Banco Internacional (BITAL) Mauricio Almagro Darika Amornvatana Larry Hou Shilpa Lulkarni Juan Carlos Mier y Teran February 26, 1999

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

Mexican Banking System  Changes in the industry  Nationalization  Consolidation  Re-privatization  Regulatory practices  Conglomerates  Foreign investment  Loans growth  Credit analysis  Funding

BITAL  Group  Grupo Prime  Banco Internacional  Integrated Financial Services  Distribution channels  Subsidiaries  Strategy  Market coverage (growth)  Segments  New image

BITAL before the Crisis

The Crisis  Before  Exchange rate control  Capital inflows  Reserves  Political events  After  Devaluation  Investor confidence (local, foreign)  High interest rates

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

Risk Analysis Country Risk Currency devaluation & economic forecasts. Income inequality Social insecurity Political Stability

Business Risk Openness in the industry Quality of loan portfolio Non-performing loans Risk Analysis

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

Pre Crisis Valuation  Interest Income –20% growth in the first 3 years, –15% growth 4-6 years –10% growth 7-10 years.  Interest Expenses –65% of interest income  Personal Expenses –2% of total assets –Recruiting of more educated personnel.

Pre Crisis Valuation  Administrative & Operational Expenses –1.5% of total assets –Increased due to expansion plans.  Loan Portfolio –20% growth in the first 3 years, –15% growth 4-6 years –10% growth 7-10 years.  Terminal Growth –10% growth (assuming 7% inflation rate)

Pre Crisis Valuation  Cost of Equity36.5% –ICCRC46.1  Cost of Debt15.3% –Average Inter-bank interest rate in 1994  D/V41%  WACC27.7% Value of BITALN$17.90 per share.

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

Discussion

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

Post Crisis Valuation  Interest Income –-10% growth in the first year, –-5% growth in 2nd year. –10% growth in 3-4 years –15% growth 5-7 years. –10% growth in 8-10 years  Interest Expenses –65% of interest income  Personal Expenses –1.6% of total assets

Post Crisis Valuation  Administrative & Operational Expenses –1.4% of total assets  Loan Portfolio –5% growth in the first 2 years, –10% growth 3-5 years –15% growth 6-10 years.  Terminal Growth –10% growth (assuming 7% inflation rate)  Write-offs (as a % of past-due loans) –20% in first 2 years –15% in years 3-4 –10% in years 5-7 –4% in years 8-10

Post Crisis Valuation  Cost of Equity59.71% to 32.89% –ICCRC41.8 to 46.9  Cost of Debt36.7% to 12% –Average Inter-bank interest rate  D/V34%  WACC54% to 27% Value of BITALN$9.63 per share. 46% decrease

Post Crisis Valuation 30% drop

Agenda n Grupo BITAL n Risk Analysis n Valuation before the Crisis n Questions and Discussions n Post Crisis Valuation n Epilogue

What Happened Next? n BITAL restructured its loan portfolio n Completed capitalization program in 1996 n Rapid expansion of branch network n Ranked the fourth largest bank after the recent merger