Galicia Financial Group - 20-F annual report

Grupo Financiero Galicia S.A. (“Grupo Financiero Galicia”) is a financial services holding company incorporated in Argentina and is one of Argentina’s largest financial services groups. In this annual report, references to “we”, “our”, and “us” are to Grupo Financiero Galicia and its consolidated subsidiaries, except indication of the contrary. Our consolidated financial statements include the accounts of the following companies:

We maintain our financial books and records in Argentine Pesos and prepare our financial statements in conformity with the accounting rules of the Argentine Central Bank, which entity prescribes the generally accepted accounting principles for all financial institutions in Argentina. This annual report refers to those accounting principles as “Argentine Banking GAAP.” Argentine Banking GAAP differs in certain relevant respects from generally accepted accounting principles in Argentina, which we refer to as “Argentine GAAP.” Argentine Banking GAAP also differs in certain significant respects from generally accepted accounting principles in the United States, which we refer to as “U.S. GAAP.” See note 33 to our consolidated audited financial statements included in this annual report for a description of the differences between Argentine GAAP and Argentine Banking GAAP, and Item 5A. “Operating Results—U.S. GAAP and Argentine Banking GAAP Reconciliation” and note 34 to our financial statements for reconciliation of the principal differences between Argentine Banking GAAP and U.S. GAAP and reconciliation to U.S. GAAP of our net income and total shareholders’ equity for the three fiscal years ended December 31, 2007.

In this annual report, references to “US$,” “US Dollars,” and “Dollars” are to United States Dollars and references to “Ps. “ or “Pesos” are to Argentine Pesos. The exchange rate used in translating Pesos into US Dollars and used in calculating the convenience translations included in the following tables is the “Reference Exchange Rate” published by the Argentine Central Bank, which was Ps. 3.1510, Ps. 3.0695 and Ps. 3.0315 per US$ 1.00 as of December 31, 2007, December 31, 2006 and December 31, 2005, respectively. The exchange rate translations contained in this annual report should not be construed as representations that the stated Peso amounts actually represent or have been or could be converted into US Dollars at the rates indicated or any other rate.

Our fiscal year ends on December 31, and references in this annual report to any specific fiscal year are to the twelve-month period ended December 31 of such year.

References to the Government are to the Argentine Federal Government unless otherwise indicated.

In 2002, Argentina experienced high inflation. On July 17, 2002, the Government reestablished the practice of restating financial information to account for inflation for periods beginning on or after January 1, 2002. Through Decree No. 664/03, Argentine Central Bank’s Communiqué “A” 3921 and Resolution No. 441/03 of the National Securities Commission (or “CNV”), dated April 8, 2003, the Government eliminated the requirement that financial statements be prepared in constant currency, effective for financial periods ending on or after March 1, 2003. Accordingly, information included in this annual report as of and for the four fiscal years ended December 31, 2007 does not include any effects of inflation accounting. Information included in this annual report as of and for the fiscal year ended December 31, 2003 includes the effects of inflation accounting through February 28, 2003. The Internal Wholesale Price Index (the “WPI” or “IPIM” using its initials in Spanish) published by the National Institute for Statistic and Census (“INDEC”), the index to be used for inflation accounting purposes in accordance with the above-mentioned regulations, increased 0.87% between January 1, 2003 and February 28, 2003. In 2007, 2006 and 2005, the WPI increased 14.56%, 7.14% and 10.67%, respectively.

Unless otherwise indicated, we have derived all deposit and loan market shares and other financial industry information from information published by the Argentine Central Bank.

We have expressed all amounts in millions of Pesos, except percentages, ratios, multiples and per-share data.

In this annual report, we refer to the “2001-2002 crisis” as the series of events that unfolded in Argentina between late 2001 and 2002, a period of great political, economic and social instability, with severe consequences for the Argentine economy by any variable used as a measure, including a banking crisis, and a material negative impact on financial institutions operating in Argentina, including us. The 2001-2002 crisis triggered a series of far reaching measures that produced structural changes in the Argentine economy and legal framework.

Also, in this annual report, “asymmetric pesification” refers to the compulsory conversion in January 2002 of most Dollar-denominated assets and certain Dollar-denominated liabilities held by financial institutions operating in Argentina, into Peso-denominated assets and liabilities at different exchange rates. In addition, “Compensatory Bond” and “Hedge Bond” refer to the bonds that the Government issued to the Bank (as well as to other financial institutions), as compensation for the negative effects of the asymmetric pesification on the Bank’s and other financial institutions’ financial condition. This is more fully described in Item 4. “Information on the Company—Government Regulation—Compensation to Financial Institutions”.

This annual report contains forward-looking statements that involve substantial risks and uncertainties, including, in particular, statements about our plans, strategies and prospects under the captions Item 4. “Information on the Company— Capital Investments and Divestitures,” Item 5 5A. Operating Results—Principal Trends” and Item 5B. Liquidity and Capital Resources.” All statements other than statements of historical facts contained in this annual report (including statements regarding our future financial position, business strategy, budgets, projected costs and management’s plans and objectives for future operations) are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of such words as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue” or other similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not provide any assurance with respect to these statements. Because these statements are subject to risks and uncertainties, actual results may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially and adversely include but are not limited to:

You should not place undue reliance on forward-looking statements, which speak only as of the date that they were made. Moreover, you should consider these cautionary statements in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to forward-looking statements after completion of this annual report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.

Not applicable.

Not applicable.

The following table presents summary historical financial and other information about us as of the dates and for the periods indicated.

The financial statements for the fiscal years ended December 31, 2004, December 31, 2005, December 31, 2006 and December 31, 2007 do not include any effect for inflation accounting. The financial statements for the fiscal year ended December 31, 2003 include the effects of inflation accounting through February 28, 2003.

The selected consolidated financial information as of December 31, 2007 and December 31, 2006, and for the fiscal years ended December 31, 2007, 2006 and 2005 has been derived from our audited consolidated financial statements included in this annual report. The selected consolidated financial information as of December 31, 2005, December 31, 2004 and December 31, 2003 and for the fiscal years ended December 31, 2004 and December 31, 2003 has been derived from our audited consolidated financial statements not included in this annual report.

You should read this data in conjunction with Item 5. “Operating and Financial Review and Prospects” and our audited consolidated financial statements.

The following table sets forth the annual high, low, average and period-end exchange rates for US Dollars for the periods indicated, expressed in Pesos per Dollar and not adjusted for inflation.

As of June 20, 2008, the exchange rate was Ps. 3.0240 for US$ 1.00.

Since the second half of 2002, Argentina has experienced several years of high growth of its gross domestic product (“GDP”), based on increasing domestic and external aggregate demand. This high economic growth together with significant increases in international commodity prices, however, have generated pressures on the domestic price system, resulting in increased inflation and excess demand in certain markets including, among others, the energy market and the labor market. This situation has intensified the need for an increase in aggregate investment, in order to expand aggregate domestic supply and support growth, given that capacity utilization is reaching a ceiling. It also points to the need for macroeconomic policy rebalancing, in order to moderate aggregate demand and help keep inflation under control. If the current administration is not capable of implementing the appropriate policies, the economic growth Argentina has experienced since late 2002 may not translate into a sustainable growth process in the long run. Inflation could continue to increase while growth could slow down, with the risk of a “stagflation” scenario and its negative consequences on, among others, employment and real salaries. This would likely have a negative impact on the Argentine economy and on the financial system, including us, our business, financial condition, results of operations and prospects.

During 2005, consumer inflation as measured by the increase in the CPI as published by INDEC was 12.3%, practically doubling that of the prior year, as was also the case in 2004 as compared to 2003. As measured by the variation in the CPI published by INDEC, consumer inflation was 8.5% in 2007 and 9.8% in 2006. However, wholesale inflation in 2007, as measured by the IPIM published by INDEC, doubled that of 2006, reaching 14.6% from 7.1% in the previous year. Other price indices such as those reflecting construction prices and producers’ prices demonstrated similar upward trends in 2007. These rates denote that inflation has been increasing in the last two years despite the decrease in consumer inflation as measured by INDEC, which has generated a significant debate over the correct measurement and the possible understatement of the CPI by INDEC. Inflation may continue to increase or significantly accelerate going forward.

Inflation has risen and may continue to increase in Argentina due to a combination of factors including that: (i) the country’s economy is growing at very high rates, implying strong aggregate demand increases, (ii) growth has been accompanied by a set of relative prices that still requires certain adjustments, given that certain sectors lag significantly behind others with respect to the passing through into prices of the impact of the approximately 71% nominal depreciation of the Peso that occurred in 2002, (iii) the strong economic growth of the last five years has led to an increasing utilization of the country’s available capacity and to the progressive elimination of the “output gap” existing immediately following the 2001-2002 crisis, and (iv) even though aggregate investment has been growing, its effects on aggregate supply generally are not immediate.

In the past, inflation has materially undermined the Argentine economy and the Government’s ability to create conditions that promote economic growth. Also, in the past, high and accelerating inflation has negatively and materially affected the size of the financial business in Argentina and its volume of deposits and loans, weakening the development of financial intermediation activities. High and accelerating inflation rates would again negatively affect aggregate demand and the overall economy’s level of activity and employment, by affecting Argentina’s foreign competitiveness, weakening the Government’s financial condition as well as real wages and weakening aggregate investment and consumption, among others. In addition, inflation would again trigger a flight from the Peso and a decrease in the public’s demand for money, including deposits, and would weaken credit supply, impairing financial intermediation activities. High volatility in economic variables in real terms, high uncertainty and a significant shortening of contract horizons would be other byproducts of high inflation, which would erode economic agents’ planning and decision making capacity and the overall economy’s functioning. All of these factors would adversely affect us, our business, financial condition, results of operations and prospects.

A dispute between the Government and Argentina’s principal farmers’ organizations over recent agricultural export tax increases adopted by the Government has generated uncertainty and lower demand and activity across all of the agribusiness value chain, which has especially affected economic activity in the Interior of the country. This dispute, which has not been resolved yet and the resolution of which is still uncertain, is adversely affecting the overall level of economic activity and is postponing economic agents spending and investment decisions until the dispute is resolved and its final consequences are clarified. It is also reducing Argentina’s commodity exports, which could compromise the Government’s fiscal outlook and has prompted a scenario of financial tightening triggered by capital flight and some reduction in real terms of private-sector deposits and loans in the Argentine financial system as a whole. The outcome of this dispute and its impact on the Argentine economy as a whole in 2008 are not clear yet, but it could result in a slowdown in GDP growth, especially if coupled with rising inflation. This scenario would adversely affect us, our business, financial condition, results of operations and prospects.

In addition, we have a significant credit exposure to the agribusiness and livestock sectors that amounted to approximately Ps. 1,450 million as of March 31, 2008. The scenario described above could lead to a deterioration of our agribusiness customers’ ability to repay the loans that we have granted to them and it could also adversely affect the repayment capacity of our individual customers that reside in agricultural areas or in the Interior of the country in communities that derive their income from providing products and services to agricultural or livestock producers. Any of these scenarios would adversely affect us, our business, financial condition, results of operations and prospects.

Despite the positive effects on the competitiveness of certain sectors of the Argentine economy of the depreciation of the Peso that occurred in 2002, such depreciation has also resulted in far-reaching negative impacts on the Argentine economy and on businesses and individuals’ financial condition. As an example, the Peso devaluation had a negative impact on the ability of the Government and Argentine companies and financial institutions to repay their foreign currency-denominated debt, led to very high inflation and significantly reduced real wages. A further significant devaluation of the Peso, would likely have similar negative effects on the Government, the financial system, companies and individuals, and would adversely impact us, our business, financial condition, results of operations and prospects.

Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other emerging market countries. Although economic conditions vary from country to country, investor reactions to events occurring in one country may substantially affect capital flows into other similar countries, including Argentina and the availability of funds for issuers in such countries. Lower capital inflows and declining securities prices negatively affect the real economy of a country through higher interest rates or currency volatility. In the past, Argentina’s economy has been adversely affected by developments in other emerging market countries, such as events that occurred in Mexico in 1994 and the financial crises of several Asian economies between 1997 and 1998, which triggered the above mentioned effects in Argentina. Similar developments are likely to affect the Argentine economy in the future.

In addition, Argentina may also be affected by the economic conditions of major trade partners, such as Brazil, or countries such as the United States, that are significant trade partners and/or have influence over world economic cycles. If interest rates rose significantly in developed economies, including the United States, Argentina and other emerging market economies could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth. In addition, if these countries, which are also Argentina’s trade partners, fell into a recession as a result of higher interest rates or other reasons, the negative effect on the Argentine economy would stem from a decrease in Argentine exports, which would reduce the country’s economic growth. All of these factors would have a negative impact on us, our business, operations, financial condition and prospects.

Currently, the world’s economy is experiencing the effects of the crisis that unfolded in mid 2007 as a result of the disruption of the United States’ subprime mortgage market, which has triggered liquidity issues for United States’ and European financial institutions, a tightening credit context and a slowdown of industrial economies, high volatility and uncertainty in the international financial and capital markets, and the reversal of portfolio capital flows into certain emerging markets, including Argentina. As a result, certain emerging markets’ sovereign risk premiums have increased significantly since mid 2007, including Argentina. The final impact of this crisis on the liquidity of international markets and interest rates, the growth of the world’s economy and trade, international commodity prices, and capital flows into emerging markets, among others, and the manner in which these outcomes affect the Argentine economy are difficult to predict. However, this crisis could trigger a less favorable or an unfavorable international environment for Argentina, forcing domestic policy adjustments, which could trigger lower growth and adversely affect us, our business, financial condition, results of operations and prospects.

Argentina’s financial recovery from the 2001-2002 crisis has been significantly assisted by the increase in commodity prices, including its main commodity exports, such as soy. High commodity prices have contributed to the increase in the value of Argentine exports since the third quarter of 2002 and to high Government revenues from taxes on exports. The prices of the primary goods that Argentina exports are at record levels. If international commodity prices decreased significantly, the growth of the Argentine economy, as well as its exports, could be adversely affected. Such occurrence would have a negative impact on the levels of Government revenues and the Government’s ability to service its debt, and could either generate recessionary or inflationary pressures, depending on the Government’s reaction. Either of these results would adversely impact us, our business, financial condition, results of operations and prospects.

Argentina’s default on most of its foreign debt in late 2001, its delay in restructuring its defaulted foreign debt, which was only completed in the first half of 2005, the existence of holdout creditors who did not accept the Government’s restructuring offer (holders of approximately US$ 20 billion of debt, mainly from the United States, Italy and Germany), litigation initiated against Argentina by such holdout creditors and by foreign shareholders of certain Argentine companies for significant amounts before the International Centre for Settlement of Investment Disputes (“ICSID”), as well as Argentina’s delay in engaging in conversations in order to reach an agreement on the terms and conditions for the repayment of its approximately US$ 6 billion unpaid debt with the Paris Club (an informal group of countries, among which are the main European countries, that lend to certain other countries and of which financial officials meet in Paris), could prevent the Argentine Government and the country’s private sector from obtaining fluid access to financing from the international capital markets and direct-foreign investment. The claims initiated before ICSID and lawsuits initiated by holdout creditors may result in material judgments against Argentina, as well as in attachments of or injunctions against assets of Argentina. As a result of all of the above, the Government could lack the financial resources necessary to promote growth and a better income distribution, and direct foreign investment and domestic investment from the private sector required for the same purposes could be lower than that required, due to the lack of financing.

If Argentina does not fully recover its ability to access financing from international markets and attract direct foreign investment, there is a risk that it may lack sufficient capital in order to sustain an investment rate capable to support sustained high economic growth with low inflation. The country’s fiscal balance could be affected, which could lead to higher inflation and could negatively affect the Government’s ability to implement economic policies that would foster economic growth and a better income distribution. If a sustained growth cycle is not achieved, economic instability could resume. All of these events would have an adverse effect on the Argentine economy and financial system, as well as on us, our business, financial condition, results of operations and prospects.

At the end of 2001 and in 2002, the Government and the Argentine Central Bank established controls over the foreign exchange market and over capital transfers abroad, substantially limiting the ability of companies operating in Argentina to retain foreign currency or make debt payments abroad. The existence of such controls and the then and currently prevailing significant surplus in the country’s trade balance contributed to an appreciation of the Peso and to the increased availability of foreign currency, which in turn resulted in the easing of many of these restrictions. However, restrictions still exist that limit access to the foreign exchange market by residents and non-residents, including us, to certain monthly amounts and their and our ability to make transfers of foreign currency and payments abroad. In addition, the Government issued a decree in June 2005 that established new controls and restrictions in connection with capital inflows, including the requirement that 30% of funds remitted to Argentina remain deposited in a domestic financial institution for one year without earning any interest. This measure increases the cost of obtaining foreign funds and limits access to these funds. For more information, see Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market.”

In an economic environment where access to local capital is substantially constrained, these controls could have a negative effect on the Argentine economy and on our business, by limiting the ability of economic agents operating in Argentina to obtain foreign financing. Moreover, the Argentine authorities could again establish more severe restrictions on the foreign exchange market and on capital movements from and into Argentina, among others, in the future, in response to significant capital outflows or to a significant depreciation of the Peso. These restrictions may hamper foreign investors’ ability to receive payments in connection with debt or equity securities of Argentine issuers, such as us, or more severely restrict our access to the foreign capital markets, both of which could adversely impact us, our business, financial condition, results of operations and prospects.

The Government has historically exercised significant influence over the country’s economy and financial institutions in particular have operated in a highly regulated environment for extended periods of time. In addition, Argentina’s regulatory environment has been volatile. The lack of a stable regulatory environment has imposed limitations on the operation of the economy as a whole, including the financial system. During the 2001-2002 crisis, Argentina experienced a deep economic and financial crisis, social unrest and political turmoil. As a result, the Government took a series of far reaching measures that produced radical structural changes in the Argentine economy and legal framework. Laws and regulations currently governing the economy or the financial sector may change in the future. Future Government policies may include nationalization, forced renegotiation or modification of existing contracts and debt obligations, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting international trade and investment. Future changes in the regulatory environment and Government policies may adversely affect the economy and financial institutions in Argentina, including us, as well as our business, financial condition, results of operations and prospects.

Immediately after the 2001 and 2002 crisis, the financial system temporarily practically ceased acting as an intermediary between savings and credit. Even though the financial system’s private sector deposits and loans have increased substantially from the low levels of 2002, financial depth in Argentina (measured by the ratio of the total financial system’s private-sector deposits and loans to GDP), remains low when compared to the levels displayed by comparable countries, such as other Latin American countries, and with past levels recorded in Argentina itself, especially in the case of loans to the private sector. Such loans represented approximately 13% of the Argentine GDP at the end of 2007, as compared to approximately 23% at the end of 1999. The time period necessary for the Argentine financial system’s credit activity to return to pre-crisis relative levels remains uncertain.

In addition, even though deposits in the financial system are increasing at high rates, most new deposits are either sight or short-term time deposits. The sources of medium and long-term funding for financial institutions are currently limited, and have consisted, to a large extent, in the securitization of loan portfolios, which implies a growing commercial banking disintermediation. Due to these reasons, and to the characteristics of credit demand, the loan expansion recorded since 2004 was largely based on short-term loans to individuals and companies.

For the financial system to be able to reach an adequate financial depth level and, at the same time, develop a medium and long-term credit business without having to assume excessive risks in terms of maturity gaps several developments should materialize, including, principally: (i) growth in deposits and loans would need to continue over time, (ii) the terms of assets and liabilities in the Argentine financial system would need to be extended, (iii) the public’s confidence in the Argentine financial system would need to increase to levels enabling the country’s savings to be channeled to the financial system to a greater extent than at present, and (iv) a process of sustained growth with macroeconomic and legal stability would be needed. These trends may not materialize and, even if they do, financial intermediation activities may not develop to the extent needed nor attain the necessary volume so as to allow the recurrent income generation capacity of Argentine financial institutions, including us, to improve substantially or the expansion of the credit business beyond short-term lending.

After the 2001-2002 crisis, the asset quality ratios of Argentine financial institutions in general improved and in the last years the Argentine financial system enjoyed a period of very low credit risk in historical terms. The continuity of such scenario depends on the continuity of the Argentine economy’s growth. Should growth significantly slow down or if economic activity experiences a downturn, borrowers’ performance could deteriorate, as would several of the factors behind the positive credit environment, such as improving employment levels and real wages and low interest rates, among others. Also, even if the Argentine economy continues to grow, if inflation continues to rise it could also affect real wages and employment levels and trigger nominal interest rates increases, all of which would weaken credit demand and borrowers’ repayment capacity. In addition, individuals’ indebtedness has increased significantly in the past years, which could trigger a deterioration in their repayment ability, especially if coupled with a tightening financial scenario. Also, legacy loans from the 2001-2002 crisis have reached a very low level and, therefore, no material further positive effect on credit quality ratios would be derived from further improvement thereof.

Improvement in the credit risk environment after the 2001-2002 crisis and the low credit risk environment of the recent years have had a positive impact on financial institutions’ profitability as they have translated into low loan loss provisions as well as above average income from loan recoveries and reversal of loan loss provisions in connection with legacy loans. As a result, credit losses, both consumer and wholesale, have been among the lowest in Argentina’s recent history. In a tougher credit environment, coupled with the fact that above average income from the recovery of legacy loans and the reversal of loan loss reserves on such loans is reaching an end, credit losses could rise, which may require increases in loan loss reserves, which would most likely have a negative impact on financial institutions’ profitability as well as on ours.

As a consequence of the application by financial institutions of emergency measures implemented by the executive branch of the Government during and in respect of the 2001-2002 crisis, which mandated the pesification of deposits originally denominated in Dollars and the restructuring of such deposits, in 2002 individuals and entities initiated a significant number of legal actions (known as “amparo claims”) against financial institutions, including the Bank, on the basis that these measures violated their constitutional and other rights. Most appellate and lower courts have declared the above-mentioned emergency measures unconstitutional and, as a result, financial institutions have been required to reimburse the relevant Dollar-denominated deposits, or their equivalent in Pesos, at the then current free market exchange rate.

These rulings resulted in a significant withdrawal of deposits from the financial system and the Bank in 2002 and in significant losses for financial institutions to date, including us, as these institutions have had to reimburse the restructured deposits (mostly Dollar-denominated deposits before pesification, referred to herein as the “Reprogrammed Deposits”) at market exchange rates rather than at the rate at which the deposits were pesified and booked in accordance with the applicable regulations. Pursuant to Argentine Central Bank rules, the losses from the above-mentioned court rulings were deferred and began to be amortized over a five-year period. The negative impact of these losses on financial institutions’ capital has been significant. The Government has not provided compensation for these losses and has expressed that it does not intend to do so.

The Argentine Supreme Court of Justice, or the “Argentine Supreme Court”, has issued several rulings in connection with the pesification of deposits, which referred to particular cases, with different implications. Also, under Argentine law, Argentine Supreme Court rulings are not precedent setting for lower courts and, therefore, whether these rulings will be followed in similar cases to be heard by lower courts is uncertain. As a consequence of the foregoing, the final resolution of such cases is uncertain. However, if an increasing number of new adverse judgments against financial institutions such as us would materialize, financial institutions, including us, could incur further significant losses and their and our financial condition could be adversely impacted.

In order to protect debtors, who were affected by the 2001-2002 crisis, the Government passed various laws and regulations temporarily suspending the ability of creditors to foreclose on collateral and to exercise their rights pursuant to guarantees and similar instruments. Such regulations have restricted Argentine creditors, such as us, from initiating collection actions or lawsuits to recover on defaulted loans. Even though these rules have ceased to be applicable, under an adverse economic environment or other circumstances, the Government may pass new rules and regulations affecting the ability of creditors to enforce their rights pursuant to debt agreements, guarantees and similar instruments, which new rules and regulations may have an adverse effect on the financial system and our business.

Certain provincial authorities have initiated administrative proceedings against financial institutions in order to collect certain local taxes levied on financial institutions’ gross income obtained in 2002 and thereafter. The amounts that provincial tax authorities seek to collect in these administrative proceedings in relation to the gross income generated in 2002 by financial institutions are significant, as such authorities are including in the taxable income those gains obtained by financial institutions in connection with the compensatory bonds that the Government made available to them in order to compensate them for the losses that they would otherwise have incurred as a consequence of the policies implemented by the Government to deal with the 2001-2002 crisis, particularly the asymmetric pesification. Although if the final outcome of these administrative proceedings is still highly uncertain, as is the number of provincial authorities that will initiate such proceedings and when, these proceedings could generate losses for financial institutions, including us, during fiscal year 2008.

We are a holding company and, as such, we conduct all of our operations through our subsidiaries. As such, dividends or other intercompany transfers of funds from subsidiaries are expected to be our primary source of funds to pay for expenses and dividends. Banco Galicia is our most significant subsidiary. As of December 31, 2007, Banco Galicia’s consolidated assets represented 98.7% of our consolidated assets. While we do not anticipate that we will conduct operations at the level of the holding company, any expenses we incur at such level, in excess of certain minimum amounts, will reduce amounts available to be distributed to our shareholders. The ability of our subsidiaries to pay dividends and make other payments to our holding company will depend on their results of operations and financial condition and may be restricted by, among other things, applicable corporate and other laws and regulations and contractual limitations. In addition, our ability to pay dividends will be subject to legal and other requirements.

We have not received dividends from Banco Galicia since October 2001. In addition, Banco Galicia is restricted from paying dividends as, among other things, under Argentine Central Bank regulations it must reduce its retained earnings available to be distributed as cash dividends, among others, by the difference between the market value and the carrying value of all of its public-sector assets, after netting the legal reserve and other reserves established by Banco Galicia’s bylaws. Also, the loan agreements entered into by Banco Galicia, as part of the restructuring of its debt denominated in foreign currency and subject to foreign law (the Bank’s “foreign debt”), limit its ability to pay dividends. See Item 8. “Financial Information—Dividend Policy and Dividends—Dividend Policy.”

We conduct our business through our subsidiaries and, therefore, at the holding company level we do not have significant operations or material assets of our own other than the capital stock of our subsidiaries, a mandatory deposit of 30% of the principal amount of our outstanding bank loan, which matures at the same time as the due date for the first payment on such bank loan, and subordinated debt issued by the Bank in a principal amount of US$ 10.2 million. Excluding such assets, our ability to repay our indebtedness, at the level of the holding company, is dependent on the cash flows generated by our subsidiaries and their ability to make cash distributions. In the absence of such dividend payments, we may need to seek other funding sources in respect of such indebtedness, which may not be available to us or at reasonable prices.

Our subsidiaries do not have any obligation to pay amounts to us so that our indebtedness at the holding company level can be repaid or to make funds available for that purpose. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions, as well as our subsidiaries’ financial condition and operating requirements may limit our ability to obtain cash from our subsidiaries. Furthermore, the Bank’s ability to pay dividends or make other intercompany payments is limited by Argentine Central Bank’s rules and certain financial covenants. See “—A breach of any of the covenants under the Bank’s debt agreements entered into by the Bank and us as part of the restructuring of the Bank’s foreign debt in 2004 could result in the occurrence of an event of default under these agreements” and Item 8. “Financial Information—Dividend Policy and Dividends.” In the absence of dividend payments, we may not have sufficient liquidity to repay our outstanding indebtedness.

We may operate finance-related businesses outside of Banco Galicia that are not regulated by the Argentine Central Bank. These businesses will be subject only to those regulatory limitations that may be applicable to them. We may enter into businesses that have little or no regulatory supervision or that entail greater risks than our existing businesses, and which may adversely impact our business and financial condition.

A principal objective of the securities laws of the United States, Argentina and other countries is to promote full and fair disclosure of all material information of companies issuing securities. However, there may be less publicly available information about us than is regularly published by or about listed companies in certain countries with more developed capital markets, such as the United States. While we are subject to the periodic reporting requirements of the United States’ Securities Exchange Act of 1934, as amended, or the “Exchange Act”, the periodic disclosure required of non-United States’ issuers under the Exchange Act is more limited than the periodic disclosure required of United States’ issuers. Furthermore, we are not required to comply with the United States Securities and Exchange Commission’s (or “SEC”) proxy rules in connection with shareholders’ meetings.

In addition, we maintain our financial books and records in Pesos and prepare our financial statements in conformity with Argentine Banking GAAP, which differs in certain respects from Argentine GAAP and U.S. GAAP. See Item 5A. Operating Results—U.S. GAAP and Argentine Banking GAAP Reconciliation” and note 34 to our consolidated audited financial statements included in this annual report for a description of the principal differences between Argentine Banking GAAP and U.S. GAAP.

Also, for a description of the differences between Argentine and Nasdaq corporate governance requirements, see Item 6. “Directors, Senior Management and Employees—Nasdaq Corporate Governance Standards.”

Shareholders who have a conflict of interest with us and who do not abstain from voting may be held liable for damages to us. Also, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or our bylaws may be held liable for damages to us or to other third parties, including other shareholders.

Under Argentine law, holders of our ordinary (common) class B shares (including shares underlying our ADSs) (the “class B shares”) have preemptive and accretion rights with respect to future issuances of class B shares. United States’ holders of our class B shares may not be able to exercise such preemptive and accretion rights unless a registration statement under the Securities Act of 1933 is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to such rights or the shares related thereto. Therefore, if we elect not to file a registration statement with respect to such rights or if an exemption from registration is not otherwise available, a United States’ holder of class B shares (including those underlying our ADSs) may not be able to exercise such rights. In addition, the depositary may not be able to sell such rights and distribute the proceeds thereof to a United States’ holder of class B shares (including those underlying our ADSs) as contemplated in the Depositary agreement, in which case such rights may lapse.

As of December 31, 2007, our exposure to the Argentine public sector (as shown under Item 5A. “Operating Results—Exposure to the Argentine Public Sector”), amounted to approximately Ps. 6,120.8 million, representing 26.8% of our total assets. Therefore, the value of our assets, our income and cash flow generation capacity and our future financial condition is strongly dependent on the Government’s ability to comply with its payment obligations in respect of these public-sector assets. In turn, the ability of the Government to comply with its payment obligations with respect to such public-sector assets is dependent on, among other things, its ability to establish an economic policy that is successful in promoting sustainable economic growth in the long run, generating tax revenues and controlling public expenses, all or some of which may not occur.

We carry our public-sector assets under Argentine Banking GAAP, in accordance with Argentine Central Bank valuation rules, as explained under Item 4. “Information on the Company—Selected Financial Information—Government and Corporate Securities—Valuation,” and Item 5A. “Operating Results—Critical Accounting Policies—Government Securities and Other Accounts Receivable with the Government.” The book values of our positions in Préstamos Garantizados Nacionales (loans issued by the Government or “Secured Loans” to restructure bank loans during and after the 2001-2002 crisis), Boden 2012 Bonds (bonds issued by the Government as compensation for the asymmetric pesification), and Discount Bonds in Pesos and GDP-Linked Negotiable Securities (issued by the Government as part of the restructuring of its foreign debt in 2005) are greater than their respective quoted market values.

The difference between the aggregate book value of the above-mentioned assets and their respective aggregate market value as of December 31, 2007, amounted to Ps. 670.0 million, as explained under Item 4. “Information on the Company—Selected Financial Information—Government and Corporate Securities.” As market conditions change, adjustments to the market value of the above-mentioned assets are not reflected in our financial condition. Future sales or settlements of these assets will reflect the market conditions at the time and may result in losses, representing the difference between the settlement amount and the then carrying value, thereby adversely affecting our financial results.

The policies implemented by the Government to address the 2001-2002 crisis created mismatches between our assets and liabilities in terms of currency, yield and maturities. Currently, we carry a net position in CER-adjusted assets (the CER is a coefficient based on the variation of consumer prices), which bear fixed interest rates over CER-adjusted principal. This position is funded by Peso-denominated liabilities (with no principal adjustment linked to inflation), bearing market interest rates and repricing, mainly, in the short term. See Item 5A. “Operating Results—Currency Composition of Our Balance Sheet.” This mismatch exposes us to the fluctuations in real interest rates, with an adverse impact on income resulting from a significant increase in real interest rates paid on our Peso-denominated liabilities, which occurs when nominal interest rates increase more than the consumer inflation rate published by INDEC.

The loan agreements and indenture entered into by the Bank as part of its foreign debt restructuring in May 2004, include certain covenants that, among other things, restrict the Bank’s ability to pay dividends on stock or purchase its stock or the stock of its subsidiaries or use the proceeds of the sale of certain assets or from the issuance of debt or equity securities. Some of these agreements also require that the Bank maintain specified financial ratios. We agreed to maintain certain corporate governance standards and to provide the Bank’s creditors with certain financial information and reports on a quarterly and annual basis. A breach of any of these covenants or the Bank’s inability to maintain the required ratios could result in an event of default under these agreements. In the event of a default, the relevant lenders could elect, among other options, to declare the Bank’s indebtedness, together with accrued interest and other fees, to be immediately due and payable. For more information see Item 10. “Additional Information—Material Contracts.”

Our income generation capacity was negatively affected by the 2001-2002 crisis, especially our capacity to generate financial income. It is difficult to predict whether we will be able to increase our level of activity and loan origination to the private sector so as to generate sufficient increased financial revenue and income from services in order for our operating results to more than offset losses from the amortization of amparo claims, the negative margin on our matched position in foreign currency resulting from the low yield of our Boden 2012 Bonds and the losses from the valuation of public-sector assets in accordance with Argentine Central Bank rules, which establish a progressive convergence to market values. Demand for fee-related products and services as well as for credit is increasing in Argentina, together with the growth of the economy. However, demand for financial products and credit may not continue to increase or may not increase to the extent or at the necessary pace. In addition, we may not be able to sufficiently increase our business volume or margins between lending and borrowing could decrease or be insufficient for our operating income to exceed the above-mentioned losses. Also, lower economic growth would have a negative impact on credit quality and credit losses. Therefore, we may not be able to increase our operating results in the required amount or at the required pace in order to offset these losses.

As a result of and following the 2001-2002 crisis, there has been significant consolidation in the Argentine financial/banking market. Consolidation is likely to continue in the near future creating stronger and larger competitors capable of providing better products at more competitive prices. In addition, the financial system’s recent growth and growth prospects have generated increased competition from all banks operating in Argentina. If competition and consolidation intensify our results of operations and our income generation capacity could be adversely affected through lower margins and prices and/or by a reduction of our volume of operations and market share.

Grupo Financiero Galicia is a financial services holding company incorporated on September 14, 1999, as a “sociedad anónima” (“a stock corporation”) under the laws of Argentina. As a holding company we do not have operations of our own and conduct our business through our subsidiaries. Banco Galicia is our main subsidiary and one of Argentina’s largest full-service banks. Through the operating subsidiaries of Tarjetas Regionales S.A., a holding company wholly owned by the Bank, we provide proprietary brand credit cards and consumer finance services throughout Argentina. Through Sudamericana Holding S.A. and its subsidiaries or “Sudamericana” we provide insurance products in Argentina. We directly or indirectly own other companies providing financial related products as explained herein. We are one of Argentina’s largest financial services groups with consolidated assets for Ps. 22,828.7 million as of December 31, 2007.

Our objective is to consolidate our position as one of Argentina’s leading comprehensive financial services providers while continuing to strengthen Banco Galicia’s position as one of Argentina’s leading banks. We seek to broaden and complement the operations and businesses of Banco Galicia, through holdings in companies and undertakings whose objectives are related to and/or can produce synergies with financial activities. Our non-banking subsidiaries operate in financial and related activities that Banco Galicia cannot undertake or in which it is limited to invest in due to restrictive banking regulations.

Our domicile is in Buenos Aires, Argentina. Under our bylaws, our corporate duration is until June 30, 2100. Our duration can be extended by resolution taken at a general extraordinary shareholders’ meeting. Our principal executive offices are located at Teniente General Juan D. Perón 456, Second Floor, (1038) Buenos Aires, Argentina. Our telephone number is (54-11) 4343-7528.

Our agent for service of process in the United States is CT Corporation System, presently located at 111 Eighth Avenue, 13^th Floor, New York, New York 10011.

The following table illustrates our organizational structure as of December 31, 2007. Percentages indicate the ownership interests held. All of the companies shown in the chart are incorporated in Argentina, except for:

Grupo Financiero Galicia was formed on September 14, 1999 as a financial services holding company to hold all of the shares of the capital stock of Banco Galicia held by members of the Escasany, Ayerza and Braun families. Its initial nominal capital amounted to 24,000 common shares, 12,516 of which were designated class A ordinary (common) shares (the “class A shares”) and 11,484 of which were designated as class B shares.

Following Grupo Financiero Galicia’s formation, the holding companies that held the shares in Banco Galicia on behalf of the Escasany, Ayerza and Braun families were merged into it. Following the merger, Grupo Financiero Galicia held 46.34% of the outstanding shares of Banco Galicia. Simultaneously with the merger, Grupo Financiero Galicia’s capital increased from 24,000 to 543,000,000 common shares, 281,221,650 of which were designated as class A shares and 261,778,350 of which were designated as class B shares. Following this capital increase, all of our class A shares were held by EBA Holding S.A., an Argentine corporation that is 100% owned by our controlling shareholders, and our class B shares were held directly by our controlling shareholders in an amount equal to their ownership interests in the holding companies that were merged into Grupo Financiero Galicia.

On May 16, 2000, our shareholders held an extraordinary shareholders’ meeting during which they unanimously approved a capital increase of up to Ps. 628,704,540 and the public offering and listings of our class B shares. All of the new common shares were designated as class B shares, with a par value of Ps. 1.00. During this extraordinary shareholders’ meeting, all of our existing shareholders waived their preemptive rights. In addition, the shareholders determined that the exchange ratio for the exchange offer would be one class B share of Banco Galicia for 2.5 of our class B shares and one ADS of Banco Galicia for one of our ADSs. The exchange offer was completed in July 2000 and the resulting capital increase was of Ps. 549,407,017. At date of completion of the exchange offer, our only significant asset was our 93.23% interest in Banco Galicia.

On January 2, 2004, our shareholders held an extraordinary shareholders’ meeting during which they approved a capital increase of up to 149,000,000 preferred shares, each of them mandatorily convertible into one of our class B shares on the first anniversary of the date of issuance, to be subscribed for in up to US$ 100.0 million of face value of subordinated notes to be issued by the Bank to its creditors in the restructuring of the foreign debt of its Head Office in Argentina and its Cayman Branch, or cash. This capital increase was carried out in connection with the restructuring of the Bank’s foreign debt. On May 13, 2004, we issued 149,000,000 preferred non-voting shares, with preference over the ordinary shares in the event of a liquidation, each with a face value of one Peso. The preferred shares were converted into class B shares on May 13, 2005. With this capital increase, our capital rose to Ps. 1,241,407,017. For more information on the Bank’s debt restructuring, please see below.

In January 2005, we created Galval, a securities broker based in Uruguay, with the purpose of providing trading and custody services. We own 100% of the capital and voting rights of this subsidiary.

In August 2007, Grupo Financiero Galicia exercised its preemptive rights in the Bank’s share issuance and subscribed for 93.6 million shares of the Bank. The consideration consisted of i) US$ 102.2 million face value of negotiable obligations due 2014 issued by the Bank in May 2004 and ii) cash. In order to fund such cash payment, on July 24, 2007, Grupo Financiero Galicia entered into a loan agreement for US$ 80 million with Merrill Lynch International. The loan is unsecured and will be paid in two installments. The first installment, of US$ 18 million, is due one year after the granting of the loan and the second installment, of US$ 62 million, is due two years after the granting thereof. The interest rate is 7.75% for the first year and 3-month Libor plus 350 basis points for the second year. Interest is payable annually in July 2008 and July 2009. After the capital increase, Grupo Financiero Galicia holds 94.66% of the Bank’s shares, up from 93.60%. For more information on the Bank’s capital increase, please see “—Banco Galicia—Banco Galicia’s 2007 Capital Increase.”

Banco de Galicia y Buenos Aires S.A. is a banking corporation organized as a stock corporation under Argentine law and supervised and licensed to operate as a commercial bank by theSuperintendencia de Entidades Financieras y Cambiarias (Superintendency of Financial Institutions and Exchange Houses of the Argentine Central Bank or the “Superintendency”).

The Bank was founded in September 1905 by a group of businessmen from the Spanish community in Argentina and initiated its activities in November of that year. Two years later, in 1907, the Bank’s stock was listed on the Buenos Aires Stock Exchange (“BASE”). The Bank’s business and branch network increased significantly by the late 1950s and continued expanding in the following decades, after regulatory changes allowed the Bank to deploy its potential and gain a reputation for innovation, thereby achieving a leading role within the domestic banking industry.

In the late 1950s, the Bank launched the equity fund FIMA Acciones and founded the predecessor of Galicia Administradora de Fondos S.A., Sociedad Gerente de Fondos Comunes de Inversión (“Galicia Administradora de Fondos”). Beginning in the late 1960s the Bank began to establish an international network mainly comprised of branches in New York and in the Cayman Islands, a bank in Uruguay and several representative offices.

In order to develop automated banking in Argentina and avoid bank disintermediation in the provision of electronic information and fund transfer services, in 1985, Banco Galicia established, together with four other private- sector banks operating in Argentina, Banelco S.A. to operate a nationwide automated teller system, which became the largest in the country. During the same year, Banco Galicia also acquired an interest in VISA Argentina S.A., and is currently one of the largest issuers of such cards in Argentina.

During the 1990s, the Bank implemented a growth and modernization strategy directed at achieving economies of scale and productivity gains and, therefore, heavily invested in developing new businesses, acquiring new customers, widening its product offering, developing its IT and human resources capabilities, and expanding its distribution capacity. This was comprised of traditional channels (branches) and, especially, alternative channels, including new types of branches (in-store for example), ATMs, banking centers, phone banking and Internet banking.

As part of its growth strategy, in 1995, the Bank began a new expansion drive into the “Interior” of Argentina where high growth potential was believed to exist. Argentines refer to the “Interior” as that part of the country’s territory different from the federal capital and the surroundings of the city of Buenos Aires (the “Greater Buenos Aires”), i.e., the provinces, including the Buenos Aires Province but excluding the city of Buenos Aires and its surroundings. Typically the Interior is underserved relatively to the city of Buenos Aires and its surroundings as regards to financial services and is less bancarized. As such, mainly between 1995 and 1999, the Bank acquired equity interests or started up several non-banking companies providing financial services to individuals through the issuance of proprietary brand credit cards and operating in different regions of the country. See “—Regional Credit Card Companies” below. In addition, in 1997, the Bank acquired a regional bank that was merged into it, with branches located mainly in Santa Fe and Córdoba, two of the wealthiest and more populated Argentinian provinces.

In order to fund its strategy, during the 1990s, the Bank tapped the international capital markets for both equity and debt. In June 1993, the Bank carried out its initial international public offering in the U.S. and Europe and, as a result, began to list its level 3 ADRs on the Nasdaq Stock Market until 2000, when the Bank’s shares were exchanged for our shares. In 1991, it was the first Argentine bank to issue debt in the European capital markets and, in 1994, it was the first Latin American issuer of a convertible bond. In 1996, the Bank raised equity again through a local and international public offering.

In 1996, Banco Galicia entered the bancassurance business through an agreement with ITT Hartford Life Insurance Co. for the joint development of initiatives in the life insurance business. In this same year, the Bank initiated its Internet presence, which evolved into a full e-banking service for both companies and individuals.

At the end of year 2000, the Bank was the largest private-sector bank in the Argentine market with a 9.8 % deposit market share.

In 2001 and 2002 Argentina experienced a severe political and financial crisis, which had a material adverse effect on the financial system, including Banco Galicia, and on financial businesses as a whole but especially on financial intermediation activity. However, during the crisis, the provision of banking services of a transactional nature was maintained. With the normalization of the Argentine economy’s situation and the subsequent growth cycle that began in mid 2002 and that has continued to date, financial activities began to expand at high rates, which translated into high growth at the level of the financial system as a whole, including the Bank. The provision of services continued to develop, even further than prior to the crisis, and financial intermediation resumed progressively.

Beginning in May 2002, the Bank began to implement a series of initiatives to deal with the liquidity shortage caused by the systemic deposit run, the unavailability of funding and other adverse effects of the 2001-2002 crisis on the financial system as a whole. The Bank significantly streamlined its operations and reduced its administrative expenses and, immediately after launching such initiatives, restored its liquidity. Also, in late 2002 and early 2003, the Bank closed all of its operating units abroad or began to wind them down. In addition, the Bank: (i) restructured most of its commercial loan portfolio, a process that was substantially completed in 2005, (ii) restructured its foreign debt, a process that began in 2002 and that was completed in May 2004, and resulted in an increase in its capitalization, and (iii) in February 2004, finalized the restructuring of its debt with the Argentine Central Bank incurred as a consequence of the 2001-2002 crisis. For more information see below.

Together with the launching of the above-mentioned initiatives, the Bank began to normalize its activities, progressively restoring its customer relations and growing its business with the private sector. The Bank’s deposit base began to increase in the second half of 2002 and loan origination picked up in late 2003. In parallel to the implementation of the above-mentioned initiatives, and while consistently expanding its business, the Bank undertook to progressively strengthen its balance sheet by (i) obtaining compensation from the Government for the negative effects of the asymmetric pesification, (ii) consistently reducing its high exposure to the public sector that was a legacy of the 2001-2002 crisis as well as (iii) reducing those liabilities incurred as a consequence of such crisis. Between 2005 and 2007, the Bank significantly reduced its exposure to the public sector by, among others, using public-sector assets to repay in advance Argentine Central Bank debt and restructured foreign debt. In 2007, the Bank finalized the full repayment in advance of its debt with the Argentine Central Bank incurred as a consequence of the 2001-2002 crisis. In addition, in August 2007, the Bank undertook a share offering to increase its capitalization, in order to be able to support the increase in regulatory capital requirements on a bank’s exposure to the public sector and the current and projected high growth of its business with the private sector. For more information, see “—Banco Galicia’s 2007 Capital Increase” below.

Since mid 2002, in a growing but very competitive environment for financial activities in Argentina, the Bank has continuously expanded its business, which, among others, was made possible by the significant progress achieved in the implementation of its strategy of strengthening its financial condition. Thus, in the last years, the Bank was able to consistently expand its services and lending to a broad and growing customer base made up of both companies from the different productive sectors and individuals. In turn, the progress made in the strengthening of its financial condition, together with the increase in the level of activity, has translated progressively in the recent years, into an increase in the Bank’s recurrent operating income and profitability. All of the above was accomplished within the framework of the whole organization’s consistent effort towards strengthening its relationships with customers and improving the quality of service and ability to respond to the market.

The New York Branch mainly provided international financial services to customers of the Bank, mainly Argentine corporations and individuals, in connection with their international business and funding needs. In mid 2002, debt of the New York Branch totaling US$ 328 million was restructured and this branch was closed on January 30, 2003. As part of the restructuring, the Bank’s Head Office in Argentina issued two negotiable obligations maturing in 2007 (referred to herein as the “2007 Notes”). In August 2007, the Bank had fully repaid this debt.

In 2007, the Bank fully repaid in advance the financial assistance from the Argentine Central Bank incurred as a consequence of the 2001-2002 crisis, which was originally scheduled to mature in October 2011. The last payment was made on March 2, 2007. See Item 5A. “Operating Results—Funding.”

On May 18, 2004, the Bank successfully completed the restructuring of US$ 1,320.9 million of this debt of the Bank’s Head Office and its Cayman Branch, consisting of bank debt (including debt with multilateral credit agencies) and bonds. This amount represented 98.2% of the foreign debt eligible for restructuring. As of December 31, 2007, the principal amount of old debt, the holders of which did not participate in the exchange offer was US$ 3.8 million.

In this restructuring, the Bank offered its bondholders and bank creditors the ability to exchange their existing debt for units comprised of a new long-term debt instrument maturing in 2014 and a new subordinated debt instrument maturing in 2019 in a par-for-par first step exchange offer. By offering the units, which contained a subordinated component, in the par-for-par first step exchange offer, the Bank’s main objective was to generate complementary regulatory capital. The bondholders and bank creditors were then given the option to participate in a second step to the exchange, in which they could receive for their units cash or Boden 2012 Bonds at a discount; new long-term debt instruments maturing in 2014 or new medium-term debt instruments maturing in 2010, at par; and up to 149 million preferred shares of our preferred shares (or, instead of such shares, cash, if any, paid to us by existing shareholders electing to subscribe for our preferred shares in a preemptive rights offering) (the “equity participation option”). Each of the optional second-step offers was subject to proration. The second step was intended to satisfy creditors’ varying preferences.

To make the Bank’s foreign debt restructuring possible we issued 149 million Grupo Financiero Galicia’s preferred shares on May 13, 2004, each of them mandatorily convertible into one of our class B shares a year later, which occurred on May 12, 2005. Creditors of the Bank opting for the equity participation offer received 87.8 million of our preferred shares and cash and we received US$ 100 million of subordinated bonds in exchange for those shares and cash. In addition, we entered into an agreement with the Bank’s bank creditors in which we agreed to maintain certain corporate governance standards and to provide them with certain financial information and reports on a quarterly and annual basis.

In accordance with the terms of the Bank’s foreign debt restructuring, the Bank made certain cash payments for interest accrued until April 30, 2002, and applied cash not used in the cash offer to prepay at par long-term instruments to be delivered to creditors participating in the restructuring. Based on the final amounts validly tendered, on May 18, 2004, the Bank paid creditors who elected to participate in the cash offer and the Boden offer and issued the following new debt instruments:

As of December 31, 2007, the outstanding principal amount of debt resulting from the above-mentioned restructuring amounted to US$ 774.3 million, US$ 522.8 million lower than as of December 31, 2006, due to amortization, prepayments and advance cancellations. For more information see Item 5A. “Operating Results—Contractual Obligations” and Item 5A. Operating Results—Funding.”

Capitalization as a Result of the Restructuring of the Foreign Debt. In the restructuring of the New York Branch’s debt, the Bank increased its capitalization by US$ 42.6 million as a result of exchanging part of the old debt for new debt or cash at a discount. In the restructuring of the foreign debt of the Bank’s Head Office and its Cayman Branch, the Bank increased its regulatory capital by US$ 278.9 million, due to: (i) the exchange of part of the debt subject to restructuring for cash and Boden 2012 Bonds at a discount, and the capitalization of interest past due at a rate lower than the contractual rate recorded in the Bank’s books, which generated in aggregate an US$ 48.9 million increase in shareholders’ equity; and (ii) the issuance of US$ 230.0 million of subordinated debt computable as supplemental capital under the Argentine Central Bank’s capital adequacy rules.

On October 11, 2006, the Bank’s shareholders resolved to increase the Bank’s capital stock in up to 100 million ordinary (common) book-entry, class B shares, with one vote per share and a nominal value of Ps. 1 each. The new shares could be subscribed, at the option of the subscriber, in cash or in 2010 Notes, 2014 Notes and 2019 Notes. The offer was made only to shareholders. The purpose of the capital increase was to guarantee the Bank’s compliance with the Argentine Central Bank’s capital adequacy rules, in view of the increase in such requirements. This increase was expected because of the current and projected growth of the Bank’s business volume with the private sector and the Argentine Central Bank’s regulations establishing increasing capital requirements in respect of public-sector assets. See Item 4. “Information on the Company—Selected Statistical Information—Regulatory Capital—Banco Galicia.”

The period for exercise of preemptive rights commenced on July 23, 2007, and ended on August 1, 2007, allowing accretion rights to be exercised during the same period. During August 2007, the Bank’s shareholders subscribed and paid in 93,664,806 new shares in exercise of preemptive and accretion rights. On July 27, 2007, Grupo Financiero Galicia subscribed for 93,604,637 new shares of the Bank in exercise of its preemptive rights. The transaction implied a total increase in the Bank’s shareholder’s equity of Ps. 493 million, of which Ps. 466 million was an aggregate increase in the Bank’s shareholders’ equity items capital stock and issuance premiums, net of issuance costs and Ps. 27 million was a profit in connection with the portion paid for in 2014 Notes, given that these notes were received by the Bank at a value lower than their book value.

In 1983, Banco Galicia Uruguay S.A. was established as a “Casa Bancaria”, a license that granted an offshore status, as an alternative service location for the Bank’s customers. In September and October 1999, the Uruguayan government’s executive branch and the Uruguayan Central Bank, respectively, approved Galicia Uruguay’s status as a full service domestic bank. Due to the effects of the 2001-2002 crisis on Galicia Uruguay, in early 2002, the Central Bank of Uruguay suspended its activities and assumed control and management of Galicia Uruguay. In December 2002, Galicia Uruguay restructured its deposits into debt maturing in 2011. On June 1, 2004, Galicia Uruguay’s license to operate as a domestic commercial bank was revoked by the Central Bank of Uruguay, but it retained the license from the Uruguayan government’s executive branch. Control and management of Galicia Uruguay by the Central Bank of Uruguay ended on February 22, 2007. At the date of this annual report, Galicia Uruguay is not engaged in any active business and its activities are limited to repaying its existing restructured debt (time deposits and negotiable obligations), the principal amount of which as of December 31, 2007, on a consolidated basis, had decreased to US$ 82.8 million, which represented approximately 7.3% of the original restructured amount, in only five years.

Galicia (Cayman) Ltd. was established in 1988 in the Cayman Islands as another alternative service location for the Bank’s customers. Galicia Uruguay’s situation adversely affected its subsidiary Galicia Cayman, which commenced voluntary liquidation and surrendered its banking license effective as of December 31, 2002. In May 2003, Galicia Cayman together with the provisional liquidators designated by the Grand Court of the Cayman Islands completed a debt restructuring plan and, with the authorization of such Court, presented it to all creditors for their consideration. The plan was approved, in whole, by the vote of 99.7% of creditors, exceeding the legal majority required, on July 10, 2003, and became effective and mandatory for all creditors. On February 2, 2006, the Grand Court of the Cayman Islands declared the plan as terminated and ended the involvement of any third parties in the company’s management beginning on February 23, 2006.

In the mid ‘90s, Banco Galicia made the strategic decision to target the “non-bancarized” individuals market, which, in Argentina, typically pertain to the low and medium-low income segments of the population and which are typically found in the Interior of the country, in addition to certain locations of the Greater Buenos Aires. To implement this strategic decision, among others, in 1995, the Bank began investing in non-bank companies operating in certain regions of the Interior, providing financial services to individuals through the issuance of credit cards with proprietary brands and extending credit to its customers through such cards. We refer to these companies in aggregate as “the regional credit card companies.”

In 1995, Banco Galicia made the first investment in this business by acquiring a minority stake in Tarjeta Naranja S.A. The remaining stake remained in the hands of the founders of the company, who currently retain a minority interest. This company had begun operations in 1985 in the city of Córdoba, the second largest city in Argentina, by marketing “Tarjeta Naranja”, its proprietary brand credit card, in this city and had enjoyed local growth later on.

In 1996, the Bank started up Tarjetas Cuyanas S.A., with a minority interest in the company, to operate in the Cuyo Region (the provinces of Mendoza, San Juan and San Luis) in partnership with local businessmen, who currently retain a minority interest in the company. This company launched the “Nevada Card” in May 1996 in the city of Mendoza. Also in 1996, the Bank formed a new company, Tarjetas del Mar S.A., to operate in the city of Mar del Plata and its area of influence. Tarjetas del Mar S.A. began marketing the “Mira” card in March 1997.

In early 1997, the Bank purchased an interest in Comfiar S.A., a consumer finance company operating in the provinces of Santa Fe and Entre Ríos, which was merged into Tarjeta Naranja S.A. in January 2004.

In 1999, the Bank reorganized its participation in this business through Tarjetas Regionales S.A., a holding company wholly owned by Banco de Galicia y Buenos Aires S.A. and Galicia Cayman, which achieved control of Tarjeta Naranja.S.A., Comfiar S.A., Tarjetas Cuyanas S.A., and Tarjetas del Mar S.A. In addition, in 1999, Tarjetas Regionales S.A. acquired a 12.5% interest in Tarjetas del Sur S.A., a credit card company operating in southern Argentina. In January 2000, this interest increased to 60% and, in February of the same year, Tarjeta Naranja S.A. acquired the remaining 40%. In March 2001 Tarjetas del Sur S.A. merged into Tarjeta Naranja S.A.

As of December 31, 2007, Banco Galicia held 68.22% of Tarjetas Regionales S.A. while Galicia Cayman held the remaining 31.78%. Directly or indirectly, as of that date, the Bank held 80.0% of Tarjeta Naranja S.A., 60.0% of Tarjetas Cuyanas S.A., and 99.995% of Tarjetas del Mar S.A.

In the last years, these companies have experienced a significant expansion of their customer bases, in absolute terms and with respect to the range of customers served, number of cards issued, distribution networks and size of operations, as well as a technological upgrade and general modernization. By mid 1995, Tarjeta Naranja S.A. had approximately 200,000 cards outstanding. As of December 31, 2007, the regional credit cards companies had more than 4.2 million cards outstanding in the aggregate and were the largest proprietary brand credit card operation in Argentina.

In 1996, Banco Galicia entered the bankassurance business, through the establishment of a joint venture with Hartford Life International to sell life insurance and annuities, in which it had a 12.5% interest. In December 2000, the Bank sold its interest in this company and purchased 12.5% of Sudamericana, a subsidiary of Hartford Life International. As a result of various acquisitions, we now own 100% of Sudamericana (with 87.50% being held by our holding company and the remaining 12.50% being held by Banco Galicia) which offers life, retirement and property and casualty insurance products in Argentina through its subsidiaries Galicia Seguros S.A. (property and casualty and life insurance), Galicia Retiro Compañía de Seguros S.A. (retirement insurance) and Sudamericana Asesores de Seguros S.A. (insurance broker).

Net Investment S.A. (“Net Investment”) was established in February 2000 as a holding company whose initial purpose was to invest and develop businesses related to technology, communications, the Internet, connectivity, and contents, in projects with positive cash flows and profits. On February 1, 2007, Tradecom Argentina, the only operating subsidiary of Net Investment, was merged into Net Investment and the merger was registered with the Inspección General de Justicia, the Argentine Superintendency of Companies, or IGJ. Net Investment conducts its operations under the name Tradecom Argentina and provides business-to-business e-commerce services.

Galicia Warrants S.A. (“Galicia Warrants”) was founded in April 1993, when it obtained the authorization from the relevant authorities to store goods and issue certificates of deposit of goods and warrants under the provisions of Law No. 9,643. On August 30, 2001, Grupo Financiero Galicia acquired 87.50% of the capital stock and voting rights of Galicia Warrants, in which Banco Galicia held the remaining 12.50%.

Galval is a company that indirectly makes use of the free trade zone of Montevideo and renders brokerage services in República Oriental del Uruguay. Grupo Financiero Galicia holds a 100% interest in Galval. Galval started to gradually conduct operations in September 2005.

Banco Galicia is our largest subsidiary. Banco Galicia operates in Argentina and substantially all of its operations, property and customers are located in Argentina. Banco Galicia is a full-service bank that provides, directly or through its subsidiaries, a wide variety of financial products and services to large corporations, small- and medium-sized enterprises (“SMEs”), and individuals.

As of December 31, 2007, Banco Galicia ranked third in terms of deposits from the private sector and third in terms of loans to the private sector amongst all private-sector financial institutions operating in Argentina (including foreign banks). As of December 31, 2007, the Bank’s private-sector deposit market share was 8.23%. As of the same date, on a consolidated basis, the Bank had total assets of Ps. 22,526 million, total loans of Ps. 11,975 million and total deposits of Ps. 13,188 million. As of such date, its shareholders’ equity amounted to Ps. 1,759 million.

Banco Galicia provides a full range of financial services through one of the most extensive and diversified distribution platforms amongst private-sector financial institutions in Argentina. This distribution platform is comprised of 232 full service banking branches, located throughout the country, 1,214 ATMs and self-service terminals owned by Banco Galicia, phone banking and e-banking facilities. The Bank’s customer base reaches more than 1.7 million customers, who were comprised of, approximately, 1.7 million individuals and 40,000 companies. The Bank has a strong competitive position in retail banking, both with respect to individuals and SMEs. Specifically, it is one of the primary providers of financial services to individuals, one of the largest providers of credit cards, the primary private-sector institution serving the SMEs sector, and has traditionally maintained a dominant position in the agriculture and livestock sectors.

For a breakdown of the Bank’s revenues for the last three financial years, see Item 5A. “Operating Results—Results by Segments—Banking.”

The Wholesale Banking Division is in charge of the Bank’s business with the corporate sector. It provides financial services and products to companies of all sizes and across all sectors of the economy and focuses on generating value-adding solutions that meet the needs of customer companies and establishing close, lasting relationships with its customers. Wholesale Banking provides a wide variety of commercial banking and investment banking products, to finance investment projects, working capital and international trade, among other purposes, and a wide range of transactional services among which are deposit accounts, commercial credit cards, collection and payment services, cash management, international trade services, direct payroll deposit and Galicia Office (the e-banking service for companies) and corporate and real-estate business development services. Strong collaboration between the commercial banking units and the capital markets and investment banking units allows the Bank to better meet its customers’ needs.

The Bank closed fiscal year 2007 with over 40,000 corporate customers, strengthening its leadership in the SMEs and agricultural and livestock sectors, as well as its strong presence in the large corporate sector. As of the end of fiscal year 2007, the corporate loans portfolio of the Bank (on an individual basis) was Ps. 5,863.8 million, up 44.5% from the levels at the end of fiscal year end 2006, and Ps. 19,072 million were disbursed in loans, including the purchase of checks and negotiable instruments for Ps. 10,365 million.

In order to strengthen its relationship with companies, among others, the Bank permanently seeks to strengthen the customer service model and improve service quality. In connection with this, during fiscal year 2007, an important investment in technology and business intelligence was made, within the framework of the “Genesis Program”. This program includes a number of projects spanning all of the Bank’s business units all having the same objective of developing the necessary strategic abilities to continuously improve management of the Bank’s business relationships with current and potential customers, and combines the perspective of each business unit into an integral vision.

In addition, in line with its Corporate Social Responsibility strategy, the Bank adopted the “Equator Principles,” a number of guidelines supported by the International Finance Corporation (the “IFC”), the World Bank’s branch for the financing of the private sector, through which the social and environmental risks for the projects to be financed are assessed. The Bank was the first Argentine financial institution to adopt these principles. Within the context of its environmental policy, the Bank provided financial assistance to two affluent treatment plants, both located in the Province of Buenos Aires.

Middle-Market Banking. Middle Market Banking provides services to businesses with annual sales of more than Ps. 1 million, different from multinationals or subsidiaries of multinationals or global companies. This unit offers its customers a broad range of financial products, including deposit taking and lending including general commercial loans, working capital loans, trade finance, on-lending of funds originated in other entities, overdraft credit lines, mortgage loans, and leasing services, transactional services, such as pay roll direct deposit, collections, and corporate credit cards as well as the Galicia Rural card, a proprietary card developed by the Bank especially for the agribusiness sector. Middle Market Banking is divided in different units specializing in the service of different segments of companies defined by the amount of annual sales, and has a special unit specializing in the service of the agricultural and livestock sector, as follows:

In 2007, the Bank continued to participate in the Secretariat for Small and Medium-Sized Companies (“SePyME”) on-lending programs that offer credit at low rates for customers as such entity assumes part of the financial cost. “SePyME Línea Verde” was launched to fund capital goods and investment projects aimed at optimizing SMEs environmental development. In order to finance projects involving technological innovation, the Bank also placed the FONTAR (Argentine Technological Fund) credit line. Apart from the traditional medium-term credit lines, the Bank successfully placed a credit line by the Inter-American Development Bank (the “IDB”) to finance investment projects and capital goods, in Pesos, at a fixed rate and for a term of up to ten years. In addition, at the end of 2007, the IFC granted the Bank an additional US$ 50 million to finance the investment projects of Argentine SMEs, supplementing the US$ 40 million line granted in 2005. Also, in order to offer special financing terms to its customers, the Bank subscribed to new agreements with leading companies and institutions, such as the agreement subscribed to with AAPRESID (an Argentine farmers association) in March 2007.

Our leasing business consists of leasing services relating mainly to commercial real estate, vehicles, machinery and other items to our customers. As of December 31, 2007, we had a total outstanding balance under the lease contracts of Ps. 359.6 million.

During 2007, purchases with the Visa Business credit card for SMEs and the Visa Corporate credit card, for the corporate sector, reflected an increase of more than 80% compared with 2006 and incorporated new benefits. The Galicia Rural credit card is an exclusive means of payment developed by the Bank for the agricultural and livestock sectors designed to finance the purchase of machinery and other supplies and services necessary for these sectors’ activities. In fiscal year 2007, this product continued to grow and strengthened its leading position with a 60% market share and over Ps. 650 million in agrochemicals, machinery, fuel, seeds and cattle financed, an 83% increase in comparison to 2006.

The Corporate Banking Centers play a key role in the Bank’s service model, allowing it to strengthen relationships with its corporate customers and to deepen its knowledge of the different regions in which they operate. Currently, the Bank has five centers located in the cities of Mar del Plata, Rosario, Mendoza, Córdoba and Tucumán. In each center, a team of specialized officials provides assistance on products and services for SMEs and agribusiness and international trade. New centers will be opened in Corrientes, Neuquén, Pilar and the southern area of the city of Buenos Aires.

Corporate Banking. Corporate Banking serves the largest corporations and multinationals or subsidiaries of multinationals or global companies. This business unit offers clients a broad range of services tailored to fit their specific needs, including deposit-taking and lending, trade finance, general commercial and syndicated loans, working capital loans, letters of credit, collections and treasury services, and payroll direct deposit, among others. During fiscal year 2007, the Bank continued its policy of increasing its share of the business with large corporations, with a focus on collection and payment services. Also, it continued to selectively give priority to working capital financing, especially in international trade transactions, through pre-financing, financing of imports and, to a lesser extent, financial loans in foreign currency to companies that generate US Dollars through sales abroad.

Capital Markets and Investment Banking. These units focus on the integral development of complex capital markets and investment banking products and services for the Wholesale Banking Division’s customers, the Bank itself and its subsidiaries. These services include strategic advice, capital raising through equity and debt securities, securitizations, debt restructuring, structured finance, and M&A advice, among others.

In fiscal year 2007, the Bank was one of the leaders amongst Argentine banks with respect to financial assets structuring, due both to the volume and diversity of transactions carried out. In such year, fourteen securitization transactions for Ps. 815 million to finance consumption and agricultural businesses, two negotiable obligations issues, for US$ 76.5 million, and two short-term securities issues, for Ps. 30 million, among others, were carried out. In addition, as in prior years, the capital markets unit worked on the Bank’s and its subsidiaries’ financing strategy. To do so, it managed the securitization of Bank consumer loans for Ps. 324 million through three financial trusts, and four financial trusts and two series of negotiable obligations for the regional credit card companies, which totaled placements of Ps. 328 million and US$ 76.5 million, respectively. During 2007, the investment banking unit focused on the completion of several debt restructurings and M&A transactions and was active in syndicated loans and structured finance.

International Trade. The Bank’s international trade services include documentary and stand by letters of credit, guarantees, documentary collections, payment order processing, as well as the possibility of financing trade related transactions. These services are supplemented by Galicia Factoring y Leasing S.A., a wholly owned subsidiary that offers international factoring services. The volume of factored international transactions in 2007 amounted to US$ 32.0 million.

The volume of international trade transactions handled by the Bank increased by 38.5% in fiscal year 2007, as compared to fiscal year 2006, reaching US$ 7,649 million. Commercial transactions only (that is, imports and exports) increased 46.3%, nearly double the increase in the total Argentine international trade amount in 2007, which was 24.9%. Commercial transactions handled by the Bank amounted to US$ 5,878 million, equal to 5.84% of Argentina’s international trade for 2007. This growth was also reflected in over 202,000 transactions processed during the fiscal year, 18.8% more than in 2006.

Non-Financial Public Sector. Through this unit the Bank provides financial services to different government areas and entities, in different districts, focusing on transactional services. During fiscal year 2007, visits to various districts were intensified and the offering of services was broadened. In addition, the Bank won the bid of the Guaymallén Municipality (Province of Mendoza) for rendering of electronic transactional financial services and subscribed to two new agreements with other municipalities.

Corporate and Real Estate Business Development. This unit’s objective is to develop and leverage business opportunities related to the corporate area and to channel business development, structuring and real estate projects financing opportunities within the residential, corporate, commercial and tourism-related segments. During fiscal year 2007, customized structured financial solutions were delivered to finance real estate projects. Also, in 2007, the Bank achieved a leading position in Argentina with respect to real estate leasing deals for the purchase and construction of corporate real estate assets, financing of office buildings, corporate and tourism-related hotels, commercial spaces, distribution and logistics centers and new industrial plants for corporate customers.

The Retail Banking Division manages the Bank’s business with individuals and with businesses, small retailers and professionals with annual revenues below Ps. 1 million. Retail Banking provides a wide range of financial products and services, encompassing transactions, loans, and investments. On the transactions side, among others, the Bank offers its customers checking and savings accounts, credit and debit cards, and payroll direct deposit. On the investment side, Banco Galicia’s products and services include certificates of deposit, mutual funds and insurance products. In addition, Banco Galicia provides credit for the acquisition of consumer goods and housing, mainly through personal loans, credit-card loans, overdraft loans and residential mortgages. The Bank’s product offer also includes securities and foreign exchange brokerage, securities custody, and safety boxes, among others. In addition the Bank provides private banking services. The Bank’s customers have access to its services through its branch network as well as through its electronic distribution channels. See below and “—Sales and Marketing.”

With respect to the business focus, apart from continuing to grow based on its customer base, during fiscal years 2007 and 2006, the Bank has put special emphasis on mass offerings and on the open market nationwide. The products that largely contributed to the addition of new customers were mainly personal loans and credit cards, as in the prior fiscal year. At the end of fiscal year 2007, Retail Banking’s customer base was comprised of approximately 1.7 million individuals, the Bank’s portfolio of loans to individuals amounted to Ps. 4,631.4 million, 47.9% more than at the end of fiscal year 2006, and the aggregate number of Retail Banking customers’ deposit accounts was 1.3 million.

With respect to credit cards, purchases made by customers with Visa, Visa Débito, American Express and MasterCard cards issued by the Bank exceeded in aggregate Ps. 5,850 million (up 43.5% from the previous fiscal year) and over 71 million transactions were carried out during fiscal year 2007. At the end of fiscal year 2007, the Bank managed approximately 1.1 million credit cards and 1.1 million debit cards. The Bank was the third largest issuer of credit cards amongst private-sector banks in Argentina. A distinctive feature of the Bank’s cards is the Aerolíneas Plus benefit program, through which over 53,000 customers were able to take the trip they desired using mileage accumulated through purchases made using the Bank’s credit and debit cards. This benefit program is based on an agreement between the Bank and the airline company that, among others, establishes the price of the mileage that the Bank’s customers accumulate through the use of their credit cards, which price the Bank pays on an ongoing basis. The mileage is credited to the customers’ account with the airline company.

As regards personal loans, the Bank’s portfolio amounted to Ps. 977.9 million at the end of fiscal year 2007, up 73.6% as compared to the same date in 2006. These loans were placed amongst existing customers, with the Bank continuing to pre-assign credit limits (amount authorized for granting) to those customers with salaries directly deposited at the Bank or that already had a risk product outstanding, and non-customers. The latter were reached through mass communication and direct marketing actions, including pre-assignment of credit limits. Placement in the open market increased 88% compared to fiscal year 2006.

The mortgage market reported no significant growth in fiscal year 2007 as well as in the two previous years, since there is still a very wide gap between real estate values and the purchasing power of salaries, which limits the capacity of potential borrowers to afford the installments on such loans. Despite the market’s characteristics, the Bank continued its “$0 Gastos” (Ps. 0 Expenses) campaign launched in 2006. The Bank’s current offer includes a broad range of loan purposes, terms and rates (fixed, variable and combined). At the end of fiscal year 2007, the portfolio was 16.9% higher than at the end of fiscal year 2006.

In addition, through its distribution network, the Bank markets a wide range of life and property and casualty insurance, from Sudamericana and other leading insurance companies. During fiscal year 2007, the Bank continued strengthening its position within the bank assurance market, which translated into an increase in insurance related income from services.

In fiscal year 2007, the number of customers that collect their salaries through the Bank grew more than 25%, while the amounts deposited increased more than 46% as compared to 2006. It is also worth mentioning that foreign-currency trading of both US Dollars and Euros, a service rendered by the branches, showed a 30% increase in the amount traded and an 35% increase in its related annual income in comparison with 2006.

Private Banking. Galicia Banca Privada (Galicia Private Banking) offers premium, professional financial services to medium to high net worth individuals. This is performed through the management of their investment portfolios and the provision for financial advising. Galicia Private Banking offers its customers a wide range of domestic financial investment alternatives, giving priority to the Bank’s products (deposits, FIMA mutual funds, among others) and financial trusts debt instruments and negotiable obligations where the Bank acts as placement agent. In 2007, the number of customers whose portfolios are managed by Galicia Banca Privada increased by 23% and important increases in the volume of managed portfolios was recorded as compared to the end of fiscal year 2006.

One of the competitive advantages of Galicia Banca Privada is the extensive geographical coverage of its service centers: six regional centers in the main provincial cities and another six in the City of Buenos Aires and the Greater Buenos Aires, including the service center located on the 16th Floor of the Bank’s corporate building.

In November 2007, the Argentine Central Bank authorized the opening of 10 new branches: two in the provinces of Córdoba and Buenos Aires, one in each of the provinces of Santa Fe, San Luis, Tucumán and Chubut, one in GBA and another in the City of Buenos Aires.

During 2007, the number of officials specializing in personalized service to the higher potential customer segments was increased. Also, the implementation of the Business Coaching Program, mainly aimed at improving sales productivity in the individuals’ segment, was completed. In addition, in October 2007, the Advisory Sale Program was started at the branch network, for managers and business officials, aimed at improving the business relationships and reciprocity with specific Wholesale Banking customer segments.

Service, transactions and sales channels, other than traditional branches that service both individual and corporate customers, include the Customer Contact Center, e-galicia.com, Red Galicia 24, Galicia Móvil, the Retail Sales Unit and the Real Estate Center. As in previous fiscal years, the level of use of alternative channels by the Bank’s customers recorded an upward trend. In December 2007, 77.8% of customer transactions were carried out through these channels, representing an increase from the 76.9% ratio as of December 2006. For 2008, an increase in the level of use of these channels is expected, in line with the business goals defined by the Bank.

e-galicia.com. e-galicia.com provides specific services for both individuals (“Home Banking”) and companies (“Galicia Office”) and enables customers to operate with their products anywhere 365 days per year as if they were carrying out their transactions in a traditional branch. e-galicia.com enables individual customers to undertake different operations, from inquiries and requests of information to investments and transfers between their accounts and third party accounts at the Bank or any other bank. In the case of companies, Galicia Office provides a wide range of functions aimed at facilitating such companies’ treasury management, making collections and payments, including salaries, easier, providing information related to such transactions and a communication channel between companies and their suppliers, among others.

Through Home Banking alone, approximately 6 million monthly enquiries and transactions were made in December 2007, up 47% in respect to the end of 2006. The trend of an increasing number of subscribed customers continued from the last years, with a 38% rise in fiscal year 2007. Among the wide range of available transactions, tax and services payments and transfers to third parties continued to reflect a sustained growth, with increases of 39% and 42%, respectively, during the fiscal year. Starting this year, customers of the Small Businesses and Professionals segment have the possibility of operating through Home Banking Galicia, to make payroll direct deposits, enquiries on payments to retailers and payments received, and also have access to Red de Campo and Galicia Compras.

Galicia Office has been available for over eight years and has over 26,500 customers, or 66% of the Wholesale Banking customer base. During 2007, 1.25 million transactions were carried out for an amount of Ps. 18,311 million, a 68% growth rate in comparison with the volume recorded in 2006, and nearly 34 million enquiries were made. As regards payroll direct deposits, the monetary amount of these transactions exceeded by 77% that of 2006. As regards international trade, the monetary amount of transfers abroad and payment order processing exceeded by 53% the amount recorded in 2006. As in previous years, the Bank worked on the generation of new functionalities, including the settlement of pre-financing of international trade operations with payment orders, which is currently operational, the ability to view Galicia Rural credit card statements and the implementation of an important development to improve performance in the delivery of payroll files.

“Galicia Compras”, our e-commerce channel and Red de Campo, our agricultural data site, both for the exclusive use of Galicia Office customers, continued to grow with respect to the number of queries made. In addition, new benefits and improvements have been added to both channels. In Galicia Compras, the Bank worked hard on the generation of promotions through agreements subscribed to with first class suppliers and services providers and on the development of the channel’s transactional phase, which will start operating in 2008.

Customer Contact Center. During fiscal year 2007, the Customer Contact Center (the “CCC”) managed over 18 million incoming and outgoing calls, which represented a 57% increase compared to the previous fiscal year. Measured in the same way, customer service activity increased by 19%. The CCC comprises: Fonobanco, the telephone banking service (with an automated customer-service system, or IVR, in operation); FonoSeguros, which offers assistance on all kinds of insurance coverage; International Trade, which offers assistance on the Bank’s products and on all international trade matters; e-galicia, the technical support and counseling service that assists customers that operate with the Bank’s Internet services; Galicia Responde, the suggestions, complaints and claims specialized service; Telemarketing, the sales and telephone advice facility for customers and non-customers, through which the Bank has been able to reach customers in a fast and efficient manner, closing sales immediately, signifying a premium service; the Investments Center, through which a broad range of investment products is made available; and the Collections Center.

Red Galicia 24. Comprises 586 ATMs and 628 self-service terminals installed in the Bank’s branch network and other locations throughout the country such as gas stations and supermarkets. This network of state-of-the-art technology terminals solves transactional needs for our customers and users in a dynamic, simple, safe and affordable way, on a 24-7 basis. The Bank’s ATM network is one of the most extensive in the country. Following the plan for the improvement of Red Galicia 24’s service quality and increase of its capabilities and functions, the Bank continued to replace ATMs and finished the technical upgrade of self-service terminals. ATM replacement and self-service terminal installations will continue during 2008.

Galicia Móvil. “Galicia Móvil” (Galicia Mobile) was launched in 2006, adding a new service channel available through cellular phones. Initially, it focused on small payments and later evolved to allow customers to receive balances and due date alarms of credit cards, time deposits and automatic debits. In 2007, the development of SMS services continued, and on-demand balance checking was made available.

Retail Sales Unit. This specialized sales force made a significant contribution to the increase in retail banking products sales. At the end of 2007, it had 130 salespersons in the country’s main markets.

Real Estate Center. Its purpose is to strengthen and encourage the placement of mortgage loans through interaction with realtors. In order to do so, the center has trained personnel that is specialized in these credit lines and who provide constant advice to realtors and personalized service for each referred customer.

The Treasury Division is responsible for the centralized management of the Bank’s treasury operations and liquidity, as well as for its foreign-exchange and securities positions, and it participates in the management of market, liquidity, interest-rate and currency risks. To this end, it develops the necessary data and strategies to keep such risks within the limits established by the Board of Directors. In addition, it provides financial services and distributes financial products, among others, to corporations, financial entities, mutual funds, pension/retirement funds (“AFJPs”), insurance companies, etc. The Bank carries out securities trading services in the different markets, mainly in its capacity as an agent of the Mercado Abierto Electrónico (Argentine Over-The-Counter Market, “MAE”) and also through Galicia Valores S.A. Sociedad de Bolsa (“Galicia Valores”), a brokerage firm that operates on the BASE. The Division manages the Bank’s business relations with correspondent banks, international credit agencies and international mutual funds.

Asset Management. Banco Galicia distributes the FIMA mutual funds family through its broad distribution network (branches and electronic banking channels, such as ATMs, phone banking and e-galicia.com) to different customer segments (institutions, companies and individuals), while it acts as custodian of the assets that make up the funds, in its role as depository. Galicia Administradora de Fondos is the Bank’s subsidiary that manages investments and determines the value of the mutual fund units on a daily basis. The mutual funds invest in a variety of financial instruments, such as government and corporate securities, and equity or term deposits, among others, depending on the different investment profiles. During 2007, the total amount of funds managed by Galicia Administradora de Fondos grew by 29%, exceeding the 13% total market increase. The total of funds under management increased from Ps. 479 million at the end of December 2006 to Ps. 616 million at the end of fiscal year 2007. Risk ratings -a necessary requirement for institutions to be able to invest in the different funds- improvements were recorded by several of the managed funds.

International. The Bank’s positive image, consolidated, among other things, by its permanent presence in main international events, promoted a larger supply of trade finance lines by correspondent banks, which enabled the Bank to cover all of the foreign-trade business requirements of its customers.

The regional credit card companies’ operation is estimated to be the largest of its kind in Argentina. These companies issue proprietary brand credit cards (the “Naranja”,“Nevada” and “Mira” cards) to their customers in the Interior, which allow their holders to charge purchases of goods or services in a network of approximately 115,000 establishments that have agreed to accept the cards, located throughout the Interior and in certain locations of the Greater Buenos Aires area. The companies accept and process from each participating establishment the charges arising from cardholder purchases. The cards can be used as charge cards or purchases can be financed through different payment schedules among which cardholders can chose and that differ by company. The regional credit card companies also extend personal loans to the cardholders to be repaid in up to 24 fixed installments. Through these cards, customers also have access to the ATM networks operating in Argentina (Banelco and Link) to make cash withdrawals and to automatic debit services, among others. The regional credit card companies also market Sudamericana’s insurance products and issue Visa, Amex and MasterCard cards (accepted all over the world) to holders of their proprietary brand cards. All of the products of a customer are managed through one statement.

At the end of fiscal year 2007, the number of statements issued and the number of cards managed by the regional credit card companies exceeded 1.5 million and 4.2 million, respectively. As to business volume, aggregate annual purchases made by cardholders exceeded Ps. 5,800 million in fiscal year 2007, representing a 35% increase from fiscal year 2006, while, as of December 31, 2007, the regional credit card companies loan portfolio before allowances for loan losses and including securitized loans, amounted to more than Ps. 2,700 million, representing a 45% increase from the end of 2006. In 2007, the total number of transactions (purchase coupons plus loan and advance operations) amounted to about 60 million. The highest volumes of activity and billing were accompanied by arrear indicators that remained at good levels. Securitization of loan portfolios is a significant source of funding for these companies.

The regional credit card companies’ distribution network is made up of 187 service centers (of which 141 are branches), 20 more than at the end of 2006. Originally their operations were concentrated in their regions of influence and their distribution networks did not basically overlap. In the last years, these companies have expanded their geographical reach and currently are undergoing a phase of geographical expansion throughout Argentina, which is leading them to compete among each other in certain locations. In particular, Tarjeta Naranja S.A. is expanding into the Greater Buenos Aires area, an area of high potential due to its large population, while, in 2007, Tarjetas Cuyanas S.A. entered the most important markets in the north of Argentina and Tarjetas del Mar S.A. broadened its area of influence (Mar del Plata) and doubled its number of branches. The regional credit card companies target mainly the low and medium-low income segment of the population, which in Argentina rarely uses a bank or may not operate with a bank at all but, with time, their customer base has expanded to include other segments of the population.

For a breakdown of the regional credit card companies’ revenues for the last three financial years, see Item 5A. “Operating Results—Results by Segments—Regional Credit Cards.”

Galicia Seguros S.A. (“Galicia Seguros”) is a provider of a variety of property and casualty (“P&C”) and life insurance products. Its most important line of business is group life insurance, including employee benefits coverage and credit related insurance. With regard to P&C, it underwrites mainly home and ATM robbery insurance. Galicia Retiro Compañía de Seguros S.A. (“Galicia Retiro”) provides annuity products, and Sudamericana Asesores de Seguros S.A. is an insurance broker. These companies operations are all located in Argentina. As of December 31, 2007, these companies had 2.8 million policyholders, in the aggregate.

Galicia Seguros’ and Galicia Retiro’s total insurance production (amount of premiums written) amounted to Ps. 144 million during 2007, 163% higher than in the previous year. The increase in insurance production was recorded both for Galicia Seguros and Galicia Retiro. As regards Galicia Seguros’ business, the focus was placed on continuing to increase the company’s turnover by increasing sales (which in 2007 amounted to Ps. 46.3 million of annualized premiums, 50% more than in the previous year), improving profitability by focusing on persistency and diversifying the coverage offered, distribution channels and risk classes. For a breakdown of the insurance companies’ revenues for the last three financial years, see Item 5A. “Operating Results—Results by Segments—Insurance.”

In line with our strategy, this investment allows us to consolidate our leadership as a financial services provider and supplement those businesses that Banco Galicia may only conduct to a limited extent due to prevailing regulations. The Bank and the regional credit card companies market Sudamericana’s insurance products through their distribution network. Sudamericana’s subsidiaries also sell their products through their own distribution capabilities.

Galicia Warrants. Galicia Warrants is a leading company in its industry, in which it has continuously conducted business in Argentina since 1994. Galicia Warrants stores goods and issues certificates of deposit for goods and warrants. Warrants are legal instruments that are delivered to banks as collateral for their financing. By issuing such certificates Galicia Warrants helps agricultural producers mitigate the price seasonality of their products by allowing them to choose when to sell their produce. It also facilitates its customers access to credit, secured by such certificates and the use of goods kept in custody by Galicia Warrants as collateral reduces the cost of credit for its customers. Galicia Warrants’ principal customers belong to the agricultural, industrial, agroindustrial, export and retail sectors, and its serves more than 600 companies in more than 800 warehouses distributed throughout the country. Its activities are concentrated in the central region of Argentina. Galicia Warrants has benefited from the high growth enjoyed during at least the last five years by the Argentine agricultural and livestock sectors. As of December 31, 2007, the company had assets of Ps. 7.9 million, liabilities of Ps. 2.4 million and shareholders’ equity of Ps. 5.5 million. During fiscal year 2007, Galicia Warrants issued deposit certificates for US$ 63.7 million, with revenues of Ps. 7.2 million and a net income of Ps. 1.3 million.

Net Investment. This company conducts its operations under the name Tradecom Argentina, providing business-to-business e-commerce support services and virtual markets for transactions between companies and suppliers. Tradecom Argentina has activities mainly in Argentina, although it has some operations in Brazil, Colombia, Chile, Mexico, Panama and Venezuela. Our objective is to continue participating in this business, where there is an increasing interest of companies in e-procurement services and which contributes to our comprehensive business and that of Banco Galicia. During 2007, Net Investment continued improving the tools being used by its customers. It also developed new products and, to a great extent, the goals set at the beginning of the year were attained, both with regard to the volume of services rendered and the decrease in expenses related to marketing and general administrative expenses. As a result, the company ended fiscal year 2007 with a balanced net income. An achievement of fiscal year 2007 was the implementation of a module for the administration of internal requirements, quotation requests and electronic purchase orders for NEC Argentina. Among others, some of the customers who started to conduct operations with this company, or otherwise contracted new services, were Boldt, Kraft Foods and Alpargatas.

Galval: Galval mainly generates fee income from brokerage and custodial services. At the end of fiscal year 2007, it had customers’ securities held in custody of US$ 90.2 million.

For a breakdown of the other businesses’ revenues for the last three financial years, see Item 5A. “Operating Results—Results by Segments—Other Grupo Businesses.”

Due to our financial holding structure, competition is experienced at the level of our operating subsidiaries. We face strong competition in most of the areas in which we are active. For a breakdown of our total revenues, for each of the past three fiscal years, for the activities discussed below (i.e., banking, regional credit cards and insurance), please see Item 5A. Operating Results—Results by Segments.”

Banco Galicia faces significant competition in all of its principal areas of operation. The Bank faces competition from foreign banks operating in Argentina, mainly large retail banks which are subsidiaries or branches of banks with global operations, Argentine national and provincial government-owned banks, private-sector domestic banks and to a lesser extent from cooperative banks, as well as from non-bank financial institutions.

With respect to private-sector customers, the relevant segment for the Bank, the main competitors are large foreign retail banks and certain domestically-owned private-sector banks, which, prior to the crisis, operated in merchant or private banking and that, after the 2001-2002 crisis, acquired the retail operations of banks that left the business as a result of such crisis. Competition from public-sector banks has decreased from the immediate post-crisis period, as the public initially attracted to such institutions as a safe harbor began to search for better service with private-sector financial institutions. However, the three largest government-owned banks are of a significant size and also compete with the Bank.

The Bank’s estimated deposit market share of private-sector deposits in the Argentine financial system only and considering only the Bank’s Argentine operation, was 8.23% as of December 31, 2007, compared to 8.43% as of December 31, 2006 and 7.96% as of December 31, 2005. Following the 2001-2002 crisis, the Bank significantly and consistently increased its deposit market share. The decrease in 2007 is attributable, basically, to a reduction of its exposure to institutional deposits, due to its high liquidity condition.

The Bank is one of the leading banks in Argentina and the largest domestically owned private-sector bank, as measured by its assets. As of December 31, 2007, measured by its deposits in Argentina only, the Bank was ranked fifth in the whole financial system and third among private-sector banks (including foreign banks). The Bank has a strong competitive position in retail banking, both with respect to individuals and SMEs. Specifically, it is one of the primary providers of financial services to individuals, the primary private-sector institution serving the SMEs sector and has traditionally maintained a dominant position in the agriculture and livestock sector.

As of December 31, 2007, the Argentine financial system consisted of 85 financial institutions, of which 67 were banks and 18 were financial non-bank institutions (including finance companies, credit unions, savings and loan associations). Of the 67 banks, 12 were Argentine national and provincial government-owned or related banks. Of the 55 private-sector banks: 33 were private-sector domestically-owned banks; 21 were foreign-owned banks (i.e., local branches or subsidiaries of foreign banks); and 1 was a cooperative bank, also domestically-owned.

As of that date, the largest private-sector banks, in terms of total deposits, were: Banco Río Santander, BBVA Banco Francés, Banco Galicia, Banco Macro, HSBC Bank, Citibank, Credicoop and Standard Bank. Banco Galicia, Banco Macro and Credicoop were domestically-owned banks and the others were foreign-owned banks. According to information published by the Argentine Central Bank as of December 31, 2007, private-sector banks accounted for 55.90% of total deposits and approximately 67.75% of total net loans in the Argentine financial system. Argentine financial industry regulations do not raise any entry or exit barriers, nor do they make any differentiation between locally or foreign-owned institutions. The only cooperative bank is active principally in consumer and middle-market banking, with a special emphasis on the lower end of the market. As of December 31, 2007, financial institutions (other than banks) accounted for approximately 0.38% of deposits and 3.11% of net loans in the Argentine financial system.

As of December 31, 2007, the largest Argentine national and provincial government-owned or related banks, in terms of total deposits, were Banco Nación and Banco de la Provincia de Buenos Aires. Under the provisions of Law No. 21,526 as amended (Ley de Entidades Financieras, “the Financial Institutions’ Law”), public-sector banks have comparable rights and obligations to private banks, except that public-sector banks are usually chosen as depositaries for public-sector revenues and promote regional development and certain public-sector banks have preferential tax treatment. The bylaws of some public-sector banks provide that the governments that own them (national and provincial) guarantee their commitments. Under current law, Banco de la Provincia de Buenos Aires is not subject to any taxes, levies or assessments that the Government may impose. According to information published by the Argentine Central Bank, as of December 31, 2007, government-owned banks and banks in which the national, provincial and municipal governments had an ownership interest accounted for 43.73% of deposits and 29.13% of loans in the Argentine financial system.

Consolidation has been a dominant theme in the Argentine banking sector since the 1990’s, with the total number of financial institutions declining from 214 in 1991 to 85 at December 31, 2007, with the ten largest banks holding 75.69% of the system’s deposits and 68.29% of the system’s loans as of December 31, 2007.

During the 1990s, foreign banks significantly increased their presence in the Argentine financial system. Since the last quarter of 1996, control of most largest Argentine private-sector domestically-owned commercial banks was transferred to foreign banks, which now control most of the largest private sector financial institutions except the Bank. This foreign presence grew both in the universal bank sector and among financial institutions specializing in specific products or markets. This situation has not changed despite the fact that the number of foreign banks decreased by 16 through December 2007, as compared to the end of 2001, and that foreign banks’ share of total deposits has decreased since the 2001-2002 crisis while the share of domestic private-sector banks has increased.

No official data is available about the credit card and consumer finance market of the Interior in which the regional credit card companies operate. However, the regional credit card companies’ operation is estimated to be the largest of its kind in Argentina and Tarjeta Naranja S.A. is estimated to be the largest proprietary brand issuer in Argentina amongst approximately 170 companies. After the 2001-2002 crisis, which significantly affected these companies’ competitors and led many of them to cease operations, and until 2004, competition had been relatively low or inexistent. Since 2005, and especially during 2006 and 2007, the regional credit-card companies have faced increased competition from: (i) the banking system’s nation wide aggressive offering of personal loans with low interest rates, (ii) the banking system’s creation of units, companies and products specialized in the low and mid-low income segment of the population, which is the regional credit card companies’ target, and (iii) large retail trade players, such as supermarkets, home appliance chains and department stores, which offered their customers ample financing, apart from price cuts in purchases made at their stores with their proprietary credit cards.

Sudamericana’s subsidiaries face significant competition, as the Argentine insurance industry was comprised of approximately 183 insurance companies as of December 31, 2007, of which 45 were dedicated exclusively to life insurance and 22 to annuities. Subsidiaries of foreign insurance companies and the world’s largest insurance companies with global operations are among these companies. In addition, as of that date, brokers amounted to approximately 27,000 individuals and 240 companies. Total insurance production of the Argentine insurance industry measured in current values amounted to Ps. 21,160 million in 2007, 22.5% higher than in 2006, and represented approximately 2.6% of the Argentine GDP.

Similarly to the previous year, P&C insurance represented 69% of total insurance production in 2007. Within this segment, automotive insurance continued to be the most important segment in terms of volume of premiums written representing 45% of the P&C insurance sector and, even though it grew in 2007 (26.8% in current terms), it grew at a lower rate than the other components of such sector (29.0%). Workers’ compensation was the second segment, representing 23% of the P&C sector. The personal insurance sector represented the remaining 31% of total insurance production, with 22% corresponding to life insurance and 9% to annuities. Group life insurance represented 43% of the life insurance sector, followed by pension-linked life insurance (35%). Pension-linked whole life annuities represented 79% of the annuities sector. From these sectors, the most dynamic sector in terms of annual growth was life insurance.

Galicia Seguros ranked sixth in terms of underwrites of group life insurance and tenth in terms of underwrites of home insurance at December 30, 2007.

Banco Galicia’s and the regional credit card companies’ distribution capabilities are our principal marketing channels. Our distribution network is one of the largest and most flexible distribution platforms in the country and has a nationwide coverage. The network of offices of the regional credit-card companies mainly serves the less bancarized medium and low income segments of the population, through offices located all across the Interior of the country and through Banco Galicia, we operate a nationwide distribution network, which is one of the most extensive and diversified distribution networks among private-sector financial institutions in Argentina.

The Bank markets all of its financial products and services to high-, medium- and medium-low-income individuals, including loans, insurance and FIMA family of mutual funds, among others, through its branch network, which operates on line real time. Within the branches, the sales force is specialized by customer segments. The Bank’s sales policy encourages tellers to perform sales functions as well. Wealthy individuals who are private banking customers are served by specialized officers and a specialized network of service centers, including a head office facility.

Commercial and investment banking services to large corporations and other entities are provided in a centralized manner. Branch officers are responsible for the Bank’s relationship with middle-market and small businesses and most of the agriculture/livestock sector customers. The Bank also has established specialized centers that concentrate on providing service to businesses, which are distributed across the country and located in main cities of the Interior and certain facilities located in customer companies facilities.

All of the Bank’s individual and corporate customers have access to the Bank’s electronic distribution channels, including the ATM and self-service terminals network and self-service terminals (Red Galicia 24), a multifunction call center (the CCC), an e-banking website (e-galicia.com) and a banking service through cell phones (Galicia Móvil). In addition, the Bank has a special sales unit specializing in marketing various retail banking products and services, and a centralized unit specializing in the marketing of mortgage loans, which works together with realtors.

Banco Galicia is clearly client service oriented and assigns great importance to its service model and seeks to improve it constantly. In 2005, a new sales and service model was designed and implemented, with the purpose of increasing commercial efficacy, establishing an integrated strategy among the different distribution channels and improving the quality of service. For this, the Bank made progress in the specialization of distribution channels (readjusting the product offering by segment/channel), the redesign of the customer service model at the branches, and the attraction of new open-market customers, among others. Also a plan for the migration of cash operations to automatic means in order to reduce operating burden and waiting times at the branches was added. In 2006, the new customer service model, which had been implemented in all branches during the previous year, was reinforced through the assignment of business officers for medium- and high-income individuals as well as for companies. In the latter case, emphasis was placed on the agricultural and livestock sectors and the whole range of the SMEs segment. During 2007, the number of officials specializing in personalized service to the higher potential customer segments was increased.

The Bank has a segmented marketing approach. In the late 1990s, data warehouse capabilities began to be used to design marketing campaigns focused on specific segments of the Bank’s customer base. The Bank focuses on the ongoing enrichment and exploitation of its corporate data warehouse and of the Retail Division’s data mart in order to, among others, generate the information and the necessary knowledge to create data mining models to focus product sales in accordance with each customer’s preferences. These tools have allowed the Bank to improve its knowledge of its customers and its portfolio segmentation, and to work on micro segmentation and the identification of more precise targets. The Bank’s marketing strategy is also focused on the development of long-term relationships with customers based on a deep and increasing knowledge of those customers. As part of this client-oriented strategy, in the late 1990s, the Bank began to implement customer relationship management technology. Currently, a Program named “Genesis” is under development, geared at improving the way the Bank’s business relationships with its current and potential customers are managed, spanning all of the Bank’s business units, and combining the perspective of each of them into an integral vision.

The Bank’s investment in advertising has increased in the last years, in line with the general market’s trend and particularly, the Argentine financial system’s increase in investment and number of advertisers. These actions, along with massive events in shopping centers across the country and many direct-marketing programs have reinforced the perception of the Bank as a close and friendly bank and have strengthened the brand image, allowing the Bank to regain the “top of mind” (immediate brand recollection) leadership in its category.

During 2007, the Bank completed a brand image change project, launching the new brand and starting to use it in all products and communication pieces on March 31, 2008. Implementation at the branches was launched and will be gradual. This decision not only implies a change in style, but is also strategic and goes hand in hand with the continuous development of the Bank’s products and services. This change is focused on visually communicating the Bank’s identity in a more modern way and on achieving a better connection between its identity and visual representation.

The Bank considers quality of service as the main element capable of distinguishing it from competitors. In order to measure this indicator, the Bank periodically performs surveys, with positive results in the last years, showing high customer satisfaction. During 2005, the Bank implemented new measures and activities, especially at the branch level, and during 2006, started the implementation of a three-year plan for the purpose of strengthening the organizational culture through certain values such as commitment, kindness, and accuracy, while continuing with the assessment of service quality at the branches. This assessment is part of the incentive program and is based on the ongoing monitoring of indicators of customer satisfaction, service quality and the response to claims. In 2007, the general score received by the branches in terms of quality of service averaged 8.80 points (from 10). In November 2005, the Bank adhered to the “Code of Banking Practices” established by the four bank associations of Argentina, which will further contribute to the improvement of the quality of service.

The regional credit card companies market their products and services through a network of branches and service centers, the size of which depends on the size of the locations in which they operate. The companies’ culture is strongly client service oriented and assigns great importance to quality of service. Sales officials receive intensive training in personalized sale of the companies’ products and quality of service, given that the bulk of sales is conducted on a one-on-one basis. Quality of service at the branches is permanently monitored by third parties and availability is enhanced through extended business hours. In addition, each of the companies has a web site through which they conduct sales, receive customers’ requests (such as requests for statements, loans or increases in the credit limits assigned and new cards, among others), provide information on and promote products. These sites include a link that allows payments to be made. In addition, each company has a call center, through which sales, post-sales and collection functions are performed.

To market its products, Sudamericana’s subsidiaries mainly use the Bank’s and the regional credit card companies’ distribution networks. They also use the sales officers of Sudamericana Asesores de Seguros S.A. In addition Sudamericana has a telemarketing center of its own.

The following are our main principal assets, as of December 31, 2007:

In 1994, Banco Galicia purchased the building located at Reconquista 188/200, in Buenos Aires and, between 1992 and 2000, it purchased the building located at Tte. Gral. Juan D. Perón 444, in Buenos Aires. In these locations, the Bank has completed construction of the new corporate tower located at Perón 430 and is in the process of finishing certain floors and moving a substantial part of its operations to this building. Of the approximately 42,000 square meters, 92% were completed as of December 31, 2007. Approximately Ps. 19.0 million are expected to be invested in 2008 in order to finalize the remaining works.

As of December 31, 2007, our distribution network consisted of:

During 2007, our capital expenditures amounted to Ps. 208.7 million, distributed as follows:

During 2006, our capital expenditures amounted to Ps. 136.5 million, distributed as follows:

During 2005, our capital expenditures amounted to Ps. 88.9 million, distributed as follows:

These capital expenditures were made in Argentina.

After having obtained the necessary authorizations, on July 27, 2007 Grupo Financiero Galicia subscribed and paid for 93,604,637 Banco de Galicia y Buenos Aires S.A.’s class “B” shares with a face value of Ps. 1 each. Payment of the shares was made in cash for Ps. 175.3 million and in 2014 Notes with a face value of US$ 102.2 million. There were no capital contributions to any other of our subsidiaries during 2007.

On December 19, 2006, Tarjeta Naranja S.A. acquired an ownership interest in Tarjeta Naranja Dominicana S.A. (formerly Ancud Comercial S.A.), a company incorporated in the Dominican Republic for Ps. 0.009 million. On the same date, Tarjeta Naranja S.A. made a US$ 4.0 million capital contribution to such company.

During 2006 and 2005, we invested Ps. 0.007 million and Ps. 0.2 million in aggregate in Banco Galicia through open-market purchases of the Bank’s common shares.

During 2006, the Bank sold its shares in Inversora Nihuiles S.A. and Inversora Diamante S.A., representing 12.5% of the total votes and shares of Inversora Nihuiles S.A. and 12.5% of the votes and shares of Inversora Diamante S.A., for an aggregate amount of US$ 9.3 million, representing the book value for such shares. In April 2005, after having obtained the necessary authorizations, Sudamericana sold 100% of the shares it held in Instituto de Salta Compañía de Seguros de Vida S.A. for Ps. 6.8 million.

We have budgeted capital expenditures for the fiscal year ending December 31, 2008, for the following purposes and amounts:

We expect to finance our capital expenditures from the cash flow derived from our operations. These capital expenditures will be made in Argentina.

You should read this information in conjunction with the other information provided in this annual report, including our audited consolidated financial statements and Item 5. “Operating and Financial Review and Prospects.” We prepared this information from our financial records, which are maintained under accounting methods established by the Argentine Central Bank under Argentine Banking GAAP, and do not reflect adjustments necessary to reflect the information in accordance with U.S. GAAP.

The exchange rate used in translating Pesos into US Dollars, which is used in calculating the convenience translations included in the following tables is the Reference Exchange Rate published by the Argentine Central Bank, which was Ps. 3.1510, Ps. 3.0695 and Ps. 3.0315 per US$ 1.00 as of December 31, 2007, December 31, 2006 and December 31, 2005 respectively. The exchange rate translations contained in this annual report should not be construed as representations that the stated Peso amounts actually represent or have been or could be converted into US Dollars at the rates indicated or any other rate. See Item 3. “Key Information—Exchange Rate Information.”

In accordance with Argentine regulation, information included in this section as of and for the four fiscal years ended December 31, 2007 does not include any effect of inflation accounting. Information included in this section as of and for the fiscal year ended December 31, 2003 includes the effects of inflation accounting through February 28, 2003. See “Presentation of Financial Information.”

The average balances of interest-earning assets and interest-bearing liabilities, including the related interest that is receivable and payable, are calculated on a daily basis for Banco Galicia, Galicia Uruguay and Tarjetas Regionales S.A. on a consolidated basis. The average balances of interest-earning assets and interest bearing liabilities are calculated on a monthly basis for Grupo Financiero Galicia and its other non-banking subsidiaries.

Average balances have been separated between those denominated in Pesos and those denominated in Dollars. The nominal interest rate is the amount of interest earned or paid during the period divided by the related average balance.

Net gains/losses on government securities and related differences in quoted market prices are included in interest earned. We manage our trading activities in government securities as an integral part of our business. We do not distinguish between interest income and market gains or losses on our government securities portfolio. The non-accrual loans balance is included in the average loan balance calculation.

The following table shows our consolidated average balances, interest accrued and nominal interest rates for interest-earning assets and interest-bearing liabilities for the fiscal year ended December 31, 2007.