UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

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Commission File Number: 001-34476

 

BANCO SANTANDER (BRASIL) S.A.

(Exact name of registrant as specified in its charter)

 

Avenida Presidente Juscelino Kubitschek, 2041 and 2235
Bloco A – Vila Olimpia
São Paulo, SP 04543-011
Federative Republic of Brazil

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F ___X___ Form 40-F _______

  Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  

Yes _______ No ___X____

  Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  

Yes _______ No ___X____

  Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:  

Yes _______ No ___X____

  If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):   N/A

 

 

Index

 

1.	Message from the Chairman of the Board of Directors	7
2.	Call Notice	8
3.	Participation of the shareholders in the AGOE	10
3.1	Representation through attorney-in-fact	10
4 .	Matters to be resolved in the AGO	11
4.1	To take the management accounts, examining, discussing and voting the Company’s Financial Statements related to the fiscal year ended on December 31, 2012, together with the Management Report, the balance sheet, other parts of the financial statements, external auditors’ opinion and the Audit Committee Report;	11
4.2.	To decide on the destination of the net profit of the fiscal year of 2012 and the distribution of dividends;	13
4.3	To elect the members of the Board of Directors of the Company for a new term of office; and	14
4.4.	To fix the annual overall consideration of the Company´s management and members of Audit Committee.	15
5 .	Matters to be resolved in the AGE	16
5.1.	To decide on the amendment of the term of payment of dividends and interest on capital related specifically to the year of 2013, to not more than one hundred and eighty (180) days counted from its declaration by the Company’s Board of Directors and in any circumstances within this fiscal year, according to the Board of Directors´ proposal in the meeting held on February 27 th , 2013; and	16
5.2	To approve the Long-Term Incentive Plan relative to fiscal year 2013.	16
6.	List of Exhibits:
	Exhibit I. Comments of the administrative officers on the financial condition of the Company – Item 10 of the Reference Form	20
	Exhibit II. Proposal by management for allocation of the net income for the fiscal year – Exhibit 9-1-II of CVM Instruction 481	78
	Exhibit III. Proposal by the management to the election of the current members of the Board of Directors of the Company – Item 12 of the Reference Form	85
	Exhibit IV. Proposal by management for remuneration of the administrative officers – Item 13 of the Reference Form	91
	Exhibit V. Long-Term Incentive Plans	122
	Exhibit VI. Related Documents and Links	139

 

 

 

 

 

GlossARY, Abbreviations and Defined Terms

For purposes of this Manual, the terms listed below shall have the meaning attributed to them, except as otherwise referred to herein.

 

AAB Dois Par	ABN AMRO Brasil Dois Participações S.A.
Controlling Shareholder	Shareholder or group of shareholders bound by a shareholders’ agreement or under common control, and exercising the power to control the Company.
Shares	Comprise Common Shares and Preferred Shares, as defined below.
Common Shares	Common, registered, book-entry shares with no par value, free and clear of any encumbrances and liens, and issued by the Company.
Preferred Shares	Preferred, registered, book-entry shares with no par value, free and clear of any encumbrances, and issued by the Company.
Basel Accord, Basel	Set of prudential banking rules disclosed by the Basel Committee on Banking Supervision with the purpose of providing greater robustness to the global financial system. Its principal characteristic is to require a minimum percentage as resulting from dividing a financial institution’s capital stock by its respective assets weighted in accordance with the risk inherent to them. The Basel Accord was initially implemented in Brazil through CMN Resolution No. 2099, of August 17, 1994. Various regulations issued as from 2006, and providing for minimum amounts of realized capital and Reference Equity required from Brazilian financial institutions.
AGE	Extraordinary Shareholders’ Meeting of the Company, to be held on April 29, 2013.
AGO	Annual Shareholders’ Meeting of the Company, to be held on April 29, 2013.
AGOE	Annual and Extraordinary Shareholders’ Meetings of the Company to be held on April 29, 2013.
Financial Committee	Financial Committee (non-statutory).
Central Bank	Brazilian Central Bank.
Banco Real	Banco ABN AMRO Real S.A.
BM&FBOVESPA	BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros.
BNDES	Banco Nacional de Desenvolvimento Econômico e Social (Brazilian Economic and Social Development Bank)
Brazil or country	Federative Republic of Brazil.
Cayman	Santandar Brasil branch, organized in accordance with the laws of the Cayman Islands.
CDB	Bank Deposit Certificate.

 

CMN	Brazilian Monetary Council.
COFINS	Contribution tax for social security financing.
Company or Santander Brasil	Banco Santander (Brasil) S.A.
Independent Board Member	According to the Level 2 Regulation, the Independent Board Member is characterized by: (i) not having any relationship with the Company except for capital participation; (ii) not being a Controlling Shareholder, spouse or relative up to the second degree or not being or not having been during the last three years related to an organization or entity related to the Controlling Shareholder (persons related to public education and/or research institutions are excluded from this restriction); (iii) not having been during the last three years employee or director of the Company, of the Controlling Shareholder or of an organization controlled by the Company; (iv) not being a direct/indirect supplier or buyer of services and/or products of the Company in a magnitude that implies loss of independence; (v) not being an employee or administrator of an organization or entity that is offering or requesting services and/or products to/from the Company; (vi) not being spouse or relative up to the second degree of any of the Company’s administrators; and (vii) not receiving any other compensation from the Company apart from that of director (compensation in cash deriving from the capital’s participation are excluded from this restriction).
Board of Directors	The board of directors of the Company.
COSIF	Chart of Accounts for Brazilian Financial Institutions.
Coupon	A product showing price variations linked to U.S. dollar fluctuations and interest rates in Dollar.
CVM	Comissão de Valores Mobiliários (Brazilian Securities Commission).
Executive Board	The Company’s executive board.
Dollar or US$	US dollar.
Call Notice	Call notice published by the Company on March 28, 2013, regarding the AGOE to be held on April 29, 2013, published in the “Diário Oficial do Estado de São Paulo” (Brazilian State Gazette) on March 29 th , April 2 nd and 3 rd , 2013, and in the newspaper “Valor Econômico” on March 29 th , April 2 nd and 3 rd , 2013.
Getnet	Getnet Tecnologia em Captura e Processamento de Transações Eletrônicas Hua Ltda.
Federal Government	Government of the Federative Republic of Brazil.
Santander Group Brasil	Santander Brasil and its subsidiaries.
Santander Group Spain	Santander Spain and its subsidiaries.
IASB	International Accounting Standards Board.

 

 

IFRIC	International Financial Reporting Interpretations Committee
IFRS	International Financial Reporting Standards, issued by IASB .
IGP-M	General Market Price Index, disclosed by the Getúlio Vargas Foundation.
CVM Instruction 480	CVM Instruction No. 480, of December 7, 2009, as amended.
CVM Instruction 481	CVM Instruction No. 481 of December 17, 2009, as amended.
IPCA	Broad Consumer Price Index.
IRRF	Withholding income tax.
Brazilian Corporate Law	Law No. 6404, of December 15, 1976, as amended.
Sarbanes-Oxley Act or SOX	Enacted in the United States on July 30, 2002, aiming at guaranteeing the creation of reliable audit and security tools for companies.
Manual	Manual for participating at the shareholders’ meeting of the Company.
Level 2	Special listing segment of the BM&FBOVESPA with differentiated corporate governance rules.
Reference Equity	Equity composition of financial entities for purposes of calculation of the basic requirements for capital adjustment and operational limits established by the Central Bank, as provided for in CMN Resolution 4.192, of March 1 st , 2013,
PGBL	Free benefits generating pension plan.
GDP	Gross Domestic Product.
PIS	Social integration program.
ILP Plan	Long-term incentive plan.
Plans	The Global Program, the Local Program and the Deferral Program.
Accounting Practices Adopted in Brazil or BR GAAP	Accounting principles and practices adopted in Brazil in compliance with the Brazilian Corporate Law, CVM rules and instructions, SUSEP rules and instructions for insurance, special savings and supplementary pension plan providers, the recommendations of the Brazilian Institute of Independent Accountants and the resolutions of the Federal Accounting Board, as well as the accounting rules established by the Central Bank for financial companies.
Global Program	Long-term incentive policy intended for executives of Santander Spain and other companies of the Santander Spain Group, with remuneration linked to Santander Spain’s stock.
Local Program	SOP, PSP and SOP 2014.
PSP	Long-term incentive plan - Investment in Santander Brasil Units, approved at the extraordinary shareholders’ meeting held on February 3, 2010.

 

 

Real, Reais, BRL or R$	Brazilian currency.
Level 2 Regulations	Regulations for differentiated practices of Level 2 Corporate Governance.
TSR	Total shareholder return.
Santander Spain	Banco Santander, S.A.
Santander Seguros	Zurich Santander Brasil Seguros e Previdência S.A.
SEC	US Securities and Exchange Commission.
Securities Act	US Securities Act of 1933, as amended.
SELIC	Special Settlement and Custody System.
SOP	Santander Brasil Units options plan, approved at the extraordinary shareholders’ meeting held on February 3, 2010.
SOP 2014	Santander Brasil Units options plan, approved at the extraordinary shareholders’ meeting held on February 7, 2012.
SUSEP	Brazilian Private Insurance Superintendence.
Libor	London Interbank Offered Rate.
IT	Information Technology.
TJLP	Long-Term Interest Rate disclosed by the CMN.
TR	Reference rate disclosed by the Central Bank.
Units	Share Deposit Certificates comprising 55 Common Shares and 50 Preferred Shares each.
VGBL	Free benefits generating pension plan - life.

 

 

 

 

 

1. Message from the Chairman of the Board of Directors

 

Dear Shareholders,

 

I am very pleased to invite you, shareholder of Santander Brasil, to participate in the Ordinary and Extraordinary Shareholders Meeting (“ OESM ”) of Santander Brasil, called for April 29, 2013 at 4:00 p.m., in the Auditorium of the head offices of the Company located at Avenida Presidente Juscelino Kubitschek Nos. 2041 and 2235 – 1 ^st mezzanine – District of Vila Olímpia - São Paulo – State of São Paulo.

 

This is the moment when we have the chance to meet each other, and when we, the members of the management of Santander Brasil, can give an account of what we have achieved during 2012, and can share our plans for 2013.  

 

We faced big challenges in 2012. We completed the integration of the internal platforms and services to the clients we reorganized our procedures and we reviewed our Mission. We also launched Santander 3.1., an ambitious project with the primary objective of making Santander Brasil the top bank in client preference by 2013.

 

And so we start 2013 with a strategy of being a simple, agile bank, able to meet our clients’ needs speedily and efficiently, generating positive financial results, staying focused on our sustainable relationships.    

 

This Manual for Participants in Shareholder´s Meetings (“the Manual”) is an example of our practicing a sustainable relationship with you, our shareholder. It is intended to help you take decisions correctly, presenting important points for clarification and providing guidelines on voting.

 

On the terms of the Call Notice made available to you, in AGO we will resolve on the following matters:

 

To take the management accounts, examining, discussing and voting the Company’s Financial Statements related to the fiscal year ended on December 31, 2012, together with the Management Report, the balance sheet, other parts of the financial statements, external auditors’ opinion and the Audit Committee Report;

 

To decide on the destination of the net profit of the fiscal year of 2012 and the distribution of dividends;

 

To elect the members of the Board of Directors of the Company for a new term of office; and

 

To fix the annual overall consideration of the Company´s management and members of Audit Committee.

 

Following this, in AGE we will resolve on the following matters:

 

To decide on the amendment of the term of payment of dividends and interest on capital related specifically to the year of 2013, to not more than one hundred and eighty (180) days counted from its declaration by the Company’s Board of Directors and in any circumstances within this fiscal year, according to the Board of Directors´ proposal in the meeting held on February 27 ^th , 2013; and

 

To approve the Long-Term Incentive Plan relative to fiscal year 2013.

 

To make it easier for you to analyze and assess the matters to be discussed at these abovementioned Meetings, we have added as exhibits to this Manual all the documents relating to the matters included in the Notice of the Meeting, according to the minimum requirements of CVM Instruction No. 481 dated December 17, 2009 ("CVM Instruction 481").

 

Please read it carefully.  We are at your disposal to clear up any doubts. Please contact us by email to acionistas@santander.com.br  for individual investors and non-financial companies, and to ri@santander.com.br  for institutional investors.

 

We hope that this Manual will fulfill its purpose of assisting you with clarification on the matters to be resolved. Your participation in this important event is very important for our Company.

 

Very truly yours,

Celso Clemente Giacometti

Chairman of the Board of Directors

 

 

2. Call Notice

(to be published in the “Diário Oficial do Estado de São Paulo” (Brazilian State Gazette) on March 29th, April 2nd and 3rd, 2013, and in the newspaper “Valor Econômico” on March 29th, April 2nd and 3rd, 2013)

 

 

 

 

BANCO SANTANDER (BRASIL) S.A.

Public-held Company with Authorized Capital

Taxpayer ID (“CNPJ/MF”) # 90.400.888/0001-42

Company Registry Number (“NIRE”) # 35.300.332.067

 

 

 

ORDINARY AND EXTRAORDINARY SHAREHOLDERS MEETING

CALL NOTICE

 

 

The shareholders of Banco Santander (Brasil) S.A. (the “ Company ”) are hereby invited, pursuant to article 124 of Law 6,404/76, for the Ordinary and Extraordinary Shareholders Meeting (“ OESM ”) to be held on April 29 ^th , 2013, at 4:00 p.m., at the Auditorium of the Company’s main place of business, at Avenida Presidente Juscelino Kubitschek, nº 2235 – 1 ^st mezzanine – Vila Olimpia - São Paulo/SP, to resolve on the following Agenda:

 

 

ORDINARY SHAREHOLDERS MEETING : 

 

(a)  To take the management accounts, examining, discussing and voting the Company’s Financial Statements related to the fiscal year ended on December 31, 2012, together with the Management Report, the balance sheet, other parts of the financial statements, external auditors’ opinion and the Audit Committee Report;

 

(b)  To decide on the destination of the net profit of the fiscal year of 2012 and the distribution of dividends;

 

(c) To elect the members of the Board of Directors of the Company for a new term of office; and

 

(d) To fix the annual overall consideration of the Company´s management and members of Audit Committee.

 

 

EXTRAORDINARY SHAREHOLDERS MEETING : 

 

 

(a)  To decide on the amendment of the term of payment of dividends and interest on capital related specifically to the year of 2013, to not more than one hundred and eighty (180) days counted from its declaration by the Company’s Board of Directors and in any circumstances within this fiscal year, according to the Board of Directors´ proposal in the meeting held on February 27 ^th , 2013; and

 

(b) To approve the Long-Term Incentive Plan relative to fiscal year 2013.

 

 

General Instructions : 

 

1. Pursuant to Brazilian Securities & Exchange Commission (“ CVM ”) Instruction # 165/91, as amended by CVM  Instruction # 282/98, the minimum percentage of voting shares necessary to request the multiple voting process in order to elect members of the Board of Directors is five per cent (5%);

 

2. Company´s shareholders or their legal representatives shall attend the OESM carrying their properly identification documents. In the event the shareholder is represented by an attorney, the shareholders shall deposit at the Company´s main place of business (address indicated below), at least seventy two (72) hours before OESM the power of attorney duly granted as required by law; and

 

 

3. The documents relating to the matters to be examined and discussed in the OESM are available for the shareholders (i) at the Company´s main place of business, at AvenidaPresidenteJuscelinoKubitschek, nº 2041 and 2235 - Bloco A - Vila Olímpia – São Paulo – SP, 9 ^th floor – Corporate Legal Department, where they can be consulted in business days, from 10:00 a.m. to 4:00 p.m., and also on its websites ( www.ri.santander.com.br in Corporate Governance >> Minutes o Management Meetings and www.santander.com.br/acionistas in Download Center); (ii) at Brazilian Securities & Exchange Commission, at RuaSete de Setembro, 111, 5 ^o floor Consultation Center, Rio de Janeiro/RJ or at RuaCincinato Braga, 340, 2 ^o to 4 ^o floors, Ed. Delta Plaza, São Paulo/SP and on its website (www.cvm.gov.br) and (iii) at BM&F Bovespa S.A. – Securities, Commodities and Futures Exchange, at Rua XV de Novembro, 275 – São Paulo/SP and on its website (www.bovespa.com.br).

 

São Paulo, March 28, 2013.

 

 

Celso Clemente Giacometti

Chairman of the Board of Directors

 

 

 

 

 

 

 

 

 

 

 

 

3. Participation of the Shareholders in the AGOE

 

The shareholders of Santander Brasil may participate in the AGOE personally , or through a duly appointed and established attorney-in-fact . 

 

The following documents will be required from the shareholders for participation in the AGOE:

 

Individual	Identification document with photo 1 (original or certified copy)
Legal entity	• corporate documents that evidence the legal representation of the shareholder (original or certified copy) 2 • ID document of the legal representative with photo (original or certified copy)

 

3.1. Representation by power of attorney

 

The shareholder may be represented in the AGOE by an attorney-in-fact duly appointed and established by a public or private instrument, and on the terms of Article 126, Paragraph One of the Brazilian Corporate Law , the attorneys-in-fact must have been appointed less than one (1) year before, and must be (i) shareholders of the Company, (ii) administrative officers of the Company, (ii) attorneys, or (iii) financial institutions, while it is incumbent upon the managers of investment funds to represent the their Unit holders.

 

The originals or certified copies of the documents mentioned above must be delivered at the head offices of the Company by no later than the time for opening the AGOE.

 

However, in order to facilitate the access of the shareholders to the AGOE, we recommend that delivery of these documents be made at least seventy-two (72) hours prior to the opening of the AGOE.

 

For the case of documents sent by email, the originals or certified copies must be delivered at the head offices of the Company on the day of the AGOE.

 

The documents must be delivered at the head offices of the Company, at Avenida Presidente Juscelino Kubitschek No. 2041 and 2235 – Wing A – District of Vila Olimpia - São Paulo – State of São Paulo, 9 ^th floor – Legal Corporate Executive Office telephones +55 11 3553-5438 and +55 11 3553-5440, email: juridsocietario@santander.com.br.

 

 

 

 

 

 

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4. Matters to be Resolved in the AGO

 

According to the article 132 of the Brazilian Corporate Law as well as the article 6 of the Company’s By-Laws, the Shareholders’s Meeting must be held until April 30 of each year.

 

According to the Call Notice, our AGO will deliberate about the following matters:

 

(a)  To take the management accounts, examining, discussing and voting the Company’s Financial Statements related to the fiscal year ended on December 31, 2012, together with the Management Report, the balance sheet, other parts of the financial statements, external auditors’ opinion and the Audit Committee Report;

 

(b)  To decide on the destination of the net profit of the fiscal year of 2012 and the distribution of dividends;

 

(c) To elect the members of the Board of Directors of the Company for a new term of office; and

 

(d) To fix the annual overall consideration of the Company´s management and members of Audit Committee.

 

___________________________________________

 

 

4.1 To take the management accounts, examining, discussing and voting the Company’s Financial Statements related to the fiscal year ended on December 31, 2012, together with the Management Report, the balance sheet, other parts of the financial statements, external auditors’ opinion and the Audit Committee Report.

 

The documents presented by management are the following:

 

1. the Management Report showing the operating statistics and the analysis and discussion of the Administrative Officers of the principal accounts of the Statement of Income for the Fiscal Year;
2. comments of the administrative officers on the financial condition of the Company ( Exhibit I – Item 10 of the Reference Form);
3. a copy of the Financial Statements and Explanatory Notes;
4. the opinion of the Independent Auditors;
5. a summary of the report of the Audit Committee; and
6. the standardized financial statements form – DFP.

 

The management documents identified above, except for item ii above, were made available to the CVM, via the IPE system, at the time of disclosure of the individual and consolidated financial statements of the Company prepared in accordance with Accounting Practices Adopted in Brazil, on January 31, 2013, and for the consolidated financial statements of the Company in accordance with IFRS, on March 28, 2012. These documents can be found on the electronic address of the CVM (www.cvm.gov.br), or of the Company (www.ri.santander.com.br and www.santander.com.br/acionistas), according to information shown in Exhibit V of this Manual.

 

The management accounts are presented by the Executive Board, in the Management Report and in the Financial Statements of the Company. Before being disclosed to and approved by the shareholders in the AGO, the accounts must be first approved by the Board of Directors.

 

The Management Report contains information of financial and non-financial nature, in addition to statistical and operating information, analysis and discussion of the principal accounts of the Statement of Income for the Fiscal Year, as well as information related to the collaborators, to social responsibility, to the capital market and to corporate governance, among others.

 

The Financial Statements express the economic and financial condition of the Company and the changes in equity occurred in the fiscal year to which they refer. From an analysis of the Financial Statements it is possible to assess the equity condition, the liquidity ratios, the level of profitability and the level of indebtedness of the Company.

 

The individual and consolidated Financial Statements prepared in accordance with Accounting Practices Adopted in Brazil consist of five (5) documents, to wit:

 

1. Balance Sheet;
2. Statement of Income for the Fiscal Year;
3. Statement of Stockholders’ Equity;
4. Statement of Cash Flows; and
5. Statement of Aggregated Value.

 

 

The consolidated financial statements prepared according to IFRS consist of six (6) documents, to wit:

 

  i.                     Consolidated Balance Sheet;

ii.                     Consolidated Statement of Income for the Fiscal Year;

iii.                     Consolidated Statement of Revenues and Expenses;

iv.                     Consolidated Statement of Stockholders’ Equity;

v.                     Consolidated Statement of Cash Flows; and

vi.                     Consolidated Statement of Aggregated Value (following the Brazilian standards, filed with the DFP).

 

The Explanatory Notes present information on the basis for preparation of the Financial Statements and of the accounting practices applied to businesses and significant events of the Company, provide additional information not shown in the tables of the financial statements and that are considered necessary for adequate presentation, and designate:

 

• the principal criteria for assessment of the equity elements, particularly stocks, of the depreciation, amortization and depletion calculations, of the accrual of provisions for charges or risks, and of the adjustments to recognize the probable losses in the realization of elements of assets;
• the investments in other companies, when relevant;
• the increase of the value of elements of assets resulting from new valuations;
• the real encumbrances created on elements of assets, the guarantees pledged to third parties and other eventual or contingent liabilities;
• the interest rates, the dates of maturity and the guarantees for long-term liabilities;
• the number, kinds and classes of the shares of capital stock;
• the share purchase options granted and exercised in the fiscal year;
• the adjustments to previous fiscal years’ equity;
• the events subsequent to the date of closing of the fiscal year that have or could have a relevant effect on the financial condition and future results of the Company.

 

The shareholders must examine in detail the Explanatory Notes relative to the Financial Statements of the Company so as to resolve on their approval.

 

The Financial Statements of the Company have been audited and obtained an opinion without exceptions from Deloitte Touche Tohmatsu Auditores Independentes, the Company’s independent auditors.

 

Also, the summary of the Audit Committee’s report, which is prepared on a six-monthly basis, is published together with the Financial Statements and contains the activities carried out within the scope of its attributions, an assessment of the effectiveness of the internal control systems, a description of the recommendations presented to the Company’s Executive Board, an assessment of the effectiveness of the independent and internal audits, as well as an assessment of the quality of the Financial Statements. For fiscal year 2012 the Audit Committee concluded that the works conducted are efficacious and confer transparency and quality on the financial statements of the Santander Brasil Group, recommending their approval by the Board of Directors.

 

The Financial Statements have December 31, 2012 as their base date and relate to the fiscal year ended on that date.

 

On January 30, 2013 the Board of Directors of the Company approved without restrictions the Financial Statements of the Company, elaborated by the criterion of BRGAAP, and that they will be forwarded for approval by the shareholders of the Company, on the terms of applicable legislation.

 

On March 27, 2013 the Board of Directors of the Company approved without restrictions the Financial Statements of the Company, elaborated by the criterion of IFRS.

 

The Financial Statements and the documents on which they were based were prepared based on Accounting Practices Adopted in Brazil, on the terms of the Brazilian Corporate Law, of the norms of the CMN and of the Central Bank, as well as in accordance with the model of the COSIF and other applicable regulations and legislation. Thus, management recommends their approval without restrictions.

 

 

4.2 TO DECIDE on the destination of the net profit of the fiscal year of 2012 and the distribution of dividends

 

(a) Destination of the Net Income

 

Management presents the proposal for allocation of the net income for fiscal year 2012 in compliance with the provisions of Article 9, Paragraph One, Item II and relevant Exhibit 9-1-II of CVM Instruction 481. The mentioned proposal is shown in Exhibit II to this Manual. We recommend careful reading of the mentioned exhibit.

 

The net income corresponds to the results assessed in the fiscal year, after deduction of accumulated losses, of the provision for income tax and of the statutory profit sharing of employees and administrative officers, if applicable.

 

The net income of the Company for fiscal year 2012 was of R$3,187,378 thousand.

 

The allocation of the net income consists of determination of the portions of the net income: (i) that will be appropriated to profit, legal and statutory reserves, (ii) that will be distributed as dividends, or (iii) will be retained.

 

Management will present to the annual shareholders’ meeting a proposal of the allocation of the net income for the fiscal year, which will observe the provisions of the Corporation Law and of Article 36 of the Company’s By-Laws:

 

• a minimum of five percent (5%) to the legal reserve, until it reaches twenty percent (20%) of the capital stock. In a fiscal year in which the balance of the legal reserve, with addition of the amount of the capital reserve, exceeds thirty percent (30%) of the capital stock, it will not be mandatory to allocate a portion of the net income for the fiscal year to the legal reserve;

 

• twenty-five percent (25%) of the annual net income adjusted on the terms of Article 202 of the Corporation Law for payment of the minimum compulsory dividends to the shareholders;

 

• the remaining balance, if any, may (a) be allocated to the Reserve for Equalization of Dividends, which will be limited  to fifty percent (50%) of the amount of capital stock and will have the purpose of ensuring funds for payment of dividends, including in the form of interest on equity, or advances thereon, aiming at maintaining the flow of remuneration for the shareholders, when, once this limit is reached, it will be incumbent upon the annual shareholders’ meeting to resolve on the balance, by processing its distribution to the shareholders or by increasing capital stock, or (b) be retained, aiming at the needs of application of capital stipulated in the Company’s General Budget, submitted by management for approval by the Shareholders’ Meeting and reviewed annually by the latter, if it has a duration of more than one fiscal year.

 

The balance of the Reserve for Equalization of Dividends, added to the balances of the other profit reserves, except for the reserves for unrealized profit and the reserves for contingencies, cannot exceed the amount of capital stock. Once this maximum limit is reached, the shareholders’ meeting may resolve on the application of the excess to payment or increase of capital stock, or to distribution of dividends.

 

Unallocated profits on the above terms will be distributed as dividends, according to Paragraph Six of Article 202 of the Corporation Law.

 

Based on the foregoing, management proposes the following allocation for the net income for fiscal year 2012:

  

1.         5%, corresponding to R$159,369,000.00, to the Legal Reserve;

 

2.         R$2,178,950,000.00, on account of dividends and interest on equity to the shareholders, which have already been subject-matter of resolution in Meetings of the Board of Directors held on March 28, June 27, September 26 and December 19, 2012, of which R$1,020,000,000.00 on account of interest on equity imputed to the amount of the compulsory minimum dividends and R$1,158,950,000.00 in the form of intercalary dividends; and

 

 

3.         the remaining balance of net income after the above distributions, amounting to R$849,059,000.00, to the Reserve for Equalization of Dividends accounts, on the terms of Article 36, item III, a, of the By-Laws of the Company.

 

Management understands that the above proposal of allocation of net income was established in accordance with the legal and statutory obligations that are applicable to the Company, and is in consonance with the objectives and strategies of the Company, whereby management recommends its unrestricted approval.

 

(b) Distribution of Dividends

 

The dividend is the amount distributed to the shareholders of a company, in cash, in proportion to the number of shares held, resulting from the profits obtained by a company in the current fiscal year or in previous fiscal years. Participation in the corporate profits is an essential right of the shareholder, as provided in Article 109 of the Corporation Law.

 

What is the compulsory dividend?

 

The compulsory dividend, as provided in Article 202 of the Corporation Law, corresponds to a portion of the net income that the company cannot refrain from distributing to its shareholders, and concerns a commitment of minimum distribution. In Santander Brasil the portion relative to the compulsory dividend cannot be less than twenty-five percent (25%) of the annual net income adjusted on the terms of Article 202 of the Corporation Law.

 

The Company may only pay dividends charged to the net income for the fiscal year, to retaining earnings and to the profit reserves, except for the legal reserve.

 

As further detailed in Exhibit II to this Manual, management has approved the distribution to the shareholders of a total amount of R$2,178,950,000.00, on account of dividends and interest on equity for the shareholders, which have already been subject-matter of resolution in Meetings of the Board of Directors held on March 28, June 27, September 26 and December 19, 2012, of which R$1,020,000,000.00 on account of interest on equity imputed to the amount of the compulsory minimum dividends and R$1,158,950,000.00 in the form of intercalary dividends. These amounts, in addition to the intermediary dividends, detached of the fiscal year of 2012, in the amount of R$491 million, correspond to 88.18% 3  of the adjusted net income of the Company, and were paid to the shareholders based on their relevant participation in the capital stock of the Company.

 

Management understands that the distribution of dividends effected in the course of fiscal year 2012 observed the legal and statutory obligations of the Company and is in consonance with the strategy for remuneration to the shareholders adopted by the Company, whereby it recommends its unrestricted approval.

 

4.3. TO ELECT the current members of the Board of Directors of the Company for a new term of office  

The board of directors is the supervisory board of the Bank as set out in our By-Laws and in applicable legislation. The Board of Directors is responsible for guiding the business of the Santander Brasil and its subsidiary and associated companies in the Group Santander Brasil. It has the main scope of promoting the success of the long term of the business, by using an active posture and always considering  Santander’s interest as well as its shareholders.

The board of directors is comprised of a minimum of 5 (five) members and a maximum of 12 (twelve) members, elected at the shareholders’ meeting for terms of two years. A minimum of 20.0% (twenty per cent) of the members of the board of directors must be independent directors, as defined by Regulation Level 2 of the BM&FBOVESPA. The board of directors has a Chairman and a Vice Chairman each elected at the general shareholders’ meeting by majority vote.

Today, the Board of Directors are composed by 9 (nine) members, and 4 (four) of them are independent, which is a higher number than it is demanded by our By-Laws and by the Regulation Level 2 of the BM&FBOVESPA.

The Board of Directors meets regularly four times a year and extraordinarily as often as required, by its President.

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³ According to BRGAAP criteria.

 

The structure, operation and competencies of the Board of Directors are on articles 14 to 18 of our By-Laws and on its Internal Regulation, both on the following website: www.ri.santander.com.br and www.santander.com.br/acionistas – section “Corporate Governance”.  

 

The Company, with the positive recommendation of the Appointment and Nomination Committee, propose to the AGO the election of the current members to a new mandate of two years, to the following candidates recommended by the controlling shareholders to compose the Board of Directors of the Company:

 

 

The information related to the election of the members of the Board of Directors of the Company, pursuant to article 10 of Instruction CVM 481, can be found on Exhibit III of this Manual.

 

___________________________________________________

 

 

 

4.4. TO  FIX the annual overall consideration  of the Company´s management and members of the Audit Committee

 

Management presents a proposal for remuneration of the administrative officers, complying with the provisions of Article 12, items I and II of CVM Instruction No. 481 and item 13 of the Reference Form of the Company, on the terms of Exhibit IV to this Manual.

 

In 2012 the Annual Shareholder´s Meeting held on April 25 approved a total annual remuneration for the managers of the Company, in an amount of up to R$300,000,000 (three hundred million Reais ) for the 2012 financial year, and for the Audit Committee in an amount of R$3,900,000 (three million nine hundred and sixty thousand Reais) for the twelve-month period from March 24, 2012.

 

For fiscal year 2013, the amount proposed by management as the overall remuneration of the administrative officers (Board of Directors and Executive Board) for fiscal year 2013 is of up to three hundred million Reais (R$300,000,000.00), covering fixed remuneration, variable remuneration and the portion that is based on shares.

 

According to Article 17, item IV of the By-Laws of the Company, it is incumbent upon the Board of Directors to establish the remuneration, the indirect benefits and the other incentives for the Executive Officers, within the overall limit of management remuneration approved by the shareholders’ meeting.

 

Also, according to Article 6, Paragraph Three of the By-Laws of the Company, the shareholders’ meeting will establish annually the overall amount of the remuneration of the Audit Committee and of the Fiscal Council, if installed, together with the remuneration of the administrative officers.

 

The amount proposed by the Board of Directors as overall remuneration of the members of the Audit Committee for the twelve (12) months period counting from March 24, 2013 is of three hundred million Reais  (R$3,000,000.00).  

 

 

 

 

 

 

 

 

 

 

5.1. TO DECIDE on the amendment of the term of payment of dividends and interest on capital related specifically to the year of 2013, to not more than one hundred and eighty (180) days counted from its declaration by the Company’s Board of Directors and in any circumstances within this fiscal year, according to the Board of Directors´ proposal in the meeting held on February 27 ^th , 2013..

 

On the terms of Article 205, Paragraph Three, of the Corporation Law, unless otherwise resolved in the shareholders’ meeting the company will pay dividends within a period of sixty (60) days from the date when declared and, in any event, within the fiscal year.

 

The proposal approved by the Board of Directors of the Company has the purpose of conferring transparency on the structure of remuneration to the shareholders, in view of the financial strategy of the Company and the efficiency of its administrative and financial costs, and if approved by the shareholders of the Company will be applicable also to the payment of interest on equity to be resolved by the Board of Directors held on March 27, 2013.

 

For these reasons, management recommends its unrestricted approval.

 

 

5.2. TO APPROVE the Long-Term Incentive Plan relative to fiscal year 2013.

 

 

(Pursuant to Article 13 of CVM Instruction 481)

Long Term Incentive Plan – Investments of Units – (“ Plan ”) 

Stock Option Plan

 

1. Provide a copy of the proposed plan

Exhibit I.1

 

2.      Inform the principal characteristic of the proposed plan, identifying:

a.       Potencial beneficiary

For the purposes of this Plan, shall be eligible members of the Executive Board, and employees in key positions on the Company. Members of the Board of Directors shall only participate in the Plan if hold positions in the Executive Board.

 

b.       Maximum number of options to be granted

 

	Board of Directors	Board of Executive Officers, Keys and Professional Positions
	Long Term Incentive Plan	Long Term Incentive Plan
Maximum number of options to be granted	0	15,200.000

 

c.          Maximum number of shares covered by the plan

 

	Board of Directors	Board of Executive Officers, Keys and Professional Positions
	Long Term Incentive Plan	Long Term Incentive Plan
Maximum number of options to be granted	0	15,200.000

 

 

 

d.         Acquisition conditions

The amount of Units exercisable by the participants shall be determined according to the result of the determination of the performance parameter of the Company: Total Shareholder Return ("TSR") and may be reduced, if failure to achieve the goals of reducing Return on Risk-Adjusted assets ("RORWA") (comparison between realized and budgeted in each year) as determined by the Board of Directors. Additionally, it is necessary that the participant remains in the Company during the term of the plan to acquire a position to exercise the corresponding options.

 

e. Detailed criteria for setting the exercise price

 

The exercise price of options, to be paid by participants for the subscription of  Units shall be the average closing price of the 20 days preceding the grant date, excluding the grant date. The exercise price shall be adjusted due to: bonus in share/Unit, split or reverse stock split promoted by the Company, or corporate reorganizations.

 

          f. Criteria for setting the exercise period

The acquisition of the right to exercise the options (“vesting”) shall occur on 06/30/2016, ie, 42 months after the start of calculation parameters performance. The exercise period is 24 months after vesting ir from 06/30/2016 to 06/30/2018.

 

g.       Form to liquidation the options

Units shall be charged in by the difference between the closing price the date of exercise and the "Stricker Price" is already net of IRPF.

h. Criteria and events that, when checked, will cause the suspension, modification or termination of the plan

Every relevant legal change regarding the regulation of corporations and/or the tax effects applicable to the Company and participants can lead to partial or full revision of the Plan, or even suspension or termination, at the discretion of the Board of Directors. Additionally, in case of disposal directly or indirectly, by controlling the Company, either through a single transaction or series of transactions by means of number of shares involving a change of control of the Company under the Regulation of Level 2, the Board of Directors may, at its sole discretion, approve the options are released to be exercised in whole or in part by the participant.

The Board of Directors shall establish special rules that allow the shares under the options to be sold in a takeover bid. The Company’s Board of Directors shall also establish the final amount of Base Units Calculation of Participants to the beginning of the period of investment on June 30, 2016, which may be established through percentage for each individual participant, if necessary; applied on the initial amount of Base Units Calculation ³ in the following cases:

 

(a) unsatisfactory financial performance of the Company;

 

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(b) breach of internal rules applicable to the Participant, including but not limited to, political risk management;

 

(c) substantial change in the financial condition of the Company, except as a result of changes in accounting standards;

 

(d) significant changes in the Company's net worth, or

(e) injudicious exposure in risk management.

 

3.  Justify the proposal plan, explaining:

 

a.       The principal target of the Plan

The Plan has the proposal of payment funds by the Company exclusively for the participants representing investment on Units, each of 55 (fifty five) common shares and 50 (fifty) preferred shares of the Company, in order to:

(a) align the interests of the Company and the participants' views on the one hand, the growth and profitability of the Company and on the other hand, the recognition of the contribution of the participants;

(b) permit the Company to retain participants, offering them as an additional advantage, the opportunity to develop or increase their interest as shareholders of the Company, the terms, conditions and forms of this Plan, and

(c) promote the good performance of the Company and shareholder interests through a long-term commitment by the participants.

b.      The way the Plan contributes to this goal

The plan contributes to the goals mentioned above by encouraging participants to develop their activities so that the Company achieves the best level of indicators linked to the Plan: TSR and RORWA (budgeted and paid), and compliance with internal rules applicable to participants.

 

c.       How does the Plan is included on the Company´s remuneration policy

The Plan is a key strategy on the Company's compensation because it acts as an efficient instrument of recognition, motivation and retention of participants in the short, medium and long term.

 

d.       How does the Plan aligns the interests of the beneficiaries and the Company´s short, medium and long term

The Plan aligns the interests of participants and the Company's short, medium and long term, since the only options are exercised and the shares received if the Company's strategic objectives are consistently met during his lifetime.

Importantly, the Total Shareholder Return (TSR) compared to competitors is the main indicator of the Plan and is directly linked to the interests of shareholders.

 

 

 

4. Estimate the costs arising from the Company's Plan, according to accounting rules that address this matter.

 

Total Estimated Cost of the Plan is R$ 52 million.

 

 

 

 

 

 

 

 

EXHIBIT I

 

COMMENTS OF THE ADMINISTRATIVE OFFICERS ON THE FINANCIAL CONDITION OF THE COMPANY

(As per sub-paragraph III of Article 9 of CVM Instruction 481)

 

Item 10 of Annex 24 of CVM Instruction 480 - Reference Form

 

10.1. The directors must comment on:

 

a. general financial and equity conditions

Santander Brasil is the third biggest private bank in Brazil, with a market share in assets of 7.9%, according to data from the Central Bank of Brazil of September 2012, and the only international bank ranked among the five biggest banks in Brazil. The operations are located in the entire Country and are strategically concentrated in the South and Southeast regions, which represent approximately 72% of IGP.

Information contained in this document are based on the Consolidated Financial Statements of Santander Brasil, prepared according to IFRS (International Financial Reporting Standards), except when otherwise indicated.

• Net profits in 2012 were R$5,459 million, a decrease of 29.6% (or R$2,297 million) in reference to R$7,756 million for the year of 2011.

• Assets of R$421,085 million, with an increase of 5.3% in twelve months.

• Credit to clients of R$210,741 million, with an increase of 8.5% in twelve months.

• Saving Deposits reached R$26,857 million, an increase of 15.3% in twelve months.

• Average adjusted shareholders’ equity totaled R$52,979 million (excluding share premium of R$27,218 million).

• The Basel ratio (excluded the effect of premium, as determined by the international rule) in 2012 reached 17.7%, with a decrease of 2.5 p.p. in twelve months. Considering the premium, the Basel ratio reached 20.8%, a decrease of 4.0 p.p. in the year.

• The current account client base (active and non-active accounts, according to the Central Bank criteria) totaled 20.8 million.

• Santander Brasil has a solid distribution platform, which in December 2011 totaled: 2,407 branches, 1,381 PABs and 17,793 automatic teller machines.

The premium adjusted return on net worth reached 16.2%, a decrease of 0.7 p.p. in twelve months.

The general expenses (administrative + personnel) amounted to R$13,204 million in the aggregate in 2012, an increase of 6.7% in twelve months. The administrative expenses totaled R$6,077 million in the aggregate in 2012, an increase of 6.1% in twelve months, and the expenses with personnel added R$7,127 million in 2011, an increase of 7.3% in the same comparison period.

The credit portfolio totaled R$210.741 million in December 2011, with an increase of 8.5% or R$16.557 million. In twelve months, the segment of Individuals has show a growth of 10.8% and 25.6% for the Legal Entities segment.

 

Total offer, including from clients and investment funds reached R$333,940 million in December 2012, with an increase of 8.1% as compared to the same period in 2011.

 

 

Santander Basil’s strategy is based on following objectives:

ü   To be the best bank in service quality, supported by the operational efficiency of the technological platform;

ü   To improve the service to clients, through the quality of services provided and infrastructure;

ü   To improve the relationship in every client segment, becoming the first bank of its clients;

ü   To increase the businesses in main segments for Santander Brasil, with SMEs, card issuer, acquiring business, real estate credit, financing of vehicles and insurance;

ü   To take all the opportunities to offer products and services for different segments;

ü   To continue constructing and strengthening the brand Santander in Brazil, entering to the TOP 3 ranking of financial brands;

ü   To keep a safe position in managing risks;

Santander Brasil shares global best practices of Grupo Santander Spain, thus differentiating its business model, which bases are oriented according to 5 main drives: 1) Oriented to the client; 2) Global brand; 3) Cost efficiency; 4) Conservative risk management; and 5) Solvency.

With a Basel ratio of 20.8%, Santander Brasil is the most capitalized bank among the biggest retail banks; it counts with wide solvency levels and coverage, having funding and capital independency in reference to its Controlling Shareholder. For these and other reasons the magazine Bloomberg Markets considered it as the 11th most sound bank in the world, and rated it the 1st among the Brazilian banks.

According to the strategy of becoming the best and most efficient universal bank in Brazil, several improvements were implemented, including:

·          Optimization of the credit analysis processes, generating more agility and autonomy in the for the service network;

·          Simplification of the documentation process, providing faster answers for real estate credit;

·          Increase of the number of channels to access Santander Móvel.

All these actions are aligned with the mission announced by Santander Brasil: “Having the preference of our clients for being a simple and safe bank, efficient and profitable, which is constantly seeking to improve the quality of everything it does, with a team that enjoys working together in order to achieve general recognition and confidence.” Some positive results can already be seen. Santander Brasil has been significantly improving its position in the ranking of complaints with the Central Bank, going from the 2 ^nd place in December 2011 to the 5th in December 2012.

Another fact that is worth mentioning is the recognition of Santander Brasil action in the area of sustainability. The strategy, based in three building blocks: Social and Financial Inclusion, Education and Management in Social and Environmental Business, was recognized by the market. In September, Santander Brasil was selected as the greenest company in the category "Financial Institution", and was ranked among the 20 companies with best environmental practices by the Prêmio Época Empresa Verde, promoted by Editora Globo. And in October, Santander Brasil was selected the greenest company of the world by the North-American magazine Newsweek, in the fourth edition of the Green Rankings 2012: Global Companies.

 

 

b. capital structure and possibility of redemption of shares or quotas, designating:

     i. cases of redemption

     ii. formula for calculation of the amount of the redemption

Net Equity

 

The Extraordinary General Meeting held in April 27, 2010 approved a capital increase in the amount of R$22.130, without issuance of new shares, upon the incorporation of capital reserves, which was approved on June 24, 2010 by the Central Bank.

 

In thousands of BRL		2012		2011		2010
Capital Stock		62,634,585		62,634,585		62,634,585
Reserves		14,752,052		9,950,144		6,094,885
Treasury shares		(170,562)		(112,768)		-
Accrued at year-end attributable to parent company		5,448,660		7,747,925)		7,382,093
Less: dividends and remuneration		(2,670,000)		(3,175,000)		(3,540,000)
Adjustment at market value		1,502,116		968,146		783,755
Interest in non-controlling companies		249,260		18,960		8,076
Total Shareholders’ Equity		81,566,11		78,031,992		73,363,394

 

		2012		2011		2010
Capital Structure
Total liabilities (1)		339,518,852		321,854,090		301,299,289
Total shareholder's equity		81,566,111		78,031,992		73,363,394
Total Liabilities and Shareholder’s Equity		421,084,963		399,886,082		374,662,683
(1) Santander Brasil principal fundraising source are the deposits, because it is primarily a commercial bank. These deposits, combined to the capital and other similar instruments, allow Santander Brasil to cover most liquidity requirements. The functions of control and administration involve planning fundraising requirements, structuring of fundraising sources to achieve an adequate diversification in terms of maturities, instruments and markets, as well as the establishment of contingency plans (more details in item 10.1.f.).

Regulatory Capital – Basel Ratio

According to global policies of capital management of Grupo Santander Espanha, each unit must be self-supporting in terms of capital. Therefore, Santander Brasil uses primarily third-party resources independently of any other entity of the Grupo Santander Espanha.

Financial institutions are required to maintain a Reference Assets that are compatible with the risks of their activities, which must be higher than a minimum of 11% of Required Assets. As of July 2008, new rules were in force to measure the regulatory capital by the Second Basel Framework, with a new measurement methodology, analysis and administration of credit and operational risks. This ratio must be calculated as consolidated, according to following demonstration:

In thousands of BRS	2011	2010	2009
Adjusted Level I Reference Assets	65,213,301	64,759,590	64,428,471
Level II Reference Assets	5,069,813	6,642,092	7,433,493
Adjusted Reference Assets (Levels I and II)	70,283,114	71,401,682	71,862,234
Required Reference Assets	37,131,442	31,701,580	27,799,273
Adjusted Credit Risk Portion (3)	32,409,974	28,761,446	25,630,512
Market Risk Portions (4)	2,951,238	1,219,396	706,803
Operational Risk Portion	1,770,230	1,720,738	1,461,958
Basel Ratio II (2)	20.8%	24.8%	28.4%

 

 

22

 

 

Capital Adjustment and Leverage

The Central Bank supervises the Brazilian banking system in accordance with the Basel Committee guidelines and other applicable regulations, including the Basel II Accord, which is currently being implemented, according to the Notices 12,746, dated December 9, 2004, 16,137, dated September 27, 2007 and 19,028, dated October 29, 2009. The banks provide the Central Bank with the information necessary for it to perform its supervisory functions, which include supervising the movements in the solvency or capital adequacy of banks.

The main principle of the Basel Accord as implemented in Brazil is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

On December 16, 2010, the Basel Committee on banking supervision issued its new Basel III framework. The Basel III framework includes higher minimum capital requirements and new conservation and countercyclical buffers, revised risk-based capital measures, and the introduction of a new leverage ratio and two liquidity standards. On January 7, 2013, amendments to the liquidity coverage ratio as a minimum standard were issued by the Basel Committee to ensure that banks hold sufficient liquid assets. Such amendments include (i) revisions to the definition of high quality liquid assets and net cash outflows, (ii) a timetable for phase-in of the standard; (iii) a reaffirmation of the usability of the stock of liquid assets in periods of stress; and (iv) an agreement for the Basel Committee to conduct further work on the interaction between the liquidity coverage ratio and the provision of central bank facilities. The new rules will be phased in gradually and, as with other Basel directives, these will not be self-effectuating. Rather, each country must adopt them by legislation or regulation to be imposed upon that country’s home banks.

On February 17, 2011, the Central Bank enacted Notice 20,615 containing preliminary guidance and the schedule for the implementation of Basel III in Brazil. It is intended that the higher minimum capital requirements and new conservation and countercyclical buffers, revised risk-based capital measures, and the introduction of a new leverage ratio and two liquidity standards will be implemented in Brazil in line with the international schedule. Basel III complements existing rules, creating new parameters for absorption of greater system-wide risk to the banking system as the result of a build-up of excess credit growth in the jurisdiction. The Basel ratio would be increased from the current 11.0% to the maximum of 13.0%. The total ratio will be calculated by the sum of three parts: the Regulatory Capital ( Patrimônio de Referência ), the Conservation Capital (to assist the absorption of losses) and the Countercyclical Capital (to deal with risks of the macroeconomic environment).

The Regulatory Capital will continue to be composed by two tiers. Tier 1 capital will have a 6.0% floor, divided into two portions: common equity (corporate capital and profit reserves) of at least 4.5% and additional equity (hybrid debt and capital instruments authorized by the Central Bank). Current hybrid instruments and subordinated debt approved by the Central Bank as additional capital or Tier 2 are expected to be maintained if they also comply with Basel III requirements, including the mandatory conversion clauses into equity or write-off rules as directed by the Basel Committee. If such instruments do not comply with Basel III rules, there will be an estimated yearly deduction of 10.0% on the nominal value of such instruments, starting as from January 1, 2013.

 

The Basel III rules also provide for new metrics for the analysis of banks. The leverage ratio prevents the banks from entering into transactions exceeding a ratio calculated by the division of the Tier 1 capital by bank’s total exposure. Such leverage ratio will be capped at 3.0% of the risk-weighted assets as from 2018. The liquidity ratios of short and long term shall control the cash funds of the banks (for example, obligation to maintain liquid assets for stress scenarios of the financial system for 30 days and funding with solid and stable capital).

The following table presents an estimate of the implementation schedule of the main changes related to capital adequacy and leverage expected with respect to Basel III, as indicated by the Central Bank, as per Notice 20,615:

 

Parameters	January 1, 2013	January 1, 2014	January 1, 2015	January 1, 2016	January 1, 2017	January 1, 2018	As from January 1, 2019
Common Equity	4.5%	4.5%	4.5%	4.5%	4.5%	4.5%	4.5%
Tier I	5.5%	5.5%	6.0%	6.0%	6.0%	6.0%	6.0%
Regulatory Capital	11.0%	11.0%	11.0%	9.9%	9.3%	8.6%	8.0%
Conservative Capital	-	-	-	0.6%	1.3%	1.9%	2.5%
Countercyclical Capital	-	Up to 0.6%	Up to 1.3%	Up to 1.9%	Up to 2.5%	Up to 2.5%	Up to 2.5%

 

Basel III was recently implemented in Brazil through the issuance of several enacting rules and regulations published by the relevant authorities, as further described below.

By means of Provisional Measure 608, issued by the President of the Republic on February 28, 2013, the Federal Administration determined that financial institutions and other institutions authorized to operate by the Central Bank may identify presumed credits based on the allowances for loan losses in each calendar year, whenever such credits arise, from temporary differences resulting from allowances for loan losses existing in the preceding calendar year, and from the balance of the accrued fiscal losses of the preceding calendar year.

Pursuant to Provisional Measure 608, new rules were also issued concerning financial bills to adapt them to the Basel III framework, as well as the possibility for the Central Bank to limit payment of dividends by financial institutions if they disregard the prudential requirements defined by the CMN.

The CMN has published Resolutions 4192, 4193, 4194 and 4195, all dated March 1, 2013, which detail the new rules for determining the regulatory capital of financial institutions and certain minimum capital requirements. A set of fifteen new circular letters issued by the Central Bank supplements the rules, and establishes the procedures for determining the risk-weighted assets (RWA). Some of the new rules set forth by the Brazilian regulatory authorities include the following:

(i) new methodology for determining regulatory capital, with the adoption of minimum requirements of regulatory capital, Tier 1 and Principal Capital, and inclusion of Additional Principal Capital. The Additional Principal Capital corresponds to the conservation (fixed) and counter cycle (variable) buffers established pursuant to Basel III rules, which represent the accumulation of additional capital reserves to be used in periods of stress. After a transition period, the Central Bank will determine the exact percentage of Additional Principal Capital from a range between 2.5% to 5.0% of the RWA;

(ii) eligibility rules for Tier 1 and Tier 2, including mandatory conversion rules (delivery of equity in payment) and write-off rules;

(iii) new restrictions in respect of the acceptance of financial instruments which are not capable of effectively absorbing losses and the deduction of assets which may affect the value of the capital due to its low liquidity, dependence on future profits or difficulty to measure its value; and

(iv) independent requirements that must be continuously observed by financial institutions, including: (a) 4.5% of Principal Capital, composed mainly of shares, quotas, reserves and earned income; (b) 6.0% of Tier I, which is composed of Principal Capital and other instruments capable of absorbing losses with the financial institutions; and (c) 8.0% of total regulatory capital, which is composed of Tier I and other subordinated instruments capable of absorbing losses as of termination of the institution.

 

The implementation of the new capital structure in Brazil begins on October 1, 2013 and shall follow the agreed international timeframe until conclusion of the process, on January 1, 2022. Changes regarding the capital identification for credit risk that do not result in additional capital and that can easily be implemented by the institutions became effective as of the issuance of the new rules. The revocation of some of the regulations will be effective as of October 13, 2013.

Provisional Measure 472, enacted on December 15, 2009 and converted into Law 12,249 of June 11, 2010, established the concept of the financial bill ( letras financeiras ), which was a new funding alternative for financial institutions that can be characterized as subordinated debt or a hybrid instrument of capital for purposes of capital adequacy rules. CMN Resolution 3,836 of February 25, 2010, established its minimum term of 24 months and minimum denomination of R$300,000. However, on August 23, 2012, the Central Bank enacted Resolution 4,123 (“Resolution 4,123”), which revoked Resolutions 3,836, and 3,933, dated December 16, 2010, and amended and restated the rules applicable to financial bills ( letras financeiras ) to be issued by certain types of Brazilian financial institutions. Pursuant to Resolution 4,123, the minimum unitary face value of the financial bills without subordination clause was reduced from R$300,000 to R$150,000. The R$300,000 threshold was maintained in respect of financial bills with a subordination clause. In addition to other provisions, the new Resolution sets forth that financial bills with terms exceeding 48 months and not remunerated by the interfinancial deposit rate may be repurchased or resold before maturity if certain conditions are observed. CVM Ruling 488, enacted on December 16, 2010, established the procedures for public distribution of financial bills, by means of a program with multiple series that may be issued from time to time. Provisional Measure 608, enacted on February 28, 2013, introduced new rules on financial bills to adapt it to the Basel III framework.  The following main features were added to the financial bill:

·          Possibility of issuance of financial bills convertible into equity. The conversion may not be requested by the investor or the issuer (financial institution), and is subject to the rules indicated below. The issuance of financial bills convertible into equity is subject to the preemptive right of shareholders, except in case of public offering and other exceptions established in the regulations;

·          In case the financial bills will be part of the regulatory capital of the financial institution, suspension of payment of interest in case of non-compliance with capital prudential rules. In addition, in accordance with Basel III rules, and in order to preserve the regular functioning of the financial system, the Central Bank may determine the conversion into equity or extinction of the debt (write-off), and these decisions shall not be considered an event of default; and

Financial bills may include as early maturity events an event of default on the payment of the remuneration of the bill or the dissolution of the financial institution.

 

Other Information

Santander Brasil, in order to adequately manage its capital and foresee future needs of the many phases of business cycle, makes projections for regulatory and economic capital, based on financial projections (Balance Sheet, Income Statements and others), and on macroeconomic scenarios estimated by the economic research area.

In operations of sale or transfer of financial assets the conditions and characteristics of operations are analyzed for adequate evaluation and classification of risk management and benefit retention.

More details of the structure of credit risk management may be obtained in the public access report, available in the electronic address www.santander.com.br/ri.

c. ability to pay the financial obligations

The Management Board understands that the Company shows financial and equity conditions sufficiently adequate for the payment of their assumed obligations.

The administration of Company's creditworthiness is made dynamically through the implementation of limits and control models, approved and supervised by the Financial Committee, which operates according to directives and procedures established by Grupo Santander Espanha and the Central Bank. The control and management of the creditworthiness are made through the analysis of cash flow positions, structural liquidity and simulations of potential losses of resources under stress scenarios. Also, a plan is prepared containing funding requirements that consider the best structure for the funding sources, in order to achieve the necessary diversification in terms of maturities, instruments and markets, as well as the establishment of contingency plans. These controls, together with the maintenance of a minimum liquidity margin, guarantee sufficient resources to honor client deposits and other obligations, to give loans and financing to clients, fulfill the specific needs of working capital for investment and to cope with eventual risks related to liquidity crisis.

 

Santander Brasil actively administers the risks intrinsic to the activity of commercial bank, such as structural risks of interest rates, liquidity and foreign exchange rates. The objective of the financial management is to turn the net income with interests from commercial activities more stable and recurring, maintaining adequate levels of liquidity and solvency. Financial management also analyses the risk of structural interest rate derived from the divergences between the maturities and review of assets and liabilities in each currency operated by Santander Brasil.

Following table shows the intervals between the pricing dates of financial assets and liabilities with different maturity dates, on December 31 2012 (liquidity position):

 

 

 

 

														2012		2011		2010
In thousands of Reais		At sight		Up to 3 months		3 to 12 months		1 to 3 years		3 to 5 years		After 5 years		Total
Assets:
Cash and balances with the Central Bank		38,198,101		10,205,643		7,131,496		-		-		-		55,535,240		65,938,003		56,800,151
Debt instruments		-		5,607,527		6,430,543		19,424,651		36,226,923		2,395,434		70,085,077		68,891,257		62,256,227
Equity Instruments		2,631,705		-		-		-		-		-		2,631,705		2,130,575		22,435,327
Loans and other amounts with credit institutions		10,578,691		7,475,012		3,585,485		1,260,606		-		7,018,403		29,918,197		19,689,674		22,998,216
Loans and advances to customers, gross		9,532,378		57,727,291		55,012,123		51,713,899		12,465,248		24,289,730		210,740,669		194,184,437		160,558,323
Total		60,940,875		81,015,473		72,159,647		72,399,156		48,692,171		33,703,567		368,910,889		350,833,946		325,048,244
Liabilities:
Financial liabilities at amortized cost:
Deposits from Central Bank and deposits from credit institutions		434,853		14,418,896		13,719,558		4,663,551		777,383		1,059,385		35,073,626		51,527,021		42,391,572
Customer deposits		41,094,568		39,996,790		20,421,839		63,229,707		17,608,936		6,243,090		188,594,930		174,473,891		167,949,201
Securities obligations		-		10,833,946		20,715,152		16,817,641		5,621,656		23,623		54,012,018		38,590,423		20,086,645
Subordinated debts		-		721,196		3,006,549		2,336,613		5,587,196		267,597		11,919,151		10,908,344		9,695,105
Other financial liabilities		254,666		16,795,033		61,924		264,858		-		-		17,376,481		15,952,007		13,218,248
Total		41,784,087		82,765,861		57,925,022		87,312,370		29,595,171		7,593,695		306,976,206		291,451,687		253,340,771
Difference (assets and liabilities)		19,156,788		(1,750,388)		14,234,625		(14,913,214)		19,097,000		26,109,872		61,934,683		59,382,259		71,707,473
(*) It does not include derivative financial instruments.

 

 

 

 

 

 

 

Following table shows the assets and liabilities by national currency and foreign currency, in December 31, 2012, 2011 and 2010 (currency position).

		National		Foreign		2012		2011		2010
Thousands of Reais		Currency		Currency		Total
Financial Assets:
Cash and balances with the Central Bank of Brazil		55.425.928		109.312		55.535.240		65.938.003		56.800.151
Debt instruments		870.531		69.214.545		70.085.076		68.891.257		62.256.227
Equity instruments		2.414.328		217.377		2.631.705		2.130.575		22.435.327
Loans and amounts due from credit institutions		21.803.005		8.190.398		29.993.403		19.751.341		22.998.216
Loans and advances to customer, gross		178.588.303		18.185.994		196.774.297		194.184.437		160.558.323
Total		259.102.095		95.917.626		355.019.721		350.895.613		325.048.244
Financial Liabilities:
Financial liabilities at amortized cost:
Deposits from credit institutions		19.385.341		15.688.285		35.073.626		51.527.021		42.391.572
Customer deposits		186.303.144		2.291.786		188.594.930		174.473.891		167.949.201
Marketable debt securities		39.267.849		14.744.169		54.012.018		38.590.423		20.086.645
Subordinated liabilities		11.919.151		-		11.919.151		10.908.344		9.695.105
Other financial liabilities		16.700.357		676.124		17.376.481		15.952.008		13.218.248
Total		273.575.842		33.400.364		306.976.206		291.451.687		253.340.771
Difference (assets and liabilities)		(14.473.747)		62.517.262		48.043.515		59.443.927		71.707.473

(*) Not includes derivatives financial instruments.

Information referring to the sensitivity analysis of operation portfolios and banking generated by corporate systems of Santander Brasil and the structure of risk management are available in items 10.2 b and c.

 

 

d. sources of financing of working capital and for investment in non-current assets that were used

Described in item 10.1.f.

e. sources of financing for working capital and for investments in non-current assets that it intends to use to cover liquidity deficiencies

Described in item 10.1.f.

f. levels of indebtedness and the characteristics of such debts, describing also:

     i. relevant loan and financing agreements

     ii. other long-term relationships with financial institutions

     iii. level of subordination between the debts

     iv. any restrictions imposed on Santander Brasil, particularly in relation to limits of indebtedness and contracting of new debts, to distribution of dividends, to sale of assets, to issuance of new securities and to the sale of equity control

Santander Brasil primary resource sources are local deposits in the modalities demand, savings and long-term, aligned with other Brazilian banks, as well as fundraising in the open market – own securities and Federal Government securities with buy back commitment ("repurchase agreements").

Santander Brasil also has deposits with credit institutions referring to debt facilities to exportation and importation with bankers abroad, to be applied in commercial foreign exchange operations, referring to discount of facility agreements, and on lending obligations in the Country – official institutions according to operational policies of BNDES System.

Santander Brasil has issuances of instruments of indebtedness in the local market through (i) letters of agribusiness credit, which are credit notes that are freely negotiable and represent an unconditional promise of payment in cash, issued exclusively by financial institutions, related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the Agribusiness production chain; (ii) real estate credit bills, referring to credit rights originated from real estate transactions; and (iii) (iii) financial bills, long-term credit securities, and registered, transferable and negotiable securities.

The external issuances of securities in foreign currency include bills and other securities (Eurobonds and Structured Notes) and securitized bonds - securitization operations involving the disposal of rights, securities and interests in some of our rights to payments of certain payment orders in foreign currency (the disposal of such diversified payment rights is made to a specific purpose corporation, which finances their purchases through bond issue).

Santander Brasil uses subordinated debt instruments in its fundraising structure, represented by securities issued according to the rules of Central Bank, which are used as Reference Assets – Tier 2, in order to form the operational limits, including Subordinated CDBs, deposit certificate issued by Santander Brasil in the local market, in several issuances, at interest rates updated by CDI or IPCA.

The compositions of obligations on December 31, 2012, 2011 and 2010 of Santander Brasil are described below:

In thousands of BRL	2012	2011	2010
Deposits of the Central Bank of Brazil and Deposits of credit institutions	35,073,626	51,527,021	42,391,572
Demand Deposits	47,763	133,567	344,072
Long-term deposits (2)	26,077,164	27,022,696	28,867,406
Repurchase agreements	8,948,699	24,370,758	13,180,094
Deposits from clients	188,594,930	174,473,891	167,949,201
Current accounts (1)	13,585,488	13,561,003	16,131,836

 

 

Saving accounts	26,856,910	23,293,434	30,303,463
Long-term deposits	84,586,047	83,941,820	68,916,301
Repurchase agreements	63,566,485	53,677,634	52,597,601
Obligations by bonds and securities	54,012,018	38,590,423	20,086,645
Real Estate Credit Bills – LCI (3)	11,236,843	8,550,108	7,614,891
Eurobonds and other securities	13,049,920	6,539,765	3,351,137
Financial bills (4)	25,320,186	19,926,031	6,638,936
Securitization notes - MT100 (5)	2,236,089	2,152,543	1,577,181
Agribusiness Credit Bills - LCA	2,008,472	1,341,232	904,500
Debentures (6)	160,508	80,744	-
Subordinated debts	11,919,151	10,908,344	9,695,105
Other financial liabilities	17,376,481	15,952,008	13,218,248
Total	306,976,206	291,451,687	253,340,771

(1)  Non-interest-bearing accounts.                                                                                      

(2) Includes operations with credit institutions resulting from debt facilities to exportation and importation, on lendings in the country (BNDES and Finame) and from abroad, and other foreign debt facilities.

(3) LCIs are real estate-backed fixed income securities and secured by mortgage or by fiduciary title of real estate. On December 31, 2012 they have maturities from 2012 to 2016.

(4) Main characteristics of financial bills are minimum maturity in two years, minimum par value of R$300, and permitted early redemption of only 5% of the amount issued. On December 31, 2012 they have maturities from 2013 to 2018.

(5)  Issuance of bonds linked to the right to receive future flows of receivable payment orders from corresponding banks abroad.

(6) Debentures issued by controlled company MS Participações Societárias S.A. in three series (November 2011 – R$82.122, March 2012 – R$47.592 and May 2012 – R$33.732) with remuneration indexed by CDI + 1.77% per year and maturity on November 21, 2012.

 

 

 

 

 

 

 

The composition of "Securitization notes - MT100" is as follows:

 

 

Following table shows the detailed composition of subordinated debts:

In thousands of Reais

Issuance

Maturity (1)

Amount (in million)

Interest Rate

2012

2011

2010

Subordinated CDB

June 2006

July 2016

R$1,500

105.0% CDI

3,048,617

2,801,102

2,495,990

Subordinated CDB

October 2006

September 2016

R$850

104.5% CDI

1,649,313

1,516,018

1,351,627

Subordinated CDB

July 2007

July 2014

R$885

104.5% CDI

1,553,537

1,427,982

1,273,137

Subordinated CDB

April 2008

April 2013

R$600

100.0% CDI + 1.3%

1,010,620

920,870

814,922

Subordinated CDB

April 2008

April 2013

R$555

100.0% CDI + 1.0%

929,321

848,876

753,066

Subordinated CDB

July 2006 to October 2006

July 2016 to July 2018

R$447

104.5% CDI

895,314

822,956

733,718

Subordinated CDB

January 2007

January 2013

R$300

104.0% CDI

561,379

516,217

460,494

Subordinated CDB

August 2007

August 2013

R$300

100.0% CDI + 0.4%

524,743

482,026

430,041

Subordinated CDB

January 2007

January 2014

R$250

104.5% CDI

469,107

431,194

384,437

Subordinated CDB

May 2008 to June 2008

May 2013 to May 2018

R$283

CDI (2)

461,792

422,628

374,705

Subordinated CDB

May 2008 to June 2008

May 2013 to June 2018

R$268

IPCA (3)

494,490

431,919

372,952

Subordinated CDB

November 2008

November 2014

R$100

120.5% CDI

161,101

146,183

128,062

Subordinated CDB

February 2008

February 2013

R$85

IPCA +7.9%

159,817

140,373

121,954

Total

11,919,151

10,908,344

9,695,105

(1) Subordinated CDBs issued by Santander Brasil have remuneration paid at the end of maturity term together with the principal.                                                 

(2) Indexed from 109% to 112% of CDI, plus interest of 1.2% per year to 1.5% per year   

(3) IPCA indexed plus interest of 8.3% per year to 8.7% per year.