Banco Central do Brasil - Sale of Shares Issued by Banco do Estado de São Paulo S.A. - BANESPA Public Notice - Beginning of the Privatization Process

BANCO CENTRAL DO BRASIL - BACEN, using powers granted by Article 3, of Decree No. 2,469 of January 21^st, 1998, in accordance with Article 11 of Law No. 9,491, of September 9^th, 1997, and altered by Law No. 9,635, of May 15, 1998, and the Article 28 of Decree No. 2,594, of May 15, 1998, hereby makes public the conditions of the privatization of BANCO DO ESTADO DE SÃO PAULO - BANESPA, through the sale of common shares. The sale of shares will be governed by the PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS, by the PUBLIC AUCTION NOTICE, by the INSTRUCTION MANUAL, by the SALE MEMORANDUM, by the DATA ROOM AND TECHNICAL VISITS MANUAL, by the OFFER TO THE EMPLOYEES MANUAL, and by normative acts issued by the CONSELHO NACIONAL DE DESESTATIZAÇÃO and the CONSELHO MONETÁRIO NACIONAL.

CHAPTER 1 - PRELIMINARY EXPLANATIONS

1.1. - DEFINITIONS AND ABBREVIATIONS

In this PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS the expressions below have the following meanings:

1. AUCTION - the alienation auction of common stocks of BANESPA, belonging to the UNION, to be accomplished in the way and manner described in the PUBLIC AUCTION NOTICE;

2. BADESP - the old Banco de Desenvolvimento do Estado de São Paulo, incorporated by BANESPA in 1984;

3. BANESPA - Banco do Estado de São Paulo S.A. - Banespa, constituted according to Law on January 14^th, 1909, called Banco de Crédito Hipotecário e Agrícola do Estado de São Paulo. A company controlled by UNION, with headquarters in the Municipal District of São Paulo, SP, registered in CNPJ under num. 61.411.633/0001-87;

4. BANESPREV - Fundo Banespa de Seguridade Social, created through the Administrative Rule num. 3.921, published in the Official Daily Government Newspaper on January 29th, 1987;

5. BNDES - Banco Nacional de Desenvolvimento Econômico e Social, federal public company with headquarters in Brasília, DF and office in the city of Rio de Janeiro, RJ, registered in CNPJ under num. 33.657.248/0001-89;

6. CABESP - Caixa Beneficente dos Funcionários do Banco do Estado de São Paulo, a civil society of private law, without profitable purposes, established by employees of SISTEMA BANESPA, which aims at assuring the rendering of medical, hospital, dentistry, psychological and paramedical assistance to its beneficiaries.

7. CMN or CONSELHO MONETÁRIO NACIONAL (National Monetary Council) - agency established by the 2^nd Article of Law 4,595, from December 31^st, 1964, whose attributions in PND are defined in Law 9,491, from September 9^th, 1997;

8. CND or CONSELHO NACIONAL DE DESESTATIZAÇÃO (National Privatization Council) - superior decision agency of PND that deals with 5^th Article of Law 9,491, from September 9^th, 1997;

9. CONSÓRCIO BC-BANESPA (CONSORTIUM) - the consortium of consultants integrated by Banco Fator S.A., N M Rothschild & Sons Limited, Vilas Rodil Auditores Independentes, Felsberg e Associados - Advogados e Consultores Legais and Zalcberg Advogados Associados, and guided by Banco Fator S.A., which is advising BACEN on carrying out the SERVICE;

10. CONSÓRCIO BOOZ ALLEN (CONSORTIUM) - the consortium guided by Booz Allen & Hamilton do Brasil and integrated by the Deloitte Touche Tohmatsu company, in order to carry out the economic-financial assessment of SISTEMA BANESPA;

11. CONSULTANTS - CONSÓRCIO BC-BANESPA and CONSÓRCIO BOOZ ALLEN;

12. DATA ROOM AND TECHNICAL VISITS MANUAL - the document that details the procedures for pre-qualified candidate access to the data room and technical visits schedule criteria;

13. EMPLOYEES - the employees and those retired from the SISTEMA BANESPA. The conditions for qualifying will be detailed in the PUBLIC AUCTION NOTICE and in the OFFER MANUAL TO EMPLOYEES;

14. FND - Fundo Nacional de Desestatização (National Fund for Privatization), mentioned in the 9^th Article, of Law 9,491, from September 9^th, 1997;

15. GESTOR or BACEN - it is Banco Central do Brasil (The Central Bank of Brazil), federal autarchy, established by Law 4,595, of December 31^st, 1964, 8^th Article, in charge of accomplishing and making others accomplish the dispositions that are attributed to it by the effective law and the norms published by CMN;

16. INSTRUCTION MANUAL - the document that details the operating procedures of the AUCTION;

17. OFFER TO THE EMPLOYEES MANUAL - the document that details the operating procedures concerning the special employee share offer of the capital stock of BANESPA, which is mentioned in item 3.2.1. of this Publication;

18. PND - Programa Nacional de Desestatização (National Program for Privatization), established by Law num. 8,031, from April 12^th, 1990, revoked by Law Num. 9,491, from September 9^th, 1997, being the former ruled by Act Num. 2,594, from May 15^th, 1998, and altered by Law Num. 9,635, from May 15^th, 1998.

19. PROCEEDING - set of procedures concerning the privatization of BANESPA, through alienation of SHARES;

20. PUBLIC AUCTION NOTICE - the set of information that define alienation procedures and conditions of the SHARES;

21. PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS - the set of information herein understood and preliminary to the PUBLIC AUCTION NOTICE;

22. SALES MEMORANDUM - document that gathers information concerning the PROCEEDING and BANESPA;

23. SERVICE - service of patrimonial assessment, judicial audit, accounting audit, human resources assessment, actuarial assessment and economic-financial assessment of BANESPA, and preparation of the privatization process;

24. SISTEMA BANESPA - formed by BANESPA, its subsidiaries and controlled companies;

25. STATE - the State of São Paulo;

26. STOCKS - common stocks issued by BANESPA held by UNION;

27. UNION - FEDERAL UNION, legal entity of internal public law, with headquarters in Brasília, DF;

1.2. LEGAL BASIS

The following composes the legal basis of the alienation process of BANESPA shares:

1. State Law Num. 9,343, from February 22nd, 1996, which authorized the STATE to hire financing against UNION and to grant warranties, and transfer the companies’ stock control;

2. BACEN - Presidential act num. 165, from December 30^th, 1994, which determined RAET for a 12-month period, later extended by Presidential Acts num. 437, from December 25^th, 1995 and 602, from December 27^th, 1996, being effective for 12 months and 180 days, respectively, being the latter supported by Provisional Measure num. 1.556, from December 18^th, 1996;

3. Agreement Protocol between Union and the State, established on November 27^th, 1996;

4. State Law num. 9,466, from December 27^th, 1996, which authorized the transfer of 51% of the common stock of BANESPA to UNION, and altered State Law Num. 9,343/96;

5. Confession Agreement, Assumption Promise, Debt Consolidation and Refinancing, celebrated on May 22^nd, 1997, between UNION and the STATE, with the intervention of BNDES and Banco do Brasil S.A., according to Provisional Measure num. 1,556-10, from May 9^th, 1997, and num. 1,560-5, from May 15^th 1997;

6. Contractual Debt Assumption Agreement of the State of São Paulo, from May 22^nd, 1997, between UNION and BANESPA, with intervention of the STATE, in the scope of the Program to Support Restructuring and Fiscal Adjustment of the States and according to Provisional Measure Num. 1,560-5, from May 15^th, 1997;

7. Sales and Purchase Promise Agreement of BANESPA’s Capital Stock, between the STATE and UNION, on May 22^nd, 1997;

8. Shareholders agreement, established on December 23^rd, 1997;

9. Addictive to the Sales and Purchase Promise Agreement of BANESPA’s Capital Stock, between the STATE and UNION, on December 23^rd, 1997;

10. Third Term Addictive to the Sales and Purchase Agreement of Banco do Estado de São Paulo S.A. Capital Stock - Celebrated between the STATE and UNION, on November 30^th, 1999;

11. BACEN - Presidential Act Num. 775, from December 26^th, 1997 (closes RAET);

12. Administrative Rule of the Ministry of Finance num. 349, from December 26^th, 1997 - assigned BANESPA managers after RAET was closed;

13. Law Num. 9,491, from September 09^th, 1997, which alters procedures concerning PND, revokes Law. Num. 8,031, from April 12^th, 1990, and offers other measures;

14. Law Num. 9,635, from May 15^th, 1998, which modifies Law Num. 9,491, from September 09^th, 1997, and offers measures;

15. Act Num. 2,594, from May 15^th, 1998, which rules Law Num. 9,491, from September 09^th, 1997, which coordinates about PND;

16. Act num. 2,469, from January 21st, 1998 (includes BANESPA in PND)

17. Act from December 23rd, 1999, which allows the foreigner investors participation in the PROCESS;

1.3. BANESPA FEDERALIZATION PROCESS.

On November 27^th, 1996, the Union and State of São Paulo signed an "Agreement Protocol", aiming at reorganizing the financial system of the State, based on the Provisional Measure num. 1514-3, in accordance to which the Federal Government had to acquire the STATE debt, as well as the debts of the entities controlled by the mentioned STATE owed to Nossa Caixa and BANESPA, existing on March 31st, 1996. The STATE, according to the protocol, had to transfer 51% of the common stocks from BANESPA to the UNION.

Through State Law num. 9,343, from February 22^nd 1996, the STATE was authorized to alienate the common stocks, owned by the State public finances, exceeding 51% (fifty one per cent) of BANESPA voting stock. On December 27^th, 1996, by means of the State Law num. 9,466, the STATE was authorized to a transfer 51% of the common stocks from BANESPA to the UNION.

On May 22^nd 1997, the UNION and BANESPA signed the "Contract of Assumption of the State of São Paulo Contractual Debt" with intervention of the STATE and supported by the Support to Reorganization and Fiscal Adjustment Program. The "Contract of Confession, Promise, Assumption, Consolidation and Refinancing of Debts" was signed by the UNION and the STATE as well.

This contract defines the transference of 9,547,200,000 BANESPA nominative common stocks, owned by the STATE, corresponding to 51% of its voting stock.

Based on these negotiations, the National Monetary Council authorized BANESPA Director Council not to inscribe the values of the Consolidation of the Debt of the State and its companies related to the State Debt Consolidation under Credits of Doubtful Liquidation, done on June 15^th 1992, granting dispensation of the respective provisions constitution since December 1994.

With the assignments of public credits to Federal Government, BANESPA received federal government securities (LFT-A e LFT-B), and also R$ 2.9 billion in security assets related to the liabilities of social security of the bank that yield IGP-DI plus 12% a year. BANESPA also exchanged definitely the state government securities in the value of R$ 22.9 billion by federal government securities.

On December 29^th 1997, BACEN performed definitive purchase of R$ 8.0 billion in LFT-A, starting the process of redemption of BANESPA marketability.

On November 30^th, 1999 Banco do Estado de São Paulo - S.A. - BANESPA Equities Purchase and Sale Agreement, between Estado de São Paulo and the Union, besides the payment of 51% of Nominative common stocks of BANESPA capital stock, also acquired another 15.67% of representative nominative common stocks of BANESPA capital stock. The acquirement of this supplementary equities block (15.67% of representative Nominative Common Stocks of BANESPA capital stock) depends on not practicing the Preference Right for its acquisition by the minority shareholders of BANESPA, as well as the small and medium rural and urban producers resident in the State of São Paulo; everything obeying what is established on 9th Article, 2nd §, of State law num. 9,343, from February 22^nd, 1996.

1.4. FOREIGN PARTICIPATION

Foreigner investors’ participation is allowed in the PROCESS, according to Federal Act from December 23rd, 1999, edited on Diário Oficial da União on December 24th, 1999.

1.5. FORBIDDEN PARTICIPATION

1.5.1. FORBIDDEN PARTICIPATION OF PUBLIC SECTOR IN STOCK ACQUISITION.

Excepting what is disposed on Federal Act num. 1,068, from March 2nd, 1994, the participation of direct, indirect or foundational public entities shall not be allowed, of any UNION power, of Federal District, of States and Counties, in the STOCKS acquisition.

1.5.2. PARTICIPATION OF FOUNDATIONS, SOCIAL SECURITY ENTITIES AND SIMILAR

The acquisition of stock control by foundations, associations and similar ones will not be allowed, according to National Monetary Council decision and social security entities.

1.6. JUSTIFICATION FOR THE TERMINATION OF GOVERNMENT-OWNED CONDITION

The termination of government-owned company condition concerning BANESPA is included in PND subjects, foreseen on the 1st Article of Law 9,491, from September 9th, 1997.

1.7. INCLUSION OF BANESPA IN PND

BANESPA was included in PND by the Act num. 2,469 of January 21^st, 1998 and its process of termination of government-owned company condition started with deposit of stock holding of UNION in FND.

1.8. CONSULTANTS

The procedure was carried out according to the legal dispositions to invitation to bid for the SERVICE, according to what is assigned in the Call for Bid BACEN/PND num. 001/98.

The Consultant contracted by means of "Contrato BACEN/PND num. 001/98", signed on December 01^st, 1998 was CONSÓRCIO BC-BANESPA.

The STATE contracted CONSÓRCIO BOOZ ALLEN for performing the economical-financial evaluation of SISTEMA BANESPA.

1.9. EXTERNAL AUDIT OF PROCESS

BACEN will contract External Auditor for PROCESS inspection, with the attribution of checking and attesting the observance of assigned rules in this PUBLICATION OF PROCESS OPENING and in the SALE PUBLICATION, as well as rendering other services, which could be necessary and presenting final report to BACEN.

1.10. SUPERVENING FACTS

The events foreseen in this PUBLICATION OF PROCESS OPENING and in the SALE PUBLICATION are directly subordinated to performance and success of several PROCESS steps. In case of supervening facts take place at the time of issuing this PUBLICATION OF PROCESS OPENING and of SALE PUBLICATION that may prejudice or that in fact prejudice the PROCESS, according to the GESTOR understanding, he will have the power for reformulate the PROCESS, with the intention of conclude it.

CHAPTER 2 - PRE-QUALIFYING BY BANCO CENTRAL DO BRASIL

For access to Data Room and AUCTION, the pre-qualifying of every applicant, natural person or legal entity is obligatory at BACEN.

For pre-qualifying endings, the following procedures should be adopted:

I - DOCUMENT DELIVERY - those interested must present, by 4 p.m. on February 8^th, 2000, the documents and information stated below, at the address:

Banco Central do Brasil - BACEN

Departamento de Organização do Sistema Financeiro - DEORF

SBS Quadra 3, Bloco E

Edifício Sede do Banco Central - 16º andar

70.074-900 - Brasília - DF

(DOCUMENTOS PARA A PRÉ-QUALIFICAÇÃO - BANESPA)

II - NECESSARY DOCUMENTS - the necessary documents and information for pre-qualifying are as follows:

1. Requirement addressed to Banco Central do Brasil;

2. Complete Financial Reports of social acting finished in 1996, 1997, 1998, of legal entities, obligatorily audited with head office in the Country or abroad;

3. Complete "curriculum vitae" and Declaration of Income Tax relating to the last period of the legal entities, including of direct or indirect partnership society control holders of legal entities applicants candidates to pre-qualifying;

4. Articles of association and statutes registered copy properly archived in the proper register organ;

5. in the case of direct or indirect participation of financial institution with head office abroad, manifestation of foreigner authority responsible for consolidated supervision of financial group relating to the participation in the AUCTION, which may be presented by the deadline for qualifying the candidates for participation in the AUCTION;

6. organization chart of economical group, pointing the number of Cadastro Nacional de Pessoas Jurídicas - CNPJ, all the group companies (when national company), the head office place (when is foreigner company), the respective percentage

7. registered copy of the shareholders agreement or of the agreement of usufruct of stocks of legal entities and their controlled, direct or indirectly, or declaration of their non-existence;

8. statement of direct or indirectly partnership participation in the capital of other companies (with indication of CNPJ/MF, in case of national company or the head office when relating to a foreigner company), since it is over 10% (ten per cent) of the voting capital and does not include them in the organization chart in which the letter "f" relates to;

9. identification of resource source to be used for deserving the investment.

10. the documents in foreign language must be notarized, consulated and translated by a official translator;

III - The Banco Central do Brasil may request any other necessary documents or information, as well as release the requirement mentioned on letter "c" of previous item, when relating to legal entity of open capital and whose partnership control is considered fragmented.

IV - Based on documents and information provided, besides other sometimes available, BACEN will inspect, per article 10, 1st §, of Federal Law num. 4.595, of December 31^st, 1964, and in the dispositions of Resolutions CMN num. 2.099/94 and num. 2.212/95, the requests of pre-qualifying. The interested ones shall meet the following requirements:

1. evidence of economical-financial capacity equivalent to, R$ 2,374,658,667.00 least, (Two billion, three hundred and seventy four million, six hundred and fifty eight thousand, six hundred .and .sixty seven reais ), observing what is settled on 1st paragraph of 3rd article of Resolution num. 2,212/95, if the interested one is institution authorized by BACEN;

2. non-existence of restriction in reference file;

3. non-existence of legal and regulatory obstruction, mainly relating to dispositions included on Federal Laws num. 4,595, from 12.31.64, and 6,404, from 12.15.76, changed by Federal Law num. 9,457, from May 05^th 1997.

CHAPTER 3 - OBJECT AND GENERAL PRINCIPLES OF ALIENATION

3.1. OBJECT

Up to 66.67% of nominative common shares from BANESPA capital stock, owned by the UNION will be offered. The amount to be offered will be determined in accordance with the right to preference, ensured to BANESPA’s employees, minority stockholders and small and mid-sized farmers and industries that live in the STATE, according to the dispositions in the second paragraph, in the 9^th article, of the State Law num. 9,343, from February 22^nd,1996.

The holders of the mentioned right have the preference to the acquisition of 2,932,800,000 (two billions, nine hundred thirty-two million and eight hundred thousand) common shares of BANESPA, equivalent to 15.67% of its voting stock.

Thus, the total amount of stocks to be offered will be alienated according to the conditions presented below.

3.2. OFFER STRUCTURE

The alienation of the STOCKS will be made through an offer to BANESPA employees and retired employees and through an AUCTION as well.

3.2.1. OFFER TO BANESPA EMPLOYEES

This offer will depend on the stock amount acquired by the holders of the right to preference relative to the 15.67% of common shares of BANESPA voting stock, and will be defined by CMN. Refer to the INVITATION TO SALE and OFFER TO THE EMPLOYEES MANUAL.

3.2.2. AUCTION

Nominative common share of BANESPA corporate stock, owned by the Union, will be offered in a single block.

The alienation conditions and the access of the participants to the auction are established in the INVITATION TO SALE and in the INSTRUCTIONS MANUAL.

3.3. FINANCIAL LIQUIDATION OF THE AUCTION AND THE OFFER TO THE EMPLOYEES

The conditions to the financial liquidation of the acquisition of the stocks offered in the AUCTION will be divulged in the INVITATION TO SALE, and the sale will be effective in accordance with the INSTRUCTIONS MANUAL, which details the auction operational procedures.

In case of the OFFER TO THE EMPLOYEES financial liquidation, the conditions will be divulged in the INVITATION TO SALE and in the BANESPA OFFER TO THE EMPLOYEES MANUAL.

3.4. STOCK PRICE

The minimum sale price of the stocks to be offered in the AUCTION, as well as the price of the auctions, object of the OFFER TO THE EMPLOYEES will be divulged in the INVITATION TO SALE.

3.5. MEETINGS AND TECHNICAL VISITS

Only the candidates pre-qualified by BACEN, according to the disposed in the chapter two of the present document, will be allowed to meetings and technical visits.

Other conditions required to take part in meetings and perform technical visits to the Data Room of the BANESPA SYSTEM will be divulged appropriately.

3.6. VALIDITY CONDITION

The validity condition of the sale will be the alienation of all BANESPA common shares owned by the Union.

3.7. ALIENATION FORMALIZATION

The formalization of the STOCKS alienation will take place with the financial liquidation of the AUCTION and the OFFER TO THE EMPLOYEES, if the latter occurs, and the entry of the appropriate term(s) in the BANESPA Scriptural Stock Record.

3.8. IRREVOCABILITY AND IMPOSSIBILITY OF WITHDRAWAL

Legal business of alienation and acquisition of the STOCKS, once completed, will constitute perfect and finished legal acts, not subject to revocation or withdrawal, or denouncement in any ground.

CHAPTER 4 - INFORMATION ABOUT BANESPA

4.1. CONSTITUTION AND BRIEF HISTORY

Banco do Estado de São Paulo S.A. - BANESPA is a private and public joint stock company, regulated by the Law 6,404, from December 15^th, 1976, with headquarters at Praça Antônio Prado, 6 - São Paulo/SP. Founded on January 14^th, 1909, with French capital and under the name Banco de Crédito Hipotecário e Agrícola do Estado de São Paulo, aimed at supporting agriculture in the State of São Paulo. In 1926 the institution scope was amplified and its corporate name changed: the institution became Banco do Estado de São Paulo S.A., and the State Government came to be its majority stockholder. In 1969, with the opening of a branch in New York City, the first Brazilian branch in the United States, in 1973, BANESPA incorporated Banco de São Paulo S.A., absorbing a credit, loan and investing company and a security distributor, enlarging its branches network. Thus, its position as a financial group was consolidated.

In December,1984 BANESPA came be the majority stockholder of BADESP - Banco de Desenvolvimento do Estado de São Paulo S.A., incorporating to the BANESPA SYSTEM the functions of a development bank, while, at the end 1989, the implementation of Banco Múltiplo took place, allowing better rationalization of administrative costs and scale economy, due to centralization and decentralization of mid areas, and greater specialization in operational areas. BANESPA S.A. Distribuidora de Títulos e Valores Mobiliários (Securities Distributor) was extinguished and BANESPA S.A. Crédito, Financiamento e Investimento (Credit, Financing and Investment) became a leasing company called BANESPA S.A. - Arrendamento Mercantil (Market Leasing), integrated to the commercial bank end customer credit functions. The Carteira de Crédito Imobiliário (Real Estate Credit Portfolio) was created and the Carteira de Operações Ativas do BADESP (Badesp Active Operation Portfolio) was absorbed. The process of transformation in a multiple bank required a wide administrative re-organization in the bank board of directors and in its branch network, in order to meet the market requirements in a more appropriate way.

In 1992, the Banque BANESPA International S.A. was created, as a subsidiary with total stock control of BANESPA, located in Luxemburg, constituted as an European bank, aiming at ensuring the expansion of the international network and fomenting foreign trade operations in Brazilian companies.

Based on the Executive Law num. 2,321, from February 25th, 1987, by means of the ATO-PRESI (Presidential Act) num. 165, from 12/30/94, the Central Bank decreed the Temporary Special Administration System - RAET - in BANESPA, during a 12-month terms, extended afterwards by means of the ATOS-PRESI num. 437 (December 28th, 1995) and 602 (December 27th, 1996), ruling for 12 months and 180 days, respectively, the latter being supported by the Provisional Measure num.1,556, from December 18th, 1996. With the signature of the agreement that culminated with the cession of the State Public Sector to the Union, the Central Bank stated, by means of the ATO-PRESI 775, from December 26th, 1997, the end of the RAET. Finally, trough the Decree 2,469, from January 21st, 1998, it was included in the Programa Nacional de Desestatização (National Privatization Program). The BACEN was in charge of executing and following the process, under monitoring of the do National Council for Privatization (CND).

The credit operations with the public sector, which totaled a majority share in 1996, reduced to 6.1% of the referred amount in December 1997, thus increasing the amount of the operations with the private sector to 93.9%.

Such reduction was a result of the credit cession, on the part of the State Public Sector, to the Union, on December 23rd, 1977 in exchange of the reception of Federal Public Securities, represented, at that time, by:

• Financial Treasure Bills - A Series (LFT-A), corresponding to R$ 20,022.4 million, issued on December 23rd, 1997, falling due on December 23^rd, 2012, in nominative and negotiable mode, with yield defined by the average adjusted rate of the daily financing performed in SELIC, being the redemption of the main financing and interests in 180 monthly installments;

• Financial Treasure Bills - B Series (LFT-B), in 96 batches corresponding to R$ 6,657.6 million, issued on December 23rd, 1997, in the nominative and negotiable mode, falling due monthly starting from 02/01/98;

• Scripted assets in CETIP "Securitizar" System, corresponding to R$ 2,902.9 million, on December 15th, 1997, adjustable by the IGP-DI index (by FGV) variation, added by interests, 12% per year and recoverable in 291 monthly installments, with falling due starting from January 15th, 1998.

In what concerns to the Estate Security, the State of São Paulo and the Union came to an agreement, on December 29th, 1997, and BANESPA received Federal Public Securities, represented by Financial Treasure Bills - A Series (LFT-A), corresponding to de R$ 22,956.9 million, under the same conditions as the LFT-A, received when credits were ceased on the part of the State Public Sector, on December 23rd, 1997.

On November 30th 1999, the State of São Paulo and the Union signed an additional Contract of Purchase and Sale of the Stocks of Banco do Estado de São Paulo - S. A. - BANESPA, according to which, the Union, besides liquidating the payment of 51% of the nominative common shares representing the corporate stock of BANESPA, acquired 15.67% more of nominative common shares representing BANESPA corporate stock. The acquisition of this complementary stock block (15.67% of nominative common shares representing BANESPA corporate stock) is conditioned to the non-exertion of the right to preference for the acquisition, on the part of BANESPA employees and minority stockholders, and small and mid-sized farmers and industries, who live in the State of São Paulo, all in compliance with the terms of the 9^th article, 2^nd paragraph of the State Law num. 9,343, from February 22^nd, 1996.

4.2. CORPORATE PURPOSE

BANESPA’s corporate purpose is to perform active, passive and accessory operations related to the respective authorized portfolios (commercial, real estate credits, development, investment and credit, financing and investments portfolios) including exchange, in accordance with the legal and regulatory dispositions in force.

4.3. BANESPA STOCK COMPOSITION

The corporate stock of Banco do Estado de São Paulo S.A - BANESPA, totally paid in corresponds to de R$ 2,409,319,018.00 (two billions, four hundred and nine million, three hundred and nine thousand and eighteen reais), divided in 18,720,000,000 (eighteen billions, seven hundred and twenty million) of nominative scriptural common shares and 18,720,000,000 (eighteen billions, seven hundred and twenty million) of preferential nominative scriptural common shares, without nominal value, thus distributes:

SHAREHOLDERS DEMONSTRATIVE CHART - BANESPA

09/30/99

In million of stocks

SHAREHOLDERS	.	%	ON Amount	%	PN Amount	%	TOTAL Amount	%
Union	1	0.00	9,547	51.00	0	0.00	9,547	25.50
Public Finances of SP State	1	0.00	2,933	15.67	0	0.00	2,933	7.83
Cabesp	1	0.00	2,902	15.50	0	0.00	2,902	7.75
BANESPA Employees	7,186	6.83	262	1.40	629	3.36	891	2.38
Inst. Prev. Privada	16	0.02	0	0.00	455	2.43	455	1.22
Anamb	1	0.00	171	0.91	0	0.00	171	0.46
Banesprev	1	0.00	728	3.89	26	0.14	754	2.01
Other Shareholders	98,065	93.15	2,177	11.63	17,610	94.07	19,787	52.85
TOTAL	105,272	100.00	18,720	100.00	18,720	100.00	37,440	100.00

The preferred Capital Stocks do not have the right to vote and cannot be converted into ordinary stocks. The preferred capital stocks have the following advantages: (a) dividends which are 10% (ten per cent) bigger than the ordinary stocks; (b) priority in the distribution of dividends and (c) equity in equal conditions with the ordinary stocks, in the capital increases due to reserve and profit capitalization and also due to capital restatements, when they exist.

This stock distribution was changed from the third addendum on the Purchase and Sales Agreement between STATE and UNION, signed on November 30, 1999.

4.4. PERFORMANCE CONDITION

Nowadays BANESPA must act according to the guidelines which come from union on the fomentation to the economical and social development giving priority to the technical and financial support for the administrative and technological modernization of the productive segments of economy, specially for the micro, small and medium size companies, with attendance standards compatible with the main financial institutions in the market.

It also provides specialized technical assistance and promotes productivity programs. It optimizes its actions aiming at getting market profitability in order to properly remunerate its stockholders and make possible its own enlargement and its technological development programs.

4.4.1. Company Activities

The SISTEMA BANESPA offers almost all the services and products available in the National Financial System. BANESPA acts at the same time as governmental financial, commercial and fomentation agent, inducing the development and modernization process of the economy. The operational activities are centralized on the Commercial Portfolio, Investment Portfolio, Development Portfolio and Real State Credit Portfolio.

BANESPA S.A. Corretora de Câmbio e Títulos (Exchange and Security Broker), BANESPA S.A. Arrendamento Mercantil (Mercantile Lease), a BANESPA S.A. Corretora de Seguros (Insurance Broker), BANESPA S.A. Administradora de Cartões de Crédito e Serviços (Service and Credit Card Manager) and BANESPA S.A. Serviços Técnicos e Administrativos (Administrative and Technical Services) complete the Multiple Bank activities.

1. Commercial Portfolio

The Commercial Portfolio has as its main goal to offer opportune and proper resources necessary to finance, in short and middle term, commerce, industry, the service render companies and the natural persons.

To comply with these goals, the bank, through its Commercial portfolio, makes discounts on bonds, simple opening credit operations or operations in current account (granted accounts); it performs special operations, including rural credit, exchange and international trade; it collects at sight and fixed term deposits, gets profits from the official institutions for passing on to clients, gets external resources for passing on, performs service rendering including conventions with other institutions.

2. Real State Credit Portfolio

It is intended to finance the production of residential units for commercialization to merged companies/ legal entities with headquarters in the country. The beneficiary are clients whose answering to request may be of concern of the Branch, substantiated on opinion issued by the Branch/ Regional Management Credit Committee and moreover, which fulfill the requirements determined by BANESPA.

On the Real State Portfolio, the balance of the applications in September 1999 totaled R$ 711 million. We must stress that it does not have credits with coverage on the Salary Variations Compensation Fund - FCVS.

3. Development / Investment Operations Portfolio

It has as its aims, through the BNDES system, FINEP and other governmental agencies, passing on of external and other government agency resources, to contribute for the increasing of competitiveness in the Brazilian economy and for the increasing of the productive capacity and of the economical infrastructure, maximizing the private resources participation on the investment financing. The beneficiaries are clients with profitable and effective partnership in business.

4. Credit, Financing and Investment Portfolio

Its function is to finance durable consumer goods through direct credit to the consumer. BANESPA has a great potential in this activity due to it meaningful base of Natural Person clients.

4.5. CONTROLLED COMPANIES

In the country BANESPA directly controls four companies: BANESPA S.A. Corretora de Câmbio e Títulos (Exchange and Bond Broker), BANESPA S.A. Arrendamento Mercantil (Mercantile Leasing), BANESPA S.A. Serviços Técnicos e Administrativos (Administrative and Technical Services) and BANESPA S.A. Administradora de Cartões de Crédito e Serviços (Services and Credit Card Manager), and, indirectly, BANESPA S.A. Corretora de Seguros Assurance Broker). Abroad, the Bank keeps a subsidiary, Banque BANESPA International S.A., located in Luxemburg and still 11 branches, strategically inserted in the main financial centers of the world.

4.5.1. Controlled Companies in the Country

BANESPA S.A. - Serviços Técnicos e Administrativos (Administrative and Technical Services)

The company has as competence to render specialized technical, professional, and administrative and IT services and other general character services to the SISTEMA BANESPA. Its headquarters are located in the São Caetano do Sul city, in São Paulo, and it has registered a net R$ 50.1 million profit in 1998, representing a 58% profitability over the net R$ 86.4 million Capital.

NET CAPITAL X NET PROFIT  R$ million

INDICATORS	Dec/96	Dec/97	Dec/98	Sept/99
Net Capital	17.1	36.4	86.4	138.0
Accumulated Net Profit	14.4	14.6	50.1	51.5
NP/NC	84.0%	40.1%	58.0%	37.3%

BANESPA S.A. - Corretora de Câmbio e Títulos (Exchange and Bond Broker)

The corporation has as its goal to perform all the operations allowed by the legal and regular clauses related to the corporations of the kind, mainly: operate with exclusiveness in Stock Exchanges, at sight or forward, with bonds and authorized business securities. BANESCOR, after it was restructured, has enhanced its actuation on Fixed and variable income funds portfolios, and, on the portfolios managed by foundations, of investment and investor clubs, natural persons and legal entities. It is responsible for the administration of bond portfolios whose equity totaled, on 12/31/98, and on 09/30/99:

R$ million

	12/31/98	09/30/99
Variable Income Mutual Funds	21.8	31.5
Fixed Income Mutual Funds	4,354.5	6,262.9
Investment Clubs, Foundations and others	178.8	169.6




This controlled participates on the efforts for the capitalization of private and public companies from São Paulo, through the placement of debentures and through the going public, contributing, this way, for the development of company activities in the country.

In 1998, the company registered a R$ 101.1 million net profit, corresponding to the 18.1% profitability over the R$ 558.0 million Net Capital .

NET CAPITAL x NET PROFIT R$ million

INDICATORS	Dec/96	Dec/97	Dec/98	Sept/99
Net Capital	461.4	551.1	558.0	548.0
Net Profit	149.6	105.8	101.0	68.3
NC/NP	32.4%	19.2%	18.1%	12.5%




BANESPA S.A. - Corretora de Seguros (Insurance Broker)

It operates as an intermediate for insurance sales for the insurance company independent from the market, according to Law 4,594, of December 29^th,1964; it is responsible for all the operations on the SISTEMA BANESPA; it actuates on the market, by itself and through Agencies, aiming at the development of insurance sales; it gives support to the agencies for the quick and safe decision making in the product commercialization and in the solution of contingent events. Its headquarters are located in the São Caetano municipal district.

Its excellent performance in 1997 is demonstrated by the 152.6% and 338.7% increase as intermediate of insurance and commission received, respectively, in relation to 1994 with R$ 356.8 million in operating as intermediate and R$ 79.5 million in received commissions.

It is still worth quoting the beginning of the actuation of SISTEMA BANESPA on the capitalization market from August 1998 on, through a partnership of Banseg with Icatu Hartford Capitalização S.A.. The great receptivity of the new product among the clients made it possible to reach 180 thousand bonds sold in the first month after issue and the commercialization of 373,723 until December 31^st, 1998. Until September 1999 it commercialized 152,210 bonds.

In 1998, the company had a R$ 51.9 million net profit, which corresponds to a 77.7% profitability over the R$ 73.2 million Net Capital.

NET CAPITAL x NET PROFIT  R$ million

INDICATORS	Dec/96	Dec/97	Dec/98	Sept/99
Net Capital	52.6	55.2	73.2	116.0
Net Profit	27.5	29.2	51.9	42.7
NP/NC	52.3%	52.9%	77.5%	36.8%




BANESPA S.A. - Arrendamento Mercantil (Mercantile Leasing)

The company is responsible for the mercantile leasing operations on the SISTEMA BANESPA level, actuating in the financial market aiming at increasing the Leasing operations, giving support to the Agencies for the fast and safe decision making in the commercialization of the product.

The leasing operations have got a differentiation in relation to other credit types available to the consumer, because of the increase of the IOF (Tax on Financial Operations) incident over other types, from May 1997 on.

It should be added to this fact the accomplishment of the moving to São Caetano do Sul Municipal District - SP, what made it possible to improve the physical arrangement, as well as to reduce the cost and, as a result, the operational rate related to expenses with rent, besides other expenses. As a result of what was explained, the operations contracted during 1997 overcome in 150.2% the ones in 1996, and the year ended with 3,648 operations. The same way, the value of the operations reached R$ 92.0 million in December 1997, against R$ 57.8 in the previous year.

In 1998, 6,581 negotiations were agreed upon, and they reached the amount of R$ 126.2 million, representing a 37.2% improvement compared to the previous year.

In 1998, the company obtained a R$ 35.3 million Net Profit, having a 14.5% profitability over the R$ 242.9 million Net Capital.

NET CAPITAL x NET PROFIT R$ million

INDICATORS	Dec/96	Dec/97	Dec/98	Sept/99
Net Capital	181.6	209.1	242.9	284.6
Net Profit	30.5	25.9	35.3	32.5
NP/NC	16.8%	12.4%	14.5%	11.4%




BANESPA S.A. Administradora de Cartões de Crédito e Serviços (Service and Credit Card Manager)

Established in 1994, in succession to BADESP, BANESPA S.A. Administradora de Cartões de Crédito e Serviços (Service and Credit Card Manager), with headquarters in the Barueri Municipal District, SP, has as its goal to administer the BANESPA VISA Credit Card and to render similar services. With the issue, in 1994, of the BANESPA Visa Card, contemplating credit card typical operations with movement of current accounts, the Bank extended the strategy of service improvement and of support to clients, offering a modern product in terms of technology and quality with the prestige of the VISA brand.

In the year, 1997 the company obtained its complete consolidation in the Brazilian market. A large and continued effort directed towards automation of the rearguard, training of personnel and revaluation of production processes have allowed for a maximization of resources and the constant growth of the indicators relevant to the organization.

Due to these measures, the administrator achieved in 1997, amongst the 62 banks associated to VISA, 7th place in wallet volume and 6th place in volume of income. The BANESPA VISA card base has presented a 43.4% increase in relation to 1966, coming near the half million plastics. In 1998, the number of administered cards pointed to a 32.7% increase over the last year, reaching 636.5 mil.

In 1998, the company ended the financial year with a R$ 137.9 million Net Equity and a R$ 30.8 million Net Profit, with a 22.3% patrimonial profitability.

NET EQUITY x NET PROFIT  R$ million

INDICATORS	Dec/96	Dec/97	Dec/98	Sept/99
Net Equity	130.7	133.9	137.9	169.8
Net Profit	34.3	39.4	30.8	31.9
NP/NE	26.2%	29.4%	22.3%	18.8%




4.5.2. Branches Abroad

BANESPA International Area, with a net composed by 10 branches, 01 sub-branch and 01 subsidiary, located in:

• Branches: Assuncion (Paraguay); Buenos Aires (Argentina); Frankfurt (Germany) ; Grand Cayman (Cayman Islands) ; London (England); Madrid (Spain) ; Miami (United States) ; New York (United States) ; Santiago (Chile) and Tokyo (Japan).

• Sub-Branch: Ciudad del Este (Paraguay)

• Subsidiary: Luxembourg (Luxembourg)

Within the Restructuring and Strategy Redefinition Program, BANESPA, reduced the amount of Branches abroad, closing activities in Amsterdam and Paris.

Subsidiary - Banque BANESPA International S.A. - BBI

Banque BANESPA International S/A is a subsidiary of Banco do Estado de São Paulo, which has 99% of its capital. It is a Limited Liability corporation of the Luxembourg Law, established on August 28th, 1992, with a US$ 28.3 million capital.

The reasons that justified the organization of a subsidiary in Luxembourg were the following:

1. To establish a point within the European Economic Community, with a European bank qualification;

2. Greater easiness for eventual mergers and/or new branches opening in Europe;

3. Bilateral-taxation agreement between Brazil and Luxembourg;

4. Possibilities to open accounts in all the exchangeable currencies;

5. Acknowledged bank inspection in what concerns money laundry;

6. Absolute bank secrecy.

The main activities of BBI during this period have been the concession of "pre-export" lines and confirmation of Brazilian banks credit letters, draft discounts, purchase and sale of "eurobonds" in the secondary market, "private banking".

4.6. OPERATIONAL ASPECTS

4.6.1. SERVICE STRUCTURE

In September1999, BANESPA counted on 1,348 service points - Branches and PAB’s, and more 627 ATMs integrating the BANESPA Special Network, providing the client access to his/her account in any place in the national territory. From the total of service points, 336 were located in the Great São Paulo, 936 in the countryside of the state and 76 in other states. This availability is still bigger when we include the 24 hour Bank Network, administered by Tecnologia Bancária S.A - TECBAN with 1,264 pieces of equipment and the RVA - Rede Verde Amarela (Green Yellow Network), which makes available the resources of the other state banks, having a network with more than six thousand service points in the whole country.

The electronic channel projects still included "Netbanking" BANESPA system, "home banking" performed via Internet, designed for Natural Person clients. Available since September 1997, the "Netbanking" system makes concrete the goals established by the convenience aspect of having bank services through a around the world computer network. The service rendering by telephone, TELABANESPA, is still growing. Within this modality, the clients are offered the most variable options such as balances, extracts via fax, value transferals, checkbooks at home, movement of investment fund, and payment of the BANESPA VISA credit card invoices.

The "home banking" system, notwithstanding the connection with Internet, commercially issued in 1998, serves the Natural Person and Legal Entity clients, through its microcomputers via an specific network made available by BANESPA, allowing access to services and products of the bank and of the BANESPA group.

LOCALIZATION OF BANESPA AGENCIES    Sep/99

Local	Capital (City of São Paulo)	Great S. Paulo	Country of state of São Paulo	Other states	Total
AGENCIES	93	42	402	40	577
PABS	112	89	534	36	771
TOTAL	205	131	936	76	1,348




4.6.1.1 Computing Level

The information processing of BANESPA is defined as a centralized processing model for the Attention to the Customer, by the strengthening of agency automation and means of self attendance via a structure of alternative ways, supported by a Administration Process, for the performance and monitoring of the businesses, either in the agencies or General Administration, with a large use of Computing Technology, which is composed by means of centralized processing and data communication network.

Systems were developed to process On-line/real time information through integration of applications and use of Corporate Database, receiving the most of the transactions, reflecting them in the current accounts and corporate and legal registration.

BANESPA’s network as a whole, totally computerized, and its associated companies processed together, comprehends a total network of 577 agencies and 771 smaller agencies, besides the kiosk and ATMs network which amounts 627 locations, besides the General Administration locations. The renewal and modernization was concluded in 177 agencies and 613 Smaller Agencies (PAB) and the action plan for 1999 contemplate the conclusion of this process.

The great majority of application systems use relational Database, mainly IBM DB2, which manages the corporate databases.

4.6.1.2. Adaptation to the Year 2.000 Bug

Workings of evaluation and the solving of problems originating from the arrival of year 2000 have been planned since 1995. From the Banco Central Regulation, it started to be reported to BACEN the steps of the project, as well as to the Independent Auditors (Trevisan), who started taking part of the strategic moments and evaluate the conduction of it.

The project was formally presented with 67% carried out in the Notes to the Financial Demonstrations finalized on 30^th June, 1998. The end of the project, in terms of correction of programs was carried out in September, 1998.

Two integrated tests were carried out (involving all systems that relate to each other under normal conditions). Both carried out in October 1998 and supervised by the Independent Auditors, who did not present complaints.

The task of adaptation of the programs and data base to solve the "Y2K BUG" was completed in 1999 for the corporate systems, fulfilling the deadlines set by the competent organisms, and during the year, specific projects were also established offering support to clients in order to anticipate and eliminate such problems.

4.6.1.3. Clientele Segmentation

Nowadays BANESPA has 2,826,700 client accounts, which 96.2% are natural person and 3.8% are legal entities, with the last ones including the private and government sectors.

NATURAL PERSON	2,718,867
General Population	1,485,867
Public Employees - Federal	12,622
Public Employees - State	883,789
Public Employees - County	336,589
NATURAL PERSON - PRIVATE SECTOR	107,833
Commerce	45,539
Industry	18,321
Services	43,820
Others	153




4.6.2. Human Resources Policy

The policy of Human Resources in BANESPA and, according to other company’s internal policies, guided by the goals of quality improvement of services rendered to the customers and improvement of business management process. In order to reach this objective, BANESPA proceeded with investments in this area, aiming larger professional qualifying of its Staff. Adjusts were simultaneously accomplished, meeting the policy of personnel expenses reduction, by means of Incentive for Voluntary Quit programs, whose costs were integrally recognized during the period, resulting in the productivity improvement.

So, the main actions and programs implemented in the period were:

• Granted Discharge Plans, in April and December, 1997, with adhesion of 2,453 employees, for a total of 2,602 firings in the period;

• Incentive Program to Retirement for Service Time. During the period of 1997, 1,608 discharges by retirement took place, including those through incentive;

• Until September 1999, 909 discharges took place.

4.6.2.1. Chart Evolution

Evolution of Staff

Number of Employees	Dec/94	Dec/95	Dec/96	Dec/97	Dec/98	Sep/99	Variation % Sep/99 / Sep/94
Bank	33,877	29,525	26,856	22,561	21,126	20,217	(40.3)
Baneser	5,399	3,176	2,836	2,431	2,336	2,294	(57.5)
General Total	39,276	32,701	29,692	24,992	23,462	22,511	(42.6)




4.6.2.2. Staff Composition

Staff - Composition by Bank time    Sep/99

YEARS	MEAN		FREQUENCY		COMMISSION		COMPL/RETIREMENT.		WAGE
BANK	AGE	TOTAL	ADGER	AGENCY	NO	YES	BANK	BANESPREV	AVERAGER$
0 to 5	38	5	0	5	4	1	-	5	1,814
6 to 10	34	2,205	320	1,885	1,.609	596	1	2,204	1,844
11 to 15	38	8,470	1,729	6,741	6,398	2,072	1	8,469	1,968
16 to 20	41	3,843	549	3,294	2,652	1,191	3	3,840	2,586
21 to 25	44	5,194	913	4,281	3,038	2,156	1,362	3,832	3,122
26 to 30	49	493	115	378	196	297	493	-	4,321
over 30	58	7	3	4	3	4	7	-	6,572
16	40	20,217	3,629	16,588	13,900	6,317	1,867	18,350	2,427




Average wage without social burdens.

GRADUATION - BANESPA EMPLOYEES  Sep/99

	SEX		TOTAL
GRADUATION DEGREE	MALE	FEM.	GENERAL
Elementary school	796	203	999
Secondary School	6,157	5,963	12,120
College	2,945	3,794	6,739
Specialization	88	73	161
Post-Graduation	110	76	186
Mastership	7	4	11
Doctorate	1	0	1
Total	10,104	10,113	20,217




4.6.2.3. Yield Indicators

REVENUE AND EXPENSES REPORTS      R$ Million

PERIOD	PERSONNEL EXPENSE	OTHER ADMIN. EXPENSES ADMIN.	TOTAL OF ADMIN. EXPENSES	SERVICE REVENUE	SERV. REV. / PERSONNEL EXPENSES	SERV. REVENUE / ADMIN. EXPENSES
Sep/99	910.7	408.2	1,318.9	374.7	41.1	28.4
1998	1,352.3	530.9	1,883.2	472.7	34.9	25.1
1997	1,781.1	506.9	2,288.0	416.9	23.4	18.22
1996	2,278.2	453.9	2,732.1	381.2	16.73	13.95



NET PROFIT BY EMPLOYEE

INDICATOR	Dec/96	Dec/97	Dec/98	Sep/99
N° Of Employees	26,856	22,561	21,126	20,217
Net Profit (R$ thousand)	1,273,584	2,037,258	158,432	749,467
Profit by Employee (R$)	47,422.70	90,299.99	7,499	37,071



EMPLOYEES PER WORKPLACE

INDICATOR	Dec/96	Dec/97	Dec/98	Sep/99
N° Of Employees	26,856	22,561	21,126	20,217
Total of Post Points	1,532	1,412	1,362	1,348
Employees by Point	17.53	15.98	15.51	15.00

4.7. MARKET

4.7.1. Resource Captivation

The total resources available to BANESPA for its assets financing are indicated below:

RESOURCE CAPTIVATION - COMPOSITION     R$ Million

ITEM	Dec/96	%	Dec/97	%	Dec/98	%	Sep/99
Deposit in Cash	2,391	13.8	2,722	-21.1	2,147	-3.9	2,062
Obligations for Title Purchasing	13,749	-100.0	-	-	-	-	-
Passing on and Government Loans.	1,669	-74.6	424	-2.1	415	7.7	447
Passing on and Foreign Loans	1,491	18.7	1,770	18.1	2,091	-63.9	754
Funding Total	54,919	-15.8	46,215	-67.1	15,220	-8.3	13,953




4.7.1.1.  Deposits Composition and Evolution

BANESPA reached, in September 1999, a mark of R$ 11,033 million in deposits funding. Such value represented a decrease of 4.2% relative to December 1998/ values, as a result, mainly, at the end of positions in financial deposits; a falling resulting from the smaller level of economic activity, and time deposit funding rate re-adaptation, aiming to adjust them to the new liquidity situation of the institution, and to the company’s policy regarding Investment funds.

DEPOSITS COMPOSITION AND EVOLUTION     R$ Million

ITEM	Dec/96	%	Dec/97	%	Dec/98	%	Sep/99	%
Sight Deposits	2,391	10.7	2,722	18.0	2,147	18.6	2,062	18.7
Time Deposits	7,842	35.0	8,346	55.1	6,098	52.9	5,948	53.9
Savings Deposits	1,972	8.8	2,825	18.6	2,785	24.2	2,745	24.9
Financial Deposits	10,182	45.5	1,256	8.3	486	4.3	278	2.5
Total Deposits	22,387	100.0	15,149	100.0	11,516	100.0	11,033	100.0




BANESPA’s positioning regarding other large banks in the market is the following.

BANESPA’s POSITIONING        R$ Million
Total Deposits

BANK	Sep/99	Deposits/Branches PAB’s	Deposits/Employees
BANESPA	11,033	8.2	492.6
Bradesco	36,115	10.8	572.4
Itaú	20,096	7.8	513.2
Unibanco	8,217	8.2	417.5




Source: Published Balances

4.7.1.2. Funds Composition and Evolution

Investment funds, managed by the controlled BANESPA CORRETORA DE CÂMBIO E TÍTULOS, have proved to be an alternative to the falling attractiveness in the CDB/RDB market. Given the composition of its portfolios, these funds profitability gets near, for the customers that obtained the maximum CDB rates, with considerably smaller applied amounts.

Such a fact is proved by the fund managed balance expressive growth.

FUNDS COMPOSITION AND EVOLUTION      R$ Million

ITEM	Dec/97	%	Dec/98	%	Sep/99
Stocks Mutual Fund	43.7	(50.1)	21,8	44.5	31.5
Fixed Income Mutual Fund	2,454.5	77.4	4,354.5	43.8	6,262.9
Investment Clubs and Others	389.9	(54.1)	178.8	-5.1	169.6
Total	2,888.1	57.7	4,555.1	41.9	6,464.0




 

4.7.1.3. Other Resources

During the period between 1994 and 1997, BANESPA suffered restrictions to operate with resources from Onlending with official financial institutions, which cause such resources to decrease. After renegotiating the State Debt, BANESPA was able to comply with the requirements by those organisms for determining its operational limits, which makes it an important of such resources again, as BANESPA once had a leading role on this type of operation, with the 1st position in the FINAME re-lenders ranking.

Regarding Tax and Similar Charging and Collection, there has been a vigorous increasing in the outturn during 1997 and the beginning of 1998, due to intensive work performed with the bank customers, witch led to an increase of 348% between December/1996 and March/1998. However, with the transferring of ICMS from the STATE to Nossa Caixa, there was a reduction of 88.8% in the outturns in 1998, relatively to December 1997.

OTHER RESOURCES - EVOLUTION      R$ Million

ITEM	Dec/96	%	Dec/97	%	Dec/98	%	Sep/99
Onlendings (Off. Instit.)	481	(12.1)	423	(1.8)	415	7.7	447
Charging / Taxes	219	111.9	464	(88.8)	52	64.9	148
External Resources	1,763	13.8	2,007	4.2	2,091	-63.9	754
Total	2,463	17.5	2,893	(11.6)	2,558	-47.3	1,349




4.7.2. Resources Investment

4.7.2.1. Credit Operations

Until the arising of the state debt renegotiations, which retrieved from the bank’s balance all the credits provided by the government of the state of São Paulo, BANESPA stood as one of the largest resources investors in credit operations, especially for financing and guaranteeing São Paulo’s government and public companies enterprises.          

With the state debt’s crisis, in September/1994, BANESPA had its general credit operations put into contingence by BACEN until the resolution of the crisis.

In BANESPA’s new reality, its credits are being directly addressed to the private sector, maintaining, however, regarding legal entities, an emphasis on loans to small and medium businesses, financing their working capital and expansion projects.

The wide net of branches both in Brazil and abroad is located in the main financial centers around the world.

CREDIT OPERATIONS - COMPOSITION     R$ Million

ITEM	Dec/96	%	Dec/97	%	Dec/98	%	Sep/99	%
General Credit	708	3.0	864	27.8	1,251	26.4	1,560	31.5
Natural Person	441	1.8	618	19.9	743	15.7	942	19.0
Legal Entity	267	1.1	246	7.9	508	10.7	618	12.5
Rural Credit	322	1.3	544	17.5	599	12.6	519	10.5
Real Estate Credit	1,006	4.2	1,183	38.0	1,109	23.4	711	14.4
Development	334	1.4	289	9.3	173	3.6	180	3.6
State Roll up	21,136	88.2	0	0.0	0	0.0	-	-
Other Publ. Sector Oper.	237	1.0	52	1.7	130	2.7	126	2.5
Foreign Currency Loans	230	1.0	176	5.7	230	4.8	295	6.0
Total	23,974	100.0	3,108	100.0	3,492	100.0	4,951	100.0




4.7.2.1.1. General Credit

With the end of the Bacen-imposed contingence, the General Credit Portfolio starts to receive a special attention by the bank management, as it is, individually, its revenue source that provides the biggest profits. On the other hand, a critical point, for being also the most subject to default problems.

The portfolio’s profitability-risk pondering is continuously revised and studied, always in a major scope of the institution, particularly regarding its liquidity situation.

The loan’s composition is divided in 60.4% for natural person customers and 39.6% for legal entities customers and is shown below:

GENERAL CREDIT PORTFOLIO - COMPOSITION    R$ Million

ITEM	Dec/98	%	Sep/99	%
Natural Person	785	60.7	942	60.4
Cheque Especial BANESPA	315	24.3	383	24.6
Cheque Classe Especial BANESPA	23	1.8	29	1.8
Services and Goods Financing	3	0.2	-	-
Personal Credit	442	34.2	530	34.0
Others	2	0.2	-	-
Legal Entity	508	39.2	618	39.6
Saque Especial BANESPA	36	2.8	40	2.6
Conta Corrente Garantida	87	6.7	128	8.2
Discounted Drafts	64	4.9	86	5.5
Working Capital Others	255 66	19.7 5.1	270 94	17.3 6.0
Total	1,293	100.0	1,560	100.0




4.7.2.1.2. Rural Credit

BANESPA continues with a strong action in rural credit, which have always defined it as one of the main investors in this field, being the leading institution, within the state of São Paulo, in terms of agreed operations, with a special attention to mini, small and medium cost necessity supply, for which the bank channels the totality of its loans. o, BANESPA’s investments balance in this sector, in December 1998, was situated around R$ 599 million, and R$ 519 million in September 1999.

4.7.2.1.3. Real Estate Credit

The Real Estate Credit is a powerful mechanism to minimize the habitation deficit in the country, contributing also, to the generation of jobs in the construction sites.

BANESPA, as a participant of SBPE - Sistema Brasileiro de Poupança e Empréstimo (Brazilian System of Savings and Loans), is obliged to direct a significant percentage of saving deposits funded resources to investments in real estate financing. Such requirements are currently on 70% of deposited values.

BANESPA’s investments balance in real estate financing, in December/1998 was R$ 1,109 million and R$ 711 million in September/1999.

It must be highlighted that it has no credits covered by the Fundo de Compensação das Variações Salariais - FCVS (Salary Variations Compensation Fund).

4.7.2.1.4. Development

In the development area, BANESPA is structured to perform technical and administrative functions, which are necessary to the analysis of proposals, inspection, accompaniment and technical support of projects and management of state funds.

This way, BANESPA acts in the financing to implementation projects, enlargement, repositioning, modernization, technological development and environmental sanitation, to legal entities, with on lending from the BNDES (National Bank for Social Development) Automatic programs, FINEM, FINAME, FINEP, FUNCET, and PROCOP. Acts in financing for public projects, of cities hall, autarchies, and concessionaires of public utilities, via ARO, FEHIDRO, PCOM, FUMEFI and Intervention Contracts. Offers guarantees by means of letters of guarantee and collateral of public securities.

With the operational limits near to BNDES being reestablished, allied to the great experience of the bank in these kinds of operation, the horizon for new businesses to be made proves to be very promising en mid term.

4.7.2.2. Other Applications

4.7.2.2.1. Bonds and Securities

OPERATIONS WITH BONDS AND SECURITIES - EVOLUTION   R$ Million

ITEM	Dec/96	%	Dec/97	%	Dec/98	%	Sep/99
Own Portfolio	2,971	445.2	16,197	(33.3)	10,807.	(7.9)	9,951
Related to Buy Back Commitment	30	-	28,460	(96.1)	1,102	56.7	1,727
Related to BACEN	13,854	(97.4)	366	103.3	744	(40.0)	446
Applications in the Open market	16,972	(89.6)	1,773	42.8	2,541	18.2	3,004
Total	33,826	38.3	46,797	(67.5)	15,194	(0.4)	15,128




The assignment of credits against the State Public Sector brought to BANESPA an expressive amount of funds, as Federal Public,which let, at first moment, the accomplishment of short term obligations and the recomposing of BANESPA’s compulsory deposits from Bacen. The balance, according to the schedule, is rescued and managed in order to give funds to Loan Portfolios and Treasury Operations.

On the other hand, also with the resolution of State Security Debt, the bank’s assets, excessively majored by the amount of State Public Securities, exchanged everyday by Federal Securities as a guarantee acceptance by the market, was reduced by a redemption schedule of these last securities.

Of the total amount of Securities LFT series A, R$ 8,000.1 million were definitively bought by Banco Central (Central Bask of Brazil), on the 29^th of December, 1997, as the starting point of the redemption process of BANESPA liquidity. In the same way, on the 16^th of January, 1998, the remaining LFT series A, evaluated at that date in R$ 35,655.3 million, were exchanged by Bacen, by Bills of Banco Central (LBC), with weekly deadlines, from February 5^th, 1998 to June 4^th,1998.

COMPOSITION OF BONDS AND SECURITIES    R$ Million

ITEM	Dec/98	%	Sep/99	%
Federal Securities	5,473	57.6	5,468	55.0
Provision for Devaluation	(57)	(0.6)	(64)	(0.6)
Municipal Securities	138	1.5	830	8.3
Provision for Devaluation	(138)	(1.5)	(155)	(1.6)
Mortgage Bills	307	3.2	327	3.3
Open Company Stocks	1,209	12.7	1,204	12.1
Provision for Devaluation	(722)	(7.6)	(664)	(6.7)
External Debt Securities	1,051	11.1	370	3.7
Provision for Devaluation	(438)	(4.6)	(126)	(1.3)
Secured Assets	2,572	27.1	2,587	26.0
Other	148	1.6	228	2.3
Provision for Devaluation	(38)	(0.4)	(54)	(0.5)
Total	9,505	100.0	9,951	100.0




4.7.2.2.2. Open Companies Stocks

BANESPA has a public and privatized security portfolio, especially from CESP - Cia. Energética de São Paulo (São Paulo Energy Company), from which this bank received, as a payment of debts, representative securities of its capital, gathering 6,123 million of ON stocks and 12,154 million of PN stocks, and in July/99, it occurred the merger of four companies, but the Bank went on having the same amount of stocks in each of them. Such securities were counted, in December 1998, by the market value of R$ 432 million and R$ 450 million in September 1999 and they represented 92.8% of the total amount of bank variable income security portfolios in December 1998.

On the other hand, the provisions for portfolio value devaluation in relation to the market are absorbed by the company result and negatively impacted it, during 1998, in R$722 million, and R$ 690 million of this R$722 million refer to the devaluation of CESP’s stock.

From January to September 1999, the impact in the organization of the stock portfolio provision was R$ 53 million, and R$ 29 million from companies that have merged from CESP.

VARIABLE INCOME SECURITIES - Accounting Value     R$ Mil. 

ITEM	Dec/98	%	Sep/99	%
CESP (ON and PN)	1,122,327	230.7	-	-
Provision for Devaluation	(690,172)	(141.9)	-	-
CESP (ON e PN)	-	-	767,553	142.1
Provision for Devaluation	-	-	(630,596)	(116.8)
Geração Paranapanema (ON and PN)	-	-	179,525	33.2
Provision for Devaluation	-	-	(45,619)	(8.5)
Geração Tietê (ON and PN)	-	-	52,572	9.7
Provision for Devaluation	-	-	82,912	15.4
Transmissão Paulista (ON and PN)	-	-	118,189	21.9
Provision for Devaluation	-	-	(74,039)	(13.7)
COPESUL (ON)	17,405	3.6	17,405	3.2
Provision for Devaluation	(6,468)	(1.3)	(68)	(0.0)
CPFL (PN)	255	0.1	255	0.0
Provision for Devaluation	(22)	0.0	91	0.0
CSN (ON)	35,594	7.3	35,594	6.6
Provision for Devaluation	(2,698)	(0.6)	23,485	4.4
Cia. Paulista Ferroligas (PN)	10,088	2.1	10,088	1.9
Provision for Devaluation	(9,610)	(2.0)	(9,133)	(1.7)
Petroquímica União (PN and ON)	3,820	0.8	3,820	0.7
Provision for Devaluation	(444)	(0.1)	1,474	0.3
Usiminas (ON)	19,208	3.9	19,208	3.6
Provision for Devaluation	(12,759)	(2.6)	(12,709)	(2.3)
Total	486,524	100.0	540,007	100.0




4.7.2.2.3. External Debt Securities

BANESPA had on December 31^st, 1998, among its assets, about US$ 1.0 billion in Brazilian external debt securities, also called Brady bonds. These securities came from loans agreed abroad in the 60’s and 70’s and on lent to Brazil to finance public and private projects. From January to September 1999, it happened a significant sale of these financial instruments, whose balance was reduced to US$ 192 million on 09/30/1999. The securities BANESPA has are listed below:

BRAZILIAN EXTERNAL DEBT SECURITIES - Sep/99     

ITEM	FACE VALUE	DISCOUNT	MARKET VALUE	%	RATE (1)
Debt Conversion	140,000	55,300	84,700	60.500	L + 7/8
Eligible Interest	47,500	10,034	37,466	78.875	L + 13/16
Sub Total - US$	187,500	65,334	122,166
Interest - US$	4,797	-	4,797
Total - US$	192,297	65,334	126,963
Total R$ Million	369,652	125,592	244,060




(1) Libor 6 fixed on each beginning of acquisitive term

(2) Fixed rates 1^st year and 2^nd year 4%, 3^rd year and 4^th year 4.5%, 5° year and 6^th year 5%, from 7^th on 8% pa.

(3) fixed rates 1^st year 4%, 2^nd year 4.25%, 3^rd year 5%, 4^th year 5.25%, 5^th year 5.5%, 6^th year 5.75%, from 7^th year on 6% pa.

4.8. AUT0NOMOUS ENTITIES INDIRECTLY LINKED TO BANESPA

4.8.1. BANESPREV

For the employees hired after the 23^rd of May, 1975 and their dependents, BANESPA and its "controlled" (companies controlled by BANESPA) sponsor BANESPREV, aiming to grant complementary retirements and pensions to the ones granted by the Social Security, as established in the basic regulation, structure as Defined Benefit, which adopts the reserve for future obligations for the calculation of mathematical reserve, which represent the result of the actuarial calculations to be paid to the members, extracted from the future contributions.

4.8.2. CABESP

Civil society of private law, without profitable aims, established by the employees of SISTEMA BANESPA, which aims to assure health, dentistry, psychological, and paramedical care to its beneficiaries.

The members of CABESP are the working and retired employees SISTEMA BANESPA and CABESP.

The equity of CABESP, as determines Section 19, item I "b" from CABESP’s Acts, is composed of cost contributions, in charge of SISTEMA BANESPA and its CABESP members or contributor, when applicable, besides the co-participation of the beneficiaries in the composition of exams and appointments for consultation costs. it is also part of CABESP equity the " income coming from cultural and welfare activities", assets and values coming from any security, its eventual incomes and, finally, income coming from stock participation or other activities performed.

CHAPTER 5- ADDITIONAL INFORMATION AND TIMETABLE

5.1. NOTICES AND COMMUNICATIONS

GESTOR could determine the publishing of additional notices concerning the content of this PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS, from PUBLIC AUCTION NOTICE and from SALES MEMORANDUM.

5.2. TACIT AND UNCONDITIONAL ACCEPTATION

The participation in this PROCEEDING, which was started by this PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS, implicates total acceptation of its terms and other documents and conditions that may be divulged and/or published.

5.3. PROCEEDING SCHEDULE

DATE	SCHEDULE
01/10/2000	Publication of this PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS (pre qualification by BACEN)
01/11/2000	Beginning of the period to deliver the documents of pre qualification to BACEN
02/08/2000	End of the period for pre qualification by BACEN
02/29/2000	Result of the pre qualification by BACEN
03/02/2000	Opening of Data Room
04/04/2000	Publication of the PUBLIC AUCTION NOTICE
04/04/2000	Publication of Offer Manual for the EMPLOYEES
04/10/2000	Beginning of the EMPLOYEES reservations
05/08/2000	Closing of Data Room
05/16/2000	AUCTION
05/17/2000	Closing of the reservations for the EMPLOYEES
05/19/2000	Financial liquidation of the AUCTION
05/23/2000	Financial liquidation of the EMPLOYEES

This is a free translation of the PUBLIC NOTICE - BEGINNING OF THE PRIVATIZATION PROCESS and has been published with informational purpose. The Portuguese version stands as the official notice.

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