set out above
shall be entered in the records of the relevant clearing systems and upon any such entry being made, in respect
of payments of principal the nominal amount of the Notes represented by such Global Note shall be adjusted
accordingly.
9
Trustee’s Powers
In considering the interests of Noteholders while any Global Note is held on behalf of a clearing system, the
Trustee may have regard to any information provided to it by such clearing system or its operator as to the
identity (either individually or by category) of its accountholders with entitlements to such Global Note and
may consider such interests as if such accountholders were the holders of the Notes represented by such
Global Note.
10
Notices
So long as any Notes are represented by a Global Note and such Global Note is held on behalf of a clearing
system, notices to the holders of Notes of that Series may be given by delivery of the relevant notice to that
clearing system for communication by it to entitled accountholders in substitution for publication as required
by the Conditions or by delivery of the relevant notice to the holder of the Global Note, except that so long as
the Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices
shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected
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to be the Luxemburger Wort) and so long as the Notes are listed on any other stock exchange, notices will be
published in such manner as the rules of that stock exchange may require.
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BOOK-ENTRY NOTES HELD THROUGH INTERBOLSA
General
Interbolsa holds securities through a centralised system (sistema centralizado) composed by interconnected
securities accounts, through which such securities (and inherent rights) are created, held and transferred, and
which allows Interbolsa to control at all times the amount of securities so created, held and transferred. Issuers
of securities, financial intermediaries, the Bank of Portugal and Interbolsa, as the controlling entity, all
participate in such centralised system.
The centralised securities system of Interbolsa provides for all procedures required for the exercise of
ownership rights inherent to the Notes “Book Entry Notes” held through Interbolsa.
In relation to each issue of securities, Interbolsa’s centralised system comprises, inter alia, (i) the issue
account, opened by the Issuer in the centralised system and which reflects the full amount of issued securities;
and (ii) the control accounts opened by each of the financial intermediaries which participate in Interbolsa’s
centralised system, and which reflect the securities held by such participant on behalf of its consumers in
accordance with its individual securities accounts.
Book-Entry Notes held through Interbolsa will be attributed an International Securities Identification Number
(“ISIN”) code through the codification system of Interbolsa and will be settled by Interbolsa’s settlement
system. Under the procedures of Interbolsa’s settlement system, settlement takes place on the third business
day after the trade date and is provisional until the financial settlement that takes place at the Bank of Portugal
(or at Caixa Geral de Depósitos, if denominated in currencies other than euro) on the settlement date.
Form of the Book-Entry Notes held through Interbolsa
The Book-Entry Notes of each Series will be in book-entry form and title to the Book-Entry Notes will be
evidenced by book entries in accordance with the provisions of the Portuguese Securities Code and the
applicable the Comissão do Mercado de Valores Mobiliários (the “CMVM” – the Portuguese Securities
Authority) and Interbolsa regulations. No physical document of title will be issued in respect of Book-Entry
Notes held through Interbolsa.
The Book-Entry Notes of each Series will be registered in the relevant issue account opened by the Issuer with
Interbolsa and will be held in control accounts by each Interbolsa Participant on behalf of the holders of the
Book-Entry Notes. Such control accounts reflect at all times the aggregate of Book-Entry Notes held in the
individual securities accounts opened by the holders of the Book-Entry Notes with each of the Interbolsa
Participants. The expression “Interbolsa Participant” means any authorised financial intermediary entitled
to hold control accounts with Interbolsa on behalf of their customers and includes any depository banks
appointed by Euroclear and Clearstream, Luxembourg for the purpose of holding accounts on behalf of
Euroclear and Clearstream, Luxembourg.
Each person shown in the individual securities account held with an Interbolsa Participant as having an
interest in Book-Entry Notes shall be treated as the holder of the principal amount of the Book-Entry Notes
recorded therein.
Payment of principal and interest in respect of Book-Entry Notes held through Interbolsa
Whilst the Book-Entry Notes are held through Interbolsa, (I) payment of principal and interest in euros in
respect of the Book-Entry Notes will be (i) credited, according to the procedures and regulations of Interbolsa,
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by the relevant Paying Agent (acting on behalf of the Issuer) to the payment current-accounts held in the
payment system of the Bank of Portugal by the Interbolsa Participants whose control accounts with
Interbolsa are credited with such Book-Entry Notes and thereafter (ii) credited by such Interbolsa Participants
from the aforementioned payment current-accounts to the accounts of the owners of those Book-Entry Notes
or through Euroclear and Clearstream, Luxembourg to the accounts with Euroclear and Clearstream,
Luxembourg of the beneficial owners of those Book-Entry Notes, in accordance with the rules and procedures
of Interbolsa, Euroclear or Clearstream, Luxembourg, as the case may be; (II) payment of principal and
interest in currencies other than euros in respect of the Book Entry Notes will be (a) transferred, on the
payment date and according to the procedures and regulations applicable by Interbolsa, from the account held
by the relevant Paying Agent in the Foreign Currency Settlement System (Sistema de Liquidação em Moeda
Estrangeira), managed by Caixa Geral de Depósitos, S.A., to the relevant accounts of the relevant Interbolsa
Participants, and thereafter (b) transferred by such Interbolsa Participants from such relevant accounts to the
accounts of the owners of those Book Entry Notes or through Euroclear and Clearstream, Luxembourg to the
accounts with Euroclear and Clearstream, Luxembourg of the beneficial owners of those Book Entry Notes, in
accordance with the rules and procedures of Interbolsa, Euroclear or Clearstream, Luxembourg, as the case
may be.
Transfer of Book-Entry Notes held through Interbolsa
Book-Entry Notes held through Interbolsa may, subject to compliance with all applicable rules, restrictions
and requirements of Interbolsa and Portuguese law, be transferred to a person who wishes to hold such BookEntry Notes. No owner of a Book-Entry Notes will be able to transfer such Book-Entry Notes, except in
accordance with Portuguese Law and the applicable procedures of Interbolsa.
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USE OF PROCEEDS
The net proceeds from each issue of Notes by the Issuer under the Programme will be applied by such
Issuer for its general corporate purposes.
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DESCRIPTION OF THE ISSUER
Introduction to Montepio
Caixa Económica Montepio Geral (“Montepio”) was created on 24 March 1844 for an indefinite period and
has a total equity (comprised of institutional capital and a participation fund) of €1,900 million as at the date
of this Base Prospectus. The issue of units in its participation fund for a total of €400 million represents a
relatively new development, with the remaining €1,500 million institutional capital wholly owned by its
founder Montepio Geral Associação Mutualista (“MGAM”).
MGAM is a “private institution of social support” (i.e. a mutual benefits association) whose principal objects
are to promote and develop initiatives designed to ensure the social protection and welfare of its 630,513
mutual members (as at 31 December 2014), their families and other beneficiaries nominated by them. The
welfare schemes which MGAM offers include pensions and other retirement benefits, disability benefits, death
grants, guarantees of the payment of housing charges, life annuities, study schemes and other schemes for young
people and a wide variety of collective schemes. It also has co-operation agreements with a variety of organisations
in health and welfare. Other activities include the organisation of members’ social functions, publication of a
members’ magazine, sponsorship of cultural, artistic and social events and the awarding of prizes and scholarships.
In accordance with the Credit Institutions General Regime (approved by Decree-Law 298/92 of 31 December
1992 (as amended and republished by Decree-Law no. 157/2014 of 24 October 2014)), Montepio is a credit
institution, authorised to operate as a “universal bank”, in accordance with Decree-Law 136/79 of 18 May
1979 (as last amended by Decree-Law 188/2007 of May 2007)) and it ranks sixth in the Portuguese banking
system (as at 31 December 2014), as far as total net assets are concerned (source: 31 December 2014 Interim
Financial Statements of the Banks in the Portuguese banking system).
Montepio is a financial and non-financial group owned by MGAM. Montepio undertakes general banking
operations and other financial operations such as investment, mutual, real estate and pension funds, as well as
insurance business. Additionally, it offers the protection schemes of MGAM to its customer base. Montepio
takes a major role in the implementation of the Group’s business strategy, as it uses its nationwide branch
network, comprising 422 branches in Portugal (as at 30 September 2015). Montepio’s commercial network is
further complemented by a network of electronic channels, together with its presence in various overseas
Portuguese communities (including six representative offices outside of Portugal). Montepio is also present in
Angola, through Finibanco Angola (Montepio holds an 81.6 per cent. share interest in Finibanco Angola),
which has a retail network of 21 branches (as at 30 September 2015). At the end of 2014, under its growth
and geographical expansion strategy, Montepio acquired a qualifying holding of 44.5 per cent. in the capital
of Banco Terra, S.A. (“Banco Terra”), a Mozambican bank, adding 9 more branches to Montepio’s
international presence.
Montepio is a publicly listed company and is registered in the Commercial Registration Conservatory (1st
Section) with the number 500 792 615 and is domiciled in Portugal, having its registered office at Rua Áurea,
219-241, Apartado 2882, postal code 1122-806, Lisbon, Portugal, with telephone number +351 213 248 000.
History
In 1840, Francisco Manuel Alvares Botelho established Montepio dos Empregados Públicos, a mutual
benefit association intended to assist its members through periods of unforeseen financial hardship, caused by
illness, disability or death. Its name was changed twice, firstly to Montepio Geral, Associação de
Socorros Mútuos and in 1844, it was changed to Montepio Geral Associação Mutualista, the name it still
bears today.
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In 1844, MGAM created Caixa Económica de Lisboa, (which was renamed Caixa Económica Montepio Geral
on 23 April 1991) with the aim of attracting small-scale savings and providing credit facilities. MGAM and
its subsidiaries and affiliates (together, the “Montepio Group”) offer a wide variety of banking, insurance and
fund management products from Montepio’s branches throughout Portugal. Originally, Montepio was run as a
division of MGAM but, by the late 1930s, the two organisations had become separate legal entities. In
accordance with Decree- Law 460/77 of 7 November 1977 ( as last amended by Decree- Law 391/2007
of 13 December 2007), Montepio is a “collective person of public interest” which was exempt from some
taxes, including corporate revenue tax until the state budget for 2012 removed this exemption with effect from
January 2012.
In order to broaden the offer of financial services to its customer base, in 1986, MGAM decided to found
Lusitania Companhia de Seguros, S.A. (“Lusitania”). Lusitania is a general insurance company whose
products are sold through Montepio’s branches and through its own network. Lusitania Vida, Companhia
de Seguros, S.A. (“Lusitania Vida”), which offers life insurance products, was formed in 1987.
Pursuing its strategy of broadening its commercial offer and the diversification of its income sources, in
1988, MGAM established Futuro – Sociedade Gestora de Fundos de Pensões, S.A. (“Futuro”), enabling
the Montepio Group to expand into the pension fund management business.
As part of its investment management business, the Montepio Group holds Montepio Gestão de Activos, a
company which specialises in the management of mutual and real estate funds, and wealth management.
In 1995, Montepio acquired certain limited assets and liabilities from a small savings bank in the Azores,
Caixa Económica Açoreana. S.A. This acquisition, allowed Montepio to establish its presence in the Azores
Autonomous Region.
Additionally, in January 1997, Montepio acquired certain assets and liabilities of another small savings bank,
Caixa Económica Comercial e Industrial (“CECI”), for €1.5 million. In 2009, Lusitania Companhia de
Seguros, S.A. acquired the insurance companies Real and Mutuamar, which allowed it to double its market
share in the real insurance business, thereby achieving a market share in line with the Montepio Group’s
objectives.
In 2010, MGAM acquired the whole of Finibanco-Holding, SGPS, S.A. through a friendly public takeover
bid. The main goals of the transaction were the expansion of the Group’s mutualism activities and the
diversification of its business activities.
Finibanco Holding. SGPS, S.A., the holding company of a Portuguese financial group “Finibanco” (the
“Finibanco Group”), comprised a number of subsidiaries which included, among others, a bank (Finibanco,
S.A. (“Finibanco”)), an Angolan bank (Finibanco Angola, S.A. (“Finibanco Angola”)), a credit financial
institution (Finicrédito, Instituição Financeira de Crédito, S.A.) and an asset management company (Finivalor
– Sociedade Gestora de Fundos Mobiliários, S.A.).
In order to take the necessary steps to achieve consolidation, on 31 March 2011, Montepio acquired from
MGAM, through a share purchase agreement, 100 per cent. of the share capital and of the voting rights of
Finibanco-Holding, SGPS, S.A. (now Montepio Holding, SGPS, S.A.) and, indirectly, all of the share capital
and the voting rights of Finibanco, S.A. (now Montepio Investimento, S.A.), as well as those of Finicrédito –
Instituição Financeira de Crédito, S.A. (now Montepio Crédito, Instituição Financeira de Crédito, S.A.) and
those of Finivalor – Sociedade Gestora de Fundos Mobiliários, S.A (now Montepio Valor – Sociedade
Gestora de Fundos, S.A.).
Under the share purchase agreement, Montepio indirectly acquired 81.6 per cent. of the share capital and the
voting rights of the Angolan bank, Finibanco Angola, S.A. As a result of these acquisitions, Montepio’s
consolidated supervision perimeter now encompasses all the aforementioned companies.
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At the end of 2013, as part of the restructuring of Group Montepio Geral, a reorganisation was undertaken of
their financial investments linked to the insurance and pension sectors. To this end, on 27 December 2013
Montepio Seguros, S.G.P.S., S.A. (“Montepio Seguros”) was created to manage the equity of the insurance
and pension sectors. This reorganisation merged Lusitania, Lusitania Vida and Futuro into the newly created
Montepio Seguros. As a result of this operation, Montepio now holds 33.65 per cent. of the capital of
Montepio Seguros. 2013 proved a landmark year for Montepio due to some of its capital becoming open to
public investment for the first time. On 25 November 2013, Montepio launched an initial public offer (“IPO”)
of €200 million participation units (Unidades de Participação) in its participation fund (Fundo de
Participação), (“Participation Fund”) of Montepio. On 17 December 2013, the participation units were
admitted to listing on Euronext Lisbon after the Regulated Market Special Session.
On 2 December 2014, Montepio Holding SGPS, S.A. completed all the required legal acts to acquire a stake
of 44.537 per cent. in Banco Terra´s share capital, a financial institution under Mozambican law, assuring the
management control following an agreement with the remaining shareholders of the bank which are the
Rabobank, based in the Netherlands, holding the same equity participation as Group CEMG, Norfund (also
known as the Norwegian Investment Fund for Developing Countries), with an equity participation of 8.409
per cent. and GAPI-SI, S.A., a financial institution that has the aim of contributing to economic and social
development of Mozambique (which has an equity participation of 2.517 per cent.).
Current Activities
Montepio operates as an universal bank, offering a wide range of banking and financial products and services,
such as mutual, real estate and pension funds, insurance (life and non-life), investment management services
and the provision of credit cards, aimed at catering to all its customers’ financial needs. Montepio has
also been developing international operations, especially by the provision of foreign currency to its Portuguese
customers, documentary credits and payment orders focusing mainly on attracting deposits from non-resident
Portuguese nationals. To this end, Montepio Group currently has six representative offices, in Paris, Toronto,
Geneva, Frankfurt, Newark and London.
Since November 2014, the geographical presence of Montepio has extended to Mozambique, following the
acquisition of a qualified holding of 44.5 per cent. in the capital and related control following an agreement
with the strategic shareholders of Banco Terra. Montepio is set to become an important agent in the
development and economic growth of Mozambique, targeting the retail and corporate areas, in particular agribusiness customers, mortgage loans and SMEs. As a result, since the end of 2014, the international activity of
the Montepio Group is now represented by three entities – Banco Montepio Geral Cabo Verde, SA, Finibanco
Angola and Banco Terra.
At the end of the third quarter of 2015, the net income for the period stood at €-59.5 million, compared to
€19.9 million in the same period of the previous year. This evolution reflects two effects: the improvement of
€205.5 million of recurring net income, combined with the reduction of €224.0 million in financial operations
results, which reached €145.7 million due to the lower contribution of earnings arising from the sale of
Portuguese public debt securities. The improvement of recurring net income was largely the result of: i) the
increase of 6.8 per cent. in commission’s income, from the second to the third quarter of 2015; ii) as well as
the policy to reduce the level of operating costs in the domestic business activity (-0.9 per cent.), thus
contributing to the decrease of 6.6 per cent. in the Group’s operating costs, from the second to the third
quarter of 2015. This effect offset the reduction of turnover arising from the recovery of the National
Economy, which is still unstable, and is reflected in the 5.3 per cent. decline of net credit to customers. The
operating costs of the domestic activity decreased by 0.9 per cent. year-on-year, this trend, coupled with the
increase of the operating costs of the international activity, led to an overall increase of 3.5 per cent.. On a
comparable basis not taking into account entering into Mozambique, through the acquisition of a qualified
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holding in the share capital of Banco Terra, S.A., which occurred at the end of 2014, there was a contention of
the operating costs. It should also be stressed that, from the second to the third quarter of 2015, the Group’s
operating costs decreased by 6.6 per cent., as a result of the reduction in staff and administrative costs of 1.6
per cent. and 12.9 per cent., respectively, as a result of the cost reduction policy.
As of 30 September 2015, net interest income stood at €182.4 million, compared to €255.1 million reached at
the end of the third quarter of 2014. Contributing to this performance in particular was the €96.7 million
reduction in the securities portfolio, derived from the lower yields of the sovereign debt securities recorded in
the portfolio, following the income gained from the sale of sovereign debt, in 2014, benefiting from market
conditions that proved to be fairly favourable. Furthermore, the lower average balances of credit, derived
from the extended slow recovery of demand and the demanding policy of risk analysis in underwriting credit
criteria, along with the historically low levels of the Euribor rates, led to a reduction of gains from credit to
customers of €82.0 million. This reduction was greater than the decline observed in the costs of customers'
resources which reached €65.0 million, which led to a year-on-year decline of commercial net interest income
of €17 million.
According to the accounting policy of the Issuer and IAS 19 - Employee Benefits, liabilities on account of
post-employment benefits (namely pensions and health) were evaluated with reference to 31 December 2014.
In the evaluation conducted, the actuarial assumptions were changed, when compared to the assumptions used
in the evaluation with reference to 31 December 2013, as follows:
2013
As at 31 December
2014
Salary growth rate
1.50%
0.75%
Pension growth rate
0.50%
0.05%
Rate of return rate of fund assets
4.00%
2.50%
Discount rate
4.00%
2.50%
Mortality table
TV 88/90 TV 88/90
Disability table
EVK 80 EVK 80
The evaluation conducted, based on the abovementioned assumptions, had a negative impact on equity, which
came to €153.1 million, representing a negative impact of 115 basis points in the Common Equity Tier 1 ratio
(8.51 per cent. as of 31 December 2014 (CRD IV phasing in)).
As of 30 September 2015, Montepio’s Common Equity Tier 1 ratio (CRD IV phasing-in) stood at 9.3 per
cent. (which is above the minimum regulatory requirement, pursuant to the phasing-in criteria of the Basel III
CRD IV / CRR (Directive 2013/36/EU, Regulation EU 575/2013 and Notice 6/2013 of Bank of Portugal)).
The Issuer’s consolidated total assets net of provisions and depreciation were €21,824.9 million and its total
equity was €1,432.1 million (as of 30 September 2015).
For the third quarter of 2015, total customers' resources stood at €14,980 million, which include €14,155
million related to on-balance sheet resources, such as deposits, with a total of €12,479 million. The deposit
portfolio is composed of deposits by individuals and continues to maintain its importance as the main source
of funding, accounting for circa 72 per cent. of total deposits, of which 77 per cent. are term deposits. In spite
of the historically low level of interest rates, the intense competition among the players and the fact that the
Issuer has continued to adopt a rigorous repricing policy for deposits, namely in the corporate and
institutional segments, the deposits of individual customers have remained stable at €9 billion (-3.1 per cent.
compared to December 2014).
Gross loans to customers reached the total of €15,886.6 million, having recorded a decrease of 5.0 per cent. in
relation to the third quarter of 2014. This evolution was due to the 8.6 per cent. year-on-year reduction of
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mortgage loans (housing and construction), combined with the reduction of loans granted to companies
(excluding construction) of €42.1 million (-0.7 per cent. year-on-year), which represented 38.6 per cent. of the
total loan portfolio at the end of September 2015, reflecting the strategy of diversification and support to the
sustainable growth of the economy that has been pursued.
The evolution in funding sources at retail level, associated to the capacity to finance the new credit operations
through the deleveraging of non-strategic credit, enabled a positive commercial gap (customers’ resources –
net credit to customers) of €52.9 million which led to the maintenance of a balanced standard in terms of
loan-to-deposit ratio (Credit/Deposits), which shifted from 106.5 per cent. at the end of December 2014 to
116.6 per cent. in September 2015.
At the end of the third quarter of 2015, the staff of the Issuer was composed of 3,898 employees, which is a
decrease of 9 employees compared to 30 December 2014. Taking into account all the entities comprising the
Issuer Group, the total number of employees was 4,432 as at 30 September 2015, compared to 4,425 as of 30
December 2014. The higher number of total employees was the result of the increased number of employees
at Finibanco Angola (from 169 to 198) and due to the acquisition of a stake in Banco Terra, in Mozambique
(+182 employees).
Funding
The following table shows the breakdown of Montepio’s funding sources at 31 December 2014:
As at 31 December
2014
Amount
%
(€ millions)
Demand deposits ................................................................................................
2,792.6
13.8
11,283.0
55.8
110.6
0.5
Total retail deposits ...............................................................................................
14,186.2
70.2
Credit institutions deposits....................................................................................
56.5
0.3
14,242.7
70.5
Debt securities held by customers .........................................................................
2,120.9
10.5
Credit institutions and central banks resources .....................................................
3,395.2
16.8
Senior, Subordinated and Syndicated Loans .........................................................
456.3
2.3
20,213.2
100.0
Time deposits ................................................................................................
Savings deposits ................................................................................................
Total deposits ................................................................................................
Total funding................................................................................................
Notwithstanding changing market conditions, Montepio maintains its funding profile by continuing to focus
on retail customer savings as they represent greater stability and maturity. The positive evolution of
customers' deposits enabled Montepio to increase the credit it granted, in line with its strategy of intrasegment diversification required to support the recovery of the Portuguese economy.
Customer deposits have benefited from international activity, namely in Angola. Finibanco Angola has
benefited from a continuously strong growth in customer deposits and an increasing proportion of
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consolidated amounts. Montepio has pursued geographical diversification in order to mitigate the impact of a
slower evolution in the Portuguese economy.
The strengthening in customer resources and lower wholesale market funding that the evolution of the
funding structure has brought about, has allowed a further strengthening of the institution's liquidity position.
In 2014, Montepio continued to show a strong capacity to attract and retain the savings of its customers and
mutual members, with on-balance sheet customers’ resources (deposits and securities placed with customers)
reaching a total of €16,363.5 million, corresponding to a year-on-year growth of 0.3 per cent. Retail customer
deposits represent the main funding source of the Issuer (70.2 per cent. of the funding structure in 2014). This
performance was significantly influenced by the 1.4 per cent. increase in total deposits.
Demand deposits increased by 12.2 per cent., in 2014, whereas Savings and Time deposits decreased by 1.0
per cent.
Pursuing a strategy of diversification of funding resources, by type of customer, Montepio registered an
increase in customer resources from companies and private individuals alike.
The following table shows the breakdown of Montepio’s deposits by type of customer as at 31 December
2014:
As at 31 December
2014
Amount
%
(€ millions)
Individuals and small businesses...........................................................................
10,435.9
73.3
Individuals ..................................................................................................
9,244.1
64.9
Traders and liberal professionals ................................................................
55.8
0.4
Non-profit organisations .............................................................................
1,135.9
8.0
Companies.............................................................................................................
2,812.7
19.7
Others....................................................................................................................
994.1
7.0
14,242.7
100.0
Total deposits ................................................................................................
Montepio regards deposits by individual customers as an attractive form of funding since such deposits tend
to be more stable and granular than those of institutional and interbank funds. According to the Credit
Institutions General Regime, deposits of up to €100,000 are fully covered by the Bank of Portugal
through the “deposit guarantee fund”.
During 2015 and 2016, Montepio has a debt securities issued redemption schedule of €408.9 million and
€206.5 million, respectively.
Credits
The following table shows the breakdown, according to type of customer and purpose, of the credits granted
by Montepio (including past due credit) as at 31 December 2014:
96
As at 31 December 2014
Amount
%
(€ millions)
Credits granted to companies
Construction/production .............................................................................
703.0
4.3
Investment ..................................................................................................
3,420.7
20.7
Working capital...........................................................................................
2,707.4
16.4
Other purposes ............................................................................................
241.9
1.5
Total credits granted to companies................................................................
7,073.0
42.8
Housing.......................................................................................................
7,207.4
43.6
Other purposes ............................................................................................
1,565.8
9.5
Total credits granted to individuals ................................................................
8,773.2
53.0
Small businesses ................................................................................................
586.0
3.5
Other .....................................................................................................................
108.7
0.7
Total gross credit granted to customers.............................................................
16,540.9
100.0
Credits granted to individuals
As of 31 December 2014, Gross Credit to Customers reached €16,540.9 million, representing a year-on-year
marginal decrease of 0.1 per cent. As a result of the balance sheet diversification strategy, credit to companies
(excluding Construction) registered a year-on-year increase of 12.0 per cent., while mortgage loans continued
their downward trend: housing loans -6.3 per cent. and loans to construction -26.5 per cent.
Although the current economic climate has continued to affect financial activity risks, with the balance of
credit and interest overdue increasing by 15.0 per cent., the credit-at-risk ratio decreased by 0.2 p.p. to 12.0
per cent., from 12.25 per cent. as at 31 December 2013, resulting from the sale of a portfolio of a nonstrategic loans amounting to €398.1 million.
Loans to construction companies continue to lose importance in Montepio’s loan portfolio, and as at 31
December 2014 amounted to €703.0 million or 4.3 per cent. of the total credits granted to customers, against
5.8 per cent. as at 31 December 2013.
Approximately 16.4 per cent. of Montepio’s loan portfolio as at 31 December 2014 was formed by working
capital loans to corporate borrowers. These loans are usually short-term in nature and are typically unsecured,
although personal guarantees from the owners of the relevant companies are normally required.
Competition
The information under this heading is based on Montepio’s annual reports, press releases, peer group press
releases, the Bank of Portugal’s monetary and financial statistics and the Portuguese Bankers Association
(Associação Portuguesa de Bancos) statistics.
As a founding member of the Economic and Monetary Union (“EMU”) and the Euro Zone, Portugal’s
financial and banking regulatory framework is in line with the EMU’s legislation. This led to important
97
structural and operational changes in Portugal, to convergence policies and to a steady process of deregulation
and liberalisation of the financial sector during the 1990s.
Throughout 2014, several measures were taken that impacted the banking system, contributing to an increased
supervision of the system and that further harmonizes it with the European legal framework. For 2014, the
following initiatives can be highlighted:

Bank of Portugal – the entry into force of Instrução No 24/2014 of Bank of Portugal that regulates
financial information reporting obligations on an individual basis (FINREP Reporte de informação
financeira para supervisão em base individual);

ECB – under Regulation 1024/2013, the European Central Bank (ECB) took, on 4 November 2014
responsibility for the supervision of Euro Area banks, succeeding a year-long preparatory phase which
comprised an in-depth examination of the resilience and balance sheets of the biggest banks in the euro
area (“Comprehensive Assessment”), along with the adoption of legal acts defining how the Single
Supervisory Mechanism (“SSM”) operates and the establishment of new governance structures at the
ECB. The ECB will directly supervise approximately 120 significant institutions/banking groups. For
the other 3500 banks, the ECB will likewise set and monitor the supervisory standards and work in
close collaboration with the national competent authorities in the supervision of these banks;

ECB and Bank of Portugal – Comprehensive Assessment results were published on 26 October 2014.
The Comprehensive Assessment comprised an appraisal of the financial soundness of the significant
institutions/banking groups (including Lithuania), encompassing approximately 82 per cent. of bank’s
total assets. It was carried out by the ECB together with the national supervisors between November
2013 and October 2014 in preparation for the Single Supervisory Mechanism to become fully
operational. The Comprehensive Assessment terminated with an aggregate disclosure of the overall
outcomes as well as bank-level data, accompanied by recommendations for supervisory measures;

Portuguese Government – publication of Decree-Law No 157/2014 of 24 October 2014 that: (i)
implements in Portuguese law certain options conferred on Member States by Regulation (EU) No
575/2013 of the European Parliament and of the Council of 26 June 2013; (ii) transposes the Directive
No 2013/36/EU dated 26 June 2013 which establishes, together with the Regulation (EU) No
575/2013, the basis of the European Union legal framework which regulates the access to the activity
of the credit institutions and the supervisory framework and prudential rules applicable to the credit
institutions and investment companies.
Despite the competition in the market, Montepio has been able to sustain its position in the market and to
preserve its market share in banking activity. Montepio’s overall market share (deposits and credit) was 6.9
per cent. as at 31 December 2014 (source: Bank of Portugal Financial and Monetary Statistics (Resident
Activity).
Furthermore, Montepio has a market share of 7.7 per cent. in housing credit and 6.7 per cent. in the loans to
SMEs and corporations (source: Bank of Portugal, Financial and Monetary Statistics (Resident) Activity).
Montepio’s market share in total deposits stood at 7.0 per cent. as at December 2014, reaching 6.9 per cent. in
the household deposits segment, including emigrants (source: Bank of Portugal, Financial and Monetary
Statistics (Resident Activity).
Montepio is consolidating its market share in other business areas, such as life insurance (1.7 per cent.), nonlife insurance (4.8 per cent.), leasing (9.7 per cent.), factoring (1.5 per cent.), mutual funds (6.9 per cent.)
and pension funds (7.7 per cent.), all as at 31 December 2014.
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Montepio considers that its primary competitive advantage arises from the quality of service rendered to
customers and its relationship with its parent company. The mutual nature, coupled with private pension
schemes and other benefits which MGAM provides to its members, and the reputation as a stable financial
institution are considered by Montepio the key reasons for its customers to continue to find this institution an
attractive source of banking services.
Lending Policies and Procedures
Underwriting rules are reviewed on a regular basis, covering the analysis of applications, pricing policy (on
a risk-adjusted basis), decision-making, follow-up and credit recovery.
Montepio uses application and behavioural scorings in the analysis of its counterparties and loans, with both
scoring classifications contributing to the loan decision. The “Application Scoring System” evaluates the risk
of the counterparty for a given type of loan, therefore supporting the decision of retail loan applications
(mortgage, consumption and credit cards). The scorecards were developed in line with Montepio’s portfolio
and in accordance with statistical methods, which pinpoint the most predictive variables of counterparty
defaults, such as socio-professional, demographic and economic indicators.
Moreover the system automatically checks whether negative events have been registered in internal and/or
external databases and it also enforces credit rules (loan-to-value and payment-to-income ratios). The cut-off
points of this system have been set in accordance with Montepio’s Credit Policy Guidelines on acceptable
levels of risk, based on which the system decides whether credit applications should be accepted or rejected.
The behavioural scoring system evaluates the risk of each customer for different types of loans, calculating a
score based on the customer’s historical relationship data with Montepio, including factors such as loans
granted, utilisation of current account facilities, deposit accounts and financial investments. In addition to the
loan decision process, it supports marketing campaigns and credit limits.
Montepio is in the process of preparing the application for the Internal Ratings Based (“IRB”) approach,
which will imply further improvements to the internal risk models and governance.
Granting credit is the responsibility of four levels of management, involving the Branch (the first decisionmaking stage), the Regional Department (the second stage), the Commercial Division (the third stage) and the
Coordinating Manager of the respective Commercial Division and Board member (the fourth stage),
depending on the nature of the loan, the requested amount and Montepio’s overall exposure to that particular
customer.
Credit limits are applied to each customer and differ according to the product’s characteristics. A large
majority of housing and construction loans are secured by a first mortgage on the relevant land and
buildings or, in some circumstances, other land or buildings. Montepio typically does not accept second or
lower ranking mortgages, other than in exceptional circumstances or where it is the holder of all prior
ranking mortgages.
Special limitations and terms apply to loans being granted to start-up companies starting business and other
borrowers who are classified with a high credit risk. If a proposed construction loan exceeds 60 per cent. of
the value of the property or a proposed housing loan exceeds 75 per cent. of the value of the property, an
authorisation at a more senior credit decision level will be sought, and an increase in the collateral or
guarantees may be required. In addition, it is a requirement before any housing or construction loan is
approved that a valuation of the proposed security is received from an independent expert approved by
Montepio.
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Non performing Loans
As at 31 December 2014, 6.9 per cent. of Montepio’s loan portfolio (including past due interest) was in
default, representing approximately €1,148.5 million, compared to €999.0 million (or 6.0 per cent. of
Montepio’s portfolio) as at 31 December 2013. The following table gives certain details with respect to non
performing loans for the years ended 31 December 2013 and 31 December 2014:
As at 31 December 2014
As at 31 December 2013
Amount
(€ millions)
Corporate
Construction / Production
267.5
224.4
Investment
276.9
199.3
Working Capital
353.7
306.8
27.7
7.2
Mortgage loans
69.4
111.2
Consumer credit
45.5
56.4
Other loans
53.2
54.0
Public sector
0.5
0.1
54.3
39.6
1,148.5
999.0
6.9%
6.0%
Other loans
Retail
Other segments
Total
Total as percentage of loan portfolio
The following table sets forth the default period of time for which the non performing loans have been in
default for the years ended 31 December 2013 and 31 December 2014:
100
As at 31 December
2014
As at 31 December
2013
Amount
(€ millions)
Up to 3 months
134.3
121.7
3 to 6 months
46.7
30.5
6 to 12 months
110.9
99.1
1 to 3 years
467.6
449.0
Over 3 years
389.0
298.7
1,148.5
999.0
As at 30 September 2015, 9.0 per cent. of Montepio’s loan portfolio (including past due interest) was in
default, representing approximately €1,422.4 million, compared to €1,148.5 million (or 6.9 per cent. of
Montepio’s portfolio) as at 31 December 2014.
Loans are monitored through computer checks on whether payments are made on time, regular reviews by
management and regular reporting by corporate borrowers. Montepio also uses certain early warning systems
(for example, by monitoring whether corporate borrowers make social security payments on time).
The Credit Recovery Department, together with the Commercial Departments, produces monthly reports in
order to enhance the co-operation between the Commercial Departments and the Legal Department, with the
view of developing suitable new methods for the recovery of overdue loans.
Loans in default are dealt with at different internal management levels. The branches, with the help of the
Contact Centre, are responsible for coordinating the initial stage (up to one month in arrears) of the
credit recovery process. In addition, there are hierarchical stages, defined in terms of time in arrears and
amount overdue, during which the aim is to re-negotiate settlement before sending the matter to the Legal
Department.
After one month in default (except for loans in relation to which a recovery plan has been approved or that are
in negotiation for settlement) the process is automatically assigned to Montepio Recuperação de Crédito, ACE
(“MRC”), a company of Montepio’s Group founded exclusively to recover the loans in arrears of the
companies of the Group and manage the properties repossessed in the recovery process. The aim of MRC is to
recover the overdue loans without recourse to litigation.
During the recovery process and in order to recover the arrears out of court, MRC uses the services of five
Credit Recovery Agencies to monitor pools of Non-Performing Loans (“NPLs”) loans previously assigned to
them. These Credit Recovery Agencies work on a best efforts basis by contacting the borrowers and
guarantors and negotiating the restructuring of loans, if necessary, in order to recover the loans in arrears.
Daily reports are sent to MRC on the tasks performed, including the amounts and loans recovered.
If a settlement is not reached within five months from the date of the first failure to pay, legal proceedings
will be instigated. At the litigation phase, MRC employs the services of three law firms, as well as Montepio’s
Litigation Division.
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Montepio continues to accrue interest on unsecured loans for three months following a default. Interest in
respect of mortgage secured loans is accrued up until the value of the collateral is surpassed by the amount
of principal and interest in arrears. A provision for general credit risk of 1 per cent. (0.5 per cent. for
housing loans secured by property, provided that the guarantee is used by the borrower as his official or actual
residence, and 1.5 per cent., for consumer credit) is made for every loan from the date it is granted. Further
provisions are made once the loan is in default for three months depending on the time for which it has been
in arrears, although the percentage of provisioning in respect of unsecured loans increases at a greater rate
than the percentage for secured loans. Montepio’s treatment of provisions is in accordance with the
requirements of the Bank of Portugal. If a non-performing loan is rescheduled, provisions are only reversed
when payment is received or when additional collateral or an additional guarantee is provided in connection
with the rescheduling of the loan.
The following table shows total non-performing loans and total provisions made for the years ended 31
December 2013 and 31 December 2014:
As at 31 December 2014
As at 31 December 2013
Amount
(€ millions)
Total non-performing loans
(as percentage of total credit to customers)
Impairment for Credit Risk
1,148.5
999.0
6.9%
6.0%
1,385.9
(as percentage of total non-performing loans)
120.7%
1,051.5
105.3%
Montepio reinforced the amount of impairments for credit risk during 2014, by €334.3 million, which
improved the ratios of coverage of credit and interest overdue by impairments to 120.7 per cent. and of credit
and interest overdue by more than 90 days to 136.7 per cent. The Simple Coverage of Credit-at-Risk by
impairment stood at 69.4 per cent., whereas the coverage ratio considering total credit impairments and the
associated real estate collateral reached 136.5 per cent.
Financial Risk Management
The most important financial risks to which Montepio is potentially exposed are liquidity risk, foreign
exchange risk and interest rate risk; the most important in practice being liquidity risk.
In common with many similar credit institutions which finance housing loans, Montepio’s loan assets are
relatively illiquid whilst its funding is mainly based on retail deposits, most of which are either legally
available on demand or are of a short term nature (although in practice such deposits usually remain with
Montepio for extended periods). Liquidity is monitored on a daily basis, based on actual and forecast money
inflows and outflows, and measures are immediately taken to overcome any shortfall.
With the aim of rendering a more liquid profile to its assets, the Issuer has been securitising part of its credit
book, namely housing credit, under its “Pelican Mortgages Programme”, out of which six transactions have
been executed so far.
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In June 2010 Montepio securitised for the first time part of its small and medium size companies credit book,
under “Pelican SME Loans no.1”, for a total consideration of €1.2 billion. This transaction was fully paid by
the Issuer on 15 April 2014.
In March 2012, Montepio closed its 6th Residential Mortgage securitisation transaction, for a total
consideration amount of €1.0 billion.
In May 2014, Montepio securitised for the first time a pool of receivables consisting of consumer and auto
loans granted to private individuals, in a total outstanding amount of €294 million. The portfolio was
originated by Montepio and Montepio Crédito – Instituição Financeira de Crédito, S.A. (“Montepio
Crédito”) (together the “Sellers” or the “Originators”).
In March 2015, Montepio securitised for the second time part of its small and medium size companies credit
book, under “Pelican SME Loans no.2”, for a total consideration of €1.09 billion.
The Issuer is exposed to a limited amount of foreign exchange risk, mostly arising from the provision of
foreign exchange to its retail customers. The Issuer’s exposure to interest rate risk is also limited, as most of
its loan portfolio and funding are on a floating rate basis. Montepio currently holds a small securities portfolio
whose interest rate risk is monitored on a daily basis.
As far as financial assets are concerned, a report is produced on the related credit and market risks to the
Issuer’s and the Group’s securities portfolios. A daily risk assessment is drawn-up for the Issuer’s proprietary
portfolio, which includes an analysis of the sensitivity of the portfolio’s net asset value, as well as the
disclosure of other risk measures. Such as “Value-at-Risk”, checks on “Stop-Loss Limits” and a breakdown
of the portfolio’s assets by credit ratings and duration.
The Issuer’s use of derivative investments is mainly aimed at hedging interest rate risk derived from its
funding activities on the domestic and international debt capital markets.
Following the recommendations of Basel II (Pillar II) and Instruction no. 19/2005, of the Bank of Portugal,
the Issuer calculates its exposure to interest rate risk based on the methodology of the Bank of International
Settlements (BIS) which requires the classification of non-trading balances and off balance positions by
repricing intervals.
Liquidity gap
Historically, CEMG has shown dynamic positive liquidity gaps, with positive accumulated mismatches (gaps
in the phasing between resource inflows and outflows) for the different timeframes up to 12 months. At the
end of 2014, the dynamic accumulated liquidity mismatch for the following 12 months came to €2,653.8
million, registering an improvement relative to the previous estimate (the 12-month projection with reference
to December 2013 was €2,161.9 million).
Capital
Since December 2013, Montepio’s capital structure consists of institutional capital, an asset allocation made
by MGAM that holds the institutional capital of Montepio, and the Participation Fund, that represents public
investment. Prior to this date, Montepio had a special status, with no share capital and with the capital of
Montepio under the form of institutional capital held exclusively by MGAM. However, in order to
accomplish its strategy of strengthening the institution’s Basic Own Funds, the capital of Montepio was
opened to public investment. On 25 November 2013, Montepio launched an initial public offer of 200 million
participation units (Unidades de Participação), at a face value of €1, in the Participation Fund (Fundo de
Participação) of Montepio. The participation units offering was successful, with demand exceeding offer by
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10.2 per cent., and subscription orders reaching in excess of €220 million in the 15 business day subscription
period. On 17 December 2013, the participation units were listed on the Euronext Lisbon following the
Regulated Market Special Session. Following this listing, Montepio is considered a company whose capital is
open to investment by the public (Entidade Com Capital Aberto Ao Investimento do Público).
Notwithstanding the above, MGAM, the parent company and underwriter of the institutional capital, shall
continue to be the sole controlling owner of Montepio, since ownership of the participation units does not
confer voting rights.
MGAM has been able to increase the institutional capital of Montepio, as a means to providing the latter the
capital levels necessary to ensure its medium and long-term financial stability.
The following table sets out the capital position of Montepio as at 31 December 2013, its own funds’
requirements and capital ratios, calculated in accordance with the then in place requirements of the Bank of
Portugal and in compliance with Basel III prudential indicators:
As at 31 December 2013
(€ millions)
Basic own funds Core Tier 1 (Capital Common
Equity Tier 1)
Paid-up capital
1,700.0
Net profit, General reserves, Special reserves
-60.4
Other regulatory adjustments
-77.3
Basic own funds (Capital Tier 1)
Other equity instruments
8.3
Deduction to basic own funds
-11.1
1,559.4
Complementary own funds (Capital Tier 2)
Subordinated Loans
303.6
Regulatory Adjustments
-13.8
Total own funds
1,849.3
Own funds requirements
1,135.1
Prudential Ratios
Ratio Common Equity Tier 1
11.01%
Ratio Tier 1
10.99%
104
Total Capital Ratio
13.03%
At 31 December 2014, the capital of Montepio (comprised of the Institutional Capital and Participation Fund)
reached a total of €1,700 million, as a result of the new capital structure which came into effect on 17
December 2013, which includes €200 million Participation Units of the Participation Fund, in addition to the
Institutional Capital of €1,500 million.
In the end of June 2015 Montepio concluded a further issue of €200 million participation units (Unidades de
Participação), at a nominal value of €1, representing its Participation Fund (Fundo de Participação) that has
been fully subscribed and paid by MGAM.
The capital of the Issuer (comprised of the Institutional Capital and Participation Fund) reached a total of
€1,900 million which includes €400 million Participation Units of the Participation Fund, in addition to the
Institutional Capital of €1,500 million.
In view of the new capital structure, return on capital shall be distributed in accordance with the relevant
capital’s proportion of total capital, in circumstances where there is sufficient net profit, after provision has
been made for mandatory reserves and after the approval of Montepio’s General Meeting acting on a proposal
from the Executive Board of Directors. As at 31 December 2014, on an individual basis, net income of
Montepio was negative €157,306, whereas as of 30 September 2015 the net income for the 9 months period
was negative €196,155.
The following table sets out the capital position of Montepio as at 31 December 2014, its risk-weighted assets
and capital ratios, calculated in accordance with the requirements of the Bank of Portugal and in compliance
with Basel III prudential indicators:
As at 31 December
2014
€ millions
1. Total Capital
1,309.09
(+) instruments eligible for CET1
(+) reserves and net income
1,682.2
-316.9
(-) regulatory deductions
80.1
1.1 (=) Common Equity Tier 1 Capital
1,285.2
(+) other equity instruments
6.6
(-) Tier 1 deductions
6.6
1.2 (=) Tier 1 Capital
1,285.2
(+) Tier 2 capital
32.8
(-) other deductions
8.9
2 Minimum Own Fund Requirements
105
1,207.5
3 Risk weighted assets and equivalents
15,094.1
4. Ratios - CRD IV phasing-in
Common Equity Tier 1 ratio (1.1/3)
8.51%
Tier 1 ratio (1.2/3)
8.51%
Total capital ratio (1/3)
8.67%
4. Ratios - Full Implementation
Common Equity Tier 1 ratio
6.99%
Tier 1 ratio
7.00%
Total capital ratio
7.22%
Since the beginning of 2014, the new rules and capital requirements under Basel III started to be phased in.
Pursuant to this process, the Bank of Portugal requires that banks comply with the capital ratio requirements
set out in Basel III. “Full implementation” will occur when all Basel III rules have been fully implemented.
As of 31 December 2014, Montepio’s capital ratios were above the minimum required levels. In particular,
the Common Equity Tier 1 ratio reached 8.51 per cent. thus exceeding the 7 per cent. minimum requirement
stipulated by the Bank of Portugal for 2014.
Within the framework of the Issuer’s Strategic Guidelines for the period 2015-2017, adopted by the General
Assembly of 29 December 2014, and as stated in the Funding and Capital Plan 2015-2017 submitted to the
Bank of Portugal, the Issuer has defined a strengthening plan of the capital ratios. This plan aims to achieve
capital cushions that allow capital ratios to be set in excess of the CRR and directive CRD IV by 2018.
The measures envisaged are the following:

amend the terms and conditions of some of the cash bonds issued in 2008, designated as “Obrigações
de Caixa Subordinadas Montepio Rendimento Top 1.ª Série 2008/2018 (CÓD. ISIN
PTCMKLXE0004)” and “Obrigações de Caixa Subordinadas Montepio Rendimento Top 2.ª Série
2008/2018 (CÓD. ISIN PTCMKOXE0001)” in the total outstanding principal amount of
€300,000,000.00 (“Cash Bonds”) in order for those issuances be considered eligible to be classified as
Tier 2 Capital in accordance with Regulation (EU) No 575/2013, namely: a) not to allow CEMG to
repay the issue early, b) to include an option to postpone the payments of interest, c) and, if so, any
interests that are not paid shall be capitalised at the interest rate of the next interest payment date. The
required amendments have been duly and validly approved by more than 2/3 of the attendees to the
meeting of the holders of the Cash Bonds that took place on 13 May 2015, resulting in the Cash Bonds
becoming an eligible Tier 2 instrument for the purposes of the CRD IV and the CRR;

increase Common Equity Tier 1 capital by €200 million through the issuance of additional
participation units (Unidades de Participação) of the Participation Fund (Fundo de Participação)
through a private offering to be fully subscribed by MGAM, the parent company. This new issue was
subject to the prior approval of the waiver, by the then participation unit holders, to the pre-emptive
right in connection with the issuance of those additional €200 million Securities. This proposal was
submitted to and approved by the participation unit holders in an Assembly of the Unit holders of
Caixa Económica Montepio Geral’s Participation Fund held on 5 June 2015; following this approval,
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the Issuer issued, on 26 June 2015, the €200 million participation units through a private offer fully
subscribed and paid for by Montepio Geral – Associação Mutualista;

implementation of the deleveraging plan in course with respect to the non-strategic assets, which will
result in a reduction of the risk-weighted assets and consequently in a positive impact on capital ratios.
This deleveraging program began in December 2014 and shall be concluded till the end 2016. It
comprises the sale of non-performing loans (NPLs) portfolios and the sale of real estate (the noncurrent assets held for sale) in a total outstanding amount of circa €1,365 million. The implementation
of the program will be conditional to the current and future market conditions, to all the required
negotiation process, and to the features and the valuation of the portfolios to be sold;

execution of the Plan to reduce the exposure to Real Estate risk as submitted to the Bank of Portugal,
which in addition to the previous real estate wholesale sale plan, includes a set of actions to reduce the
real estate portfolio, namely: Non-current assets available for sale and investment properties, in a total
outstanding amount of circa €108 million per year, with a favourable impact on reducing the riskweighted assets and the capital allocation; and

strengthening of Tier 2 capital by up to €300 million through the issuance of subordinated debt. The
completion of the new issue of subordinated debt will be conditioned by the market circumstances; in
particular by the investors’ interest and appetite to take in their portfolios the Issuer subordinated risk.
Other risk factors associated with the implementation of the aforementioned plans relate to contextual
circumstances and exogenous factors, namely the evolution of Portuguese economic and political conditions.
Important risk and uncertainty factors are the sustainability of the public finances and of the government debt,
related with the investor’s perception and demand for any additional risk premium, and the regulatory
changes within the framework of Economic and Monetary Union. If the Issuer is unable to raise the funds or
otherwise adopt the measures required to fully comply with the capitalisation requirement imposed by the
CRD IV and the CRR, the Issuer may be subject to regulatory measures determined by the Bank of Portugal,
including, inter alia, corrective measures and resolution measures. For a description of the purpose and scope
of these measures, please refer to the section headed “Legislation on Bank Recovery and Resolution”.
Participation Fund (Fundo de Participação)
As referred to in the section above, on 25 November 2013, Montepio launched an initial public offer of 200
million participation units (Unidades de Participação), at a face value of €1, in the Participation Fund (Fundo
de Participação) of Montepio. The participation units offering was successful, with demand exceeding offer
by 10.2 per cent., and subscription orders reaching in excess of €220 million in the 15 business day
subscription period. On 17 December 2013, the participation units were listed on the Euronext Lisbon
following the Regulated Market Special Session. Following this listing, Montepio is considered a company
whose capital is open to investment by the public (Entidade Com Capital Aberto Ao Investimento do Público).
According to articles 6, (b) and 8 of its by-laws, Montepio provide for the establishment of a participation
fund (“Participation Fund”) (Fundo de Participação), which, in addition to the institutional capital, the
Legal Reserve, the Special Reserve, the Other Reserves and the Undistributed Results, will form the Equity
and Own Funds of Montepio.
The main characteristics of the Participation Fund (Fundo de Participação) are as follows:
a)
The Participation Fund (Fundo de Participação) is permanent;
b) It is represented by participation units (“Participation Unit”) (Unidades de Participação), with a
nominal value and in the form to be determined when their respective issuance is to be approved;
107
c)
It can only be redeemed upon the winding-up of Montepio and only upon the redemption of all the
other creditors of the issuer, including those that hold other types of subordinated debt. The holders
of the Participation Units (Unidades de Participação) will rank pari passu and pro rata with the
holder of Montepio’s institutional capital in sharing the liquidation amount of Montepio’s assets;
d) Any redemption of the Participation Fund (Fundo de Participação) can only be made pursuant to the
provisions of Montepio’s by-laws and following the prior written consent of the Bank of Portugal;
e)
The holders of the Participation Units (Unidades de Participação) are not entitled to intervene in the
corporate bodies of Montepio, but are only entitled to receive an annual revenue if and when there
are sufficient results to that effect and upon the approval of Montepio’s General Meeting, based on a
proposal by the Executive Board of Directors.
The overall amount of the Participation Fund is not capped, but the Executive Board of Directors of Montepio
is authorised to issue Participation Units (Unidades de Participação) up to an amount equivalent to the
institutional capital current amount (currently €1,500,000,000).
The Bank of Portugal has acknowledged Montepio’s Participation Fund as a positive element of its core own
funds, according to article 3, (a) of Bank of Portugal’s Notice (Aviso) no. 6/2010 (as amended), and its
eligibility for the computation of core tier 1, according to Bank of Portugal’s Notice (Aviso) no. 3/2011 (as
amended) and common equity as per CRD IV (i.e. the regulation resulting from: (i) Directive 2013/36/EU of
the European Parliament and of the Council, of 26 June 2013, on access to the activity of credit institutions
and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC
and repealing Directives 2006/48/EC and 2006/49/EC and (ii) Regulation (EU) No 575/2013 of the European
Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and
investment firms and amending Regulation (EU) No 648/2012.
As a consequence of the Participation Fund public offer and admission to the regulated market, the Issuer is
now classified as an issuer of shares admitted to trade on a regulated market. As such, the Issuer needs to
comply with all duties and obligations mandatory to an issuer of shares, including to disclose all relevant
information to the market and regulators, namely CMVM and the Bank of Portugal.
Technology
Montepio believes that technology has strategic importance in providing good quality and innovative services
to its customers, which is essential to maintain its competitiveness in the Portuguese market.The Legacy
System is hosted in IBM zSeries BC10 model E10 W05 1.968 Mips. The business application was developed
in partnership with the company Accenture. The base package Alnova is now developed in COBOL
(Enterprise Cobol 4.2), DB2 (DB2 for z/OS V10) and CICS (CICS TS for z/OS V5.1) and run in a z/OS
V1.13.Recently, Montepio deployed a private cloud solution based in VMWARE and HYPER-V, following
the IaaS model, allowing powerful consolidation and virtualisation of the Distributed Systems, with the
corresponding benefits from increased operational efficiency, shorter time to production and reduced
infrastructure-related efforts and costs. A sophisticated information network has been implemented,
integrating voice and data, and maintained in continuous evolution. It provides high bandwidth connections
up to 10 GB, incorporating 4G technology. The security infrastructure ensures, in a high availability system,
the protection of all systems through Geo-cluster Checkpoint firewalls integrating the protection of threats
with Radware intrusion detection mechanisms, geographic balancing and Radware local balancing. All
components of the solution are present in its own infrastructure with multi-user interconnections to assure that
all national and international communications and their contents are served in Lisbon or Porto, providing
protection against failures in the event of interruptions in local or regional networks, power outages or natural
disasters.
108
In addition, innovative projects have been and are being implemented, with a large impact on the local
market, such as:

Internet Banking (Net 24), Mobile Banking (Netmóvel 24) and SMS Banking (SMS 24), providing
customers with a wide range of transactions, including enquiries, deposits, transfer orders, bill
payments and on-line brokerage services.

Contact centre (Phone 24) has been established, which provides phone, fax, e-mail and chat
capabilities for its customers.

An internal Self-Service ATM network (Chave24). Montepio was the first bank to provide ATM
services in Portugal (in 1984). At present their last generation ATM with a Web based Application and
crash Recycling technology provides a broad range of products and services which are all touch screen
only and voice enabled, such as: bill payment, cash and check deposits and passbook automatic page
turn.

A new Branch Automation Solution is being developed using Accenture Multichannel Platform,
providing for migration from a Client-Server architecture to a Web Based Application running in
Virtual machines. The new solution will allow the integration of information from a range of sources
such as: CRM, Enterprise Analytics, Workflows, Intranet and others.

A new Enterprise Data Warehouse (“EDW”) has been implemented in last quarter of 2010 based on a
relational model named Detail Data Store (“DDS”), developed on a SAS technology platform,
supported on a Data Computer Appliance (Greenplum). This new EDW supports all needs related with
Business Intelligence trends considering financial services. This infrastructure continues to increase,
on a regular basis in order to cater for the needs arising from the development of new business lines
and to meet business subjects areas such as risk, profitability, pricing, Regulatory Reporting, Auditing
and Marketing.

The former “CRM” is being developed into a Marketing Automation level comprising a new Analytic
CRM platform interacting with an upgraded Operational CRM application among full integration with
a revised 360º Customer Vision (value added with new commercial relevant information) and
integration with Product Catalog and other distribution channels for a total Customer relation
awareness.

A credit scoring application is in operation providing a useful tool for assessing risks related to
housing loans, consumer credit and credit cards.

Misys Kondor+ has been implemented in order to improve trade management, support of complex
derivatives, options and structured trades support, improve straight through processing. With Misys
Kondor+ Montepio could implement a complete front-to-back solution with strong support for risk
management and centralised administration and control. We are using version 3.2 SP2 and plan to
upgrade in the near future to version 3.4 of Misys Kondor+.

A Time Deposit Workflow is in operation allowing the integrated management of spread authorisation
in time deposits.

A Workflow System allowing for the integrated management of credit process has been implemented.

An Enterprise Document Management System has been implemented supporting different business
process such as: Inter-Bank circulation of cheque images, Members’ and Costumers’ signatures
and daily branch movement.
109

In terms of compliance of anti-money laundering, an Operational Monitoring System (Northland) has
been implemented as well as a Filtering System (Fircosoft) for “funds transfer” operations and for
clients.
Employees
As at 30 September 2015, Montepio had 4,432 employees, compared with 4,425 employees as at 31
December 2014. Net assets per employee decreased from €5.1 million as at the end of 2014, to €4.9 million
as at 30 September 2015.
Recent Developments
Independent audit
In October 2013, the Bank of Portugal requested an independent audit regarding the bank’s credit risk
practices which occurred between 2009 and 2012. This audit started in July 2014 and ended in October 2014
and final results were communicated to Montepio on 28 April 2015. The scope covered the following
perspectives: Governance Model, Internal Organization, Processes and Standards and Internal Control and
findings were summarized into 31 action points.
On 18 May 2015 Montepio presented its response with the required evidence where most concerns were
already addressed in 2013 and 2014. Further, the Issuer presented its plan with respect to those practices to
which it was not compliant.
Governing Bodies
A General Meeting was held on 30 April 2015, to discuss and decide on the following agenda:
(1)
Resolution on the Management Report and individual and consolidated Accounts, relating to 2014;
(2)
Resolution on the proposed implementation of results relating to 2014;
(3)
Perform a general appraisal of CEMG’s management and supervision;
(4)
Resolution on the remuneration policy of the management and supervision bodies and of other
institutional bodies;
(5)
Resolution on the Remuneration Commission declaration related with the remuneration policy of the
management and supervision bodies;
(6)
Resolution on the internal policy of selection and evaluation of the management and supervision
bodies members, as well as of other main offices;
(7)
Discussion and resolution on the partial modification of CEMG’s articles of association;
(8)
Resolution on the increase of the Participation Fund, according to article 8, paragraph 2 of the Articles
of Association.
All items on the agenda were approved, with the exception of item 7, for which its discussion and resolution
was postponed to 26 May 2015.
On 26 May 2015, the partial modification of the Issuer’s articles of association was approved by its General
Meeting. MGAM’s General Meeting was convened to ratify the amendment on 25 June 2015.
On 25 June 2015, MGAM’s General Meeting was held and the amended Issuer’s articles of association were
ratified.
110
On 22 July 2015, the Issuer convened an Extraordinary General Meeting to elect, inter alia, the members of
its Executive Board of Directors and Supervisory Board. This Extraordinary General Meeting took place on 5
August 2015. The respective announcement (convocatória) and relevant proposals are available at
www.cmvm.pt and www.montepio.pt.
3rd Quarter 2015 consolidated activity and results
As at 30 October 2015 the Issuer presented the Third Quarter Results 2015 of its consolidated activity (unaudited
financial information). The main highlights in respect of the Issuer’s activity in this period are as follows:
Net income for the first 9 months of 2015 of Caixa Económica Montepio Geral was €-59.5 million, which
compares with €19.9 million1 in the same period of 2014. This change was mainly driven by two factors:

The improvement of the recurrent net income by € 205.5 million; and

The reduction of €224.0 million in the financial operations results, which reached €145.7 million, due to a
lesser contribution of the results obtained from the sale of Portuguese treasury securities.
The improvement in recurrent net income was a consequence of both: (i) the increase of 6.8 per cent. in
commission’s income, from the second to the third quarter of 2015; and (ii) the policy to reduce the level of
operating costs in the domestic business activity (-0.9 per cent.), thus contributing to the decrease of 6.6 per cent. in
the Group’s operating costs, from the second to the third quarter of 2015.
The combination of these factors have off-set the reduction in the business volume, which was due to the slow, and
still fragile, recovery of the domestic economy, which was reflected in the 5.3 per cent. reduction in the net credit
to customers.
The results from financial operations totaled €145.7 million, which compares with €369.7 million in the same
period of 2014. This decrease was determined by the lesser contribution of the proceeds obtained from the sale of
Portuguese treasury securities which reached €361.5 million in the first 9 months of 2014, compared against €71.0
million until 30 September 2015, resulting in a reduction of €290.4 million. It is, therefore, worth noting that, if
one excludes the impact of the sale of the aforementioned securities, the results from financial operations posted an
increase of €66.4 million in September 2015 compared to the same period in 2014.
The operating costs of the domestic activity decreased by 0.9 per cent. year-on-year, this trend, coupled with the
increase in the operating costs of the international activity, led to an overall increase of 3.5 per cent. The increase in
the operating costs of the international activity was mainly driven by the entry into Mozambique, through the
acquisition of a qualified holding in the share capital of Banco Terra, S.A., which occurred at the end of 2014.
From the second to the third quarter of 2015, the Group’s operating costs decreased 6.6 per cent., as a result of the
reduction in employee and administrative costs of 1.6 per cent. and 12.9 per cent., respectively, as a result of the
cost reduction policy.
The cost of risk went down to 1.6 per cent., compared to 3.1 per cent., at year end-2014, as a result of the reduction
in credit impairments, which decreased by 42.2 per cent. year-on-year, to €202.6 million, or 47.3 per cent. in the
domestic market, as a result of the recovery of the Portuguese economy and its impact on the households finances.
As far as international activity is concerned, credit impairments posted by Finibanco Angola increased €3.0
million, reaching €10.3 million, whereas in Banco Terra credit impairments were €0.6 million.
1
To ensure comparability, the financial statements of September 2014 were restated following the European Commission
Regulation No. 634/2014 of 13 June 2014, which established the entry into force of the IASB’s interpretation on IFRIC 21,
of 20 May 2013, no later than the date of the first financial exercise that begins on or after 17 June 2014
111
In terms of balance sheet, net total assets stood at €21,824.9 million, thus showing a decrease against the value
posted in 31 December 2014 (by -2.9 per cent.).
Credit to customers (net) decreased by 5.3 per cent., against the same period in 2014, to €14,597.4 million,
reflecting the performance of the domestic activity (-5.4 per cent.) as a consequence of an adequate underwriting
policy, contrasting with the performance on the international front where there was an increase of 1.3 per cent.. The
behaviour of the credit portfolio is also a consequence of the reduction in mortgage loans (-8.6 per cent.) and of the
stability of the loans to companies (-0.7 per cent.).
With respect to the credit portfolio, the credit-at-risk ratio stood at 14.46 per cent., whereas credit with more than
90 days overdue the ratio was 7.97 per cent., reflecting the prolonged unfavorable context of the Portuguese
economy. It is also worth noting the stability of the coverage of credit-at-risk stood at 58.5 per cent., compared to
59.7 per cent. in the same period of 2014. Taking into account the associated guarantees, this coverage ratio stood
at 121.4 per cent. (135.4 per cent., in September 2014).
With regards to liquidity, there was a consolidation of individuals’ deposits standing at €9.0 billion, together with
an amortisation of debt securities issued of €568 million, thus evidencing an active management of the net funding
needs. The Liquidity Coverage Ratio reached 89 per cent., 29 percentage points above the minimum required level,
as well as the leverage ratio, taking into account total credit and customers’ resources, improved to 99.6 per cent.,
against 99.8 per cent. in June 2015.
As regards capital, the downward trend in the Risk Weighted Assets continued, having decreased by €634.8
million, compared to December 2014, as a consequence of the reduction of the credit portfolio and of the debt
securities portfolio. Putting together this decrease with the shore-up of the own funds of €348.5 million, which took
place in the first 9 months of 2015, there was an improvement in the phasing-in capital ratios, Common Equity Tier
1 and Total Capital from 8.51 per cent. and 8.67 per cent., to 9.30 per cent. and 10.32 per cent. respectively. The
reduction of these ratios against June 2015 is, mainly, a consequence of the net income for the period.
(thousand Euros)
Sep-2015(1) Jun-2015(1)
Dec-2014
BASEL III - CRD IV / CRR
Total Capital
1,494
1,600
1,309
Eligible instruments to CET1
1,885
1,896
1,682
Common Equity Tier 1 Capital
1,346
1,436
1,285
Tier 1 Capital
1,346
1,436
1,285
Tier 2 Capital
154
171
33
14,470
15,065
15,105
10.32%
10.62%
8.67%
Common Equity Tier 1 (phasing-in)
9.30%
9.53%
8.51%
Tier 1 (phasing-in)
9.30%
9.53%
8.51%
Risk Weighted Assets and equivalents
Total Capital ratio (phasing-in)
(1)
Non audited figures
112
The main indicators in respect of the Issuer’s activity are as follows:
Sep-15(1)
Key Indicators
Dec-14
Sep-14(*)(1)
Dec-13
Leverage Ratios
Total Net Credit to Customers / Customers Deposits (a)
116.56%
106.46%
110.21%
110.18%
99.64%
92.50%
95.56%
94.70%
Ratio of Credit and Interest overdue > 90 d
7.97%
6.13%
6.44%
5.30%
Non-performing loans ratio (a)
8.40%
7.42%
8.67%
7.12%
-0.07%
-1.00%
0.45%
0.84%
106.53%
136.65%
128.87%
119.85%
14.46%
12.03%
13.84%
12.25%
6.56%
4.02%
6.08%
6.32%
Credit-at-Risk Coverage Ratio
58.51%
69.35%
59.66%
51.70%
Restructured Credit as a % of Total Credit (c)
10.70%
10.49%
10.41%
9.68%
5.41%
6.89%
6.83%
7.30%
2.29%
3.48%
4.13%
1.76%
Earnings before Taxes and Non-controlling Interests / Average
Net Assets (a)
-0.59%
-0.92%
0.32%
-1.73%
Earnings before Taxes and Non-controlling Interests / Average
Equity (a)
-8.94%
-12.57%
4.21%
-18.99%
Operating Costs / Net Operating Income (cost-to-income) (a)
68.25%
43.56%
35.92%
90.05%
Personnel Costs / Net Operating Income (a)
40.12%
24.75%
20.71%
52.12%
Total Net Credit to Customers / On-Balance sheet Customers
Resources (b)
Credit Risk and Coverage by Impairments
Net Non-performing loans ratio (a)
Coverage of Credit and Interest overdue > 90 d
Credit at Risk Ratio (a)
Net Credit at Risk Ratio (a)
Restructured Credit not included in Credit-at-Risk as a % of
Total Credit (c)
Efficiency and Profitability
Net Operating Income / Average Net Assets (a)
113
Sep-15(1)
Key Indicators
Sep-14(*)(1)
Dec-14
Dec-13
Employees and Distribution Network (Number)
Employees
Group total
4,432
4,425
4,229
4,213
CEMG
3,898
3,907
3,903
3,903
422
436
436
456
30
17
18
14
21
18
18
14
9
9
-
-
6
6
6
6
Branches
Domestic – CEMG
International
Finibanco Angola (d)
Banco Terra (Mozambique)
Rep. Offices – CEMG
(*)To ensure comparability, the financial statements of September 2014 were restated following the European Commission Regulation No.
634/2014 of 13 June 2014, which established the entry into force of the IASB’s interpretation on IFRIC 21, of 20 May 2013, no later than the date
of the first financial exercise that begins on or after 17 June 2014.
(a) In accordance with Bank of Portugal Instruction No. 16/2004
(b) On-Balance Sheet Customers' Resources = Customer Deposits and Securities Placed with Customers
(c) In accordance with Bank of Portugal Instruction No. 32/2013
(d) Includes Business Centres
(1)
Non audited figures
».
In accordance with the previous approved strategic plan, in an Extraordinary General Meeting that took place on 30
December 2015, it was decided to sell the whole participation in Montepio Seguros, SGPS, SA (corresponding to
33.7 per cent. of equity and supplementary capital) to Montepio Geral – Associação Mutualista, at the book value
of €65,100,001.30. This reorganisation and resizing of CEMG Group organizational structure will strengthen the
capital ratios by 35 bp.
114
BOARD OF DIRECTORS AND OTHER CORPORATE BODIES OF THE ISSUER
With the implementation of the new Articles of Association in 2013, the Issuer’s governance structure
comprises specific management and supervisory bodies, separate from those of MGAM. Nonetheless, as the
Issuer is an entity annexed to Montepio Geral Associação Mutualista (“MGAM”), there exists a core of
shared strategic principles.
More recently, in the General Meeting held on 30 April 2015 and continued on 27 May 2015, a partial
amendment of the Issuer’s by-laws was approved. The amended by-laws were ratified by the General Meeting
of MGAM held on 25 June 2015, pursuant to article 36, no. 8, of the Issuer’s by-laws and registrations with
the Bank of Portugal and the competent Commercial registry Department before entering into force.
These amendments were, fundamentally, the consequence of changes in the banking law (in particular,
Decree-Law no. 157/2014, of 24 October 2014, which introduced a significant number of changes in the
RGICSF).
One of the key amendments to the Issuer’s by-laws relates to the way members of the different corporate
bodies are elected. Pursuant to the amended by-laws, as approved in said General Meeting of MGAM held on
25 June 2015, all corporate bodies are elected in the General Meeting of the Issuer (i.e. the members of the
Board of Directors of MGAM will no longer be statutorily members of the General and Supervisory Board of
the Issuer).
One other relevant amendment is the inclusion of new corporate bodies, which are now legally foreseen in the
RGICSF: (i) a Remuneration Committee; (ii) an Evaluation Committee; and (iii) a Risk Committee. The
members of these new corporate bodies are also elected in the General Meeting of the Issuer.
Therefore, the Issuer’s current governance structure comprises the General Meeting, the General and
Supervisory Board, the Executive Board of Directors, the Remuneration Committee, the Statutory Auditor,
the Evaluation Committee and the Risk Committee.
On 22 July 2015 an Issuer’s Extraordinary General Meeting was convened to elect, inter alia, the members of
its Executive Board of Directors and General and Supervisory Board for the term 2015/2018. This
Extraordinary General Meeting took place on 5 August 2015. The respective announcement (convocatória)
and relevant proposals are available at www.cmvm.pt and www.montepio.pt. Please note that the list of
current members of the Executive Board of Directors and General and Supervisory Board for the term
2015/2018 is on page 118 of this Base Prospectus, and the list below is of the previous members of Executive
Board of Directors and General and Supervisory Board, which served for the term 2013/2015.
The following are the members of the Executive Board of Directors of the Issuer for the term 2013/2015,
which were appointed in the Montepio’s general meeting dated 19 February 2013:
Executive Board of Directors
António Tomás Correia
Other positions
(Chairman)
Chairman of the Board of Directors of
Montepio Geral Associação Mutualista
Chairman of the Board of Directors of
Finibanco Angola, S.A.
Member of the Remuneration Committee
of Futuro – Soc. Gestora de Fundos de
Pensões, S.A.
Member of the Remuneration Committee
of Montepio Valor, S.A.
Member of the Remuneration Committee
of Montepio Gestão de Ativos – SGFI, S.A.
115
Executive Board of Directors
Other positions
Chairman of the Board of Directors of
Montepio Recuperação de Crédito, A.C.E.
Member of the Board of Directors of
Montepio Valor, SG Fundos de
Investimento, S.A.
Member of the Board of Directors of
Montepio Crédito, Instituição Financeira de
Crédito, S.A.
Member of the Board of Directors of
Montepio Gestão de Activos Imobiliários,
A.C.E.
Member of the Board of Directors of
Montepio Recuperação de Crédito, A.C.E.
Jorge Humberto Barros Luís
(Board Member)
Chairman of the Board of Directors of
Montepio Valor, Sociedade Gestora de
Fundos de Investimento, S.A.
Chairman of the Board of Directors of
Montepio Crédito, Instituição Financeira de
Crédito, S.A.
Member of the Board of Directors of
Montepio Gestão de Activos Imobiliários,
A.C.E.
Member of the Board of Directors of
Montepio Recuperação de Crédito, A.C.E.
Member of the Board of Directors of
Montepio Holding, SGPS, S.A.
Pedro Miguel de Almeida Alves
Ribeiro
(Board Member)
Chairman of the Board of Directors of
Montepio Holding, SGPS, S.A.
Member of the Board of Directors of Montepio
Investimento, S.A.
Member of the Board of Directors of Montepio
Crédito, Instituição Financeira de Crédito, S.A.
Member of the Board of Directors of SIBS –
Soc. Interbancária de Serviços, S.A.
Member of the Boarad of Directors of UNICRE
– Instituição Financeira de Crédito, S.A.
Chairman of Montepio – Capital de Risco,
SCR, S.A.
Fernando Paulo Pereira Magalhães
(Board Member)
Chairman of the Board of Directors of MG
Cabo Verde, Soc.Unipessoal, S.A.
Member of the Board of Directors of Montepio
Holding SGPS, S.A.
Member of the Board of Directors of Montepio
116
Executive Board of Directors
Other positions
Recuperação de Crédito, A.C.E.
Member of the Board of Directors of Montepio
Crédito, Instituição Financeira de Crédito, S.A.
Joao Carlos Martins Cunha Neves
(*)
(Board Member)
Member of the Board of Directors of Banco
Terra, S.A.
Member of the Board of Directors of Finibanco
Angola, S.A.
(*) Elected as member of the Executive Board of Directors to the 2013-2015 mandate in the Issuer’s
General Meeting dated 10 December 2014.
Following the approval by the Bank of Portugal, the Executive Board of Directors elected in the
extraordinary General Meeting held on 5 August 2015, started their functions as of 7 August 2015. The
following are the members of the Executive Board of Directors of the Issuer until 31 December 2018:
Executive Board of Directors
Other positions
Member of the Board of Directors
of Montepio Recuperação de
Crédito, A.C.E.
José Manuel Félix Morgado
Chairman
Member of the Board of Directors
of Finibanco Angola, S.A.
Member of the Board of Directors
of Banco Terra, S.A.
João Carlos Martins da Cunha Neves
Board Member
Member of the Board of Directors
of Banco MG Cabo Verde, Soc.
Unipessoal, S.A.
Member of the Board of Montepio
Holding SGPS, S.A.
Luís Gabriel Moreira Maia Almeida
Fernando Ferreira Santo
Board Member
Board Member
Member of the Board of Montepio
Crédito, Instituição Financeira de
Crédito, S.A.
Member of the Board of Montepio
Valor, SG Fundos de Investimento,
S.A.
Member of the Board of Montepio
Gestão de Activos Imobiliários,
ACE
Board Member
Member of the Board of Montepio
Investimento, S.A.
Jorge Manuel Viana de Azevedo Pinto Bravo
Board Member
No other positions
Luís Miguel Resende de Jesus
Board Member
No other positions
João Belard da Fonseca Lopes Raimundo
117
The following are the members of the Statutory Auditor:
KPMG & Associados – SROC, S.A. (ROC n.º 189), registered at CMVM with the number 9098, the Head
Office at Edifício Monumental, Av. Praia da Vitória n.º 71-A, 11.º andar, 1069-006 Lisboa;
Represented by Jean-Eric Gaign (ROC n.º 1013), elected statutory auditor of the Issuer for the period 20132015, having taken up the position from 16 August 2013 onwards, responsible for the audit and certification
of the annual Accounts for the periods ended on 31 December 2013 and 31 December 2014.
Represented by Ana Cristina Soares Valente Dourado (ROC n.º 1011), elected statutory auditor of the Issuer
for the period 2015-2018.
Prior to the amended by-laws, as approved in the General Meeting of MGAM held on 25 June 2015, the
Issuer’s General Meeting was made up of MGAM's General Board members elected pursuant to article 29,
number 1 of its Articles of Association. The General Meeting Board was made up of one Chairman and two
Secretaries, as follows:
General Meeting Board
Other positions
Vitor José Melícias Lopes (Chairman)
No other positions
António Pedro de Sá Alves Sameiro (First Secretary)
No other positions
António Dias Sequeira (Second Secretary)
No other positions
Pursuant to the amended by-laws, as approved at the MGAM held on 25 June 2015, all corporate bodies are
elected at the General Meeting of the Issuer (i.e. members of the Board of Directors of MGAM will no longer
be statutory members of the General and Supervisory Board of Montepio). The current Montepio’s General
Meeting Board is made up of one Chairman and two Secretaries, elected in the General Meeting of Montepio
held on 5 August 2015, as follows:
General Meeting Board
Other positions
Vitor José Melícias Lopes(*)
Chairman
No other positions
Manuel Duarte Cardoso Martins
First Secretary
No other positions
António Dias Sequeira(*)
Second Secretary
No other positions
(*) resigned on 31 December 2015
Prior to the amended by-laws, the following were the members of the General and Supervisory Board:
General and Supervisory Board
José de Almeida Serra
Other positions
(Chairman)
Chairman of the Board of Directors of Montepio
Gestão de Ativos – SGFI, S.A.
Chairman of the Board of Directors of Futuro –
Soc. Gestora de Fundos de Pensões, S.A.
Chairman of the Board of Directors of
Lestinvest, SGPS, S.A.
Chairman of the Board of Directors of Montepio
Gestão de Activos Imobiliários, A.C.E.
Chairman of the Board of Directors of Montepio
Imóveis – Soc. Imobiliário de Serviços
118
General and Supervisory Board
Other positions
Auxiliares, S.A.
Member of the Remuneration Committee of
SAGIES – Segurança, Higiene e Saúde no
Trabalho, S.A.
Member of the Remuneration Committee of
Clínica CUF Belém, S.A.
Eduardo José da Silva Farinha
(Member)
Chairman of the General Meeting Board of
Montepio Gestão de Ativos – SGFI, S.A.
Chairman of the Board of Directors of Lusitania
- Companhia de Seguros, S.A.
Chairman of the Board of Directors of Lusitania
Vida - Companhia de Seguros, S.A.
Chairman of the Board of Directors of Montepio
Seguros, SGPS, S.A.
Member of the Board of Directors of Clínica
CUF Belém, S.A.
Member of the Board of Directors of Lestinvest,
SGPS, S.A.
Member of the Board of Directors of SAGIES –
Segurança, Higiene e Saúde no Trabalho, S.A.
Chairman of the Remuneration Committee of
Bolsimo – Gestão de Ativos, S.A.
Member of the Remuneration Committee of
Futuro – Sociedade Gestora de Fundos de
Pensões, S.A.
Member of the Remuneration Committee of
Montepio Valor – Sociedade Gestora de Fundos
de Investimento, S.A.
Vitor José Melícias Lopes
(Member)
(*)
Carlos Morais Beato
(Member)
Chairman of Residências Montepio, Serviços de
Saúde, S.A.
Álvaro João Duarte Pinto Correia
(Member)
Chairman of the Supervisory Board of Centro
Português de Fundações
Chairman of the Supervisory Board of União das
Cidades Capitais de Língua Portuguesa.
Chairman of the Board of Directors of INAPA –
Investimentos, Participações e Gestão, S.A.
Chairman of the Remuneration Committee of
Portugal Telecom, SGPS, S.A.
Member of the Remuneration Committee of
Banco Espírito Santo, S.A.
Member of the Remuneration Committee of
119
General and Supervisory Board
Other positions
EDP – Energias de Portugal, S.A.
Gabriel José dos Santos Fernandes
(ROC)
(Member)
Chairman of the Supervisory Board of
Finangeste – Empresa Financeira de Gestão e
Desenvolvimento, S.A.
Chairman of the General Meeting Board of
Amperel, S.A.
Chairman of the General Meeting Board of
Gesventure, S.A.
Luísa Maria Xavier Machado
(Member)
Deputy Director of the Compliance Division of
Caixa Económica Montepio Geral
Maria Manuela da Silva
(Member)
Chairman of Comissão Nacional Justiça e Paz
António Gonçalves Ribeiro
(Member)
(*)
Eugénio Óscar Garcia Rosa
(Member)
External Consultant of CGTP-IN
External Consultant of Federação Nacional dos
Sindicatos da Administração Pública
Pursuant to the amended by-laws, as approved at the General Meeting of MGAM held on 25 June 2015, the
following are the members of the Issuer’s General and Supervisory Board, elected at the General Meeting of
the Issuer held on 5 August 2015:
General and Supervisory Board
Álvaro Duarte Pinto Correia
Other positions
Chairman
Chairman of the Supervisory Board of
Centro Português de Fundações
Chairman of the Supervisory Board of
União das Cidades Capitais de Língua
Portuguesa
Chairman of the Board of Directors of
INAPA – Investimentos, Participações
e Gestão, S.A.
Chairman of the Remuneration
Committee of Pharol, SGPS, S.A.
Member of the Remuneration
Committee of EDP – Energias de
Portugal, S.A.
Fernando Lopes Ribeiro Mendes(1)
Member
No other positions
António Fernando Menezes Rodrigues
Member
No other positions
José António Arez Romão
Member
No other positions
Member
Chairman of the Board of Directors of
NSeguros, S.A.
(1)
Virgílio Manuel Boavista Lima
Member of the Board of Directors of
Lusitania – Companhia de Seguros,
S.A.
120
General and Supervisory Board
Other positions
Member of the Board of Directors of
Montepio Seguros, SGPS, S.A.
Vitor Manuel do Carmo Martins
Member
No other positions
Francisco José Fonseca da Silva
Member
No other positions
Acácio Jaime Liberato Mota Piloto
Member
No other positions
Luís Eduardo H. Guimarães
Member
No other positions
Rui Pedro Brás de Matos Heitor(2)
Member
Deputy Director of the Legal Division
in Montepio Recuperação de Crédito ACE
Eugénio Óscar Garcia Rosa
Member
External Consultant of CGTP-IN
External Consultant of Federação
Nacional dos Sindicatos da
Administração Pública
(1)
With effect from January 2016, resigned due to its election as a member of the MGAM’s Board of Directors;
(2)
In accordance with article 27 and no. 2 of the article 40 of the Issuer’s By-Laws, he was appointed as the Issuer worker’s
representative and took office as of 1 December 2015.
Prior to the amended by-laws, the following were the members of the Remuneration Committee:
Name
Position
Luís Eduardo da Silva Barbosa
Chairman
José Eduardo Fragoso Tavares de Bettencourt (*)
Member
José Carlos Pereira Lilaia
Member
(*) resigned on 13 February 2015
Pursuant to the amended by-laws, as approved at the General Meeting of MGAM held on 25 June 2015, the
following are the members of the Remuneration Committee, elected at the General Meeting of the Issuer
held on 5 August 2015:
Remuneration Committee
Position
Álvaro João Duarte Pinto Correia
Chairman
Fernando Lopes Ribeiro Mendes
Member
José António Arez Romão
Member
The following are the members of the Evaluation Committee, elected at the General Meeting of Montepio
held on 5 August 2015:
Evaluation Committee
Position
Álvaro João Duarte Pinto Correia
Chairman
Fernando Lopes Ribeiro Mendes
Member
José António Arez Romão
Member
121
The following are the members of the Risk Committee, elected at the General Meeting of Montepio held on
5 August 2015:
Risk Committee
Position
Acácio Jaime Liberato Mota Piloto
Chairman
Virgílio Manuel Boavista Lima(*)
Member
Luís Eduardo H. Guimarães
Member
(*) With effect from January 2016, resigned due to its resignation as member of the Issuer’s General and Supervisory Board
The areas of focus of each institutional body are as follows:
General Meeting
The General Meeting of the Issuer is composed of the members of MGAM’s General Board elected pursuant
to article 29, number 1 of its respective Articles of Association.
The General Meeting is convened by the President of the General Meeting Board.
The General Meeting, pursuant to the statutory provisions, is the body entrusted with taking decisions
including, amongst others, the approval of the annual accounts, the appraisal of its management and
supervision, and the election of the institutional bodies.
The General Meeting holds ordinary sessions before May 31 each year to:
(a)
make decisions regarding the previous financial year’s reports and accounts;
(b)
make decisions regarding the achievement of results;
(c)
undertake general assessments of management performance and effect the removal of directors;
(d)
elect members of the Governing Bodies every three years; and
(e)
reach a decision on any other matter included in the notice of meeting.
Decisions are solely connected with matters contained in the convening notice and are passed by simple
majority on a one person, one vote basis.
The General Meeting holds extraordinary sessions to:
(a)
amend the Articles of Association;
(b)
reach decisions regarding possible mergers, splits, dissolutions and the incorporation of Montepio;
(c)
elect heads of the Governing Bodies in cases where a vacancy cannot be filled by appointing an
alternate member; and
(d)
deal with any other issue that may be of interest to Montepio that falls within the power of the General
Meeting, on the initiative of the Chairman of the General Meeting Board, upon the request of any of
the Bodies, or following a demand by at least five of its members.
The convened General Meeting shall, after giving not less than 15 days notice, be considered validly formed
and any decisions taken shall be deemed valid and binding, irrespective of the number of members present
save in the following two circumstances: (i) if the decision would entail increased spending and/or reduced
revenue, or (ii) if the decision involves amending the Articles of Association or merging, splitting, dissolving
122
or affecting the incorporation of Montepio. In such cases, a quorum of at least two thirds of all members and
final ratification by the General Meeting of MGAM will be required.
General and Supervisory Board
The General and Supervisory Board consists of 11 members elected at the Issuer’s General Meeting that also
elects its Chairman. In order to ensure the representation of minorities in the General and Supervisory Board
the election of an independent member through may be discussed and voted in the Issuer’s General Meeting
following a specific proposal presented by at least three members of the General Meeting who voted against
the winning list in the election, replacing the candidate elected by this minority by the last one included in the
winning list. The General and Supervisory Board holds meetings, at least on a monthly basis, and is
specifically entrusted with:

playing an advisory role and ensuring the ongoing assessment of the institution, analysing the financial
reporting documents and supervising the risk policies and financial reporting;

ensuring the adequacy and effectiveness of the internal control system, in particular in the areas of
prudential reporting and compliance with the law;

supervising the reporting and duties of disclosure to the supervisory entities and other external entities
and issuing opinions, namely, on the management report and accounts for the year and on the annual
action plan and budget; and

controlling, analysing and ensuring the effectiveness of the audit function and supervising the
independence of the Statutory Auditor.
During the performance of its duties, this body also prepares an annual activity report to be submitted at the
general meeting, together with the documents presenting the accounts, which are made available on the
institution’s website.
Executive Board of Directors
The Executive Board of Directors is composed of a Chairman and up to six voting Members, elected at the
Issuer’s General Meeting, who oversee the executive management of the Issuer.
The Executive Board of Directors operates on a collegiate basis and meets twice a week. Resolutions can be
passed subject to a quorum of 50 per cent. plus one of its members being satisfied. Decisions are taken by
simple majority and the Chairman has the casting vote in cases of deadlock.
The Executive Board of Directors is responsible for:

proposing, for approval at the General Meeting, the proposed Strategic Guidelines of the multiannual
action plans and respective updates, as well as the annual Action Plans and Budgets, after the opinion
of the General and Supervisory Board;

annually preparing the report and accounts and the proposed distribution of net income, to be
submitted to the opinion of the General and Supervisory Board and deliberation at the General
Meeting;

deliberating on increased institutional share capital and on the issue of securities representing units of
the participation fund, as well as concerning debenture loans;

deliberating on the opening and closing of branches and of any other form of representation; and
123

deliberating on the acquisition, disposals and encumbrance of immovable property.
Following these alterations, the areas of responsibility of each member of the management body were
defined, as well as the alternate directors.
Evaluation Committee
The Evaluation Committee comprises three independent members elected at the Issuer’s General Meeting,
that shall also appoint its chairman. It has the responsibility to exercise all functions and duties regarding the
internal politics of selection and evaluation of the members of the governing bodies.
Risk Committee
The Risk Committee comprises three members of the General and Supervisory Board elected at the Issuer’s
General Meeting, that shall also appoint its chairman and is responsible for maintaining compliance with
current law.
Remunerations Committee
The remuneration of the institutional bodies is established by a Committee, composed of three members
elected at the Issuer’s General Meeting held on 5 August 2015.
All the members of the Remunerations Committee are independent in relation to the members of the
management body and, during the performance of their duties, draw up minutes of the meetings held. At least
one of its members should be present at the Issuer’s General Meeting.
Statutory Auditor
The Statutory Auditor is elected by the Issuer’s General Meeting Board through proposal of the General and
Supervisory Board, with the level of competence required by the Commercial Companies Code.
Conflicts of Interest
While all the members of the corporate bodies mentioned above represent Montepio on their respective
boards, none of them have any conflict between their duties to Montepio and their private interests or other
principal activities as listed above.
Business Addresses
The business address of the Directors, the Executive Board of Directors and, the General and Supervisory
Board Members listed above is Rua Áurea, 219-241, postal code 1122-806, Lisbon, Portugal.
124
CAIXA ECONÓMICA MONTEPIO GERAL AND ITS RELATIONSHIP WITH MGAM
The information set out below in relation to MGAM is set out for information only. MGAM is not responsible
for payments on the Notes issued under the Programme which are the sole responsibility of Montepio.
Montepio was established by MGAM as a dependent entity of MGAM with a view to paying MGAM its
annual net profits (subject to any deduction required by Montepio’s Articles of Association) so as to enable
MGAM to meet its own objectives as a mutual benefit association. MGAM is a “private institution of social
support” (i.e. a mutual benefits association) whose principal objects are to promote and develop initiatives
designed to ensure the social protection and welfare of its members, their families and other beneficiaries
nominated by them. MGAM is not permitted to carry out banking or trading activities. It is limited to its
principal social welfare objects. MGAM can, however, establish subsidiaries and can invest its funds in a
number of ways. It is subject to the Portuguese Mutual Association Code. As at 30 September 2015, the
total number of MGAM’s permanent members was 638,647 as compared to 630,513 as at 31 December 2014,
an increase of 1.3 per cent. The welfare schemes which MGAM offers include pensions and other retirement
benefits, disability benefits, death grants, guarantees of the payment of housing charges, life annuities, study
schemes and other schemes for young people and a wide variety of collective schemes.
MGAM’s main source of funds is membership revenues. Those funds are invested in property and a
number of different types of securities and equity participations, particularly financial institutions (including
its interest in Montepio). It also has co-operation agreements with a variety of organisations in health and
welfare. Other activities include the organisation of members’ social functions, publication of a members’
magazine, sponsorship of cultural, artistic and social events and the awarding of prizes and scholarships.
Montepio is a credit institution established under Portuguese law, which, because of its special link with
MGAM, is recognised as a “collective person of public interest”. It has separate legal personality and MGAM
has no responsibility in respect of Montepio’s debts. MGAM has not guaranteed the Notes. MGAM is under
no legal obligation to increase Montepio’s institutional capital or otherwise to support Montepio. Deposits
with Montepio are covered by the Portuguese deposit guarantee fund up to the prescribed limit. Montepio is
authorised to carry on business as a universal bank, under the supervision of the Bank of Portugal. It can carry
out stock exchange transactions, trade in derivatives (for its own account or otherwise). It is, in principle,
required by law to take a mortgage with respect to financing home purchases and, in common with most
banks, it is limited in terms of credits and exposures to a single entity.
125
OUTLINE OF THE PERFORMANCE OF THE GROUP’S COMPANIES
Montepio has stakes in a series of institutions whose management it controls
controls.. These entities
entities complement
Montepio’s financial products and services and contribute via their earnings to the creation of value for
MGAM (Montepio’s parent company and underwriter of its institutional capital) and for mutual purposes, as
well as promoting high eth
ethical
ical standards and principles of social sustainability.
The consolidation perimeter of Caixa Económica Montepio Geral also includes:

Montepio Recuperação de Crédito – ACE (Full Consolidation);

Credit Securitisation Vehicles Pelican Mortgages no.1 and no.2
no.2 (Full Consolidation);

Real estate investment funds (Full Consolidation):

Montepio Arrendamento – Residential Rental Real Estate Investment Fund;

Polaris – Closed Real Estate Investment Fund;

Finipredial – Open Real Estate Investment Fund.
MONTEPIO HOLDI
HOLDING,
NG, SGPS, S.A.
In June 2013, Finibanco Holding, SGPS, S.A. changed its corporate name to Montepio Holding SGPS S.A.
Montepio Holding, SGPS, S.A. is a holding company, with a 100 per cent. stake in Montepio Investimento
S.A., Montepio Crédito, S.A. and Montepio
Montepio Valor, S.A., and an 81.6 per cent. stake in Finibanco Angola, S.A.
126
MONTEPIO INVESTIMENTO, S.A.
Under the integration of the Finibanco Group acquired by Montepio in the first half of 2011, work aimed at
the preparation of a new organisational and business model began in 2012. The activity of Montepio
Investimento. S.A. (previously Finibanco S.A.) now focuses on the specific area of corporate business,
embodied in the structuring and assembly of corporate finance operations and in the management of financial
assets.
In 2014, the net assets of Montepio Investimento increased by €188.4 million to €409.8 million, with
"financial assets available for sale" having increased by €196.5 million to a total of €286.1 million. The
proportion of this item in net assets increased by 40.5 per cent. in 2013 to 69.8 per cent. at the end of 2014,
reflecting an increase in public debt securities, which now correspond to 65.5 per cent. of the proportion of
this item, while the proportion of the securities represented by units in vesture capital funds fell to 30.3 per
cent. Credit to customers now represents a weight of 18.8 per cent., with "(gross) credit to customers",
exclusively composed, to date, of assets and property leasing, which came to €96.9 million, having decreased
by €15.1 million relative to 2013. The financing of activity continued to be sustained by resources from other
credit institutions, which registered a growth of €199.6 million, in parallel with the increase in assets.
The net operating income of Montepio Investimento came to €34.9 million in 2014, corresponding to an
increase of €34.3 million, justified by the good performance of the ―net gains from financial assets available
for sale (€26.6 million). Net interest income came to €8.7 million, compared with the €3.8 million recorded in
the same period of the previous year, reflecting the decrease of the cost of funding and the positive
contribution of the public debt securities portfolio. Commissions from financial advisory operations reached
€1.6 million in 2014, after having been virtually nil in 2013, marking the first full year of activity of Montepio
Investimento, as an entity oriented towards corporate companies and institutions.
Provisions for the year came to €7.2 million, of which €4.9 million are related to the credit portfolio and €2.2
million are related to the securities portfolio. Operating costs came to €2.4 million, registering an increase of
1.6 million euros as a result of the reinforcement of staff which enabled the business to develop in 2014.
The net income of Montepio Investimento came to €23.5 million in 2014, which compares with a loss of €5
million in 2013.
MONTEPIO CRÉDITO – INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A.
In January 2013, Finicrédito – Instituição Financeira de Crédito, S.A. changed its corporate name to Montepio
Crédito – Instituição Financeira de Crédito, S.A. (“Montepio Crédito”). This change, aimed at the total
integration of the company in the Montepio Group, was accompanied by a new corporate identity for the
purpose of facilitating its identification and association to the Montepio Group.
At the same time, a marketing and advertising campaign was launched with the objective of consolidating the
position in the automobile market and growing in the professional segments linked to the value chain of the
companies of the manufacturing industry and logistics. Therefore, Montepio Crédito expanded its specialised
offer to the operating hire, leasing and rental of equipment to new customers, attracting business outside the
Montepio Group. The business believes that the future is not consumption driven, but should be driven by the
projects of our customers.
In December 2014, the net assets of Montepio Crédito came to €454.2 million, representing a year-on-year
increase of €40.2 million (+9.7 per cent.). The total financing to customers registered an increase of 7.4 per
cent. (to a total of €346.0 million).
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Net operating revenues reached €14.1 million, corresponding to an increase of 9.9 per cent. (€1.3 million),
with a variation of 15.7 per cent. in net interest income, as a result of the diversification of the sources of
financing and a rigorous management of the price in new operations. Other operating income decreased by
7.9 per cent. (€0.4 million), mainly due to the decrease in assets and liabilities held at fair value through profit
or loss and the legally defined limits relative to commissions charged on the collection of amounts in arrears.
Even so, other operating income contributed 30.2 per cent. to the net operating income.
Structural costs decreased by 7.2 per cent. to €10.5 million which, combined with the increase in net
operating revenues, enabled the cost-to-income ratio to improve to 75.9 per cent. (which compares with 89.8
per cent. in the same period of the previous year).
The efficacy in loan recovery resulted in reversions net of provisions of the credit portfolio, with a positive
impact on the income statement of €1.1 million.
Net Income for the 2014 financial year came to €904.5 thousand, compared to the €874.8 thousand registered
in 2013 (+3.4 per cent.).
INTERNATIONAL ACTIVITY
The international activity of the CEMG Group is carried out by the entities Finibanco Angola, S.A. (FNB-A),
Banco MG Cabo Verde, Sociedade Unipessoal, S.A. (MGCV) and – since December 2014 – also by Banco
Terra, S.A. (BT) of Mozambique.
The stake of Montepio Holding, SGPS, S.A. (MH) in BT, equivalent to 44.5 per cent. of the capital, in the
amount of €14 million, was acquired in the last quarter of 2014, with Rabo Development, Norfund and GAPISI, S.A. as partners in this entity. BT was born in 2008 with the objective of being one of the reference
institutions in Mozambique for financing in the areas of agriculture and food and to provide financial services
to the rural and suburban populations, maintaining a network of branches (a total of nine branches) in the
provinces of Maputo, Inhambane, Manica, Sofala, Tete and Nampula. The Net Assets of BT as at December
2014 came to €58.6 million.
Deposits and Loans
As at December 2014, customer deposits captured by the entities that develop the international activity of the
CEMG Group, expressed in euros, reached €1,032.8 million, reflecting a year-on-year increase of 15.0 per
cent..
The attraction of resources in the Angolan market, in the amount of €465.5 million, represents 45.1 per cent.
of the international activity, having grown 47.8 per cent. relative to the same period of the previous year, as a
result of the success of the policy to penetrate the Angolan market, with the opening of 2 new branches in
2014 and the consolidation of the branches that were opened in recent financial years.
In MGCV, customers´ deposits decreased by 7.6 per cent., having stood at €539.8 million, which represent
52.3 per cent. of the total deposits of the international activity.
BT made a more modest contribution, with a balance of deposits of €27.5 million, which is forecast to
increase within the scope of the current business plan, which foresees an increase of the bank's physical
presence to take advantage of the identified market potential, through the opening of new business centres
(agencies and other customer support services) and the expansion of the offer of products and services.
The credit portfolio of the international activity of the CEMG Group increased by 95.5 per cent., from €170.1
million in December 2013 to €332.6 million in December 2014. Credit to the non-construction companies
segment constitutes a high share in the international credit portfolio, representing 85.2 per cent. of total credit,
while credit to private customers corresponds to 13 per cent. of the credit granted. This growth in credit was
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due to the activity of FNB-A, given that the new Mozambican operation represents only 9.7 per cent. of the
total volume of credit granted and the activity in Cape Verde is exclusively focused on the attraction of
resources.
Results
The international activity generated a positive net income of 11.8 million euros in 2014 – which compares
with the €12.6 million in 2013, stemming from the positive results in Angola and Cape Verde (€12.9 million
and €215.4 thousand, respectively), with Banco Terrahaving posted a loss of €1.4 million.
International net operating revenues came to €48.0 million in 2014, corresponding to a year-on-year increase
of 20.1 per cent. (+€8.1 million). This increase reflects an improvement in net interest income (+€14.3
million), as a result of the increase in business activity.
Gains arising from currency revaluation continue to contribute strongly to the net operating revenues of FNBA, having reached €14.4 million (approximately 30 per cent. of total net operating revenues for the financial
year).
Being a young institution undergoing organic expansion, the operating costs of FNB-A increased by 35.4 per
cent., reaching a total of €17.3 million. In spite of this increase in operating costs, the cost-to-income ratio
presents a favourable performance, standing at 37.2 per cent.
In 2014, there was a net reinforcement of the impairments of the credit portfolio of FNB-A to €15.0 million
(+€6.3 million).
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THE PORTUGUESE BANKING SECTOR
Portugal is a founding member of the Economic and Monetary European Union and adopted the single
European currency, the euro, on 1 January 1999. To be part of such an important project and to become a
euro zone member, Portugal had to implement convergence policies and a steady process of deregulation and
liberalisation of the financial sector, which has resulted in important structural and operational changes in
banking regulations in order to bring them into line with EC legislative practice.
Regulations governing financial institutions have undergone a series of amendments since 1991. In particular,
the “New Banking Law” Regime Geral das Instituições de Crédito e Sociedades Financeiras (“RGICSF”)
(Decree-Law 298/92 of 31 December 1992 as amended and republished by Decree-Law no.157/2014, of 24
October 2014), introduced a comprehensive regulatory framework into Portugal in line with EC directives,
which adopted the “universal bank” model and included the abolition of the distinction between investment
and commercial banks, the establishment of prudential and supervisory rules, regulation for foreign banks
operating in Portugal and Portuguese banks operating abroad and the creation of a deposit guarantee fund to
protect depositors.
The increasingly competitive environment gave rise to a number of acquisitions amongst Portuguese banks
and the establishment of Portuguese financial groups in the 1990s, more cross-selling initiatives, and
increased focus on the expansion of the market for personal loans, mortgages and credit cards in Portugal,
more frequent advertising campaigns and competitive pricing strategies.
As at 30 June 2014, the Portuguese banking sector was highly concentrated, the five largest banking
institutions operating in Portugal (out of 40 in total viewed on a consolidated basis), controlled 77 per cent. of
Portugal’s banking assets (source: Bank of Portugal “Developments in the banking system” and banks’
quarterly reports). Since 2007, the Portuguese banking sector has suffered the negative impact of the global
financial and economic crisis, specifically during the Portuguese sovereign debt crisis which necessitated
intervention by international authorities in 2011.
In April 2011, the sovereign debt crisis forced Portugal to request external financial assistance from the
European Financial Stability Facility (“EFSF”) and from the International Monetary Fund (“IMF”), which
was formalised on 17 May 2011, with the execution of the Memorandum of Understanding, which set out the
main measures and the main goals to be achieved under the “Financial Assistance Programme” (“FAP”).
The FAP set targets for deleveraging and increasing capital and liquidity in the financial system in general and
the banking sector in particular. In order to achieve these targets, the eight largest banking groups were
required to draw up a Funding and Capital Plan (“FCP”) to remain in effect until 2015. It imposed goals of
reducing the leverage ratio to 120 per cent., obtaining a stable funds to assets ratio of 100 per cent., both by
2014, reducing recourse to refinancing from the European Central Bank and increasing the Core Tier 1
solvency ratio to a minimum of 9 per cent. by the end of 2011 and 10 per cent. by the end of 2012 and
subsequent years, as set out in Bank of Portugal Notice (Aviso) 3/2011 (as amended).
The package of measures aimed at the financial sector also included an increase to €35 billion in the amount
of the state’s guarantee for bond issues, and reinforcement of the banks’ recapitalisation mechanism to €12
billion through Law 48/2011. In 2012 Law 4/2012, of 11 January was published. It lays down further
amendments to the rules of access to the state recapitalisation plan by credit institutions provided for in Law
63-A/2008 of 24 November 2008.
Also as part of the FCP, in order to improve the comparability and transparency of information on credit
quality, in view of best international practices, the Bank of Portugal published Instruction (Instrução)
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23/2011, which defines the credit at risk ratio as an indicator of credit quality, which must be published by
credit institutions.
In Portugal, there was also an agreement between the banking sector and the government on the transfer of
bank employees’ pension funds to the general Social Security scheme, as enshrined in Decree-Law no.
127/2011 of 31 December 2011, as a way of achieving the budget deficit target for 2011. They also agreed
that credit institutions could defer until 30 June 2012 the prudential impact on their own funds and own fund
requirements of this transfer, as set out in Bank of Portugal Notice (Aviso) 1/2012.
In addition to funding and capital plans, the Financial Assistance Programme for Portugal imposed a special
inspection programme (“SIP”) for banks in 2011 and the first quarter of 2012. It was divided into three
phases: assessing the quality of credit portfolios, calculating capital requirements for credit risk and
establishing stress test methods and models. The end-results of the SIP announced in March 2012, concluded
that risk assessments in the Portuguese banking system are satisfactory and that the banking system has
demonstrated financial resilience and strength which reinforced the credibility of the Portuguese system.
As restructured credit (following the amendments and updates to loans’ terms and conditions due to
borrowers’ financial difficulties) represents a major role in the assessment of credit risk, Bank of Portugal
published Instruction (Instrução) 18/2012, in order to establish the requirements on identifying and reporting
restructured loans, which banks will be required to disclose in their annual reports, starting in December
2013.
In 2012, in order to monitor the exposure to the Construction and Real Estate sectors, the Bank of Portugal
endorsed the On-site Inspections Programme (“OIP”). This program, which involved the eight major
Portuguese banking groups set out to assess the adequacy of the recorded impairment levels to the quality of
the Construction and Real Estate credit portfolios, as at 30 June 2012. It was estimated that for the eight
banking groups inspected it would be necessary to increase impairment by €861 million.
At European level, there was a package of measures announced by the ECB in December 2011 aimed at
supporting liquidity in the Euro Area money market and the decisions of the European Summit of 26 October
2011 on the haircut of the Greek debt, reinforcing the European Financial Stability Facility and requiring the
banks subject to the European Banking Authority (“EBA”) stress tests to reflect in their financial statements
exposure to sovereign debt at market prices and achieving a ratio of 9 per cent. in June 2012. This measure in
Portugal was regulated in Bank of Portugal Notice (Aviso) 5/2012.
In 2012, the largest Portuguese banking groups underwent significant capitalisation operations in order to
cater for SIP and OIP and to fulfil the minimum ratio of 10 per cent. required for Core Tier I, as defined in the
program of economic and financial assistance from December 2012 onwards, Bank of Portugal Notice (Aviso)
3/2011 (as amended). The capitalisation process has strengthened the credit institutions’ solvency and their
ability to absorb possible future losses.
In 2013, considering the current economic situation, the projection for the FCP was extended until 2017 with
some requirements being relaxed. The temporary leverage ratio limit of 120 per cent. was removed and it
became recommended to pursue a sustainable leverage. Banks are encouraged to reduce their dependence on
Eurosystem liquidity over the medium term, consistent with the reopening of wholesale financial markets
access.
The Board of Directors of Bank of Portugal decided on 3 August 2014 to apply a resolution measure to Banco
Espírito Santo, S.A. (“BES”). The general activity and assets of BES were transferred, immediately and
definitively, to Novo Banco S.A., which is duly capitalised holds no problem assets. Deposits have been fully
preserved, as well as all unsubordinated bonds.
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The contents of the contractual relationships with the customers remained unchanged. The branches of Novo
Banco continued to operate as usual and all collaborators of BES. became Novo Banco’s collaborators, their
rights being safeguarded.
In line with the Community regulatory framework, the capitalisation of Novo Banco was ensured by the
Resolution Fund, supported by the financial sector, and the losses related to problem assets shall be borne by
shareholders and subordinated creditors of BES.
On 30 July 2014, BES announced losses largely above the foreseeable values in the light of information
disclosed by BES and its external auditor. The results disclosed on 30 July 2014 reflected the practice of
management acts seriously detrimental to the interests of BES and the violation of determinations of Bank of
Portugal that prohibited an increase in the exposure to other entities of the Grupo Espírito Santo. These facts
occurred under the former management of BES Acts committed after the replacement of the former
management had already been announced, led to an additional loss of around €1.5 billion compared with the
losses that were to be expected after BES’s communication to the market on 10 July 2014.
This situation had several consequences:

BES. ceased to comply with the minimum solvency ratios in force (BES’s Common Equity Tier 1 ratio
fell to 5 per cent, i.e. 3 percentage points below the minimum regulatory level);

Access of BES. to monetary policy operations and therefore to the liquidity provided by the
Eurosystem was suspended;

Increasing pressure was generated on BES cashflows;

The public perception of BES deteriorated further, as shown by the negative performance of its
securities, undermining depositors’ confidence. This negative public perception led to the suspension
of transactions on 1 August 2014, with the risk of contaminating the perception regarding the other
institutions of the Portuguese banking system; and

Aggravated uncertainty about BES’s balance sheet made a private capitalisation solution unfeasible in
the short run.
Against this background, problems arose regarding the continuity of BES activity. Considering the
importance of BES in the Portuguese banking system and in the financing to the economy, these problems
endangered the stability of the national payment and financial systems, which prompted an imperative and
very urgent intervention by Bank of Portugal.
With the application of a resolution measure to BES a separation was made between:

problem assets, which in essence corresponded to liabilities of other entities of the Grupo
Espírito Santo and to shareholdings of Banco Espírito Santo Angola, S.A. whose losses were
borne by the shareholders and subordinated creditors of BES; and

the remaining assets and liabilities, which were integrated in Novo Banco, a duly capitalised
bank, and ensured full continuity of the institution’s activity, with no impact on its
customers, collaborators or suppliers.
Novo Banco is subject to Bank of Portugal’s supervision and is obliged to comply with all legal and
regulatory rules applicable to Portuguese banks.
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The equity capital of Novo Banco, to the amount of €4.9 billion, was fully underwritten by the Resolution
Fund. The Resolution Fund’s sources of funding are the contributions paid by its member institutions and the
proceeds from the levy over the banking sector, which, according to applicable regulations, are collected
without jeopardising the solvency ratios.
As the Resolution Fund started its operations in 2012 and does not have sufficient financial resources to
available to finance the resolution measure applied to BES, the Resolution Fund took out a loan from the
Portuguese State. The loan granted by the State to the Resolution Fund will be temporary and replaceable by
loans granted by credit institutions.
In January 2013, Banif was recapitalised by the Portuguese state in the amount of €1,100 million (€700
million under the form of special shares and €400 million in hybrid instruments). The recapitalisation plan
also included a capital increase by private investors in the amount of €450 million, which was concluded in
June 2014. Since then, Banif reimbursed the state using €275 million of hybrid instruments, but was not able
to reimburse the €125 million tranche that matured in December 2014.
The public recapitalisation was temporarily approved by the European Commission (“DG-COMP”), with
final approval being subject to the presentation of a restructuring plan for Banif. Between April 2013 and
October 2014, Banif submitted to DG-COMP a number of versions of the Restructuring Plan. However, the
versions were not approved by DG-COMP, which, on 24 July 2015, communicated its decision to open an indepth investigation process of the state aid to Banif.
In the period following the recapitalisation of Banif using public funds, Bank of Portugal, as the prudential
supervisory authority (a competence that since November 2014 has been exercised by the Single Supervisory
Mechanism) monitored the institution quite closely. During that time, there were several deviations from the
assumptions considered in Banif’s recapitalisation plan. In terms of positive deviations, there was a reduction
in structure costs and, until the end of 2014, an improvement in the liquidity position with the diversification
of funding sources and the stability of the depositors’ base. However, the absence of an approved restructuring
plan, worsened by a less than favourable economic environment, led to significant negative deviations of
Banif’s results from the projected amounts. In spite of these difficulties, Banif maintained its prudential ratios
above the legal thresholds throughout.
In the wake of the in-depth investigation procedure opened by the European Commission on state aid received
by Banif, which brought forth the possibility that this aid could be considered illegal and therefore its
reimbursement might be required, the shareholders and members of the board of directors of Banif started the
process for the sale of the institution. On 19 December 2015 the Portuguese ministry of finance informed the
Bank of Portugal that it had not been possible to sell Banif's assets and liabilities through a voluntary sale
process, since all the proposals submitted by potential buyers implied that additional state aid would be
forthcoming. This meant that the sale would have to be made in the context of a resolution.
Taking into consideration (i) the consequences of the possibility that the state aid provided to Banif could be
declared illegal by the European Commission, which would create a very serious capital shortage; (ii) the
position of the European bodies that the sale of Banif with recourse to State aid would only be viable in the
context of a resolution; (iii) the impact of frustrated expectations related to the voluntary sale on Banif's
liquidity situation (which had deteriorated towards the end of the year) and the resulting risks for the
maintenance of its regular payment flows and for meeting its obligations towards the customers, the national
authorities have decided to sell Banif to Banco Santander Totta S.A. for €150 million in the framework of a
resolution tool.
According to this decision, the overall activity of Banif was transferred to Banco Santander Totta S.A., with
the exception of problematic assets which were transferred to an asset management vehicle. Banif maintained
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a very limited set of assets that will be wound up in the future, as well as the shareholders' positions,
subordinated credit and related entities.
The adjustments associated with the definition of the perimeter agreed between the Portuguese authorities,
European bodies and Banco Santander Totta S.A. involve an estimated public support to the amount of €2,255
million intended to cover future contingencies, of which €489 million were provided by the Resolution Fund
and €1,766 million directly by the state.
On 29 December 2015, the Board of Directors of Bank of Portugal approved a number of decisions that
complete the resolution measure applied to BES. Based on evidence that the economic and financial situation
of Novo Banco has been negatively affected since the date of its setting-up by additional losses which are
related to events predating the resolution date, Bank of Portugal decided to confer again on BES the
responsibility for certain issues of non-subordinated bonds issued by the latter and intended for institutional
investors.
The nominal amount of the bonds retransferred to BES totals €1,941 million and corresponds to a balancesheet amount of €1,985 million. These bonds were originally issued by BES and were specifically placed with
qualified investors, with a minimum denomination of €100,000.
The original resolution decision expressly provides that Bank of Portugal, as the Resolution Authority, in use
of its powers, may at any time re-transfer assets and liabilities between BES and Novo Banco. In accordance
with Bank of Portugal, this measure was necessary to ensure that, as stipulated in the resolution regime, the
losses of BES are absorbed by this institution’s shareholders and creditors and not by the resolution fund or
the taxpayers, protecting all depositors of Novo Banco, the creditors for services provided and other
categories of unsecured creditors.
In addition to the measure mentioned above, the Bank of Portugal made a final adjustment to the perimeter of
the assets, liabilities, off-balance-sheet items and assets under management transferred to Novo Banco,
namely including (i) clarification that no liabilities have been transferred to Novo Banco that were contingent
or unknown on the date the resolution measure was applied to BES; (ii) retransfer to BES of the shareholding
in BES Finance, which is necessary to ensure full compliance with and application of the resolution measure
as regards the non-transfer to Novo Banco of subordinated debt instruments issued by BES; (iii) clarification
that it is the Resolution Fund’s responsibility, upon the fulfilment of certain conditions, to make neutral for
Novo Banco – through an appropriate measure – potential negative effects of future decisions, resulting from
the resolution process and giving rise to liabilities or contingencies.
These decisions are the final and definitive adjustment of the perimeter of the assets, liabilities, off-balancesheet items and assets under management transferred to Novo Banco, which is deemed definitively fixed. As a
consequence, Bank of Portugal will ask the European Central Bank to withdraw the authorisation of BES,
starting the judicial liquidation proceedings.
These developments, as well as the recent agreement with the European Commission on the commitments to
be applied to Novo Banco, remove uncertainties and make a positive contribution to the relaunch of the sale
process of the Resolution Fund’s participation in the share capital of Novo Banco in January 2016.
Banking regulation in Portugal
The Bank of Portugal enjoys extensive supervisory and regulatory powers in relation to all credit and deposittaking institutions in Portugal.
Since the start of 2014, prudential indicators have been based on the new legislation of Basel III, namely
Directive 2013/36/EU and Regulation (EU) No. 575/2013, both from the European Parliament and of the
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Council, as well as Notice 6/2013 of Bank of Portugal. In compliance with this legal framework, the Own
Funds of Montepio are divided into Common Equity Tier 1, Tier 1 and Tier 2.
The full application of the new Basel III regulations will be introduced gradually until 2018, with this process
usually being referred to as “phasing-in”. The full assumption of the new regulations, without considering
transitional plans, is referred to as “full implementation”. The “phasing-in” process is currently in force, and it
is on this basis that Bank of Portugal requires the regulatory minimum ratios to be met.
There are specific regulations regarding regular audits by the Bank of Portugal, a specified accounting plan,
limits on large exposures, minimum levels of provisions for loan losses and mandatory contribution to the
deposit guarantee fund. Compliance is monitored through periodic inspections and regular reviews of
financial statements and returns.
The Bank of Portugal takes pre-emptive regulatory and supervisory measures in order to prevent risks and
maintain the good solvency of the Portuguese banks. Recent examples are the changes to the general and
specific loan loss provisioning rules which tightened the requirements for specific loan loss provisions.
The deepening of supervision by the Bank of Portugal, following the financial and economic crisis, has
resulted in a broadening of the areas covered as well as in a greater frequency of prudential reporting
obligations.
Since September 2009, there was an increase in the Bank of Portugal’s liquidity reporting requirements, with
credit institutions being required to carry out monthly reports on their actual and estimated liquidity indicators
and sources of funding for the next 12 months, on both an individual and consolidated basis.
Since 2011, Montepio has participated in all exercises conducted by the European Banking Authority to
evaluate the impacts of Basel III rules’ implementation.
At the same time, Montepio has been performing quarterly stress tests exercises taking into account adverse
macroeconomic and financial scenarios defined by the Bank of Portugal, under the financial aid program to
the Portuguese Republic.
In addition to the stress tests reported to the Bank of Portugal, Montepio regularly conducts other impact
studies that are intended to provide an analytical view of the bank's position in terms of liquidity, profits and
capital when subject to unfavourable scenarios stemming from changes in risk factors such as interest rates,
credit spreads, deposit runoffs, eligible asset evaluation haircuts applied by the European Central Bank (the
“ECB”), credit ratings (for Montepio and issuing bodies), portfolio and collateral losses, among other factors.
The results under the adverse scenarios, including those resulting from the adverse macroeconomic scenarios
defined by Bank of Portugal under the financial aid program to the Portuguese Republic, show that Montepio
continues to enjoy suitable capitalisation levels.
The impact studies and results are disclosed to and discussed with the board of directors, with the subsequent
conclusions incorporated in the strategic decision making processes, namely in the determination of levels of
solvency, liquidity, exposure to specific risks (counterparty and price risks) and global risks (interest rate,
foreign exchange and liquidity risks), as well as in the pricing, loan criteria and development of products
offered.
In order to further integrate the European banking system and to promote financial stability in the Eurozone,
an agreement was reached by the European Council to create the European Banking Union (the “EBU”). This
new union will provide for a new supervisory landscape and the deepening of the Economic and Monetary
Union. It was agreed to establish three main building blocks of the EBU: a Single Supervisory Mechanism
(the “SSM”), a Single Resolution Mechanism (the “SRM”), and a Single Deposit Guarantee System.
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Under the SSM, as of November 2014, the ECB is the central prudential supervisor of financial institutions in
the euro area and functions as a direct supervisor to the largest banks. National supervisors will continue to
monitor the remaining banks. The SRM was established in a bid to ensure taxpayer costs and damages to the
real economy following bank failures are kept to a minimum. The SRM will apply to banks covered by the
SSM and will allow bank resolutions to be managed effectively through a Single Resolution Fund and a
Single Resolution Board.
Between November 2013 and October 2014, the ECB, together with national supervisors, undertook a yearlong examination of the resilience and positions of the 130 largest banks in the euro area in preparation for the
SSM becoming fully operational. The comprehensive assessment, which consisted in an asset quality review
(“AQR”) and a forward-looking stress test of the relevant banks, covered approximately 82 per cent. of total
bank assets. The results, published on 26 October 2014, found a capital shortfall of €25 billion at 25 banks, of
which, 12 have already covered their capital shortfall by increasing their capital by €15 billion in 2014. The
overall success of the exercise can be explained, in large part, by the pre-emptive measures taken by the
institutions assessed following the announcement of the tests in January 2013. Measures taken in 2013 and
2014 have reduced the weaknesses identified in the tests and the shortfalls in capital.
On 26 June 2013, a host of regulatory changes were introduced relating to capital and prudential
requirements, known as “Basel III” (Regulation No. 575/2013, of the European Parliament and of the
Council of 26 June 2013, and Directive 2013/36/EU, of the European Parliament and of the Council of 26
June 2013). This package on capital requirements for banks, the so-called “CRD IV package”, implements
the new global standards on bank capital (commonly known as the Basel III framework) into the EU legal
framework. The new rules, passed on 1 January 2014 and to be phased-in through to 2019, aim to ensure
banks provide sufficient levels of capital on both a quantitative and qualitative level.
Directive 2013/36/EU includes supervisory powers and general rules on wages, governance and disclosure
requirements as well additional capital buffers. The additional capital buffers are as follows: (i) a capital
conservation buffer of 2.5 per cent. of risk-weighted assets; (ii) a countercyclical capital buffer rate of
between 0 and 2.5 per cent. of Core Tier 1 assets, pursuant to the conditions to be established by the
competent authorities; and (iii) a systemic risk buffer. The systemic risk buffer will range from 1 to 3.5 per
cent. for institutions with a global systemic importance, between 0 and 2 per cent. for institutions with a
systemic importance, and between 1 and 3 per cent. or 3 and 5 per cent., depending on the particular
economic situation.
Aside from the macroprudential systemic risk buffer, these buffers are predicted to apply gradually from
2016, although some Member States may choose to anticipate this date.
Coupled with the minimum capital levels already defined in the CRD IV package, banks will be required to
comply with the following ratios:
(i) Minimum Common Equity Tier 1 ratio: 7 per cent. (4.5 per cent. base value and an additional 2.5 per cent.
of capital conservation buffer);
(ii) Minimum Tier 1 ratio: 8.5 per cent. (6 per cent. base value and an additional 2.5 per cent. capital
conservation buffer);
(iii) Total ratio: 10.5 per cent. (8.0 per cent. base value and an additional 2.5 per cent. capital conservation
buffer).
A five year transition period has been introduced to allow for the adaptation of the previously applicable rules
to the new regulations.
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The Bank of Portugal published Notice 6/2013 which regulates the transitional regime provided for in
Regulation No. 575/2013 in relation to own funds and establishes measures aimed at preserving such funds.
The new rules require a Common Equity Tier 1 ratio in compliance with CRD IV phase-in.
Montepio’s activities are regulated both by the Bank of Portugal, as a credit institution, and by the CMVM, as
an issuer with outstanding listed notes and participation units in the Participation Fund. It must comply with
the regulations issued by the Bank of Portugal and the Regime Geral das Instituições de Crédito e Sociedades
Financeiras, approved by Decree-Law 298/92, of 31 December 1992, as amended and republished by
Decree-Law no. 157/2014, of 24 October 2014, and with Código dos Valores Mobiliários (the “Portuguese
Securities Code”). The Regime Geral das Instituições de Crédito e Sociedades Financeiras was recently
amended and republished by the referred Decree-Law no. 157/2014, of 24 November 2014, to adopt (i)
Regulation (EU) no. 575/2013, of the European Parliament and of the Council, dated 26 June 2013, relating to
prudential requirements for credit institutions and investment firms (Basel III) and (ii) Directive no.
2013/36/EU, of the European Parliament and of the Council, dated 26 June 2013, regarding access to the
activity of credit institutions and the prudential supervision of credit institutions and investment firms.
Among the amendments, the following are worth highlighting: (i) limitations on receiving deposits; (ii) the
strengthening of the “fit and proper evaluation” for members of corporate bodies and other relevant officials;
(iii) restrictions in remuneration policy which include: limiting the variable remuneration components;
implementing ratios which fall between the fixed and variable remuneration components; a compulsory
requirement to communicate to the Bank of Portugal where remuneration is higher than €1,000,000; and
harsher penalties along with more streamlined procedures.
The principal rules with which Montepio and all Portuguese banks must comply include the following:
(a)
Solvency ratio
Since the beginning of 2014, prudential indicators are Basel III-compliant. As such, Montepio’s Own
Funds are divided into Common Equity Tier 1 (“CET1”), Tier 1 (“T1”) and Tier 2 (“T2”). As at 30
September 2015, Montepio’s CET1 ratio stood at 9.30 per cent., pursuant to the phasing-in criteria of
the CRD IV package and Notice 6/2013 of the Bank of Portugal. When measured under the full
implementation criteria, the CET1 ratio was 6.96 per cent.
(b)
Limitations on credit risk concentration
Exposure is classified as a large exposure where the liabilities of a counterparty (or such counterparty’s
group) represent 10 per cent. or more of Montepio’s own funds. The total exposure of Montepio to a
counterparty (or such counterparty’s group) cannot exceed 25 per cent. of Montepio’s own funds and
the global value of large exposures cannot be greater than eight times the amount of such own funds.
As at 30 September 2015, none of Montepio Geral’s exposures exceeded such levels.
(c)
Limitations on equity participations in relation to own funds
Direct and indirect participating interests held by Montepio in the share capital of entities not subject
to the Bank of Portugal’s supervision cannot exceed 15 per cent. (individually) and 60 per cent. (in
aggregate) of Montepio’s own funds. Participating interests and non-participating interests are, for the
purposes of the Bank of Portugal’s regulations, distinguished essentially by determining the period of
time over which the interest is to be held or is intended to be held. An interest will be defined
as “participating” if there is a sufficient degree of permanence in such holding. As at 30 September
2015, Montepio did not hold any participating interest, directly or indirectly, in the share capital of any
such entities which exceeded such limits.
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(d)
Limitations on participating interests in relation to the share capital of certain companies
The direct and indirect participating interests to be held for three years or more by Montepio in nonfinancial entities are limited to 25 per cent. of the voting rights in the share capital of such nonfinancial entities. As at 30 September 2015, Montepio did not hold any participating interest,
directly or indirectly, exceeding such limit.
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TAXATION
The following is a general description of certain Portuguese, Cayman Islands, Luxembourg and United States
tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations
relating to the Notes. Prospective purchasers of Notes should consult their tax advisers as to the consequences
under the tax laws of the country of which they are resident for tax purposes and the tax laws of Portugal, the
Cayman Islands, Luxembourg and the United States of acquiring, holding and disposing of Notes and
receiving payments of interest, principal and/or other amounts under the Notes. This description is based
upon the law as in effect on the date of this Base Prospectus and is subject to any change in law that may
take effect after such date.
Cayman Islands
Payments in respect of the Notes issued by Montepio, acting through its Cayman Islands branch, will not be
subject to taxation in the Cayman Islands and no withholding will be required on such payments to any holder
of a Note nor will gains derived from the sale of the Notes be subject to Cayman Islands corporation tax. The
Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance or
gift tax.
The holder of any Note (or the legal personal representative of such holder) whose Note is executed in or
brought into the Cayman Islands may in certain circumstances be liable to pay stamp duty imposed under the
laws of the Cayman Islands in respect of such Notes.
The Portuguese Republic
This description is based on the laws of Portugal currently in full force and effect and as applied on the date
of this Prospectus, thus being subject to variation, possibly with retroactive or retrospective effect.
Prospective purchasers of Notes are advised to consult their own tax advisers as to the tax consequences
resulting from the purchase, ownership and disposition of Notes, including the effect of any state or local
taxes, under the tax laws of Portugal and each country where they are, or are deemed to be, residents.
No Portuguese withholding tax exemption shall be granted under Decree-Law no. 193/2005, of 7 November
2005 (as amended), if the requirements set forth therein are not complied with. This will be the case
whenever the Notes are not integrated in Central de Valores Mobiliários (which is managed by Interbolsa)
or in any other centralised depositary system for securities recognised under the Portuguese Securities Code
and complementary legislation.
If the conditions for an exemption to apply are met, but, due to inaccurate or insufficient information, tax is
withheld, a special refund procedure is available under the regime approved by Decree-law no. 193/2005. The
refund claim is to be submitted to the direct register entity of the Notes within 6 months from the date the
withholding took place. A special form for these purposes is yet to be approved.
The refund of withholding tax after the above 6 months period is to be claimed to the Portuguese tax
authorities through an official form available at http://www.portaldasfinancas.gov.pt, within 2 years from the
end of the year in which tax was withheld. The refund is to be made within 3 months, after which interest is
due.
Montepio, acting through its Cayman Islands Branch
Pursuant to Despachos no. 935/2006 – XVII, of 31 July 2006, and no. 1132/2006-XVII, of 12 September
2006, both the Secretary of State for Fiscal Affairs (Secretário de Estado dos Assuntos Fiscais) and the
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Portuguese tax authorities consider that interest or other investment income (rendimentos de capitais) derived
from Notes issued by Portuguese resident entities, acting through their branches located outside Portuguese
territory which proceeds are transferred to the head office or other branches, shall be deemed to be obtained in
Portuguese territory and therefore payment of such interest to entities with no residence, head office, effective
management or permanent establishment in Portugal is subject to withholding tax at the current general rates
of 28 per cent. (individuals) and of 25 per cent. (legal persons) (which may be reduced according to applicable
double taxation treaties entered into by the Portuguese Republic and other countries, subject to certain
formalities being met, or eliminated (if certain exemptions are applicable)).
Interest and other types of investment income (rendimentos de capitais) from Notes obtained by a Portuguese
resident individual are subject to individual income tax. If the payment of interest or other investment income
(rendimentos de capitais) is made available to Portuguese resident individuals, withholding tax applies at a
rate of 28 per cent., which is the final tax on that income unless the individual elects for aggregation
(englobamento) to his taxable income, subject to tax at the current progressive rates of up to 48 per cent. In
the latter circumstance an additional income tax will be due on the part of the taxable income exceeding
€80,000 as follows: (i) 2.5 per cent. on the part of the taxable income exceeding €80,000 up to €250,000 and
(ii) 5 per cent. on the remaining part (if any) of the taxable income exceeding €250,000. Also, if the option of
income aggregation (englobamento) is made, an additional surcharge at the rate of 3.5 per cent. will also be
due over the amount that exceeds the annual amount of the monthly minimum guaranteed wage. In this case,
the tax withheld will be creditable against the recipient’s final tax liability.
Interest and other investment income derived from Notes and capital gains obtained with the transfer of Notes
by legal persons resident for tax purposes in Portugal and by non resident legal persons with a permanent
establishment in Portugal, to which the income or gains are attributable, are included in their taxable income
and are subject to corporate income tax at a rate of either 21 per cent. or 17 per cent. on the first €15,000. In
the case of small or medium-sized enterprises, a municipal surcharge may be added (derrama municipal) of
up to 1.5 per cent. of their taxable income. A state surcharge (derrama estadual) also applies of 3 per cent. on
taxable profits in excess of €1,500,000 and up to €7,500,000, 5 per cent. on taxable profits in excess of
€7,500,000 and up to €35,000,000 and 7 per cent. on taxable profits in excess of €35,000,000. In general,
withholding tax applies at a rate of 25 per cent. on interest and other investment income (rendimentos de
capitais), which is deemed a payment on account of the final tax due.
Interest or other investment income (rendimentos de capitais) paid or made available to accounts opened in
the name of one or more resident accountholders or non-resident accountholders with a permanent
establishment in Portugal acting on behalf of one or more unidentified third parties is subject to a final
withholding tax rate of 35 per cent., unless the relevant beneficial owner(s) of the income is/are identified
and as a consequence the tax rates applicable to such beneficial owner(s) will apply.
A withholding tax rate of 35 per cent. also applies in case of interest or investment income (rendimentos de
capitais) payments to individual or legal persons resident in a country, territory or region subject to a clearly
more favourable tax regime listed in Ordinance (Portaria) no. 150/2004, of 13 February 2004 (as amended).
The aforementioned tax regime took effect from 1 January 2007 and affects Notes issued by Montepio, acting
through its Cayman Islands Branch. It does not affect Notes issued on or prior to 31 December 2006.
Montepio, acting through its head office outside the scope of Decree-Law no. 193/2005 (General tax
regime applicable to debt securities)
Interest and other types of investment income (rendimentos de capitais) from Notes obtained by a Portuguese
resident individual are subject to individual income tax. If the payment of interest or other investment income
(rendimentos de capitais) is made available to Portuguese resident individuals, withholding tax applies at a
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rate of 28 per cent., which is the final tax on that income unless the individual elects for aggregation
(englobamento) to his taxable income, subject to tax at the current progressive rates of up to 48 per cent. In
the latter circumstance an additional income tax will be due on the part of the taxable income exceeding
€80,000 as follows: (i) 2.5 per cent. on the part of the taxable income exceeding €80,000 up to €250,000 and
(ii) 5 per cent. on the remaining part (if any) of the taxable income exceeding €250,000. Also, if the option of
income aggregation (englobamento) is made, an additional surcharge at the rate of 3.5 per cent. will also be
due over the amount that exceeds the annual amount of the monthly minimum guaranteed wage. In this case,
the tax withheld will be creditable against the recipient’s final tax liability.
Interest or other investment income (rendimentos de capitais) paid or made available to accounts opened in
the name of one or more resident accountholders or non-resident accountholders with a permanent
establishment in Portugal acting on behalf of one or more unidentified third parties is subject to a final
withholding tax rate of 35 per cent., unless the relevant beneficial owner(s) of the income is/are identified and
as a consequence the tax rates applicable to such beneficial owner(s) will apply.
A withholding tax rate of 35 per cent. also applies in case of interest or investment income (rendimentos de
capitais) payments to individual or legal persons resident in a country, territory or region subject to a clearly
more favourable tax regime listed in Ordinance (Portaria) no. 150/2004, of 13 February 2004 (as amended).
Capital gains (mais-valias) obtained by Portuguese resident individuals on the transfer of Notes are taxed at a
special tax rate of 28 per cent. levied on the positive difference between such gains and gains on other
securities and losses on securities unless the individual elects for aggregation (englobamento) to his taxable
income, subject to tax at the current progressive rates of up to 48 per cent. In the latter circumstance an
additional income tax will be due on the part of the taxable income exceeding €80,000 as follows: (i) 2.5 per
cent. on the part of the taxable income exceeding €80,000 up to €250,000 and (ii) 5 per cent. on the remaining
part (if any) of the taxable income exceeding €250,000. Also, if the option of income aggregation is made an
additional surcharge at the rate of 3.5 per cent. will also be due over the amount that exceeds the annual
amount of the monthly minimum guaranteed wage. Accrued interest qualifies as interest, rather than as capital
gains, for tax purposes.
Capital gains (mais-valias) obtained by Portuguese resident individuals on the transfer of Notes by a legal
person non-resident in Portugal for tax purposes and without a permanent establishment in Portugal to which
gains are attributable are exempt from Portuguese capital gains taxation, unless the share capital of the nonresident entity is more than 25 per cent. directly or indirectly held by Portuguese resident entities or if the
beneficial owner is resident in a country, territory or region subject to a clearly more favourable tax regime
Ordinance (Portaria) no. 150/2004, of 13 February 2004 (as amended). If the exemption does not apply, the
gains will be subject to corporate income tax at a rate of 25 per cent. Under the tax treaties entered into by
Portugal, such gains are usually not subject to Portuguese corporate income tax, but the applicable rules
should be confirmed on a case by case basis.
Interest and other investment income derived from Notes and capital gains obtained with the transfer of Notes
by legal persons resident for tax purposes in Portugal and by non resident legal persons with a permanent
establishment in Portugal, to which the income or gains are attributable, are included in their taxable income
and are subject to corporate income tax at a rate of either 23 per cent. or 17 per cent. on the first €15,000. In
the case of small or medium-sized enterprises, a municipal surcharge may be added (derrama municipal) of up
to 1.5 per cent. of their taxable income. A state surcharge (derrama estadual) also applies of 3 per cent. on
taxable profits in excess of €1,500,000 and up to €7,500,000, 5 per cent. on taxable profits in excess of
€7,500,000 and up to €35,000,000 and 7 per cent. on taxable profits in excess of €35,000,000. In general,
withholding tax applies at a rate of 25 per cent. on interest and other investment income (rendimentos de
capitais), which is deemed a payment on account of the final tax due.
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Montepio, acting through its head office within the scope of Decree-Law no. 193/2005 (Special tax regime
applicable to debt securities)
Special Tax regime applicable to debt securities as of 1 January 2014
Further to the amendments introduced by Law 83/2013, of 9 December 2013, the description of Decree-Law
193/2005 of 7 November 2005 (as amended), in the following paragraphs applies to Notes issued on or after 1
January 2014. The Special Tax regime applicable to debt securities was amended by Law no. 83/2013,
published on 9 December 2013. Amongst others, the following changes are relevant in the context of the
Programme:
(i) Non-resident entities which are more than 20 per cent. held, either directly or indirectly, by Portuguese
resident entities are no longer excluded from the exemption;
(ii) Debt instruments registered in an International Central Securities Depository (“ICSD”) may also benefit
from the exemption; and
(iii) New requirements for registration of the Notes.
The new regime is applicable to debt issued as of 1 January 2014 or income (rendimento) due after 31
December 2013 for debt issued before 31 December 2013.
Therefore, as of the entering into force of Law no. 83/2013 on 9 December 2013, non-resident Noteholders,
interest or other investment income (rendimentos de capitais) in respect of debt securities registered with a
clearing system (sistema centralizado) managed by (x) an entity resident in Portuguese territory; or by (y) an
entity established in another EU Member State; or (z) an entity established in another EEA State, insofar as, in
case of the later, it is bound to administrative cooperation in the field of taxation equivalent to that established
in the EU, as well as capital gains derived from a sale or other disposition of Notes, will be exempt from
Portuguese income tax, provided that the beneficial owners are: (i) Central banks and governmental agencies;
(ii) International organisations recognised by the Portuguese Republic; (iii) Entities resident in countries or
jurisdictions which have in force a convention for the avoidance of international double taxation or a tax
information exchange agreement with Portugal; (iv) Other entities without residence, head office, effective
management or permanent establishment in Portugal to which the income is attributable, and are not resident
in a country, territory or region deemed as a tax haven, according to the approved list, by Ordinance of the
Portuguese Government (namely, the countries and territories listed in Ordinance (Portaria) no. 150/2004, of
13 February 2004 (as amended)).
1.
Domestic Cleared Notes – held through a direct registering entity
For domestic cleared Notes held through a direct registering entity, the registration of the non-resident
Noteholders in an exempt account, requires evidence of the non-resident status to be provided by the
relevant Noteholder to the direct registering entity on the following terms:
i.
Noteholders constituting a central bank, public institution and its agencies, as well as
international organisations recognised by the Portuguese Republic should provide a Declaration duly
signed and authenticated by the Noteholder itself. These Noteholders may also opt for the alternative
set forth in paragraph iv below;
ii. Noteholders constituting a credit institution, financial company, pension fund or insurance
company, with its head office in any OECD country or in a country with which Portugal has entered
into a double taxation treaty should provide an official tax identification document or a certificate
issued by the entity which is responsible for its registration or supervision or by the tax authorities,
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confirming its legal existence and domicile. These Noteholders may also opt for the alternative set
forth in paragraph iv below;
iii. Noteholders constituting either an investment fund or a collective investment scheme
domiciled in any OECD country or any country with which Portugal has entered into a double taxation
treaty, shall make proof of their non-residency by providing any of the following documents: (A) a
declaration issued by the entity which is responsible for its registration or supervision or by the tax
authorities, confirming its legal existence, domicile and law of incorporation; or (B) the alternative set
forth in paragraph iv below;
Other investors will be required to prove their non-resident status by way of (A) a certificate of
residence or equivalent document issued by the relevant tax authorities; (B) a document issued by the
relevant Portuguese Consulate certifying residence abroad, or (C) a document specifically issued by an
official entity taking part in the public administration (either central, regional or peripheral, indirect or
autonomous) of the relevant country.
There are rules relating to the authenticity and validity of the above mentioned documents, in
particular the Noteholder must provide an original or a certified copy of the document. This document
must be issued within three months after the date on which the withholding tax would apply and will
be valid for a three year period starting on the date such document is produced. The Noteholder must
inform the direct registering entity immediately of any change in the requirement conditions that may
eliminate the tax exemption.
In the above mentioned paragraphs (i) to (iii) proof of non-resident status is only required once,
dismissing periodic renovation. Nevertheless, the Noteholder must inform the direct registering entity
immediately of any change in the requirement conditions that may eliminate the tax exemption.
2.
Internationally Cleared Notes – held through an entity managing an international clearing
system
If the Notes are registered in an account with an international clearing system (either with Euroclear or
Clearstream), for the purposes of proving the requirements for the Special Tax Regime to apply, the
identification and quantity of Notes, as well as the amount of income, and, when applicable, the
amount of tax withheld, should be communicated to the direct registration entities, on each income
maturity date, according to each of the following categories of beneficiaries:
(i) Entities with residence, head office, effective management or permanent establishment in Portugal,
to which the income is attributable, that do not benefit from either an exemption or waiver of
Portuguese withholding tax; (ii) Entities resident in a country, territory or region deemed as a tax haven,
according to the approved list, by Ordinance of the Portuguese Government (namely, the countries and
territories listed in Ordinance (Portaria) no. 150/2004, of 13 February 2004 (as amended)), that do not
benefit from either an exemption or waiver of Portuguese withholding tax; (iii) Entities with residence,
head office, effective management or permanent establishment in Portugal, to which the income is
attributable, that benefit from either an exemption or waiver of Portuguese withholding tax; and (iv)
Other entities without residence, head office, effective management or permanent establishment in the
Portuguese territory to which the income is attributable.
On each income maturity date, the following information should also be provided by the international
clearing system direct to the registered Issuer, in relation to the beneficiaries above mentioned in
paragraphs (i) to (iii), on each income maturity date: (i) name and address; (ii) tax identification
number, when available; (iii) Notes identification and quantity; and (iv) income amount.
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The international clearing system managing entity shall inform the direct register entity or its
representatives, regarding the accounts under their management.
Other beneficiaries not included in the above mentioned will be required to make proof of their
non-resident status by way of (A) a certificate of residence or equivalent document issued by the
relevant tax authorities; (B) a document issued by the relevant Portuguese Consulate certifying
residence abroad, or (C) a document specifically issued by an official entity taking part in the public
administration (either central, regional or peripheral, indirect or autonomous) of the relevant country.
There are rules relating to the authenticity and validity of the above mentioned documents, in
particular the Noteholder must provide an original or a certified copy of the document. This document
must be valid for up to three months after the date on which the withholding tax would have been
applied and will be valid for a three year period starting on the date such document is produced.
If the conditions for an exemption to apply are met but, due to inaccurate or insufficient information,
tax is withheld, a special refund procedure is available under the regime approved by Decree-law no.
193/2005. The refund claim is to be submitted directly to the registered issuer of the Notes within six
months from the date the withholding took place. A special form for these purposes is yet to be
approved.
The refund of withholding tax after the six month period is to be claimed from the Portuguese tax
authorities through an official form available at http://www.portaldasfinancas.gov.pt, within two years
from the end of the year in which tax was withheld. The refund is to be made within three months,
after which interest is due.
Absent the aforementioned exemptions or failure to comply with the exemptions relevant statement
obligations, the general tax regime shall apply (see “Montepio, acting through its head office outside the scope
of Decree-Law no. 193/2005 (General tax regime applicable to debt securities)”).
Luxembourg
Luxembourg tax residency of the Noteholders
A Noteholder will not become resident, or be deemed to be resident in Luxembourg by reason only of the
holding of the Notes, or the execution, performance, delivery and/or enforcement of the Notes.
Withholding tax
Under Luxembourg tax law currently in effect and with the possible exception of interest paid to certain
individual Noteholders and to certain so-called residual entities, there is no Luxembourg withholding tax on
payments of interest (including accrued but unpaid interest). There is also no Luxembourg withholding tax,
with the possible exception of payments made to certain individual Noteholders and to certain entities, upon
repayment of principal in case of reimbursement, redemption, repurchase or exchange of the Notes.
In accordance with the law of 25 November 2014, Luxembourg elected out of the withholding tax system in
favour of an automatic exchange of information under the Council Directive 2003/48/EC on the taxation of
savings income as from 1 January 2015. Payments of interest or repayments of principal to non resident
individual Noteholders or certain so-called residual entities are thus no longer subject to any withholding tax.
In accordance with the law of 23 December 2005, as amended, interest payments made by Luxembourg
paying agents to Luxembourg individual residents are subject to a 10 per cent. withholding tax. Responsibility
for withholding such tax will be assumed by the Luxembourg paying agent.
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The Proposed Financial Transactions Tax
On 14 February 2013, the European Commission published the Commission’s Proposal for a Directive for a
common FTT in the participating Member States. However, Estonia has since stated that it will not
participate.
The Commission’s Proposal has very broad scope and could, if introduced apply to certain dealings in Notes
(including secondary market transactions) in certain circumstances. Primary market transactions referred to in
Article 5(c) of Regulation (EC) No. 1287/2006 are expected to be exempt.
Under the Commission’s Proposal the FTT could apply in certain circumstances to persons both within and
outside of the participating Member States. Generally, it would apply to certain dealings in Notes where at
least one party is a financial institution, and at least one party is established in a participating Member State. A
financial institution may be, or be deemed to be, "established" in a participating Member State in a broad
range of circumstances, including (a) by transacting with a person established in a participating Member State
or (b) where the financial instrument which is subject to the dealings is issued in a participating Member
State.
A joint statement issued by ten of the participating Member States (excluding Estonia) on 8 December 2015
indicated a high-level agreement for the scope of an FTT, however, the FTT proposal remains subject to
further negotiation prior to any implementation, the timing of which remains unclear. Additional EU Member
States may decide to participate.
Prospective holders of Notes are advised to seek their own professional advice in relation to the FTT.
The United States
U.S. Foreign Account Tax Compliance Withholding
Certain provisions commonly known as “FATCA”) impose a withholding tax of 30 per cent. on (i) certain
U.S. source payments and (ii) payments of gross proceeds from the disposition of assets that produce U.S.
source interest or dividends made to persons that fail to meet certain certification or reporting requirements.
In order to avoid becoming subject to this withholding tax, non-U.S. financial institutions must enter into
agreements with the IRS (“IRS Agreements”) (as described below) or otherwise be exempt from the
requirements of FATCA. Non-U.S. financial institutions that enter into IRS Agreements or become subject to
provisions of local law (“IGA legislation”) intended to implement an intergovernmental agreement entered
into pursuant to FATCA (an “IGA”), may be required to identify and report to the government of the United
States or another relevant jurisdiction certain information regarding “financial accounts” held by U.S. persons
or entities with substantial U.S. ownership, as well as accounts of other financial institutions that are not
themselves participating in (or otherwise exempt from) the FATCA reporting regime. In addition, in order (a)
to obtain an exemption from FATCA withholding on payments it receives and/or (b) to comply with any
applicable IGA legislation, a financial institution that enters into an IRS Agreement or is subject to IGA
legislation may be required to withhold 30 per cent. from all, or a portion of, certain payments made to
persons that fail to provide the financial institution information, consents and forms or other documentation
that may be necessary for such financial institution to determine whether such person is compliant with
FATCA or otherwise exempt from FATCA withholding.
Under FATCA, withholding is required with respect to payments to persons that are not compliant with
FATCA or that do not provide the necessary information, consents or documentation made on or after (i) 1
July 2014 in respect of certain U.S. source payments, (ii) January 1, 2017, in respect of payments of gross
proceeds (including principal repayments) from the disposition of property that can produce U.S. source
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interest or dividends and (iii) January 1, 2017 (at the earliest) in respect of “foreign passthru payments”.
FATCA withholding in respect of foreign passthru payments is not required for “obligations” that are not
treated as equity for U.S. federal income tax purposes unless such obligations are issued or materially
modified after the date that is six months after the date on which the final regulations defining “foreign
passthru payments” are filed with the Federal Register.
The application of FATCA to interest, principal or other amounts paid with respect to the Notes and the
information reporting obligations of the Issuer and other entities in the payment chain is still developing. In
particular, a number of jurisdictions have entered into, or have announced their intention to enter into, IGAs
(or similar mutual understandings) with the United States, which modify the way in which FATCA applies in
their jurisdictions. The Cayman Islands have entered into a Model 1 intergovernmental agreement (the "US
IGA") with the United States and have entered into a similar intergovernmental agreement (the "UK IGA")
with the United Kingdom (together with the US IGA, the "IGAs"). The Issuer will be required to comply with
the Cayman Islands Tax Information Authority Law (2014 Revision) (as amended) together with regulations
and guidance notes made pursuant to such Law (the "Cayman FATCA Legislation") that give effect to the
IGAs. To the extent the Issuer cannot be treated as a Non-Reporting Cayman Islands Financial Institution (as
defined in the IGAs) by taking advantage of one of the categories set out in Annex II to the IGAs (for
example by being a Sponsored Investment Entity (as defined in the IGAs)), the Issuer will be a "Reporting
Cayman Islands Financial Institution" (as defined in the IGAs). As such, the Issuer is required to register
with the IRS to obtain a Global Intermediary Identification Number (for the purposes of the US IGA only)
and to report to the Cayman Islands Tax Information Authority any payments made to (i) Specified US
Persons with respect to US Reportable Accounts and (ii) Specified UK Persons with respect to UK Reportable
Accounts (each such term as defined in the relevant IGA). The Cayman Islands Tax Information Authority
will exchange such information with the IRS or HMRC as the case may be under the terms of the relevant
IGA. Under the terms of the US IGA, withholding will not be imposed on payments made to the Issuer
unless the IRS has specifically listed the Issuer as a non-participating financial institution, or on payments
made by the Issuer to the Noteholders unless the Issuer has otherwise assumed responsibility for withholding
under United States tax law. The full impact of such agreements (and the laws implementing such agreements
in such jurisdictions) on reporting and withholding responsibilities under FATCA is unclear. The Issuer and
other entities in the payment chain may be required to report certain information on their U.S. account holders
to government authorities in their respective jurisdictions or the United States in order (i) to obtain an
exemption from FATCA withholding on payments they receive and/or (ii) to comply with applicable law in
their jurisdiction. It is not yet certain how the United States and the jurisdictions which enter into IGAs will
address withholding on “foreign passthru payments” (which may include payments on the Notes) or if such
withholding will be required at all.
Whilst the Notes are in global form and held within the ICSDs, it is expected that FATCA will not affect the
amount of any payments made under, or in respect of, the Notes by the Issuer, any paying agent and the
Common Depositary/Common Safekeeper, given that each of the entities in the payment chain from (but
excluding) the Issuer to (but including) the ICSDs is a major financial institution whose business is dependent
on compliance with FATCA and that any alternative approach introduced under an IGA will be unlikely to
affect the Notes. The documentation expressly contemplates the possibility that the Notes may go into
definitive form and therefore that they may be taken out of the ICSDs. If this were to happen, then a nonFATCA compliant holder could be subject to withholding. However, definitive Notes will only be printed in
remote circumstances.
The application of FATCA to Notes issued or materially modified after the date that is six months after the
date on which the final regulations applicable to “foreign passthru payments” are filed in the Federal Register,
(or whenever issued, in the case of Notes treated as equity for U.S. federal tax purposes) may be addressed in
the relevant Final Terms or a supplemental Base Prospectus, as applicable.
146
FATCA IS PARTICULARLY COMPLEX AND ITS APPLICATION TO THE ISSUER, THE NOTES AND
THE HOLDERS IS SUBJECT TO CHANGE. EACH HOLDER OF NOTES SHOULD CONSULT ITS
OWN TAX ADVISER TO OBTAIN A MORE DETAILED EXPLANATION OF FATCA AND TO LEARN
HOW FATCA MIGHT AFFECT EACH HOLDER IN ITS PARTICULAR CIRCUMSTANCE.
147
SUBSCRIPTION AND SALE
Dealer Agreement
Subject to the terms and on the conditions contained in an Amended and Restated Dealer Agreement dated
29 January 2016 (the “Dealer Agreement”) between the Issuer, the Permanent Dealers and the Arranger, the
Notes will be offered on a continuous basis by the Issuer to the Permanent Dealers. However, the Issuer has
reserved the right to sell Notes directly on their own behalf to Dealers that are not Permanent Dealers. The
Notes may be resold at prevailing market prices, or at prices related thereto, at the time of such resale, as
determined by the relevant Dealer. The Notes may also be sold by an Issuer through the Dealers, acting as
agents of such Issuer. The Dealer Agreement also provides for Notes to be issued in syndicated Tranches that
are jointly and severally underwritten by two or more Dealers.
The Issuer will pay each relevant Dealer a commission as agreed between them in respect of Notes subscribed
by it. The Issuer has agreed to reimburse the Arranger for its expenses incurred in connection with the
establishment and update of the Programme and the Dealers for certain of their activities in connection with
the Programme. The commissions in respect of an issue of Notes on a syndicated basis will be stated in the
relevant Final Terms.
The Issuer has agreed to indemnify the Dealers against certain liabilities in connection with the offer and sale
of the Notes. The Dealer Agreement entitles the Dealers to terminate any agreement that they make to
subscribe Notes in certain circumstances prior to payment for such Notes being made to the Issuer.
Selling Restrictions
United States
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions
exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the
meanings given to them by Regulation S under the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the
United States or its possessions or to a United States person, except in certain transactions permitted by U.S.
tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue
Code of 1986, as amended, and regulations thereunder.
Each Dealer has agreed that, and each further Dealer appointed under the Programme will be required to
agree that, except as permitted by the Dealer Agreement, it has not offered, sold or delivered and will not
offer, sell or deliver the Notes, (i) as part of their distribution at any time or (ii) otherwise until 40 days after
completion of the distribution of such an identifiable Tranche as determined, and certified to the Issuer and
each relevant Dealer, by the Issuing and Paying Agent, or in the case of Notes sold to or through more than
one Dealer, by each of such Dealers with respect to Notes of an identifiable tranche purchased by or through
it, in which case the Agent shall notify such Dealer when all such Dealers have so certified, within the United
States or to, or for the account or benefit of, U.S. persons, and it will have sent to each Dealer to which it sells
Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on
offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons of
any identifiable Tranche of Notes.
148
In addition, until 40 days after the commencement of the offering an offer or sale of Notes within the United
States by any dealer that is participating in the offering of such Notes may violate the registration
requirements of the Securities Act.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a “Relevant Member State”), each Dealer has represented and agreed, and each further
Dealer appointed under the Programme will be required to represent and agree, that with effect from and
including the date on which the Prospectus Directive is implemented in that Relevant Member State (the
“Relevant Implementation Date”) it has not made and will not make an offer of Notes which are the subject
of the offering contemplated by this Base Prospectus as completed by the final terms in relation thereto to the
public in that Relevant Member State except that it may, with effect from and including the Relevant
Implementation Date, make an offer of such Notes to the public in that Relevant Member State:
(i)
at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(ii)
at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive), subject to obtaining the prior consent of the relevant Dealer or Dealers
nominated by the Issuer for any such offer; or
(iii)
at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Notes referred to in (i) to (iii) above shall require the Issuer or any Dealer to
publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to
Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes in
any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to
purchase or subscribe the Notes, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means
Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant
implementing measure in the Relevant Member State.
United Kingdom
Each Dealer has represented, warranted and agreed that, and each further Dealer appointed under the
Programme will be required to represent, warrant and agree that:
(i)
in relation to any Notes which have a maturity of less than one year, (a) it is a person whose
ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell any
Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their businesses or who it is
reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for
the purposes of their businesses where the issue of the Notes would otherwise constitute a
contravention of section 19 of the Financial Services and Markets Act 2000 (the “FSMA”) by the
Issuer;
(ii)
it has only communicated or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity (within the meaning of
149
section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in
circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and
(iii)
it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Cayman Islands
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be
required to represent and agree, that with respect to offers and sales of any Notes, that it has not and will not
make any invitation to the public or any member of the public in the Cayman Islands to purchase the Notes
and the Notes may not be offered or sold, directly or indirectly, in the Cayman Islands, except as otherwise
permitted by Cayman Islands law.
Portuguese Republic
In relation to the Notes, each Dealer has represented and agreed, and each further Dealer appointed under the
Programme will be required to represent and agree, that, regarding any offer or sale of Notes by it in Portugal or
to individuals resident in Portugal or having a permanent establishment located in the Portuguese territory
(or to whom Portuguese laws and regulations applicable to the placement of financial instruments otherwise
apply), (i) it will comply with all laws and regulations in force in Portugal, including (without limitation) the
Portuguese Securities Code (Código dos Valores Mobiliários), any regulations issued by the Portuguese
Securities Market Commission (Comissão do Mercado de Valores Mobiliários) and Commission Regulation
(EC) No. 809/2004 implementing the Prospectus Directive (as amended), and other than in compliance with
all such laws and regulations; (ii) it has not directly or indirectly taken any action or offered, advertised,
marketed, invited to subscribe, gathered investment intentions, sold or delivered and will not directly or
indirectly take any action, offer, advertise, market, invite to subscribe, gather investment intentions, sell, resell, re-offer or deliver any Notes in circumstances which could qualify as a public offer (oferta pública) of
securities pursuant to the Portuguese Securities Code and other applicable securities legislation and
regulations, notably in circumstances which could qualify as a public offer addressed to individuals or entities
resident in Portugal or having permanent establishment located in Portugal, as the case may be; (iii) all offers,
sales and distributions by it of the Notes have been and will only be made in Portugal in circumstances that,
pursuant to the Portuguese Securities Code, qualify as a private placement of Notes only (oferta particular);
and (iv) it has not distributed, made available or caused to be distributed and will not distribute, make
available or cause to be distributed the Prospectus or any other offering material relating to the Notes to the
public in Portugal.
Furthermore, (i) if the Notes are subject to a private placement addressed exclusively to qualified investors as
defined, from time to time, in Article 30 of the Portuguese Securities Code (investidores qualificados), such
private placement will be considered as a private placement of securities pursuant to the Portuguese Securities
Code; and (ii) private placements addressed by companies open to public investment (sociedades abertas) or
by issuers of securities listed on a regulated market shall be notified to the CMVM for statistical purposes.
Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of
Japan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly,
each of the Dealers has represented and agreed that, and each further Dealer appointed under the Programme
will be required to represent and agree that, it has not, directly or indirectly, offered or sold and will not,
directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (which
150
term as used herein means any person resident in Japan, including any corporation or other entity organised
under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and
otherwise in compliance with the Financial Instruments and Exchange Act and other relevant laws and
regulations of Japan.
France
Each of the Dealers and the Issuer have represented, warranted and agreed that:
(i)
in relation to offers to the public in France:
it has only made and will only make an offer of Notes to the public in France in the period beginning
on the date of notification to the Autorité des marchés financiers (“AMF”) of approval of the
prospectus in relation to those Notes, by the competent authority of a Member State of the European
Economic Area, other than the AMF, which has implemented the EU Prospectus Directive
2003/71/EC (as amended by Directive 2010/73/EU), all in accordance with articles L.412-1 and L.6218 of the French Code monétaire et financier and the Réglement général of the AMF, and ending at the
latest on the date which is 12 months after the date of the approval of this Base Prospectus; or
(ii)
private placements in France:
it has not offered or sold and will not offer or sell, directly or indirectly, any Notes to the public in
France and it has not distributed or caused to be distributed and will not distribute or cause to be
distributed to the public in France, this Prospectus, the relevant final terms or any other offering
material relating to the Notes and such offers, sales and distributions have been and will be made in
France only to (a) providers of investment services relating to portfolio management for the account of
third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour compte
de tiers) and/or (b) qualified investors (investisseurs qualifiés), and/or (c) a limited circle of investors
(cercle restreint) acting for their own account, as defined in, and in accordance with articles L.411-1,
L.411-2 and D.411-1 and D.411-4 of the French Code monétaire et financier.
This Prospectus has not been submitted to the clearance procedures of the AMF.
General
These selling restrictions may be modified by the agreement of the Issuer and the Dealers following a change
in a relevant law, regulation or directive.
No representation is made that any action has been taken in any jurisdiction that would permit a public
offering of any of the Notes, or possession or distribution of the Base Prospectus or any other offering
material or any Final Terms, in any country or jurisdiction where action for that purpose is required.
Each Dealer has agreed that it shall, to the best of its knowledge, comply with all relevant laws, regulations
and directives in each jurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession
or distributes the Base Prospectus, any other offering material or any Final Terms in all cases at its own
expense.
Certain of the Dealers and their affiliates have engaged, and may in the future engage, in investment banking
and/or commercial banking transactions with, and may perform services for the Issuer and its affiliates in the
ordinary course of business. Certain of the Dealers and their affiliates may have positions, deal or make
markets in the Notes issued under the Programme, related derivatives and reference obligations, including
151
(but not limited to) entering into hedging strategies on behalf of the Issuer and its affiliates, investor clients, or
as principal in order to manage their exposure, their general market risk, or other trading activities.
In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or
hold a broad array of investments and actively trade debt and equity securities (or related derivative securities)
and financial instruments (including bank loans) for their own account and for the accounts of their customers.
Such investments and securities activities may involve securities and/or instruments of the Issuer or its
affiliates. Certain of the Dealers or their affiliates that have a lending relationship with the Issuer routinely
hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically,
such Dealers and their affiliates would hedge such exposure by entering into transactions which consist of
either the purchase of credit default swaps or the creation of short positions in the securities, including
potentially the Notes offered hereby. Any such positions could adversely affect future trading prices of the
Notes offered hereby. The Dealers and their affiliates may also make investment recommendations and/or
publish or express independent research views in respect of such securities or financial instruments and may
hold, or recommend to clients that they acquire, long and/or short positions in such securities and
instruments.
152
FORM OF FINAL TERMS
The form of Final Terms that will be issued in respect of each Tranche, subject only to the deletion of nonapplicable provisions, is set out below:
Final Terms dated [●]
Caixa Económica Montepio Geral
acting through its [Head Office]/[Cayman Islands Branch]
Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes]
under the €6,000,000,000
Euro Medium Term Note Programme
[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the
Base Prospectus dated 29 January 2016 [and the supplement(s) to it dated [●]] which [together] constitute[s] a
base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (as amended) (the
“Prospectus Directive”) (the “Base Prospectus”). This document constitutes the Final Terms of the Notes
described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction
with the Base Prospectus. Full information on the Issuer and the offer of the Notes is only available on the
basis of the combination of these Final Terms and the Base Prospectus. The Base Prospectus has been
published on the website of the Luxembourg Stock Exchange (at www.bourse.lu).]
(The following alternative language applies if the first tranche of an issue which is being increased was
issued under a Base Prospectus with an earlier date.)
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions)
set forth in the Base Prospectus dated [16 June 2004] [21 September 2005] [29 December 2006] [28
September 2007] [4 November 2008] [6 November 2009] [5 November 2010] [4 November 2011] [30
November 2012] [20 December 2013] which are incorporated by reference in the Base Prospectus dated [29]
January 2016. This document constitutes the Final Terms of the Notes described herein for the purposes of
Article 5.4 of the Prospectus Directive and must be read in conjunction with the Base Prospectus dated [29]
January 2016 [and the supplement(s) to it dated [date]], which [together] constitute[s] a base prospectus for
the purposes of the Prospectus Directive, save in respect of the Conditions which are extracted from the Base
Prospectus dated [16 June 2004] [21 September 2005] [29 December 2006] [28 September 2007] [4
November 2008] [6 November 2009] [5 November 2010] [4 November 2011] [30 November 2012] [20
December 2013]. Full information on the Issuer and the offer of the Notes is only available on the basis of the
combination of these Final Terms and the Base Prospectus [and the supplement(s) dated [date]]. The Base
Prospectuses have been published on the website of the Luxembourg Stock Exchange (www.bourse.lu).
(Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering
should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or
subparagraphs. Italics denote guidance for completing the Final Terms.)
1
[(i)] Series Number:
[●]
[(ii) Tranche Number:
[●]]
[(iii) Date on which the Notes become
fungible:
[Not Applicable/The Notes shall be consolidated, form a
single series and be interchangeable for trading purposes
with the [insert amount, interest rate, maturity date and
153
issue date of the Series] on [insert date/the Issue
Date/exchange of the Temporary Global Note for
interests in the Permanent Global Note, as referred to in
paragraph 19 below [which is expected to occur on or
about [insert date]]].]]
2
Specified Currency or Currencies:
[●]
3
Aggregate Nominal Amount of Notes:
[●]
[(i)] Series:
[●]
[(ii) Tranche:
[●]]
4
Issue Price:
[●] per cent. of the Aggregate Nominal Amount [plus
accrued interest from [insert date] (if applicable)]
5
(i)
[●]
Specified Denominations:
(N.B. Where multiple denominations above €100,000 (or
equivalent are being used the following sample wording
should be followed: “[€100,000] and integral multiples
of [€1,000] in excess thereof up to and including
[€199,000]. No Notes in definitive form will be issued
with a denomination above [€199,000].”))
Book Entry Notes will only be tradeable in the Specified
Denomination
(ii) Calculation Amount:
[●]
[(i)] Issue Date:
[●]
[(ii) Interest Commencement Date
[Specify/Issue Date/Not Applicable]]
7
Maturity Date:
[specify date or (for Floating Rate Notes) Interest
Payment Date falling in or nearest to the relevant month
and year]
8
Interest Basis:
[[●] per cent. Fixed Rate]
[Reset Notes]
6
[[specify particular reference rate] +/– [●] per cent.
Floating Rate]
[Zero Coupon]
(further particulars specified below)
9
Redemption Basis:
Subject to any purchase and cancellation or early
redemption, the Notes will be redeemed on the Maturity
Date at [par]/[[●] per Calculation Amount] [such amount
will be no less than par]
10
Put/Call Options:
[Investor Put]
[Issuer Call]
[(further particulars specified below)]
[Not Applicable]
11
[(i)] Status of the Notes:
[Senior/ Subordinated Notes]
[(ii)] [Date [Board] approval for issuance
of Notes obtained:
[●] [and [●], respectively]]
(N.B.
154
Only
relevant
where
Board
(or
similar)
authorisation is required for the particular tranche of
Notes)
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
12
Fixed Rate Note Provisions
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
13
Rate[(s)] of Interest:
[●] per cent. per annum payable in arrear on each
Interest Payment Date
(ii) Interest Payment Date(s):
[●] in each year
(iii) Fixed Coupon Amount[(s)]:
[●] per Calculation Amount
(iv) Broken Amount(s):
[●] per Calculation Amount payable on the Interest
Payment Date falling [in/on] [●]
(v) Day Count Fraction:
[Actual/Actual]/[Actual/ActualISDA]/[Actual/365(fixed)]/ [Actual/360]/[30/360]/
[360/360]/[Bond Basis]/ [30E/360]/[Eurobond
Basis]/[30E/360(ISDA)]/[Actual/Actual-ICMA]
(vi) Determination Dates:
[●] in each year (insert regular interest payment dates,
ignoring issue date or maturity date in the case of a long
or short first or last coupon. N.B. only relevant where
Day Count Fraction is Actual/Actual ICMA)
Reset Note Provisions
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
Initial Rate of Interest:
[●] per cent. per annum payable in arrear [on each
Interest Payment Date]
(ii) First Margin:
[+/-][●] per cent. per annum
(iii) Subsequent Margin:
[[+/-][●] per cent. per annum][Not Applicable]
(iv) Interest Payment Date(s):
[●] [and [●]] in each year up to and including the
Maturity Date[[in each case,] subject to adjustment in
accordance with paragraph 13(xiii)]
(v) Fixed Coupon Amount up to (but
excluding) the First Reset Date:
[[●] per Calculation Amount][Not Applicable]
(vi) Broken Amount(s):
[[●] per Calculation Amount payable on the Interest
Payment Date falling [in/on] [●]][Not Applicable]
(vii) First Reset Date:
[●][subject to adjustment in accordance with paragraph
13(xiii)]
(viii) Second Reset Date:
[●]/[Not Applicable][subject to
accordance with paragraph 13(xv)]
(ix) Subsequent Reset Date(s):
[●] [and [●]] [subject to adjustment in accordance with
paragraph 13(xiii)]
(x) Relevant Screen Page:
[●]
155
adjustment
in
14
(xi) Mid-Swap Rate:
[Single Mid-Swap Rate/Mean Mid-Swap Rate]
(xii) Mid-Swap Maturity:
[●]
(xiii) Day Count Fraction:
[Actual/Actual][Actual/Actual – ISDA][Actual/365
(Fixed)][Actual/360][30/360][360/360][Bond
Basis][30E/360][Eurobond Basis][30E/360
(ISDA)][Actual/Actual – ICMA]
(xiv) Determination Dates:
[●] in each year
(xv) Business Day Convention:
[Floating Rate Convention/Following Business Day
Convention/Modified
Following
Business
Day
Convention/Preceding Business Day Convention]
(xvi) Business Centre(s):
[●]
(xvii)
[●]
Calculation Agent:
Floating Rate Note Provisions
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
Interest Period(s) [●]
[●]
(ii) Specified Interest Payment Dates:
[●]
(iii) Interest Period Date:
[●] [Not Applicable]
(Not applicable unless different from Interest Payment
Date)
(iv) Business Day Convention:
[Floating Rate Convention/Following Business Day
Convention/Modified
Following
Business
Day
Convention/Preceding Business Day Convention]
(v) Business Centre(s):
[●]
(vi) Manner in which the Rate(s) of
Interest is/are to be determined:
[Screen Rate Determination/ISDA Determination]
(vii) Party responsible for calculating the
Rate(s) of Interest and Interest
Amount(s) (if not the [Agent]):
[●]
(viii) Screen Rate Determination:
–
Reference Rate:
[LIBOR/EURIBOR]
–
Interest Determination Date(s):
[●]
–
Relevant Screen Page:
[●]
(ix) ISDA Determination:
–
Floating Rate Option:
[●]
–
Designated Maturity:
[●]
–
Reset Date:
[●]
(x) [Linear Interpolation:
Not Applicable/Applicable – the Rate of Interest for the
[long/short] [first/last] Interest Period shall be calculated
using Linear Interpolation (specify for each short or long
interest period)]
156
15
(xi) Margin(s):
[+/-][●] per cent. per annum
(xii) Minimum Rate of Interest:
[●] per cent. per annum
(xiii) Maximum Rate of Interest:
[●] per cent. per annum
(xiv) Day Count Fraction:
[Actual/Actual][Actual/Actual – ISDA][Actual/365
(Fixed)][Actual/360][30/360][360/360][Bond
Basis][30E/360][Eurobond Basis][30E/360
(ISDA)][Actual/Actual – ICMA]
Zero Coupon Note Provisions
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
Amortisation Yield:
[●] per cent. per annum
PROVISIONS RELATING TO REDEMPTION
16
Call Option
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
Optional Redemption Date(s):
(ii) Optional Redemption Amount(s) of
each Note:
[●]
[●] per Note of [●]
specified denomination
(iii) If redeemable in part:
(a)
17
Minimum Redemption Amount:
[●] per Calculation Amount
(b) Maximum Redemption Amount:
[●] per Calculation Amount
(iv) Notice period
[●]
Put Option
[Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs
of this paragraph)
(i)
18
Optional Redemption Date(s):
[●]
(ii) Optional Redemption Amount(s) of
each Note:
[●] per Calculation Amount
(iii) Notice period
[●]
Early Redemption Amount
(i)
Early Redemption Amount(s) per
Calculation Amount payable on
redemption for taxation reasons or on
event of default:
[●]
(ii) Redemption for taxation reasons
permitted on days other than Interest
Payment Dates:
[Yes/No]
(iii) Unmatured Coupons to become void
upon early redemption:
[Yes/No/Not Applicable]
157
GENERAL PROVISIONS APPLICABLE TO THE NOTES
19
Form of Notes:
[Bearer Notes:]
[Temporary Global Note exchangeable for a Permanent
Global Note which is exchangeable for Definitive Notes
in the limited circumstances specified in the Permanent
Global Note]
[Permanent Global Note exchangeable for Definitive
Notes in the limited circumstances specified in the
Permanent Global Note]
[Registered (nominativas) and Book-Entry Notes]
20
New Global Note
[Yes] [No]
21
Financial Centre(s):
[Not Applicable/give details. (Note that this paragraph
relates to the date of payment and not the end dates of
Interest Periods for the purposes of calculating the
amount of interest, to which sub-paragraph 13 (xvi)
relates)
]
THIRD PARTY INFORMATION
[[●] has been extracted from [●]]. The Issuer confirms that such information has been accurately reproduced
and that, so far as it is aware, and is able to ascertain from information published by [●], no facts have been
omitted which would render the reproduced inaccurate or misleading.
Signed on behalf of Caixa Económica Montepio Geral acting through its [Head office]/[Cayman Islands
Branch]:
By: ..............................................................................
Duly authorised
158
PART B – OTHER INFORMATION
1
LISTING AND ADMISSION TO TRADING
(i)
Admission to trading:
[Application has been made by the Issuer (or on its
behalf) for the Notes to be admitted to trading on the
regulated market of the Luxembourg Stock Exchange
with effect from [●].] [Application is expected to be
made by the Issuer (or on its behalf) for the Notes to be
admitted to trading on [specify relevant regulated
market] with effect from [●].] [Not Applicable.]
(Where documenting a fungible issue need to indicate
that original Notes are already admitted to trading.)
(ii) Estimate of total expenses related to
admission to trading:
2
[●]
RATINGS
Ratings:
[The Notes to be issued [have been rated/are expected
to be] rated]/[The following ratings reflect ratings
assigned to Notes of this type issued under the
Programme generally]:
[Fitch: [●]]
[Moody’s: [●]]
[DBRS]
[[Other]: [●]]
(The above disclosure should reflect the rating
allocated to Notes of the type being issued under the
Programme generally or, where the issue has been
specifically rated, that rating.)
(Include appropriate Credit Rating Agency Regulation
(1060/2009) (“CRA Regulation”) disclosure)
[A list of rating agencies registered under the CRA
Regulation can be found at (www.esma.europa.eu/
page/list-registered-and-certified-CRAs).]
3
INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE
(Need to include a description of any interest, including conflicting ones, that is material to the issue,
detailing the persons involved and the nature of the interest. May be satisfied by the inclusion of the
statement below:)
[So far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to
the offer.]
[●]
(Amend as appropriate if there are other interests)
(When adding any other description, consideration should be given as to whether such matters
described constitute “significant new factors” and consequently trigger the need for a supplement to
the Prospectus under Article 16 of the Prospectus Directive.)
159
4
YIELD
[Include for Fixed Rate Notes only]
Indication of yield:
5
6
[●] [Not Applicable]
OPERATIONAL INFORMATION
ISIN:
[●]
Common Code:
[●]
Any clearing system(s) other than Interbolsa
– Sociedade Gestora de Sistemas de
Liquidação e de Sistemas Centralizados de
Valores Mobiliários, S.A., Euroclear Bank
S.A./N.V. and Clearstream Banking, société
anonyme and the relevant identification
number(s):
[Not Applicable/give name(s) and number(s) [and
address(es)]]
Names and addresses of initial Paying
Agent(s) (if any):
[●]
Names and addresses of additional Paying
Agent(s) (if any):
[●]
Intended to be held in a manner which
would allow Eurosystem eligibility
[Yes] [No].
DISTRIBUTION
U.S. Selling Restrictions:
[Reg. S Compliance Category 2; TEFRA C/TEFRA
D/TEFRA not applicable]
160
GENERAL INFORMATION
(1)
The Issuer has obtained all necessary consents, approvals and authorisations in the Cayman Islands
and the Portuguese Republic in connection with the establishment and update of the Programme. The
establishment and update of the Programme was authorised by resolutions of the Board of Directors of
the Issuer passed on 18 January 2000, 9 March 2000, 18 June 2002, 8 July 2003, 13 May 2004, 21 July
2005, 20 July 2006, 23 August 2007, 16 October 2008, 29 October 2009, 30 September 2010,
27 October 2011, 18 November 2012, 23 October 2013, 19 November 2014 and 9 December 2015.
(2)
There has been no significant change in the financial or trading position of Montepio since 30
September 2015, the date of the last interim unaudited consolidated financial statements of Montepio
which were subject to a limited review report by the auditors.
(3)
Save as disclosed in the section entitled “Recent Developments” on page 110 of this Base Prospectus
there has been no material adverse change in the prospects of Montepio since 31 December 2014, the
date of the last audited consolidated annual financial statements of Montepio for the financial year
ended 31 December 2014.
(4)
Neither Montepio nor any of it subsidiaries is or has been involved in any governmental, legal or
arbitration proceedings (including any such proceedings which are pending or threatened of which
Montepio is aware) during the 12 months preceding the date of this Base Prospectus which may have
or has had in the recent past significant effects, in the context of the issue of the Notes, on the financial
position or profitability of the Group.
(5)
Each Note, Coupon and Talon will bear the following legend: “Any United States person who holds
this obligation will be subject to limitations under the United States income tax laws, including the
limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code”.
(6)
The issue price and the amount of the relevant Notes will be determined, before filing of the relevant
Final Terms of each Tranche, based on then prevailing market conditions.
(7)
Notes have been accepted for clearance through the Euroclear and Clearstream, Luxembourg systems
and through Interbolsa for Book Entry Notes. The Common Code, the International Securities
Identification Number (ISIN) and (where applicable) the identification number for any other relevant
clearing system for each Series of Notes will be set out in the relevant Final Terms. The address of
Interbolsa is Avenida da Boavista, no. 3433, 4100-138, Porto, Portugal. The address of Euroclear is
1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg
is 42 Avenue JF Kennedy L-1855 Luxembourg. The address of any Alternative Clearing System will
be specified in the applicable Final Terms.
(8)
For so long as Notes may be issued pursuant to this Base Prospectus, the following documents will be
available, during usual business hours on any weekday (Saturdays and public holidays excepted), for
inspection and, in the case of (v), (vi) and (vii) below, copies will be available free of charge, at the
registered office of the Issuer and at the specified office of each of the Paying Agents:
(i)
the Trust Deed (which includes the form of the Global Notes, the definitive Notes, the Coupons
and the Talons);
(ii)
the Instrument (which includes the form of the Book Entry Notes);
(iii)
the Dealer Agreement;
(iv)
the Agency Agreement;
161
(v)
the Memorandum and Articles of Association of the Issuer;
(vi)
the published annual report and audited consolidated accounts of Montepio for the two financial
years ended 31 December 2013 and 31 December 2014;
(vii)
each set of Final Terms for Notes that are listed and admitted to trading on the regulated market
of the Luxembourg Stock Exchange or are listed or admitted to trading on any other stock
exchange; and
(viii) a copy of this Base Prospectus together with any Supplement to this Prospectus or further Base
Prospectus.
(9)
Copies of the Base Prospectus and the latest annual report and accounts of Montepio and the latest
semi-annual interim accounts of Montepio may be obtained, and copies of the Trust Deed will be
available for inspection, at the specified offices of each of the Paying Agents during normal business
hours, so long as any of the Notes is outstanding. Montepio does not publish consolidated accounts.
(10)
Copies of the Base Prospectus and the documents incorporated by reference will be available to view
on the website of the Luxembourg Stock Exchange (www.bourse.lu).
(11)
KPMG (Independent Auditors) (authorised and regulated by the Ordem dos Revisores Oficiais de
Contas) have audited the accounts of Montepio for the two years ended 31 December 2013 and 2014.
(12)
Where information has been sourced from third parties this information has been accurately
reproduced and as far as the Issuer are aware and are able to ascertain from the information published
by such third parties, no facts have been omitted which would render the reproduced information
inaccurate or misleading. The source of such third party information is identified where used.
162
REGISTERED OFFICE OF THE ISSUER
Caixa Económica Montepio Geral
Head Office
Rua Aurea 219-241
1100-062 Lisbon
Portugal
Cayman Islands Branch
Strathvale House, 3rd Floor
c/o North Church Street
PO Box 30124 S.M.B.
Grand Cayman
Cayman Islands, B.W.I
DEALERS
BNP Paribas
10 Harewood Avenue
London NW1 6AA
United Kingdom
Caixa Económica Montepio Geral
Rua Aurea 219-241
110-062 Lisbon
Portugal
Citigroup Global Markets Limited
Citigroup Centre
Canada Square
Canary Wharf
London E14 5LB
United Kingdom
Crédit Agricole Corporate and Investment Bank
9, quai du Président Paul Doumer
92920 Paris La Défense Cedex
France
Credit Suisse Securities (Europe) Limited
One Cabot Square
London E14 4QJ
United Kingdom
DZ BANK AG Deutsche
Zentral-Genossenschaftsbank,
Frankfurt am Main
Platz der Republik
D-60265 Frankfurt am Main
Germany
ING Bank N.V.
Foppingadreef 7
1102 BD Amsterdam
The Netherlands
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
United Kingdom
Natixis
30 avenue Pierre Mendès France
75013 Paris
France
The Royal Bank of Scotland plc
135 Bishopsgate
London EC2M 3UR
Société Générale
29 Boulevard Haussmann
75009 Paris
France
Deutsche Bank AG, London Branch
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
UniCredit Bank AG
Arabellastrasse 12
81925 Munich
Germany
163
TRUSTEE
Deutsche Trustee Company Limited
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
ISSUING AND PAYING AGENT AND CALCULATION AGENT
Deutsche Bank AG, London Branch
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
PAYING AGENT AND LUXEMBOURG LISTING AGENT
Deutsche Bank Luxembourg, S.A.
2 Boulevard Konrad Adenauer
L-1115 Luxembourg
PORTUGUESE PAYING AGENT
Caixa Económica Montepio Geral
Head Office
Rua Aurea 219-241
1100-062 Lisbon
Portugal
Cayman Islands Branch
Strathvale House, 3rd Floor
c/o North Church Street
PO Box 30124 S.M.B.
Grand Cayman
Cayman Islands, KY1-1201
LEGAL ADVISERS
To the Issuer as to Cayman Islands law:
To the Issuer as to Portuguese law:
Maples and Calder
11th Floor, 200 Aldersgate Street
London EC1A 4HD
United Kingdom
António Frutuoso de Melo e Associados,
Sociedade de Advogados, RL
Sociedade de Advogados
Avenida da Liberdade, 38-1.˚
1250-145 Lisbon
Portugal
To the Dealers as to English law:
Linklaters LLP
One Silk Street
London EC2Y 8HQ
United Kingdom
164
AUDITORS TO THE ISSUER
KPMG
Edifício Monumental Avenida
Praia da Victória, 71-A,
11˚ 1069–006 Lisbon
Portugal
STATUTORY AUDITOR TO THE ISSUER
KPMG & Associados, SROC, S.A.
Represented by Jean-Eric Gaign
Edifício Monumental Avenida
Praia da Victória 71-A,
11˚ 1069–006 Lisbon
Portugal
165