Itaú Unibanco - 20-F annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2011

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-15276

ITAÚ UNIBANCO HOLDING S.A. (*)

(Exact name of Registrant as specified in its charter)

(*) Former corporate name Banco Itaú Holding Financeira S.A.

N/A

(Translation of Registrant’s name into English)

Federative Republic of Brazil

(Jurisdiction of incorporation)

Praça Alfredo Egydio de Souza Aranha, 100

04344-902 São Paulo, SP, Brazil

Alfredo Egydio Setubal (Investor Relations Officer)

e-mail: aes-drinvest@itau-unibanco.com.br

Telephone number: +55-11-5019-1549

Securities registered or to be registered pursuant to Section 12(b) of the Act:

*Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None.

Securities for which there is a reporting obligation

pursuant to Section 15(d) of the Act:

None.

The number of outstanding shares of each class of stock of ITAÚ UNIBANCO HOLDING S.A., as of December 31, 2011 was:

2,289,284,300 Common Shares, no par value per share

2,224,355,729 Preferred Shares, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes          x          No          ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes          ¨          No          x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes          x          No          ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes          x          No          ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer          x          Accelerated filer          ¨          Non-accelerated filer¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17          ¨          Item 18          x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes          ¨          No          x

TABLE OF CONTENTS

INTRODUCTION

All references in this annual report to (1) “Itaú Unibanco Holding,” “Itaú Holding,” ”we,” “us,” or “our,” are to Itaú Unibanco Holding S.A. (formerly Banco Itaú Holding Financeira S.A.) and its consolidated subsidiaries, except where otherwise specified or the context otherwise requires; (2) “Itaú Unibanco,” is to Itaú Unibanco S.A. (formerly Banco Itaú S.A.) and “Itaú BBA” is to Banco Itaú BBA S.A., in each case, together with its consolidated subsidiaries, except where otherwise specified or the context otherwise requires; (3) the “Itaú Financial Group” are to Itaú Holding and all of its subsidiaries before the Association; (4) the “Unibanco Financial Group” are to Unibanco Holdings and all of its subsidiaries before the Association; (5) “Itaú Unibanco Group” is to Itaú Unibanco Holding together with its subsidiaries and affiliates; (6) the “Brazilian government” is to the federal government of the Federative Republic of Brazil; (7) “preferred shares” and “common shares” are to our authorized and outstanding shares of preferred stock and common stock, designated as ações preferenciais and ações ordinárias, respectively, each without par value; (8) “ADSs” are to our American Depositary Shares (one ADS represents one preferred share); (9) the “real,” “reais” or “R$” are to Brazilian reais, the official currency of Brazil, and (10) “US$,” “dollars” or “U.S. dollars” are to United States dollars.

As of December 31, 2011 and March 21, 2012, the selling rate for purchasing U.S. dollars was R$1.8758 to US$1.00 and R$1.8267 to US$1.00, respectively.

We have prepared our consolidated financial statements included in this annual report under Item 18, in accordance with International Financial Reporting Standards(“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as of December 31, 2011 and 2010 and January 1, 2010, and for the years ended December 31, 2011 and 2010. Until December 31, 2010, we prepared our consolidated financial information in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All 2011 and 2010 financial data included in this report, unless stated otherwise, has been prepared in accordance with IFRS.

We use accounting practices adopted in Brazil applicable to the institutions authorized to operate by the Central Bank for our reports to Brazilian shareholders, in filings with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM, for the determination of dividend payments, and for the determination of tax liability.

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.

Certain industry data presented in this annual report have been derived from the following sources: the Central Bank System (Sistema do Banco Central),or SISBACEN, a database of information provided by financial institutions to the Central Bank; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing), or ABEL; the Brazilian government development bank (Banco Nacional de Desenvolvimento Econômico e Social), or BNDES; the Brazilian financial and capital markets association (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais), or ANBIMA; the National Monetary Council (Conselho Monetário Nacional), or CMN, and the insurance industry regulator (Superintendência de Seguros Privados), or SUSEP.

You should assume that the information appearing in this annual report is accurate only as of the date to which it refers or as of the date of this annual report, as the case may be. Our business, financial condition, results of operations and prospects may have changed since that date.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains statements that are or may constitute forward-looking statements, including but not limited to statements in “Item 3D. Risk Factors,” “Item 4B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other risks:

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in such forward-looking statements.

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 KEY INFORMATION

3A. Selected Financial Data

You should read the following selected financial data in conjunction with the “Introduction” and “Item 5. Operating and Financial Review and Prospects” included in this annual report. The information below is qualified in its entirety by reference to our consolidated financial statements included in Item 18 in this annual report.

We maintain our books and records in reais, the official currency of Brazil, and prepare our financial statements for statutory and regulatory purposes in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank, or Brazilian GAAP. Accounting principles and standards generally applicable under Brazilian GAAP include those established by Brazilian Corporate Law (Law No. 6,404, as amended, including Law No. 11,638), by the accounting pronouncements committee (Comitê de Pronunciamentos Contábeis), or CPC, which began issuing standards in 2007, and by the federal accounting council (Conselho Federal de Contabilidade), or CFC, while interpretative guidance was issued before the CPC became active by the Brazilian professional body of independent accountants (Instituto dos Auditores Independentes do Brasil), or IBRACON. In the case of companies subject to regulation by the Central Bank, such as Itaú Unibanco Holding, the effectiveness of accounting pronouncements issued by accounting standard setters, such as the CPC, depends on approval of the pronouncement by the (Conselho Monetário Nacional), or CMN and the Central Bank which also establishes the effective date of the pronouncements. In addition, the CVM and other regulatory entities, such as SUSEP and the Central Bank, provide additional industry-specific guidelines. See “Item 9C. Markets” for additional information.

Notwithstanding the above, we have derived the data we present in the tables below from our audited consolidated financial statements for the years presented. You should read all of the data in the tables below together with the consolidated financial statements and notes included in “Item 18. Financial Statements” and the information we provide in “Item 5. Operating and Financial Review and Prospects.” Except where we have indicated otherwise, we have prepared all of the consolidated financial information in this document in accordance with IFRS as issued by IASB. Until December 31, 2010, we prepared our consolidated financial information in accordance U.S. GAAP. All 2011 and 2010 data included in this report has been prepared in accordance with IFRS as issued by the IASB. Our group division and segment data come from our management reporting systems and are not based on, or prepared in accordance with, IFRS. For a discussion of the major differences between our management reporting systems and our consolidated financial statements under IFRS, see “Item 5A. Operating Results – Our Business Operating Segments” and note 33 to our consolidated financial statements.

The consolidated financial statements as of December 31, 2011, 2010 and January 1, 2010 included in this annual report have been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report included elsewhere in this annual report.

IFRS Selected Financial Data

This information is qualified in its entirety by reference to the consolidated financial statements included in Item 18.

Earnings and Dividend per Share Information (4)

⁽¹⁾ Earnings per share have been computed following the “two class method” set forth by IAS 33 Earnings Per Share. See “Item 10B. Memorandum and Articles of Association” for a description of our two classes of stock. See note 27 to our consolidated financial statements for a detailed calculation of earnings per share.

⁽²⁾ Under Brazilian Corporate Law, we are allowed to pay interest on stockholders’ equity as an alternative to paying dividends to our shareholders. See "Item 8A. Consolidated Financial Statements and Other Financial Information - Dividend Policy and Dividends" and “Item 10E. Taxation – Interest on Stockholders’ Equity” and note 20b to our consolidated financial statements for a description of interest on stockholders’ equity.

⁽¹⁾ Under Brazilian Corporate Law, we are allowed to pay interest on stockholders’ equity as an alternative to paying dividends to our stockholders. See "Item 8A. Consolidated Financial Statements and Other Financial Information - Dividend Policy and Dividends" and "Item 10E. Taxation - Brazilian Tax Considerations - Interest on Stockholders Equity" for a description of interest on stockholders’ equity.

⁽²⁾ Translated into US$ from reais at the selling rate established by the Central Bank at the end of the year in which dividends or interest on stockholders’ equity were paid or declared, as the case may be.

Balance Sheet Data

(*) See “Item 4B. Business Overview – Selected Statistical Information – Average Balance Sheet and Interest Rate Data” for more detailed information on our average assets, liabilities and stockholders’ equity for the years ended December 31, 2011 and 2010.

(*) See “Item 4B. Business Overview – Selected Statistical Information – Average Balance Sheet and Interest Rate Data” for more detailed information on our average assets, liabilities and stockholders’ equity for the years ended December 31, 2011 and 2010.

Selected Consolidated Ratios (%)

⁽¹⁾ Net interest income divided by average interest-earning assets. See “Item 4B. Business Overview - Selected Statistical Information – Average Balance Sheets and Interest Rate Data” for more detailed information on our average assets, liabilities and stockholders' equity for the years ended December 31, 2011 and 2010.

⁽²⁾ Net income attributable to Itaú Unibanco Holding divided by average total assets. See “Item 4B. Business Overview - Selected Statistical Information – Average Balance Sheet and Interest Rate Data” for more detailed information on our average assets, liabilities and stockholders' equity for the years ended December 31, 2011 and 2010.

⁽³⁾ Net income attributable to Itaú Unibanco Holding divided by average stockholders' equity. See “Item 4B. Business Overview - Selected Statistical Information – Average Balance Sheet and Interest Rate Data” for more detailed information on our average assets, liabilities and stockholders' equity for the years ended December 31, 2011 and 2010.

⁽⁴⁾ Loans and leases operations as of year-end divided by total deposits as of year-end.

⁽⁵⁾ Total stockholders' equity as of year-end divided by total assets as of year-end.

Exchange Rates

Before March 14, 2005, under Brazilian regulations, foreign exchange transactions were carried out on either the commercial rate exchange market or the floating rate exchange market. The commercial market was reserved primarily for foreign trade transactions and transactions that generally required prior approval from the Central Bank, such as registered investments by foreign persons and related remittances of funds abroad (including the payment of principal and interest on loans, notes, bonds and other debt instruments denominated in foreign currencies and registered with the Central Bank). The floating rate exchange market generally applied to specific transactions for which Central Bank approval was not required. Rates in the two markets were generally the same. On March 4, 2005, the CMN, through Resolution No. 3,265 effective March 14, 2005, as updated by CMN Resolution No. 3,568 of May 29, 2008, unified the two markets and allowed the exchange rate to float freely for all purposes. In addition, CMN issued Resolutions No. 3,844 and No. 3,845, both dated March 3, 2010, and the Central Bank issued Circulars No. 3,491, No. 3,492 and No. 3,493, all dated March 24, 2010, which consolidate and simplify certain exchange rules and related procedures. In 2011 the process of simplifying certain exchange rules and related procedures continued. By the issuance of Circular no. 3,545 on July 4, 2011, Central Bank adopted a new processing system of exchange transactions and revised the methodology of foreign exchange contracts. Currently, the Brazilian foreign exchange system allows the purchase and sale of foreign currency and the performance of international transfers in reais by any individual or legal entity, subject to certain regulatory procedures.

The Brazilian government may impose temporary restrictions on the conversion of Brazilian currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil. Brazilian law allows the government to impose these restrictions whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to foresee a serious imbalance. We cannot predict whether the Brazilian government will impose remittance restrictions in the future. The real may depreciate or appreciate substantially against the U.S. dollar in the future.

As of March 21, 2012, the U.S. dollar-real exchange rate was R$1.8267 to U$1.00.

The following table sets forth information on the selling rate for U.S. dollars as reported by the Central Bank for the periods and dates indicated.

Source: Central Bank

⁽¹⁾ Represents the average of the exchange rates on the last day of each month during the relevant period.

Source: Central Bank

⁽¹⁾ Represents the average of the exchange rates on the last day of each month during the relevant period.

Not applicable.

Not applicable.

The following section does not describe all the risks of an investment in our preferred shares and ADSs. These are the risks we consider material as of the date of this annual report. There may be additional risks that we currently consider immaterial or of which we are currently unaware, and any of these risks could have similar effects to those set forth below.

Therefore, you should carefully read this annual report in its entirety. You should consider, among other things, the risk factors with respect to Itaú Unibanco Holding, to Brazilian financial institutions and to Brazil not normally associated with investments in securities of United States, European and other similar issuers, including those risk factors set out below. Our business, results of operations, financial condition or prospects could be negatively affected if any of such risks occurs, and as a result, the trading price of our preferred shares and ADSs could decline and you could lose all or part of your investment.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, influence over the Brazilian economy. This influence, as well as Brazilian political and economic conditions, could have a material adverse effect on our business, financial condition and results of operations and, as a consequence, on the market price of our preferred shares and ADSs.

The Brazilian government from time to time intervenes in the Brazilian economy and makes changes in policies and regulations. The Brazilian government’s actions have involved, in the past, among other measures, changes in interest rates, changes in tax policies, price controls, capital control limits and restrictions on selected imports and, prior to the current floating exchange regime, currency devaluations. Our business, financial condition, and results of operations may be materially and adversely affected by changes in policies or regulations involving or affecting factors, such as:

As a bank in Brazil, the vast majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may have a material adverse effect on the growth of the Brazilian economy and on us, including our loan portfolio, our cost of funding and our income from credit operations.

In addition, changes in administrations may result in changes in government policy that may affect us. Uncertainty over whether the Brazilian government in the future will implement changes in policies or regulations affecting these and other factors in the future may contribute to heightened volatility in the Brazilian securities markets and in the securities of Brazilian issuers, which in turn may have a material adverse effect on us and, as a consequence, on the market price of our preferred shares and ADSs.

Inflation and fluctuation in interest rates could have a material adverse effect on our business, financial condition and results of operations.

Inflation and interest rate volatility have in the past caused material adverse effects in the Brazilian economy. While the Brazilian government has been able to keep inflation close to target levels since the introduction of inflation targets in 1999, we cannot assure you that it will continue to be able to do so. Inflation, especially sudden increases in inflation, usually causes the loss of purchasing power. Also prolonged periods of high inflation provoke distortions in the allocation of resources. From 2004 to 2011, the average annual inflation was 5.4%. Expected inflation for 2012, as surveyed by the Central Bank, is 5.28%.

Measures to combat historically high rates of inflation have included tight monetary policies with high interest rates, resulting in restrictions on credit and short-term liquidity. Between 2005 and 2011, the base interest rate established by the Central Bank, which is the benchmark interest rate payable to holders of securities issued by the Brazilian government and traded through the Special Clearing and Settlement System (Sistema Especial de Liquidação e Custódia), or the SELIC, varied between 19.75% per year and 8.75% per year. Public expectations regarding possible future governmental actions in the economy, government intervention in the foreign exchange market and the effects of the downturn in the global financial markets have caused and may continue to cause interest rates to fluctuate. In addition, if Brazil experiences fluctuations in rates of inflation in the future, our costs and net margins may be materially and adversely affected, and government measures to combat inflation may include tightening monetary policy with high interest rates which may harm our business. Increases in the SELIC rate could materially and adversely affect us by reducing the demand for credit, increasing our cost of funds and increasing the risk of customer default. Conversely, decreases in the SELIC rate could also materially and adversely affect us by decreasing revenues on interest-earning assets and lowering our margins.

Exchange rate instability may have a material adverse effect on the Brazilian economy and our business, financial condition and results of operations.

The Brazilian currency fluctuates in relation to the U.S. dollar and other foreign currencies. The Brazilian government has in the past implemented various economic plans and utilized a number of exchange rate regimes, including sudden devaluations, periodic mini-devaluations in which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, and dual exchange rates coupled with exchange controls. Since 1999, Brazil has adopted a floating exchange rate system with interventions by the Central Bank in buying or selling foreign currency. From time to time, the exchange rate between the real and the U.S. dollar and other currencies has fluctuated significantly. For example, the real depreciated 15.7%, 34.3% and 24.2% against the U.S. dollar in 2001, 2002 and 2008, respectively, and appreciated 22.3%, 8.8%, 13.4%, 9.5%, 20.7%, 34.2% and 4.5% against the U.S. dollar in 2003, 2004, 2005, 2006, 2007, 2009 and 2010, respectively. In 2011, the real depreciated 11.2% against the U.S. dollar from an exchange rate of R$1.67 per US$1.00 as of December 31, 2010 to an exchange rate of R$1.88 per US$1.00 as of December 31, 2011. The average exchange rate in 2011 was R$1.67 per US$1.00 compared with an average exchange rate of R$1.76 per US$1.00 in 2010.

Some of our assets and liabilities are denominated in, or indexed to, foreign currencies, especially the U.S. dollar. As of December 31, 2011, 27.0% of our total liabilities and 19.8% of our total assets were denominated in, or indexed to, a foreign currency. Although as of December 31, 2011, our material foreign investments were economically hedged in order to mitigate effects arising out of foreign exchange volatility, including the potential tax impact of such investments, there can be no assurance that such hedging strategies will remain in place or will offset such effects. Therefore, a depreciation of the real could have several adverse effects on us, including (i) losses on our liabilities denominated in or indexed to foreign currencies, (ii) impairments to our ability to pay dollar-denominated or dollar-indexed liabilities by making it more costly for us to obtain the foreign currency required to pay such obligations, (iii) impairments to the ability of our borrowers to repay dollar-denominated or dollar-indexed liabilities to us and (iv) negatively affect the market price of our securities portfolio. Conversely, an appreciation of the Brazilian currency could cause us to incur losses on our assets denominated in or indexed to foreign currencies. Therefore, depending on the circumstances, either a depreciation or appreciation of the real could have a material adverse effect on our business, financial condition and results of operations and, as a consequence, on the market price of our preferred shares and ADSs.

Developments and the perception of risk of other countries may adversely affect the Brazilian economy and the market price of Brazilian securities.

Economic and market conditions in other countries, including the United States, the European Union and emerging market countries, may affect to varying degrees the market value of securities of Brazilian issuers. Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have a material adverse effect on the market value of securities of Brazilian issuers, the availability of credit in Brazil and the amount of foreign investment in Brazil. Crises in the European Union, the United States and emerging market countries may diminish investor interest in securities of Brazilian issuers, including Itaú Unibanco Holding. This could materially and adversely affect the market price of our securities, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

Banks located in countries considered to be emerging markets may be particularly susceptible to disruptions and reductions in the availability of credit or increases in financing costs, which could have a material adverse impact on our financial condition. In addition, the availability of credit to entities that operate within emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and any factor that impacts market confidence (for example, a decrease in credit ratings or state or central bank intervention in one market) could materially and adversely affect the price or availability of funding for entities within any of these markets.

Risks Relating to Our Business and the Banking Industry

We are exposed to effects of the disruptions and volatility in the global financial markets and the economies in those countries where we do business, especially Brazil.

Beginning in late 2007, major financial institutions, including some of the largest global commercial and investment banks, and insurance companies experienced significant difficulties, especially lack of liquidity and depreciation of financial assets. These difficulties constricted the ability of a number of major global financial institutions to engage in further lending activity and caused losses. In addition, defaults by, and doubts about the solvency of certain financial institutions and the financial services industry generally led to market-wide liquidity problems and could lead to losses or defaults by, and bankruptcies of, other institutions.

We are exposed to the disruptions and volatility in the global financial markets because of their effects on the financial and economic environment in the countries in which we operate, especially Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. We lend primarily to Brazilian borrowers and these effects could materially and adversely affect our customers and increase our non-performing loans and, as a result, increase the risk associated with our lending activity and require us to make corresponding revisions to our risk management and loan loss reserve models. For example, in 2009, we experienced an increase in our non-performing loans past due more than 90 days from 3.9% of total loans in December 31, 2008 to 5.6% December 31, 2009. As of December 31, 2011, our non-performing loans past due more than 90 days represented 4.9% of our total loan portfolio.

The global financial downturn has had significant consequences for Brazil and the other countries in which we operate, including stock, interest and credit market volatility, a general economic slowdown, and volatile exchange rates that may, directly or indirectly, materially and adversely affect the market price of Brazilian securities and have a material adverse effect on our business, financial condition and results of operations. In addition, institutional failures and disruption of the financial market in Brazil and the other countries in which we operate could restrict our access to the public equity and debt markets.

Continued or worsening disruption or volatility in the global financial markets could lead to further increase in negative effects on the financial and economic environment in Brazil and the other countries in which we operate, which could have a material adverse effect on us.

A failure in, or breach of, our operational or security systems could temporarily interrupt our businesses, increasing our costs and causing losses.

Although we have high profile information security controls, continuing investments in infrastructure, and operations and crisis management in place, our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly for a limited period of time or become temporarily disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control, such as: electrical or telecommunications outages; breakdowns, systems failures or other events affecting third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services; events arising from local or larger-scale political or social matters and cyber attacks.

Temporary interruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks could result in customer attrition, regulatory fines, penalties or intervention, reimbursement or other compensation costs.

Changes in applicable law and regulation may have a material adverse effect on our business.

Brazilian banks, including us, are subject to extensive and continuous regulatory review by the Brazilian government, principally by the Central Bank. We have no control over applicable law and government regulations, which govern all aspects of our operations, including regulations that impose:

·          minimum capital requirements;

·          reserve and compulsory deposit requirements;

·          restrictions on credit card activities;

·          minimum levels for federal housing and rural sector lending;

·          funding restrictions;

·          lending limits, earmarked lending and other credit restrictions;

·          limits on investments in fixed assets;

·          corporate governance requirements;

·          limitations on charging of commissions and fees by financial institutions for services to retail clients and the amount of interest financial institutions can charge;

·          accounting and statistical requirements; and

·          other requirements or limitations in the context of the global financial crisis.

The regulatory structure governing Brazilian financial institutions, including banks, broker-dealers and leasing companies, and Brazilian insurance companies is continuously evolving. Disruptions and volatility in the global financial markets resulting in liquidity problems at major international financial institutions could lead the Brazilian government to change laws and regulations applicable to Brazilian financial institutions based on such international developments.

In response to the global financial crisis which began in late 2007, national and intergovernmental regulatory entities, such as the Basel Committee on Banking Supervision, proposed reforms to prevent the recurrence of a similar crisis, including the Basel III framework. In 2012, the Central Bank issued preliminary guidance and an estimated timeline for implementation of the Basel III framework in Brazil. See “Item 4B. Business Overview — Regulation and Supervision — Regulation by the Central Bank — Capital Adequacy and Leverage/Regulatory Capital Requirements”. In addition, the Central Bank issued new rules for implementation of the Basel III framework in Brazil, as detailed in notice of Public Hearing 40/2012 of February 17, 2012. See “Item 4B. Business Overview — Regulation and Supervision - Capital Adequacy and Leverage/Regulatory Capital Requirements — Implementation of Basel III in Brazil”. In the event that Public Hearing 40/2012 is fully implemented as currently proposed by the Central Bank and based on our current regulatory capital ratios, as well as conservative assumptions on expected returns and asset growth, we do not anticipate that additional regulatory capital will be required to support our operations in the near future. However, depending on the outcome of Public Hearing 40/2012, we may need to reassess our ongoing funding strategy for regulatory capital.

Moreover, there are several proposed bills under consideration in the Brazilian congress that, if signed into law as currently drafted, could adversely affect us. For example, a proposed law to benefit insolvent individual borrowers would allow courts to change the terms and conditions of credit agreements in certain situations. In addition, another proposed bill to amend the rules of civil procedures could have the effect of making recovery more difficult and appealing unfavorable judicial decisions in higher courts more burdensome.

We also have operations in countries outside of Brazil, including Argentina, Chile, Paraguay, Uruguay, Portugal and the United States. Changes in the laws or regulations applicable to our business in the countries in which we operate or adoption of new laws, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States, and the related rulemaking, may have a material adverse effect on our business, financial condition and results of operations.

The amendment of existing laws and regulations or the adoption of new laws and regulations could have a material adverse effect on our business, financial condition and results of operations, including our ability to provide loans, make investments or render certain financial services. See “ Item 4B. Business Overview — Regulation and Supervision”.

Tax reforms may have a material adverse impact on our results of operations.

To maintain its fiscal policies, the Brazilian government regularly enacts reforms to tax and other assessment regimes. These reforms include the enactment of new taxes, changes in the bases of calculation or rates of assessments, including rates applicable solely to the banking industry, and occasional enactment of temporary taxes for designated governmental purposes. For example, in July 2011, the Brazilian government introduced a tax on securities transactions or IOF/Securities-Derivatives at the rate of 1.0% on the notional adjusted value of financial derivatives. Also, the government changed twice the tax charged on consumer financial transactions in 2011: an increase of 1.5% per year in April and a reduction of 0.5% per year in December. See “ Item 4B. Business Overview — Regulation and Supervision— Taxation — Taxation on Financial Transactions”. The effects of these changes and any other changes that could result from the enactment of additional taxation cannot be quantified. These changes, however, may reduce our volume of operations, increase our costs or limit our profitability.

Future changes in tax policy that may affect financial operations include the creation of new taxes. Until 2007, certain financial transactions were subject to the provisional contribution on financial transactions (Contribuição Provisória sobre a Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira or “CPMF”). However, much uncertainty exists as to whether the CPMF, or similar taxes, will be re-introduced in the future. Also, the Brazilian Congress may discuss broad tax reforms in Brazil to improve the efficiency of allocation of economic resources, as proposed by the executive branch of the Brazilian federal government. Major tax reforms in Brazil have been discussed over the last few years. We cannot predict if such tax reforms will be implemented in the future. The effects of these changes, if enacted, and any other changes that could result from the enactment of additional tax reforms, cannot be quantified.

Increases in reserve and compulsory deposit requirements may have a material adverse effect on business, financial condition and results of operations.

The Central Bank has periodically changed the level of reserves and compulsory deposits that financial institutions in Brazil are required to maintain with the Central Bank. The Central Bank may increase the reserve and compulsory deposits requirements in the future or impose new requirements.

Increases in reserve and compulsory deposit requirements reduce our liquidity to make loans and other investments and, as a result, may have a material adverse effect on business, financial condition and results of our operations.

The compulsory deposits generally do not yield the same return as other investments and deposits because a portion of compulsory deposits:

·          do not bear interest;

·          must be held in Brazilian federal government securities; and

·          must be used to finance government programs, including a federal housing program and rural sector subsidies.

For more detailed information on compulsory deposits and capital requirements, see “Item 4B. Business Overview — Regulation and Supervision”.

As of December 31, 2011, we had R$92,323 million in interest-bearing compulsory deposits and R$5,730 million in non-interest-bearing compulsory deposits. For more detailed information on compulsory deposits, see “Item 4B. Business Overview — Selected Statistical Information — Central Bank Compulsory Deposits”.

The increasingly competitive environment and consolidations in the Brazilian banking industry may have a material adverse effect on us.

The markets for financial and banking services in Brazil are highly competitive. We face significant competition from other large Brazilian and international banks, including Brazilian public banks. Competition has increased as a result of recent consolidations among financial institutions in Brazil and as a result of new regulations by CMN that facilitate the customer’s ability to switch business between banks. See Item 4B. Business Overview – Regulation and Supervision. The increased competition may materially and adversely affect us by, among other things, limiting our ability to retain our existing consumer base, increase our customer base and to expand our operations, reducing our profit margins on banking and other services and products we offer, and to the extent it limits investment opportunities.

Changes in the profile of our business may have a material adverse effect on our loan portfolio.

As of December 31, 2011, our loan and financing portfolio was R$ 346,264 million, compared to R$294,837 million as of December 31, 2010. Our allowance for loan losses was R$23,873 million, representing 6.9% of our total loan portfolio, as of December 31, 2011, compared to R$19,994 million, representing 6.8% of our total loan portfolio, as of December 31, 2010. The quality of our loan portfolio is subject to changes in the profile of our business resulting from organic growth and our merger and acquisition activity and is dependent on domestic and, to a lesser extent, international economic conditions. Adverse changes affecting any of the sectors to which we have significant lending exposure, political events within and external to Brazil and the variability of economic activity may have a material adverse impact on our business and our results of operations. Furthermore, our historic loan loss experience may not be indicative of our future loan losses.

In addition, our strategy includes efforts to significantly expand our loan portfolio as well as increase the number of clients, particularly individuals and small and middle-market companies, that we serve. Certain financial products we offer to individuals and other clients are generally characterized by higher margins, but also higher risks of default. A future increase in our loan portfolio, as well as a shift to higher margins and higher risk products, could result in increased default rates, which could have a material adverse effect on our financial condition and results of operations.

The value of our securities and derivatives positions are subject to market fluctuations due to changes in Brazilian or international economic conditions and may produce material losses.

As of December 31, 2011, investment securities represented R$172,690 million, or 21.1% of our assets, and derivative financial instruments, which are used to hedge against risks in each of our business units, represented R$8,754 million, or 1.1% of our assets, and realized and unrealized gains and losses have had and will continue to have a significant impact on our results of operations. These gains and losses, which we record when investments in securities are sold or are marked to market (in the case of trading securities) or when our derivative financial instruments are marked to market, may fluctuate considerably from period to period and are impacted by domestic and international economic conditions. If, for example, we have entered into derivatives transactions to protect against decreases in the value of the real or in interest rates and the real increases in value or interest rates increase, we may incur financial losses. We cannot predict the amount of realized or unrealized gains or losses for any future period, and variations from period to period have no practical analytical value in helping us to make such a prediction. Such losses could materially and adversely affect our results of operations and financial condition. Gains or losses on our investment portfolio may not continue to contribute to net income at levels consistent with recent periods or at all, and we may not successfully realize the appreciation or depreciation now existing in our consolidated investment portfolio or any portion thereof.

Exposure to Brazilian federal government debt could have a material adverse effect on us.

Like many other Brazilian banks, we invest in debt securities of the Brazilian government. As of December 31, 2011, approximately 14.2% of our total assets, and 64.0% of our securities portfolio, was comprised of debt securities issued by the Brazilian government. Any failure by the Brazilian government to make timely payments under the terms of these securities, or a significant decrease in their market value, will have a material adverse effect on us.

If our pricing expectations are incorrect or our reserves for future policyholder benefits and claims are inadequate, the profitability of our insurance and pension products or our results of operations and financial condition may be materially and adversely affected.

Our insurance and pension plan business sets prices and establishes reserves for many of our insurance and pension products based upon actuarial or statistical estimates. The pricing of our insurance and pension products and the insurance and pension plans reserves carried to pay future policyholder benefits and claims are each based on models that include many assumptions and projections which are inherently uncertain and involve the exercise of significant judgment, including as to the levels of and timing of receipt or payment of premiums, contributions, benefits, claims, expenses, interest credits, investment results, interest rates, retirement, mortality, morbidity and persistency. Although we frequently review the pricing of our insurance and pensions products and the adequacy of our insurance and pension plans reserves, we cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our policy liabilities, together with future premiums and contributions will be sufficient for payment of benefits and claims. Significant deviations in actual experience from our pricing assumptions could have a material adverse effect on the profitability of our insurance and pension plans products. In addition, if we conclude that our reserves, together with future premiums, are insufficient to cover future policy benefits and claims, we would be required to increase our reserves and incur income statement charges for the period in which the determination is made, which may have a material adverse effect on our business, financial condition and results of operations.

Our market, credit and operational risk management policies, procedures and methods may not be fully effective in mitigating our exposure to unidentified or unanticipated risks.

Our market, credit and operational risk management policies, procedures and methods, including our statistical modeling tools, such as value at risk (VaR), stress test and sensitivity analyses, may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to quantify our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. If existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits.

In addition, our businesses depend on the ability to process a large number of transactions securely, efficiently and accurately. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, information systems failures or breaches or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures for mitigating operational risk proves to be inadequate or is circumvented.

We may incur losses associated with counterparty exposures.

We face the possibility that a counterparty will be unable to honor its contractual obligations. These counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, from entering into reinsurance agreements or loan facilities or other credit agreements under which counterparties have obligations to make payments to us; executing currency or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. In addition, we routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients.

Our controlling shareholder has the ability to direct our business.

As of January 31, 2012, IUPAR, our controlling shareholder, directly owned 51.00% of our common stock and 25.54% of our total capital stock. See “Item 7A. Major Shareholders”. As a result, IUPAR has the power to control us, including the power to elect and remove our directors and officers and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of dividends. In addition, IUPAR is jointly controlled by Itaúsa, which is controlled by the Egydio de Souza Aranha family, and the former controlling shareholders of Unibanco, the Moreira Salles family. The interests of IUPAR, Itaúsa and the Egydio de Souza Aranha and Moreira Salles families may be different from your interests as a holder of our preferred shares and ADSs.

Investors in our securities do not have the same protections as if the majority of the members of our board of directors were independent.

As described in “Item 7A. Major Shareholders”, IUPAR is our controlling shareholder and, as a result, has the power to control us, including the power to elect and remove our directors and officers. Our current board of directors is comprised of 13 members; only three of those directors are independent in accordance with our corporate governance policy. As a foreign private issuer, we are subject to corporate governance standards, such as the New York Stock Exchange listed company rules, that differ from those applicable to U.S. domestic issuers, including with respect to director independence requirements. See “Item 16G. Corporate Governance.” A significant number of our directors participate in decision-making on matters in which they have greater interests than would an independent director. As a result, the interests of these directors may not be, at all times, the same as those of our securityholders. In addition, several of our directors are affiliated with IUPAR and circumstances may arise in which the interests of IUPAR and its affiliates conflict with the interests of our other stockholders. Where these and other conflicting interests exist, our securityholders will be dependent on our directors exercising, in a manner fair to all of our securityholders, their fiduciary duties as a member of our board of directors.

We are subject to regulation on a consolidated basis and may be subject to liquidation or intervention on a consolidated basis.

The Central Bank treats us and our subsidiaries and affiliates as a single financial institution for regulatory purposes. While our consolidated capital base provides financial strength and flexibility to our subsidiaries and affiliates, their activities could indirectly put our capital base at risk. In particular, any investigation of, or intervention by the Central Bank in, the affairs of any of our subsidiaries and affiliates could have a material adverse impact on our other subsidiaries and affiliates and ultimately on us.

Integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.

We have engaged in a number of mergers and acquisitions in the past and may make further acquisitions in the future as part of our growth strategy in the Brazilian financial services industry. We believe that these transactions will contribute to our continued growth and competitiveness in the Brazilian banking sector.

Any acquisition and merger of institutions and assets and the integration of such institutions and assets involves certain risks including the risk that:

If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisition transactions, or incur greater integration costs than we have estimated, our results of operations and financial condition may be materially and adversely affected.

Risks Relating to the Preferred Shares and the ADSs

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets often involves greater risk than investing in securities of issuers in the United States or in other countries, and these investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States or in other countries. There is also significantly greater concentration in the Brazilian securities market than in major securities markets such as the United States or in other countries. The ten largest companies in terms of market capitalization represented 54.4% of the aggregate market capitalization of BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros, or BM&FBOVESPA, as of December 31, 2011. Therefore, the ability of the holders to sell the preferred shares underlying the ADSs at the price and at time they desire may be limited.

The preferred shares and ADSs generally do not have voting rights.

According to our bylaws , holders of preferred shares, and therefore of the ADSs, are not entitled to vote at meetings of our shareholders, except in limited circumstances. See “Item 10B. Memorandum and Articles of Association.” In the limited circumstances where the preferred shareholders are able to vote, holders may exercise voting rights with respect to the preferred shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs.

Despite there are no provisions under Brazilian law or under our bylaws that limit ADS holders' ability to exercise their voting rights through the depositary bank with respect to the underlying preferred shares, there are practical limits to the ability of ADS holders to exercise their voting rights due to extra procedural steps involved in communicating with such holders. For example, our preferred shareholders will either receive notice of the meetings directly from us or through publication of notice in Brazilian newspapers and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will only receive notice of the meetings directly from us, if they are properly registered in our mailing list. If they are not registered in our mailing list, they will receive the notice only through the depositary bank.

According to the provisions of the deposit agreement, we will provide notice to the depositary bank, which will, in its turn, and to the extent practicable, mail such notice to holders and instructions on how the ADS holder can participate in the shareholders meeting. To exercise their voting rights, ADS holders must instruct the depositary bank on how to vote the shares represented by their ADSs. Because of this extra procedural step involving the depositary bank, the process for exercising voting rights is longer for ADS holders.

Holders of ADSs may be unable to exercise preemptive rights with respect to our preferred shares.

We may not be able to offer our preferred shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our preferred shares in connection with any issuance of our preferred shares unless a registration statement under the Securities Act is effective with respect to the preferred shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available. However, as we are not obligated to file a registration statement relating to preemptive rights with respect to our preferred shares, we cannot assure you that we will file any such registration statement. If a registration statement is not filed and an exemptionfrom registration does not exist, The Bank of New York Mellon, as depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of the sale. However, these preemptive rights will expire if the depositary does not sell them in a timely manner, and U.S. holders of ADSs will not realize any value from the granting of the preemptive rights. For more information on the exercise of your preemptive rights, see “Item 10B. Memorandum and Articles of Association – Preemptive Rights on Increase in Preferred Share Capital.”

If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit foreign currency abroad and certain Braziliantax advantages.

As a holder of ADSs, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration. If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares. If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner. Moreover, should you surrender your ADSs and withdraw preferred shares, applicable regulations require you to enter into corresponding exchange transactions and pay taxes on these exchange transactions. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

Holders of our preferred shares and ADSs may not receive any dividends

According to our bylaws, we are obligated to pay our shareholders at least 25% of our annual adjusted net income, which may differ significantly from our net income calculated under IFRS. This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed by Brazilian Corporate Law. In addition, Brazilian Corporate Law allows us to suspend the mandatory distribution of dividends in any particular year if our board of directors informs our shareholders that such distribution would be incompatible with our financial condition. See “Item 8A. Consolidated Financial Statements and Other Financial Information – Dividend Policy and Dividends” and “Item 10B. Memorandum and Article of Association – Calculation of Distributable Amount.”

As a holder of ADSs, you have shareholder rights that differ from those of shareholders of companies organized under the laws of the United States or other jurisdictions

Our corporate affairs are governed by the Brazilian Corporate Law and our bylaws, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in other jurisdictions outside Brazil. Under Brazilian Corporate Law, you and the holders of the preferred shares may have different rights with respect to protection of their interests, including measures related to actions taken by our board of directors or the holders of our common shares, which may differ from the laws of other jurisdictions outside Brazil.

ITEM 4 INFORMATION ON THE COMPANY

General

Our legal and commercial name is Itaú Unibanco Holding S.A. We were incorporated on September 9, 1943 and registered under NIRE 35300010230. We are organized as a publicly held corporation for an unlimited period of time under the laws of Brazil. Our head offices are located at Praça Alfredo Egydio de Souza Aranha, 100, 04344-902, São Paulo, SP, Brazil and our telephone number is +55-11-5019-1267.

Investor information can be found on our website at www.itau-unibanco.com/ir. Information contained on our website is not incorporated by reference in, and shall not be considered a part of, this annual report. Our agent for service of process in the United States is the general manager of our New York branch, which is located at 767 Fifth Avenue, 50th Floor New York, NY 10153-0023.

History

We trace our origins to 1944, when members of the Egydio de Souza Aranha family founded Banco Federal de Crédito S.A. in São Paulo. Since 1973 we have operated through Banco Itaú S.A., now Itaú Unibanco. Unibanco was founded by the Moreira Salles family in 1924, making it Brazil’s oldest non-state owned bank at the time of the Association.

On November 3, 2008, the controlling shareholders of Itaúsa and of Unibanco Holdings entered into an association agreement to combine the operations of Itaú Holding (now Itaú Unibanco Holding) and its subsidiaries and E. Johnston, Unibanco Holdings, Unibanco and Unibanco’s subsidiaries. To effect the Association, we carried out a corporate restructuring pursuant to which E. Johnston, Unibanco Holdings and its subsidiary Unibanco became wholly owned subsidiaries of Itaú Unibanco Holding through a series of transactions, as described below:

A merger of shares means “incorporação de ações” as defined by article 252 of the Brazilian Corporate Law, and is a corporate restructuring where one company (A) exchanges its shares for shares of another company (B), and as a consequence the shareholders of B become shareholders of A, and A becomes the sole shareholder of B. The shareholders of each of Itaú Unibanco Holding, Itaú Unibanco, E. Johnston, Unibanco Holdings and Unibanco approved the transactions at extraordinary shareholders’ meetings held on November 28, 2008. The transactions were approved by the Central Bank on February 18, 2009 and the minutes of the shareholders’ meetings reflecting the approval of the merger of shares were registered by the Commercial Registry of the State of São Paulo in March 2009. The Association was approved with no restrictions by CADE on August 18, 2010.

The shares of Itaú Unibanco Holding, including those issued in exchange for shares of Unibanco and Unibanco Holdings, commenced trading under the same symbol on March 31, 2009. In May 2009, the trading symbols were standardised to “ITUB” on all the stock exchanges where Itaú Unibanco Holding’s securities are listed. At the extraordinary shareholders’ meeting held on November 28, 2008, our shareholders approved the change of our corporate name from Banco Itaú Holding Financeira S.A. to Itaú Unibanco Banco Múltiplo S.A. At the extraordinary shareholders’ meeting held on April 24, 2009, our shareholders approved a further change of our corporate name to Itaú Unibanco Holding S.A., which change was approved by the Central Bank on August 12, 2009. Finally, at the extraordinary shareholders’ meeting held on April 30, 2009, the shareholders of Itaú Unibanco approved the change of the corporate name of Banco Itaú S.A. to Itaú Unibanco S.A., which change was approved by the Central Bank on December 30, 2009.

As a result of the Association, many initiatives were taken in order to complete the integration of the two banks. The main initiatives were:

Statistical Disclosure by Bank Holding Companies

See “Item 4B. Business Overview – Selected Statistical Information” for additional information relating to our business.

Divestitures

Unibanco Saúde Seguradora

On December 16, 2009, Itaú Seguros S.A. (“Itaú Seguros”), and Itaú Unibanco entered into an agreement with a subsidiary of Tempo Participações S.A. for the sale of all the shares of Unibanco Saúde Seguradora held by Itaú Seguros and Itaú Unibanco, for R$55 million. The performance of Unibanco Saúde Seguradora in the 12-month period after the closing date of the transaction entitled Itaú Seguros and Itaú Unibanco to an additional payment of approximately R$50 million. CADE approved the transaction in December 2009. The Brazilian National Agency of Supplemental Health (Agência Nacional de Saúde Suplementar) (“ANS”), approved the transaction on April 1, 2010. The closing of the transaction occurred on April 29, 2010.

Allianz Seguros

On December 29, 2009, Allianz South America Holding B.V. entered into an agreement with Itaú Unibanco Holding for the purchase for R$109 million of the 14.03% indirect interest that Itaú Unibanco Holding held in Allianz Seguros. The transaction closed on January 14, 2010 and was approved by CADE in March 2010. We notified SUSEP of the transaction.

Capital Expenditures

On January 27, 2012, we announced the construction of a new technology center, representing a total investment of approximately R$800 million. See “Business – Technology”.

See “Item 5B. Liquidity and Capital Resources – Capital – Capital Expenditures” for a discussion of our capital expenditures for the last two fiscal years.

Acquisitions

Redecard

On February 7, 2012 Itaú Unibanco Holding announced its intention to acquire, directly or through its affiliates, all outstanding shares of Redecard S.A. (“Redecard”), through a public tender offer (the “Tender Offer”) aimed at (i) cancelling Redecard’s authorization as a publicly-held company registered with the CVM and (ii) delisting Redecard from the Novo Mercado Corporate Governance Listing Segment maintained by the São Paulo Stock Exchange (BM&FBOVESPA Bolsa de Valores, Mercadorias e Futuros, or “BM&F Bovespa”). The Tender Offer will target the acquisition of common shares of Redecard corresponding to approximately 50% of its share capital. The announced maximum price to be offered for each of such shares will be R$35.00, payable in reais, a total offer of up to R$11.8 billion. We intend to fund the Tender Offer with available cash. Itaú BBA will act as advisor and intermediary institution of the Tender Offer. The completion of the Tender Offer is subject to regulatory approval.

Banco Carrefour

On April 14, 2011 Itaú Unibanco entered into a share purchase and sale agreement governing the acquisition by Itaú Unibanco of 49% of Banco Carrefour for the amount of R$725 million. Banco Carrefour is the entity responsible for the offering and distribution, on an exclusive basis, of financial, insurance and pension products and services through the distribution channels of Carrefour Comércio e Indústria Ltda., which operates under the “Carrefour” brand in Brazil. As of April 14, 2011, the “Carrefour” brand included 163 hypermarkets and supermarkets and related e-commerce channels, and had 7.7 million accounts and a credit portfolio (gross book value) of R$2,254 million as of December 31, 2010. This transaction is subject to the approval of the Central Bank.

HSBC Portfolio in Chile

On October 24, 2011, we completed the acquisition of HSBC’s retail portfolio in Chile, which included, among others, 4 branches and the consumer credit and mortgage portfolios, ranking Itaú as the leader in the premium market, with a network of 88 branches in Chile.

MCC Securities

On August 1, 2011, Itaú Unibanco, through its subsidiaries, entered into certain agreements with the shareholders of MCC, acquiring 50% plus one share issued by MCC Securities Inc. (Cayman Islands) (“MCC Securities”), a wealth management company, forming a joint venture with MCC’s shareholders targeting Chilean high net worth clients.

Unibanco Participações Societárias

On July 29, 2011, we acquired, through a wholly-owned subsidiary, all remaining interests not previously owned in Unibanco Participações Societárias, an indirect investment subsidiary of Itaú Unibanco Holding, for approximately R$1.2 billion in cash.

Itaú Unibanco Holding ranked among the ten largest banks in the world in 2011 and was the largest bank in Brazil, each ranking based on market capitalization according to Bloomberg. Our principal operations are: (i) commercial banking (including insurance, pension plan and capitalization products, credit cards, asset management and a variety of credit products and services for individuals, small and middle-market companies); (ii) Itaú BBA (corporate, investment banking and treasury); (iii) consumer credit (financial products and services to our non-accountholders); and (iv) operations with the market and corporation (referred to as corporate and treasury in note 33 of our consolidated financial statements).

On October 24, 2010, Itaú Unibanco completed the integration of customer service locations throughout Brazil. In total, 998 branches and 245 client service branches, or CSBs, of Unibanco were redesigned and integrated as Itaú Unibanco customer service locations, thus creating a network of approximately 4,700 units in the country under the “Itaú” brand. We have an extensive network with 4,072 branches, 912 CSBs and 28,769 ATMs in Brazil and abroad, as of December 31, 2011, we were elected or ranked:

In addition, we received the following awards and recognition in 2011:

Our Ownership Structure

We are a financial holding company controlled by IUPAR, a holding company jointly controlled by (i) Itaúsa, which is a holding company controlled by members of the Egydio de Souza Aranha family, and (ii) E. Johnston, which is a holding company controlled by the former controlling shareholders of Unibanco, the Moreira Salles family. Itaúsa also directly owned 38.66% of the shares of our common stock as of December, 31, 2011. See “Item 7A. Major Shareholders”.

The following chart is a simplified overview of the direct and indirect ownership structure of the Itaú Unibanco Group as of February 29, 2012:

(*) Excluding controlling stockholders and treasury shares

Ownership percentages above refer to the total of direct and indirect ownership. All of the above companies were organized and have their operations in Brazil, except Banco Itaú Argentina S.A., or Banco Itaú Argentina, Banco Itaú BBA International S.A., or Banco Itaú BBA International, Banco Itaú Chile S.A., or Banco Itaú Chile and Banco Itaú Uruguay S.A., or Banco Itaú Uruguay. For further information with respect to our significant subsidiaries, see note 2.4.a to our consolidated financial statements.

Competitive Strengths

We believe the following strengths provide us with significant competitive advantages and distinguish us from our competitors.

Premier banking brand in Brazil.

Our brands are very strong and very well recognized in Brazil. They represent quality and reliability and, with our large portfolio of products, help us to maintain a low customer turnover rate, especially among customers in the high income segment. According to a 2011 Interbrand report, a brand consultancy, we have the most valuable brand in Brazil, with a value of R$24.3 billion in 2011, an increase of 18% compared to 2010.

Large branch network in geographic areas of high economic activities.

We have an extensive network with 4,072 branches, 912 CSBs and 28,769 ATMs in Brazil and abroad, as of December 31, 2011. Our Brazilian branch network, while national in scope, is strategically concentrated in Southeast Brazil, the country’s wealthiest region. Our branch network in other countries of the Southern Cone (Argentina, Chile, Paraguay, and Uruguay) is also positioned in regions of high levels of economic activity. A branch network in wealthier and key economic areas gives us a strong presence and a competitive advantage to offer our services to a broad range of customers and profit from selective market opportunities. Our exclusive ATM network allows us to offer a wide range of products and services to our customers.

Diverse line of products and services.

We are a multi-service bank offering a diverse line of products and services that are designed to address the needs of various types of clients, including corporate clients, small and medium-sized enterprises, retail customers, high-income individuals, private bank clients, non-accountholders and credit card users. We believe that this model creates opportunities to improve our client relationships and thereby increase our market share. We expect to sustain our leading presence by capturing a solid and growing pipeline of transactions across a number of business segments.

Technology and electronic distribution channels as drivers for sales.

Our intensive use of technology and electronic distribution channels, which has contributed significantly to an increase in sales of products and services, is one of our most important competitive advantages. In 2011, we spent approximately R$4,000 million on information technology, approximately R$1,000 million for the purchase of hardware and software and approximately R$3,000 million for the cost of information technology (“IT”) infrastructure, operation and maintenance. We have sophisticated technology that supports other remote banking access (call centers, Internet banking, etc.) and offers customers the ability to verify their statements and perform their transactions. Our sales teams can access client credit scores directly through mobile phones and credit proposals can be sent over the Internet by any broker registered in our systems.

Risk-based pricing model as a tool to manage risk while exploring opportunities.

Our risk-based pricing model is an important competitive advantage as it gives us a more precise dimension of the risk equation versus return in various scenarios. This is an essential tool to explore commercial opportunities and simultaneously manage risks. Depending on the product, each contract is individually priced using risk adjusted return on capital models that give us a better assessment of the market

Business Strategy

Our board of directors is responsible for defining the guidelines of our strategy and that of our subsidiaries. Strategic decisions by our board of directors are supported by the strategy committee of the board, which provides data and information about strategic business issues. See “Item 6C. Board Practices — Statutory Bodies” The strategy committee’s activities and responsibilities range from evaluating investment opportunities and budget guidelines to providing advice and support to the chief executive officer for the monitoring of our consolidated strategy. The strategy committee is supported by the economic scenarios sub-committee which provides macroeconomic data in order to support discussions on strategies, investments and budgets.

Expand our wholesale and investment bank operations abroad.

In 2011, we took significant steps to expand our wholesale and investment bank operations abroad. In Chile, we entered into an agreement with MCC, one of the leaders in third party wealth management services. Also in 2011, we acquired HSBC Bank’s high net worth portfolio in Chile, making Itaú Chile a leader for high net worth individuals with a network of 88 branches in that country. In addition, Itaú Unibanco started operations in Switzerland through Banco Itaú Suisse, located in Zurich, to provide services to private clients, both Brazilian and Latin American, who seek global investment opportunities. Finally, in November 2011, Itaú BBA was authorized by the Central Bank to structure its wholesale and investment bank operations in Colombia, pending approval by local regulatory bodies, which is expected to be granted in 2012. Itaú BBA’s target market in Colombia is composed of institutional investors and large companies present in Brazil. The products portfolio in Colombia will include loan operations, foreign trade financing, foreign exchange and derivatives, and investment bank activities, such as advising on mergers and acquisitions and access to capital markets.

Continue to improve efficiency.

During 2009 and 2010, we focused our efforts on completing the integration of the Unibanco branches and customer site branches, while maintaining service quality and increasing our customer base. After the completion of the integration of Itaú and Unibanco branches in 2010, we implemented the “Efficiency Project” during 2010 and 2011, which implements close budget management and monitoring of costs and revenues, the establishment of targets for each business unit and the promotion of a strong culture of operational efficiency. In 2011, we fully integrated all systems that still had Unibanco’s legacy information on operations entered into prior to the integration of the branch network. This was the last remaining step to the integration of Itaú and Unibanco.

Grow our loan portfolio with the maintenance of asset quality.

The growth of our loan portfolio and the maintenance of asset quality are central issues to our strategy. We are constantly seeking to improve our models for risk management and our economic forecasts and scenario modeling. We intend to increase the average volume of credit operations to maintain and even grow our market share, depending on the product, market and customer type, including through the development of new products for specific client demographics.

Implement an advanced and fully integrated risk management approach should position us for sustainable growth and enhanced profitability.

Our main strategic goals in risk management include: (i) the incorporation of best practice recommendations and the implementation of the advanced approaches under Basel II and Basel III, which should enhance profitability from more precise risk-based pricing and risk-adjusted performance measurement frameworks, which are important sources of competitive advantage; and (ii) developing and implementing a fully integrated risk management approach, through the integration of processes and systems to provide a comprehensive picture of risk exposures across risk types and from multiple viewpoints, as well as through the development of stress testing and risk appetite standards.

Develop strong relationships with our clients based on customer segmentation.

We will continue to work on our customer segmentation strategy in order to identify our customers’ needs and enhance our relationship with our customer base, as well as to increase market penetration. A customer segment is a distinguishable part of our customer base that is subject to a specific set of needs that we focus on meeting. We believe that our customer segmentation tools and strategy provide us an important competitive advantage developed over the course of more than 25 years. We aim to fulfill clients’ financial needs through a wide product portfolio, including cross-selling of banking and insurance products and sales through a variety of channels. It is also extremely important to deliver best-in-class customer service, in order to maintain and increase client satisfaction and increase portfolio profitability.

Operations

The table below presents revenues for our segments for each of the years ended December 31, 2011 and 2010. As disclosed in note 33 to the consolidated financial statements we have four operational and reporting segments: Commercial Banking, Itaú BBA, Consumer Credit and Activities with the Market and Corporation.

(in millions of R$, except percentages)

⁽¹⁾ Includes net interest and similar income and expenses, dividend income, net gain (loss) from financial assets and liabilities and foreign exchange results and exchange variation on transactions.

⁽²⁾ Activities with the Market and Corporation includes the results related to the trading activities in our proprietary portfolio, trading related to managing currency, interest rate and other market risk factors, asset and liability management and arbitrage opportunities in domestic and foreign markets. It also includes the results associated with financial income from the investment of our excess capital.

We mainly carry out our business activities in Brazil. We do not break down our revenues by geographic market within Brazil. Our revenues consisting of income from financial operations, fee and comission income and income from insurance, private pension and capitalization operations are divided between revenues earned in Brazil and abroad.

(in millions of R$, except percentages)

⁽¹⁾ Includes interest and similar income, dividend income, net gain (loss) from financial assets and liabilities, foreign exchange results and exchange variation on transactions.

The table below presents revenues abroad by operational segment for each of the years ended December 31, 2011and 2010:

(in millions of R$, except percentages)

⁽¹⁾ Includes Banco Itaú Argentina, Itaú Asset Management S.A., Sociedad Gerente de Fondos Comunes de Inversión, Itrust Servicios Inmobiliarios S.A.C.I (formerly known as Itrust Servicios Financieros S.A) and Itaú Sociedad de Bolsa S.A.

⁽²⁾ Includes Itaú Chile Holdings, Inc., BICSA Holdings LTD., Banco Itaú Chile S.A., Itaú Chile Inversiones, Servicios y Administración S.A., Itaú Chile Corredor de Bolsa Ltda., Itaú Chile Corredora de Seguros Ltda., Itaú Chile Administradora General de Fondos S.A., Itaú Chile Securitizadora S.A., Recuperadora de Créditos Ltda. and Itaú Chile Compañía de Seguros de Vida S.A.

⁽³⁾ Includes ACO Ltda., Banco Itaú Uruguay, OCA Casa Financiera S.A., OCA S.A, and Unión Capital AFAP S.A.

⁽⁴⁾ Itaú Unibanco S.A. - Grand Cayman, New York, Tokyo, and Nassau branches; Banco Itaú-BBA S.A - Nassau Branch; Itaú Unibanco Holding S.A - Grand Cayman branch and Unibanco Grand Cayman branch; only at 12/31/2010 Banco Itaú BBA S.A. Uruguay branch; IPI - Itaúsa Portugal Investimentos, SGPS Lda. (49%), Itaúsa Europa - Investimentos, SGPS, Lda., Itaú Europa, SGPS, Lda., Itaúsa Portugal - SGPS, S.A., Banco Itau BBA International, S.A , Itau BBA International (Cayman) Ltd., Banco Itaú Europa Luxembourg; Afinco Americas Madeira, SGPS, Soc. Unipessoal Ltda., Zux Cayman Company Ltd., Topaz Holding Ltd., United Corporate Services Inc (new company name of Itaú USA Inc), Itaú International Investment LLC, Albarus S.A., Banco Del Paraná S.A. and Garnet Corporativo.

⁽⁵⁾ Activities with the Market and Corporation has no operations outside Brazil.

Our Business

Overview

We provide a broad range of banking services to a diverse customer base of individuals and corporate customers. We provide these services on an integrated basis through the following operational units:

The commercial banking business unit offers a wide range of banking services to a diversified base of individuals and companies. Services offered by the commercial banking segment include insurance, pension plan and capitalization products, credit cards, asset management, credit products and customized products and solutions specifically developed to meet customers’ demands. Our marketing strategies are adjusted for each customer profile and implemented through the most suitable distribution channels. We aim to increase the number of products used by our customers, thus diversifying our revenue sources. This segment is an important funding source for our operations and generates significant financial income and banking fees. The commercial banking segment is comprised of the following specialized areas and products:

Itaú BBA is responsible for our corporate and investment banking activities. Itaú BBA’s management model is based on building close relationships with its customers by obtaining an in-depth understanding of their needs and offering them customized solutions. Corporate activities include providing banking services to large corporations and investment banking activities include offering funding resources to the corporate segment, including through fixed and variable income instruments.

Through the consumer credit business unit, we implement our strategy of expanding our offering of financial products and services beyond our current accountholders. As such, this division oversees the financing of vehicles outside our branch network, credit cards to individuals who are not accountholders, and lending to lower income consumers.

Itaú Unibanco Holding also has a broad range of overseas operations and has built its international presence based on strategically positioned units in the Americas, Europe and Asia. This creates significant synergies in foreign trade finance, the placement of Eurobonds, offering more sophisticated financial transactions, and private banking operations.

Commercial Banking

Overview of Accountholder Products and Services

We have a large and diverse portfolio of products to address our customers’ needs. The main available products to our accountholders are:

Retail Banking

Our core business is retail banking, which serves individuals with a monthly income below R$10,000. In December 31, 2011, we had over 17.6 million customers and 4,484 branches and CSBs. Our retail banking operations are present in all Brazilian states and in cities that together represented more than 80.0%of Brazil’s individual domestic consumption as of December 31, 2011.

We classify our retail clients in accordance with their income and profile:

For the year ended December 31, 2011, credit products represented 63.8% of our consolidated revenue from retail banking, while investments represented 25.0% and services and other fee-based products represented 11.3%.

Our strategy is to offer high quality and differentiated banking products to our retail banking customers. As part of this strategy, Itaú Unibanco now serves two retail segments: (i) Itaú Uniclass serves customers with differentiated needs and who require a more diversified service with separate areas within branches; and (ii) Itaú retail serves all other customers. This diversified relationship concept is interwoven by “Itaú 30 horas,” a convenience service that enables users to carry out banking transactions in ATMs, telephones, mobiles, on the internet and at the branches.

Public Sector

Our public sector business operates in all areas of the public sector, including the federal, state and municipal governments (in the executive, legislative and judicial branches). As of December 31, 2011, we had 2,315 public sector customers. To service these customers, we use platforms that are separate from the retail banking branches, with teams of specially trained managers who offer customized solutions in tax collection, foreign exchange services, administration of public agency assets, payments to suppliers, payroll for civil and military servants and retirement. Based on these platforms, we have a significant amount of business with public sector clients, particularly in those Brazilian states where we acquired previously state-owned financial institutions.

Itaú Personnalité

Itaú Unibanco began providing customized services to higher-income individuals in 1996 with the creation of Itaú Personnalité. Itaú Personnalité serves individuals who earn more than R$10,000 per month or have investments in excess of R$100,000.

Itaú Personnalité’s focus is delivering (i) financial advisory services by its managers, who understand the specific needs of our higher-income customers; (ii) a large portfolio of exclusive products and services (iii) special benefits based on the type and length of relationship with the customer, including discounts on various products and services. Itaú Personnalité services its clients through a dedicated network comprised of 213 branches, located in the main Brazilian cities. Itaú Personnalité customers also have access to Itaú Unibanco network of branches and ATMs throughout the country, as well as internet and telephone banking.

Itaú Private Bank

Itaú Private Bank is a leading Brazilian bank in the global private banking industry, providing wealth management services to Latin American high net worth individuals. Approximately 600 employees are focused on offering financial consulting services to clients with at least US$1.5 million in investment assets. In addition, we provide our customers with a full range of banking products and services. As of December 31, 2011, our private banking activity for more than 9,900 clients had assets under management equivalent to US$82 billion, including US$66,169 million in Brazil, US$7,665 million in Luxembourg, US$5,942 million in the United States, US$424 million in Switzerland, US$27 million in the Bahamas, US$11 million in the Cayman Islands and US$1,392 million in Chile through MCC. Fees earned from our private banking customers are, in most cases, a function of assets under management.

Wealth management services are provided by teams of experienced relationship managers based in Brazil, United States, Luxembourg, Switzerland, Argentina, Uruguay, Chile and Paraguay, and supported by investment specialists who recommend the most appropriate solutions for each individual risk profile. We serve our customers’ needs for offshore wealth management solutions in major jurisdictions through independent institutions: in the United States through Banco Itaú Europa International and Itaú Europa Securities, in Luxembourg through Banco Itaú Europa Luxembourg S.A., in Switzerland through Banco Itaú Suisse, in the Bahamas through Itaú Bank & Trust Bahamas and in the Cayman Islands through Itaú Bank & Trust Cayman. On August 21, 2011, Itaú Private Bank International entered into a joint venture with MCC to develop the Chilean private banking market. With over 28 years of experience, MCC is a leading wealth management services provider in Chile acknowledged for its expertise in global fixed income. The new institution will retain the name of Munita, Cruzat & Claro.

According to the 2011 Annual Private Banking and Wealth Management Survey, coordinated by Euromoney magazine, Itaú Private Bank was recognized as offering “The Best Private Banking Overall Services” in Brazil for the third consecutive year. In this latest ranking published in the February edition of Euromoney magazine, Itaú Private Bank was also named the “Best Private Banking Services Overall” in Peru and Top 5 “Best Private Banking Services Overall” in Latin America, being the only Latin-American bank included in this list. Euromoney’s Private Banking Awards cover over 60 countries each year and provide a qualitative and quantitative review of the best services in private banking, by region and by areas of services. Factors such as market position, assets under management, profitability, ratio of clients to private bankers, and quality of services offered are considered in determining the rankings of top private banks.

In addition, we have received awards from Private Banker International magazine for “The Outstanding Private Bank – Latin America / 2011” and the recognition from The Banker & PWM magazines, subsidiaries of the Financial Times Group for “Best Private Bank in Latin America, 2011”.

Very Small Business Banking

Our very small business banking office managers are trained to offer customized solutions and provide detailed advice on all products and services to very small companies. Our strategy is to capture the market opportunity by meeting the needs of these companies and their owners, particularly with respect to the management of cash flow and credit facilities.

As of December 31, 2011, we had 1,774 very small business banking offices located throughout Brazil and approximately 2,750 managers working for over 1,400,000 small business customers. In 2009, 2010 and 2011, we continued expanding our specialized services to companies with annual revenues below R$500,000 and set up 454, 487 and 136 additional offices, respectively, focused on very small business banking. In 2012, we expect to continue to expand our very small business banking operations.

Loans to very small businesses totaled R$6,150 million as of December 31, 2011.

Small Business Banking

We have structured our relationships with small business customers through the use of specialized offices since 2001. As of December 31, 2011, we had 377 offices located nationwide in Brazil and nearly 2,800 managers who worked for over 586,000 companies with annual revenues from R$500,000 to R$6 million.

All our managers are certified by ANBIMA, and throughout the year they receive training to offer the best solutions for each customer profile. Our customers rely on our ability to provide products, terms and rates customized to their needs.

Loans to small businesses totaled R$29,443 million as of December 31, 2011.

Middle-Market Banking

As of December 31, 2011, we had approximately 132,000 middle-market corporate customers that represented a broad range of Brazilian companies located in over 84 cities in Brazil. Our middle-market customers are generally companies with annual revenues from R$6 million to R$150 million. As of December 31, 2011, we had over 1,500 managers specializing in middle-market customers and 237 specialized offices located at key branches.

We offer a full range of financial products and services to middle-market customers, including deposit accounts, investment options, insurance, private retirement plans and credit products. Credit products include investment capital loans, working capital loans, inventory financing, trade financing, foreign currency services, equipment leasing services, letters of credit and guarantees. We also carry out financial transactions on behalf of middle-market customers, including interbank transactions, open market transactions and futures, swaps, hedging and arbitrage transactions. We also offer our middle-market customers collection services and electronic payment services. We are able to provide these services for virtually any kind of payment, including Internet office banking. We charge collection fees and fees for making payments, such as payroll, on behalf of our customers.

Consistent with customary lending practices in Brazil, our loan portfolio for our middle-market customers is composed predominantly of short-term products, defined as having a maturity of less than 12 months. Loans to middle-market businesses totaled R$53,261 million as of December 31, 2011.

Credit Cards and Commercial Agreements

We are the leading company in the Brazilian credit card market, based on transaction volume as of December 31, 2011. Our subsidiaries, Banco Itaucard S.A. (“Banco Itaucard”) and Hipercard Banco Múltiplo S.A. (“Hipercard”), offer a wide range of products to 34.3 million credit card accounts as of December 31, 2011, including Itaú Unibanco’s current accountholders and non-accountholders and also to clients from business partnerships and joint ventures. In the year ended December 31, 2011, the volume of credit cards transactions was R$154,186 million, a 20.3% increase from the prior year.

We have developed a strong presence in the consumer finance sector through our strategic alliances and commercial agreements with leading retailers in Brazil. Since 2001, when we established the first partnerships, these alliances have been supporting our credit card and consumer finance business through several products, such as co-branded credit cards, private label cards, personal loans and insurance.

Our main challenges in the credit card business are to continually increase activation and retention of our cardholder base and improve our portfolio profitability. To this end, our credit card division focuses on the development of new products, the enhancement of partnerships, cross-selling of banking and insurance products and sales through a variety of channels.

Real Estate Financing

As of December 31, 2011, we had approximately R$20.1 billion in outstanding real estate loans, already considering the sale of R$534.2 million of our mortgage portfolio for the Fundo de Garantia por Tempo de Serviço (“FGTS”), the Brazilian social security fund.

Given our expectation of growth over the next several years in the mortgage market in Brazil, we are investing in the operational platform in order to reduce costs and improve quality for our customers. We are also developing our distribution channels for mortgage loans by focusing on our branch network and developing our relationships with real estate brokers. We have partnerships with two of the largest real estate brokers in Brazil: LPS Brasil Consultoria de Imóveis S.A. (“Lopes”) and Coelho da Fonseca Empreendimentos Imobiliários Ltda (“Coelho da Fonseca”). These two long-term partnerships provide us with exclusive real estate financing origination at a large number of locations throughout Brazil.

According to Brazilian regulations, financial institutions are required to allocate at least 65% of their savings accounts balances to fund mortgage financing, of which 80% must be used to finance properties with a value lower than R$500,000 and must have annual interest rates lower than 12%.

Asset Management

According to ANBIMA, as of December 31, 2011, we were the largest mutual fund manager among private banks in Brazil based on our assets under management. As of that date, we had total net assets under management of R$379,737 million on behalf of approximately 1.7 million customers. We also provide portfolio management services for pension funds, corporations, private bank customers and foreign investors. According to ANBIMA, as of December 31, 2011, we were the largest manager of private bank clients’ assets and the second largest private manager of pension fund assets in Brazil, based on our assets under management. As of December 31, 2011, we had R$212,573 million of assets under management for pension funds, corporations and private bank customers.

As of December 31, 2011, we offered and managed about 1,584 mutual funds, which are mostly fixed-income and money market funds. For individual customers, we offered 141 funds to our retail customers and approximately 263 funds to our Itaú Personnalité customers. Private banking customers may invest in over 611 funds, including those offered by other institutions. Itaú BBA’s capital markets group also provides tailor-made mutual funds to institutional, corporate and private banking customers.

In August 2011, Fitch Ratings, one of the largest international rating agencies in Brazil, maintained its M1 (bra) rating (the highest rating granted to an asset manager) of our asset management business unit. We have been in the top rating category since July 2003.

Corporate Social Responsibility

The Itaú Social Excellence Fund (Fundo Itaú Excelência Social) (“FIES”), launched in 2004, is a socially responsible investment fund. It invests in the shares of companies with superior corporate social responsibility practices with the goal of achieving higher long-term returns than those offered by the main Brazilian financial market indices. In addition to analyzing the risks and returns of companies, fund managers take into account three fundamental criteria relating to companies: corporate social activities; environmental protection aspects and good corporate governance practices.

In addition, every year the fund manager donates 50% of FIES’s accumulated asset management fees to social projects in the following categories: environmental education; employment education; and childhood education. The projects are selected by the FIES Advisory Board, which is comprised of market leaders and sustainability specialists. Since its launch in 2004, FIES donated R$16.5 million to social projects from 97 NGOs, which have supported 15,433 children and 1,572 educators.

As of December 31, 2011, FIES had net assets of R$220 million while the donations to social projects in the same year totaled more than R$3.4 million. Twenty projects were selected to receive R$120,000 each. Unicef Brazil received an amount of R$300,000 and R$725,000 was spent on analyzing and visiting applicants’ projects, training, monitoring and providing technical support for the selected projects. The selected organizations also have access to an online platform in which they can interact with other peer organizations and technical partners.

Securities Services

We provide securities services in the Brazilian capital markets, where we act as custodian, transfer agent and registrar. In December 2011, we were ranked the top provider of securities services in Brazil by ANBIMA. We provide registrar services to 235 companies listed on BM&F Bovespa, the Brazilian securities, commodities and futures exchange, which companies together represent 63% of the aggregate market capitalization of that exchange.

As of December 31, 2011, Itaú Unibanco held assets of R$822,733 million in connection with securities services, representing 25.2% of the Brazilian market based on assets held. Our broad range of products relates to both domestic and international custody.

Our services also include acting as transfer agent, providing services related to debentures and promissory notes, custody and control services for mutual funds, pension funds and portfolios. We also provide trustee services and non-resident investor services, and act as custodian for depositary receipt programs. As of December 31, 2011, our specialized staff reached 755 employees.

Brokerage

Itaú Corretora de Valores S.A (“Itaú Corretora”) has been providing brokerage services in BM&F Bovespa since 1965. The brokerage services are also provided to international customers via our broker-dealers in New York, Hong Kong and Dubai.

In 2011, Itaú Corretora was ranked fifth on the BM&F Bovespa equity trading volume, among all brokers, and sixth in number of commodities and derivatives contracts.

Insurance, Private Retirement Plans and Capitalization Products

Insurance

As of November 30, 2011, according to SUSEP, we were one of the leading providers of insurance in Brazil based on aggregate insurance premiums, including our indirect 30.0% share in Porto Seguro S.A. (“Porto Seguro”), and excluding health insurance and VGBL (private retirement plan providing annuity benefits). For regulatory purposes VGBL is considered life insurance. For the year ended December 31, 2011, our insurance premiums totaled approximately R$6,219 million.

Our main lines of insurance are (i) life and casualty (excluding VGBL; see “— Private Retirement Plans”), (ii) extended warranties and (iii) property, which accounted for 42.8%, 22.0% and 15.4% of insurance premiums, respectively, for the year ended December 31, 2011. Our policies are sold through our banking operations, independent local brokers, multinational brokers and other channels. We reinsure a portion of the risks we underwrite, particularly large marine property and casualty risks that exceed the retention limits we have established within regulatory limits.

Risks that exceed the retention limit must be ceded to licensed Brazilian reinsurers in accordance with Supplementary Law No. 126 published on January 15, 2007 and the SUSEP regulations published on December 17, 2007.

Our strategy to increase our level of penetration in the Brazilian insurance market varies by market. In the high risk market, we intend to grow our market share through independent local brokers and multinational brokerage firms. For individuals and small and medium company markets, we focus on operations within our banking client base to increase customer penetration. We are working on improving customer penetration in property and casualty insurance for small and medium companies. Our customer relationship management has implemented several advances and the development of specific products for different segments allows more efficient use of each marketing channel (our branches, telemarketing, Internet, ATMs and bank teller terminals).

In August 2009, Itaú Unibanco Holding and Porto Seguro entered into an operating agreement that provided for the offering and distribution, on an exclusive basis, of homeowner and automobile insurance products to customers of Itaú Unibanco Holding in Brazil and Uruguay, (the “Porto Seguro Alliance”). In connection with the Porto Seguro Alliance, Itaú Unibanco Holding transferred all the assets and liabilities related to its then current portfolio of homeowner and automobile insurance to Itaú Seguros de Auto e Residência S.A. (“ISAR”), all of the shares of which were subsequently transferred to Porto Seguro. In exchange, Porto Seguro issued shares representing 30.0% of its capital stock to Itaú Unibanco Holding and its affiliates. The controlling shareholders of Porto Seguro and Itaú Unibanco Holding established a new company named Porto Seguro Itaú Unibanco Participações S.A., (“PSIUPAR”), and transferred their shares of Porto Seguro to PSIUPAR. The controlling shareholders of Porto Seguro remained controlling shareholders of PSIUPAR, which became the parent company of Porto Seguro. Itaú Unibanco Holding is entitled to nominate two members of the board of directors of each of Porto Seguro and PSIUPAR. ISAR, which is directly controlled by Porto Seguro and indirectly controlled by PSIUPAR, is managed by Porto Seguro and utilises the trademarks “Porto Seguro,” “Itaú Unibanco” and “Azul”. As of August 2009, Itaú Unibanco (through Itaú Seguros) had 3.4 million automobiles and 1.2 million homes insured, which were subsequently transferred to ISAR. In October 2009, SUSEP granted authorization for the corporate acts related to the Porto Seguro Alliance. CADE approved the transaction on August 31, 2011.

In November, 2009, Itaú Seguros and XL Swiss Holding Ltd. (“XL Swiss”), a company controlled by XL Capital Ltd. (“XL Capital”), signed an agreement providing for the acquisition by Itaú Seguros of XL Swiss’ participation in Itaú XL Seguros Corporativos S.A. (“Itaú XL”), such that Itaú XL would be wholly owned by us. In line with XL Capital’s interest in continuing to operate in Brazil and our existing relationship with XL Capital, a separate arrangement has been entered into by which Itaú Seguros provides insurance to XL Capital’s clients in Brazil and XL Capital’s Global Program clients with operations in Brazil. These insurance policies are being reinsured by a reinsurance company of XL Capital incorporated in Brazil in the same way that they were reinsured before the acquisition mentioned herein. The acquisition by Itaú Seguros of 100% of the shares of Itaú XL held by XL Swiss was approved by SUSEP on October 6, 2010. On November 9, 2010, SUSEP approved the change of Itaú XL’s corporate name to Itaú Unibanco Seguros Corporativos S.A.

In December 2009, Allianz South America Holding B.V. entered into an agreement with Itaú Unibanco Holding for the purchase of the 14.03% indirect interest that Itaú Unibanco Holding held in Allianz Seguros for R$109 million. Also in December 2009, Itaú Seguros and Itaú Unibanco entered into an agreement with a subsidiary of Tempo Participações S.A. for the sale of all the shares of Unibanco Saúde Seguradora held by Itaú Seguros and Itaú Unibanco for R$55 million. See “Item 4A. History and Development of the Company - Divestitures”.

Private Retirement Plans

As of December 31, 2011, balances under private retirement plans (including VGBL but excluding our 30% interest in Porto Seguro) totaled R$63,295 million. As of December 31, 2011, we had sufficient values of assets to support our private retirement liabilities (including VGBL but excluding our 30% interest in Porto Seguro). As of November 30, 2011, we were the second largest private retirement plan manager in Brazil based on total liabilities according to SUSEP.

Capitalization Products

Capitalization products are savings account products that generally require a customer to deposit a fixed sum with us to be returned at the end of an agreed upon term, with accrued interest. In return, the customer is automatically entered into periodic drawings for the opportunity to win a significant cash prize. As of December 31, 2011, we had 11.6 million in capitalization products outstanding, representing R$2,847 million in liabilities with assets that function as guarantees of R$2,848 million. We distribute these products through our retail network, electronic channels and ATMs. These products are sold by our subsidiary, Cia. Itaú de Capitalização S.A. During 2011, R$1,881 million of capitalization products were sold and we distributed over R$31.5 million in cash prizes to 2,119 customers.

Itaú BBA

Itaú BBA is responsible for our corporate and investment banking activities. As of December 31, 2011, Itaú BBA offered a complete portfolio of products and services to approximately 2,600 companies and conglomerates in Brazil through a team of highly qualified professionals. Itaú BBA’s activities range from typical operations of a commercial bank to capital markets operations and advisory services for mergers and acquisitions. These activities are fully integrated, which enables Itaú BBA to achieve a performance tailored to its clients’ needs.

As of December 31, 2011, our corporate loan portfolio reached R$140.1 billion. Foreign currency loans were the main contributors to the growth of our corporate loan portfolio in 2011. On a consolidated basis, we had total outstanding foreign-currency loans of R$42.0 billion as of December 31, 2011, an increase of R$14.2 billion compared to December 31, 2010. In investment banking, the fixed income department was responsible for the issuance of debentures and promissory notes that totaled R$11.6 billion and securitization transactions that amounted to R$3.5 billion in Brazil in 2011. According to ANBIMA, Itaú BBA was the leader in distribution of fixed income in 2011 with a 28.9% market share, thus maintaining the bank’s historic leadership in the domestic fixed income market. In the international debt markets, Itaú BBA acted as joint bookrunner in issuances of US$3.1 billion of debt securities in 2011, earning the second place in Bloomberg of Brazilian-based corporate issuers including sovereign issuers. With respect to equity issuances, Itaú BBA coordinated public offerings that totaled R$13.5 billion in 2011, and ranked first in ANBIMA’s origination rankings in Brazil, with 31.8% of the market share in Brazil in 2011.

In addition, Itaú BBA advised 38 merger and acquisition transactions with an aggregate deal volume of R$22.8 billion in 2011, ranking second in Brazil based on net debt of target according to Thomson.

During 2011, Itaú Corretora acted as a broker dealer for transactions totaling R$191.4 billion on shares on the BM&F Bovespa for individual, institutional, foreign and company clients. During 2011, Itaú Corretora was in fifth place in the ranking of brokerages, with a 5.9% market share. Also, Itaú Corretora finished 2011 with a 7.9% market share and 100.7 million negotiated contracts on the Futures market, an increase of 21.4% when compared with 2010. See “— Commercial Banking — Brokerage”.

Itaú BBA has a strong and evident commitment to environmental and social management that dates back to 2000 when Itaú BBA created its environmental management system. In 2004, Itaú Unibanco adopted the Equator Principles, being the first financial institution from emerging markets to adopt criteria to assess financing from a social and environmental perspective of risk. The Equator Principles were launched in 2003 and there are currently 73 financial institutions that have voluntarily committed themselves to incorporating the Equator Principles into project financing deals worth US$10 million or more. Itaú Unibanco’s project finance deals, as defined by Basel II, conducted by Itaú BBA, must comply with the Equator Principles criteria. In 2011, six project finance deals were assessed using Equator Principles criteria representing about R$5.1 billion in total investment and approximately R$1.5 billion on Itaú BBA’s share.

In addition to adopting the Equator Principles, Itaú Unibanco, represented by Itaú BBA, plays a leading role in the Equator Principles Steering Committee and Update Review Process Working Groups, having occupied the position of Chair of the Steering Committee from September 2008 until March 2010. As a consequence of its outstanding performance in sustainability, Itaú Unibanco was elected Sustainable Bank of The Year by FT/IFC Sustainable Finance Conference and Awards in 2011.

In 2007, Itaú Unibanco approved its first institutional Social and Environmental Risk Policy for credit deals and updated the policy in 2011. Itaú BBA, in compliance with the new policy, developed its own Social and Environmental Risk Policy for credit deals in order to address its clients’ needs.

Itaú BBA has a multidisciplinary team responsible for social and environmental risk assessment in credit deals and for developing business opportunities including promoting sustainable products and green lines. In addition, in 2011, in order to develop Itaú BBA’s capacity in dealing with social and environmental themes, the members of the environmental and social risk analysis team underwent 400 hours of training on biodiversity, sustainability in hydropower projects, legal environmental issues, social and environmental issues on oil and gas industry, among others. Itaú BBA’s team attended and made presentations at events with Inter-American Development Bank, United Nations Environment Programme Finance Initiative and other financial institutions, such as the International Finance Corporation.

Itaú BBA focuses on the following products and initiatives in the international business unit: (1) structuring long-term, bilateral and syndicated financing; and (2) spot foreign exchange (whereby a foreign exchange purchase in reais or sale in foreign currency is completed in two business days), which exceeded US$71.4 billion in volume in 2011.

In August 2011, Itaú BBA was recognized by Institutional Investor magazine for the second consecutive year as the best research team in Brazil and for the first time as the best sales team in Latin America. Institutional Investor also recognized the investor relations team as the best in five out of eight categories of “Latin America Investor Relations Perception”. In January 2012, Latin Finance awarded Itaú BBA as the “Best Investment Bank for Brazil” for 2011.

In October 2011, Itaú BBA was also recognized for the fourth consecutive year as “Domestic Cash Management Provider in Brazil” by Euromoney magazine.

Consumer Credit

Vehicle Financing

As of December 31, 2011, our portfolio of vehicle financing, leasing and consortium lending consisted of approximately 3.9 million contracts, of which approximately 71.5% were non accountholder customers. The personal loan portfolio relating to vehicle financing, leasing and the National Industrial Finance Authority (Financiamento de Máquinas e Equipamentos or “FINAME”) grew 1% to R$64,871 million in 2011 as compared to 2010, representing a market share in Brazil of approximately 33.1% as of December 31, 2011.

The vehicle financing sector in Brazil is dominated by banks and finance companies that are affiliated with vehicle manufacturers. According to ABEL, the Brazilian association of leasing companies, as of December 31, 2011, we were the largest leasing company in Brazil in terms of present value of lease operations.

We lease and finance vehicles through 13,532 dealers as of December 31, 2011. Sales are made through computer terminals installed in the dealerships that are connected to our computer network. Each vehicle financing application is reviewed based on credit scoring and dealer scoring systems. The dealer scoring system analyses the credit quality and amount of business provided by each vehicle dealer. We usually grant credit approvals within 8 minutes, depending on the credit history of the customer. Approximately 77.9% of our credit approvals in 2011 were made instantaneously because we have developed scoring models that permit pre-approvals for our customers, which provide us with a very efficient tool and high credit approval performance. Currently, all of the applications are processed through the Internet, conferring more security and agility to the process of concession of credit, for the dealers, customers and us.

The truck financing division grew 25% in 2011 as compared to 2010, reaching R$8,441 million in December 31, 2011, including vehicle financing, leasing and FINAME. The financial volume of transactions relating to motorcycles reached R$1,472 million in 2011. Itaú Unibanco Holding has a partnership with MMC Automotores do Brasil Ltda. and SBV Automotores do Brasil Ltda. for exclusive financing of Mitsubishi and Suzuki brand vehicles. The financial volume of related transactions reached R$684 million in 2011, an increase of 10.9% compared to 2010. The agreement includes that Itaú Unibanco Holding will provide loans to Mitsubishi and Suzuki dealers and that dealers will offer our products and services to their customers.

Redecard

Redecard S.A. (“Redecard”) is one of the two largest multi-brand acquirers of credit, debit and benefit card transactions in Brazil. Its activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants, (resulting from sales made with credit cards), rental of point-of-sale (“POS”) terminals, check verification through POS terminals, and the capture and transmission of transactions using coupons, private-label cards and loyalty programs. As of December 31, 2011, Redecard was present in all municipalities in Brazil with electric power and telecommunication networks. We have held 50.0% plus one share of Redecard’s capital stock since March 30, 2009, at which time Redecard became a subsidiary of Itaú Unibanco and its results were presented on a consolidated basis in our financial statements. In May 2010, Hipercard, also a subsidiary of Itaú Unibanco, entered into an agreement with Redecard, pursuant to which, beginning in the second quarter of 2010, Redecard started capturing Hipercard transactions and Hipercard had access to Redecard’s nationwide infrastructure and network, which is expected to improve the efficiency and speed of Hipercard’s merchant affiliations.

In 2011, Redecard’s net income was R$1.4 billion, an increase of 0.3% compared to 2010. Net Operating Revenue for Redecard in 2011 totaled R$3.6 billion, representing an increase of 6.8% from 2010 due to the capture of R$230.5 billion in transactions with credit cards and debit cards, an increase of 25.2% from 2010. The number of transactions captured and processed reached 2.8 billion, representing an increase of 22.2% from 2010. In December 2011, Redecard had 1.1 million installed POS terminals throughout Brazil.

The following table sets forth the financial volume of transactions in millions of reais and the quantity of transactions of credit and debit cards processed by Redecard in 2011 and 2010:

See “Item 4A. History and Development of the Company — Acquisitions” for a discussion on our intention to acquire all the outstanding shares of Redecard.

International Operations

Banco Itaú Argentina

Argentina is the third largest economy in Latin America by gross domestic product (“GDP”), Brazil’s main trading partner and has one of the highest GDPs per capita in South America. We believe recent increases in banking penetration demonstrate that the Argentine financial system has ample growth potential. Banco Itaú Argentina’s core business is retail banking, with approximately 281,000 customers in the Argentine middle and upper-income segment as of December 31, 2011. Compared with 2010, this represents a 6.3% increase in the number of customers. As of December 31, 2011, Banco Itaú Argentina had assets of R$3,436 million, loan and leasing operations of R$2,162 million, deposits totaling R$2,599 million and shareholders’ equity of R$323 million. As of the same date, Banco Itaú Argentina had 81 branches, 201 ATMs and 22 CSBs.

Banco Itaú Chile

Banco Itaú Chile started its official activities on February 26, 2007, when BAC transferred the operations of BankBoston Chile and BankBoston Uruguay to us. This acquisition increased our presence in Latin America and expanded the scope of our operations. In addition, Itaú Chile Inversiones Servicios y Administración S.A. provides services related to collection, securitization and insurance. In 2011, we also entered into an agreement with MCC for the joint development of third party wealth management services. Also in 2011, we acquired the high net worth portfolio of HSBC Bank.

As of December 31, 2011, our consolidated Chilean operations had R$16,712 million in assets, R$12,537 million in loans and leases, R$10,655 million in deposits and R$1,993 million in shareholders’ equity. According to the Chilean banking and financial institutions regulator (Superintendencia de Bancos e Instituciones Financieras –SBIF), as of that same date, Banco Itaú Chile ranked eighth in the Chilean loans and leases market with a 3.95% market share and ranked fifth in number of demand deposit accounts in the private sector, with approximately 164,000 accounts.

Banco Itaú Chile offers several products such as factoring, leasing, corporate finance, mutual funds, insurance brokerage and trading, which are offered through different entities and different lines of business. The retail segment focuses on the upper-income segment that, as of December 31, 2011, accounted for 61.6% of Banco Itaú Chile’s total revenues. As of December 31, 2011, Banco Itaú Chile had 62 ATMs and 88 branches, of which 66.7% were located in Santiago. Banco Itaú Chile’s commercial banking segment offers a wide range of products to improve customer experience by building a competitive advantage based on service quality, products and processes for targeted customers (companies with annual revenues of between US$2 million and US$100 million). Banco Itaú Chile’s global corporate banking segment offers local and international corporate finance capabilities such as syndications, private placements and securitizations. It also provides trade financing and global treasury services complementing Banco Itaú Chile’s marketing strategy. Treasury products such as foreign exchange and derivatives are a key part of this strategy.

Banco Itaú Uruguay

Bank Itaú’s operations in Uruguay include Banco Itaú Uruguay, the main credit card issuer, OCA S.A. (“OCA”), and the pension fund management company Unión Capital AFAP S.A. (“Unión Capital”), making Bank Itaú one of the leading financial operations in Uruguay. Banco Itaú Uruguay’s strategy is to serve a broad range of customers through customized banking solutions. As of December 31, 2011, Bank Itaú’s operations in Uruguay had R$4,882 million in assets, R$2,201 million in loans and leases, R$3,691 million in deposits and R$444 million in shareholders’ equity.

Banco Itaú Uruguay ranks third in terms of asset volume among private banks in Uruguay, according to the Uruguayan Central Bank (Banco Central del Uruguay) (“BCU”).

The retail banking business is focused on individuals and small business customers, with more than 181,500 customers as of December 31, 2011. The core branch network is located in the metropolitan area of Montevideo with 17 branches. In addition, Banco Itaú Uruguay has branches in Punta del Este, Tucuarembó, Salto, Paysandú y Mercedes Banco Itaú Uruguay has a leading position in the debit card segment of private banks in Uruguay with 18.5% market share as of December 31, 2011, according to BANRED, and a leading role as a credit card issuer (mainly Visa), with a 28.5% market share as of December 31, 2011 based on the aggregate amount of credit card purchases in Uruguay according to Visanet Compañía Uruguaya de Medios de Procesamiento S.A. Retail products and services focus on the middle and upper-income segments, and also include current and savings accounts, payroll payment, self-service areas and ATMs in all branches, and phone and Internet banking. The wholesale banking division is focused on multinational companies, financial institutions, large and medium-sized corporations and the public sector. It provides lending, cash management, treasury, trade and investment services. Additionally, the private banking business unit provides a dedicated regional service (for both resident and non-resident customers), offering a full portfolio of local and international financial market products.

OCA is the main credit card issuer in Uruguay, with a 40.1% market share based on the aggregate amount of credit card purchases in Uruguay as of December 31, 2011, and an approximately 50.0% market share in terms of number of transactions processed. OCA performs the three main credit card operations: customer acquisition, issuance of cards and transaction processing. The main products offered by OCA are credit cards and consumer loans and it had approximately 405,000 customers, and a network of 21 branches, as of December 31, 2011.

Unión Capital is a pension fund management company which has been operating in Uruguay since 1996, when the current Uruguayan pension system was created. As of December 31, 2011, it had approximately 231,000 customers, managed US$1,280 million in pension funds, with a market share of 16.5%, according to the BCU.

Banco Itaú Paraguay

Banco Itaú Paraguay S.A. (“Banco Itaú Paraguay”), formerly known as Interbanco, was set up in Paraguay in 1978 and has become one of the largest banks in the Paraguayan financial market. In 1995, Interbanco was acquired by Unibanco, and the “Itaú” brand has been present in the country since July 12, 2010. Banco Itaú Paraguay has experienced significant growth since 1999, expanding the variety and quality of its services across the country. As of December 31, 2011, Banco Itaú Paraguay had 27 branches, approximately 295,000 customers and 204 ATMs.

Banco Itaú Paraguay’s products and services operate under the following structure: corporate banking (small and medium-sized businesses, agribusiness, large companies, institutional clients) and consumer banking (individuals and payroll customers). Its main sources of income are consumer banking products, primarily credit cards. The retail segment also focuses on the payroll customers. Under corporate banking, Banco Itaú Paraguay has a well-established presence in the agribusiness segment, which has experienced attractive credit performance. Banco Itaú Paraguay has been the most profitable bank in Paraguay for the past seven years. As of December 31, 2011, Banco Itaú Paraguay had R$3,748 million in total assets, including R$2,364 million in loans and leases and R$2,665 million in deposits.

Banco Itaú Paraguay is also recognized by launching innovative products and services. It provides its customers several products and services, such as International Debit Card Cirrus Maestro and the Internet Banking Service Interhome Banking and also offers banking customer information through mobile phones with the Click Banking service.

Itaú Colombia

In November 2011, Itaú BBA was authorized by the Central Bank to structure its wholesale and investment bank operations in Colombia, pending approval by local regulatory bodies, which is expected to be granted in 2012. Itaú BBA’s target market is composed of institutional investors and large companies present in Brazil. The products portfolio will include loan operations, foreign trade financing, foreign exchange and derivatives, and investment bank activities, such as advising on mergers and acquisitions and access to capital markets.

Banco Itaú BBA International

Banco Itaú BBA International, is a Portuguese-chartered bank controlled by Itaú Unibanco Holding. Banco Itaú BBA International focuses mainly on two lines of business:

As of December 31, 2011, Banco Itaú BBA International had US$6,750 million in assets, US$3,963 million in loans and leases, US$1,895 million in deposits and US$746 million in shareholders’ equity.

Banco Itaú BBA International’s corporate banking business offers several products, such as credit, derivatives and advisory services for European companies with Latin American subsidiaries.

The private banking business provides financial and asset management services to our Latin American customers, putting at their disposal a diversified and specialized range of investment funds, dealing in and managing securities and other financial instruments, trusts and investment companies on behalf of customers. Assets under management of the private banking business amounted to US$12,589 million as of December 31, 2011.

All of our transactions with Banco Itaú BBA International and its subsidiaries are on an arm’s-length basis.

Other International Operations

Our other international operations have the following objectives:

The international units of Itaú Unibanco Holding are active in providing our customers with a variety of financial products such as trade financing, loans from multilateral credit agencies, off-shore loans, international cash management services, foreign exchange, letters of credit, guarantees required in international bidding processes, derivatives for hedging or proprietary trading purposes, structured transactions, and international capital markets offerings. These services are mainly offered through our branches in Nassau, New York, Cayman Islands, and Uruguay, as well as through Banco Itaú Argentina and Banco Itaú Chile.

Also among our international units, Itaú Unibanco Tokyo branch offers a portfolio of services and products that satisfy the banking needs of Brazilians living in Japan.

(2)         Manage proprietary portfolios and raise funds through the issuance of securities in the international market:

Funds rising through the issuance of securities, certificates of deposit, commercial paper and trade notes can be executed by Itaú Unibanco’s branches located in the Cayman Islands, Bahamas and New York, as well as through Itaú Bank Ltd. (“Itaú Bank”), a banking subsidiary incorporated in the Cayman Islands.

The proprietary portfolios are mainly held by Itaú Bank and Itaú Unibanco Cayman Islands branch. These offices also enhance our ability to manage our international liquidity. Itaú BBA’s proprietary positions abroad are booked in the Itaú BBA’s Nassau branch.

Through our international operations, we establish and monitor trade-related lines of credit from foreign banks and maintain correspondent banking relationships with money centers and regional banks throughout the world and oversee our other foreign currency-raising activities.

(3)         Participate in the international capital markets as dealers:

Itaú BBA has equity and fixed income sales and trading teams in São Paulo, New York, London, Hong Kong and Tokyo. Besides having one of the largest sales and trading teams in Latin America, we have the largest research analyst team in Latin America and provide extensive coverage of over 176 listed companies in Brazil, Mexico, Chile, Colombia, Peru and Argentina. Our international fixed income and equity teams are active in trading and offering Brazilian and Latin American securities to institutional investors.

(4)         In addition, we are also present and servicing our clients in Asia, especially in China, through Itaú BBA’s representative office in Shanghai.

Trade Financing

As of December 31, 2011, our trade finance portfolio accounted for US$13,034 million, of which US$9,983 million was export related (both pre-export and post-export financing). Our export financing to larger corporate customers is generally unsecured, but some transactions require complex guarantees, particularly those originally structured to be syndicated. Our import financing business accounted for US$3,051 million as of December 31, 2011. For the year ended December 31, 2011, our total volume of foreign exchange transactions related to exports was approximately US$27,060 million and our total volume of foreign exchange transactions related to imports was approximately US$28,457 million.

Marketing and Distribution Channels

We provide integrated financial services and products to our customers through a variety of marketing and distribution channels. Our distribution network consists principally of branches, ATMs and CSBs, which are banking service centers located on corporate customers’ premises.

The following table provides information relating to our branch network, CSBs and ATMs as of December 31, 2011 in Brazil and abroad:

The following table provides information relating to the geographic distribution of our distribution network throughout Brazil as of December 31, 2011:

Branches

As of December 31, 2011, we had a network of 3,829 full service branches throughout Brazil. As of December 31, 2011, 79.8% of our branches were located in the States of São Paulo, Rio de Janeiro and Minas Gerais in the Southeast region, Paraná in the South, and Goiás in the Center-west. The branch network serves as a distribution network for all of the products and services we offer to our customers, such as credit cards, insurance plans and private retirement plans.

Customer Site Branches

As of December 31, 2011, we operated 881 CSBs throughout Brazil. The range of services provided at the CSBs may be the same as those provided at a full service branch, or more limited according to the size of a particular corporate customer and its needs. CSBs represent a low-cost alternative to opening full service branches. In addition, we believe CSBs provide us with an opportunity to target new retail customers while servicing corporate customers and personnel.

ATMs

As of December 31, 2011, we operated 28,264 ATMs throughout Brazil. Our customers may conduct almost all account, related operations through ATMs. ATMs are low cost alternatives to employee-based services and give us points of service at costs significantly lower than branches. We also have arrangements with other network operators such as the brands “Cirrus” and “Maestro” to allow our clients to use simplified services through their networks.

Risk Management

We have implemented processes to comply with risk management rules adopted by the Central Bank in line with Basel II. Our required regulatory capital has the following components, pursuant to CMN Resolution No. 3,490:

We manage our risk exposure using advanced methodologies aligned with Basel II requirements and therefore our risk management tools either already incorporate many of the features required by Basel II or we are in the process of including such requirements. Our efforts are concentrated on Basel II capital requirement rules related to credit, market and operational risks and we are in the process of implementing the advanced approaches defined in the Basel Accord. Additionally, Itaú Unibanco actively participates in discussions and studies on Basel III in Brazil and abroad. See ”Item 5B. Liquidity and Capital Resources — Capital” for a discussion of our regulatory capital requirements and our calculation of regulatory capital. Moreover, in order to meet the provisions of CMN Resolution No. 3,988, Itaú Unibanco is establishing and implementing its capital management structure.

As part of our risk control tools, we developed and improved proprietary risk management systems that are in compliance with the Central Bank’s regulations and aligned with international practices and procedures. These models are based on the following elements:

The Risk Control and Finance Division (“ACRF”), our corporate risk division, centralizes credit, market, operational, liquidity, and insurance underwriting risk management. In addition, we have established committees responsible for risk management, structured as follows:

We believe that the deployment of the advanced approaches of Basel II and Basel III will benefit the institution as it will promote greater alignment of regulatory requirements and internal management, which are already based on sophisticated models for identifying, measuring and monitoring risks. Therefore, we are actively contributing to the adaptation and standardization of Basel II and Basel III through active participation in discussions in several forums in Brazil and abroad and through dialogue with central banks.

Market Risk Management

Market risk is defined as the possibility of losses and reduction in capital as a result of fluctuations in the market prices of financial instruments. It includes, among other things, risks associated with interest rates, foreign exchange rates, commodity prices and stock prices. The market risk control carried out by Itaú Unibanco covers all financial instruments contained in all portfolios of the companies controlled by Itaú Unibanco. In this respect, Itaú Unibanco’s market risk management policy is in line with the principles of CMN Resolution No. 3,464, of June 26, 2007, constituting a set of principles that guide the institution’s strategy of market risk control and management in all conglomerate business units and legal entities of the Itaú Unibanco group.

To manage and control market risk, we have implemented internal risk management and valuation models. These models employ statistical and historical information with regard to interest and foreign exchange rates, volatilities and trends, and seek to reduce the impact of market fluctuations on our liquidity, results of operations and financial condition. The internal VaR model used by Itaú Unibanco considers a one-day holding period and a 99% confidence level. Volatilities and correlations are estimated based on a methodology that confers higher weight to the most recent information.

Market risk control is managed by a control unit in each business unit, which performs daily measurement, evaluation and reporting of market risk to the corporate market risk area and regulatory authorities that oversee the business unit. The corporate market risk area is responsible for monitoring, evaluating and reporting consolidated market risk information, providing support to the superior committees and monitoring compliance with Brazilian regulatory agency requirements.

Liquidity Risk Management

Liquidity risk is defined as the occurrence of imbalances between assets and liabilities, or a mismatch between payments and receipts, that may affect an institution’s payment capabilities, taking into consideration the different currencies and settlement terms of its rights and obligations. Liquidity risk management aims to use best practices so as to avoid cash shortages and difficulties making payments.

Liquidity risk management is overseen by CSTIL, which analyses current and expected levels of liquidity and establishes limits related to liquidity, including the maximum levels of liquidity mismatch based on maturities and currencies and minimum levels of reserves in domestic and foreign currencies. It also establishes policies for raising and investing funds in the national and international markets and strategies for funding our portfolios. This committee reports to CSRisc and oversees the Institutional Treasury Management Committee, and bears the responsibility of setting limits regarding liquidity risk and developing criteria and models for liquidity risk assessment. In addition, the Cash Committee is responsible for implementing and controlling the established strategies for liquidity risk control.

We have a structure dedicated to improving monitoring and analysis of liquidity risk by applying statistical models and economic and financial forecasts of the variables that impact cash flows and the level of reserves in local and foreign currency.

In addition, we have established guidelines and limits, which compliance is periodically reviewed by technical committees to ensure an additional safety margin with respect to the minimum liquidity requirements based on our models. Our liquidity management policies and related limits are established based on prospective scenarios that are periodically reviewed in light of cash requirements due to atypical market conditions or arising from strategic decisions.

Pursuant to the requirements of CMN Resolution No. 2,804 and Central Bank Circular No. 3,393, we deliver our Liquidity Risk Statements (DRL) to the Central Bank monthly and the following items are regularly prepared and submitted to senior management for monitoring and support:

Credit Risk Management

Credit risk is defined as the possibility of losses associated with the failure by the borrower or counterparty to fulfill their obligations. It includes, among other things, counterparty risk, country risk, currency transfer risk, guarantor risk, settlement risk and product concentration risk. Our continuous improvement in the process for decision-making and for credit risk management and control, guided by the best market practices, have made it possible for us to use methodologies based on mathematical modeling for risk analysis, including the following:

We prepare our credit policy on the basis of internal and external factors, relating to the economic environment in Brazil and abroad. Such factors include customer ratings, determined by advanced credit analysis and control instruments, levels of default, rates of return, quality of the portfolio, and economic capital allocated. We have focused on evaluating the risk/return ratio in our strategy to expand our assets. Our main concern is the quality of the credit portfolio and the creation of value for our shareholders. The decision-making process and the definition of our credit policy are centralized to ensure synchronized actions and optimize business opportunities.

Our CSC defines the credit approval authority levels for individual divisions. The approval authority depends on the professional skills and personal experiences of each individual with credit authority, and also considers the economic conditions and risk profile of the different divisions. In addition, each division has credit committees, composed of the credit managers and directors, that establish standards and limits, fix risk classifications and oversee the credit operation approval process, models and policies of that division. Depending on the amount and terms of a proposed loan, as well as on the risk rating of the potential borrower, the credit committee must consult with the CSC.

Within retail and very small, small and medium businesses, most types of loans to individuals and companies are subject to our automated credit process. When an account is established with us, we obtain information about the customer’s income, net worth and professional standing (in the case of individuals). In addition, information from outside agencies, such as the Central Bank, is also gathered automatically and credit record and relationship history is continuously updated. Based on these data and advanced credit and behavior scoring models, we assign each customer an aggregate credit limit. The customer must update new credit information at least annually.

There is a different credit review process for credit amounts higher than those available through the automated credit process and for categories of customer or types of credit not subject to the automated credit process, including credit operations in the middle market and corporate divisions. In these cases, we examine each application individually, verify data and carry out traditional credit analysis methodologies.

In addition, our credit business unit carries out technical support research on business groups and economic and industrial sectors within Brazil. This enables us to evaluate credit risk for companies in the middle market (with annual revenues in excess of R$6 million) and corporate divisions. Payroll deduction loans are evaluated at least on a yearly basis, or sooner, if something relevant comes to the attention of the credit business unit.

We give to each credit manager (manager of the credit business unit responsible for a team of credit analysts) a credit approval authorization limit for each of several categories of loans. The amount of the limit depends upon the experience of the particular manager and economic conditions. Loans up to R$100 million require approval from the credit committee, and may require approval from a senior credit authority, depending on the term of the proposed loan, the credit rating of the potential borrower and the allocated capital for the proposed loan. In addition, any proposed capital allocation greater than R$20 million is subject to the approval of the CSC.

Itaú BBA targets the large corporate divisions and its credit decision process is also based on the rating and size of the loan. There is no individual authority. The highest credit authority within Itaú BBA is represented by the president and the credit director who together can approve up to R$820 million, depending on the risk rating. Any loan above R$820 million must be submitted for CSC approval.

Operational Risk Management

Operational risk is defined as the possibility of losses resulting from failure, deficiency or inadequacy of internal processes, people and systems or from external events. It includes legal risk, coupled with inadequacy or deficiency of contracts, as well as the penalties due to non-compliance with laws and punitive damages to third parties arising from the activities undertaken by an institution.

The sophistication of the banking businesses and the evolution of technologies have increased the complexity of our risk profiles and affected our operational risk management. As a result, we have established a specific structure for the operational risk distinct from the one traditionally applied to market and credit risks. The CSAGRO oversees operational risk management and establishes guidance for internal auditing. The committee analyses audit reports, establishes operational risk management guidelines and models and monitors internal controls, operational risks and legal compliance. Decisions regarding capital measurement models and risk control policies are made by the CSRisc.

In line with the principles established by the CMN, we established an operational risk management policy, which was approved by our audit committee and ratified by the board of directors. The operational risk management policy is applicable to Itaú Unibanco Holding. The policy is comprised of a set of principles, procedures and guidelines that provide for the management of products, services, activities, processes and systems’ risks, also taking into consideration their nature and complexity. The policy defines the procedures for identifying, assessing, mitigating, monitoring and reporting in respect to operational risk, as well as its participants’ roles and responsibilities.

Since July 1, 2008, the Central Bank has required financial institutions to allocate capital for operational risk, based on Basel II operational risk capital requirements guidelines. Itaú-Unibanco Holding has opted for the Alternative Standardized Approach (“ASA”).

See “Item 5B. Liquidity and Capital Resources — Capital”.

Insurance Underwriting and Portfolio Risk Management

Insurance underwriting and portfolio risk is the risk from an adverse economic scenario that contradicts the assumptions used in our underwriting policy and in estimating its reserves. This risk is managed by the same bodies that oversee operational risk as described above. Management of our insurance operations establishes our underwriting policies relating to retentions, protections, reinsurance programs and pricing, depending on the type of business. This approach is designed to maintain high quality underwriting, pricing discipline and reduce volatility in the results. The actuarial department analyses the adherence of the probability tables used in the pricing models to the experience of our portfolio. In the retail market, the prices of our insurance products are established according to proprietary scoring and rating systems based on data we gathered and analyzed over many years, which underwriters use to assess and evaluate risks prior to quotation. This information provides specialized knowledge relating to industry segments and helps analyze risk based on account characteristics and pricing parameters. In the group life market, the prices of our insurance products are established according to rating systems based on an international actuarial table of mortality and the historical experience of our policies, the age of the group, the industry segments, the percentage of females and males and experience of each group and the financial health of the client. Property insurance underwriting is monitored through risk factors and pricing is based on exposure based on economic segment analysis, activity and level of severity risk, customer and similar companies experiences, financial health and customized management instruments. Our strategy for reinsurance underwriting is to work with a limited number of reinsurers in order to have a high pre-negotiated retention limit, which decreases our risk exposure. In addition, the underwriters analyze all of our accounts on an annual basis to manage risk associated with our insurance portfolio. In addition we apply risk-adjusted return on capital model to the corporate segment to allocate enough capital to ensure business sustainability. The risk adjustment return on capital model allows us to quantify the exposure to risk based on statistical criteria.

Funding

Main Sources

Our principal source of funding is deposits. Deposits include non-interest bearing demand deposits, interest bearing savings account deposits, time deposits certificates sold to customers and interbank deposits from financial institutions. As of December 31, 2011, total deposits amounted to approximately R$ 243 billion, representing 42.3% of total funding. As of December 31, 2010, total deposits amounted to approximately R$ 203 billion, representing 39.9% of our total funding. Our savings deposits represent one of our major sources of funding which, as of December 31, 2011 and 2010 accounted for 27.7% and 28.6% of total deposits, respectively.

The following table sets forth a breakdown of our sources of funding as of December 31, 2011 and 2010:

The following tables set forth a breakdown of deposits by maturity, as of December 31, 2011 and 2010:

(in millions of R$)

(in millions of R$)

The following table sets forth the mix of the individual and corporate time deposits divided among our retail, Itaú Personnalité, middle market and corporate markets (each expressed as a percentage of total time deposits) as of December 31, 2011 and 2010:

Other Sources

We also act as a financial agent through borrowing funds from the BNDES, and from the FINAME, and passing of such funds at a spread determined by the government to targeted sectors of the economy. We refer to these borrowings as onlending and they are primarily in the form of credit lines that are directed by the government agencies through private banks to specific targeted sectors for economic development. As of December 31, 2011, we participated as a financial agent in onlending transactions financed by BNDES and FINAME in the total amount of approximately R$35,459 million. See “─ Itaú BBA.”

We obtain U.S. dollar-denominated lines of credit from our correspondent banks to provide a source of trade finance funding for Brazilian companies. As of December 31, 2011, our total import and export funding was approximately R$21,452 million.

In addition, we obtain foreign currency funds from the issuance of securities in the international capital markets, either by borrowing privately or by issuing debt securities generally to onlend these funds in Brazil to Brazilian corporations and financial institutions. These onlendings take the form of loans denominated in reais and are indexed to the U.S. dollar. As of December 31, 2011, we had approximately R$14,053 million outstanding of structured and financial transactions. Our international operations including Portugal, the Grand Cayman-Branch, Itaú Unibanco´s Grand Cayman and New York branches, and Itaú BBA’s Nassau Branch, represent further funding vehicles for us, as they are responsible for issuing securities and establishing programs for the issuance of several financial instruments. See “─ International Operations – Other International Operations.”

We also generate additional funds for our operations through the resale to our customers of securities issued by us and previously held in our treasury account. Our customers have the right to sell the securities back to us at their option at any time until the maturity date. We pay interest on these securities funds at variable rates based on the Interbank Deposit Certificate. Total funding under this financial product as of December 31, 2011 amounted to R$185,413 million.

On January 24, 2012, Itaú Unibanco Holding, acting through its Cayman Islands Branch, issued US$550 million of 6.20% subordinated notes due 2021, to be fungible with, to be consolidated and form a single series with, and to vote as a single class with its outstanding US$500 million of 6.20% subordinated notes due 2021 issued June 21, 2011.

On March 19, 2012, Itaú Unibanco Holding, acting through its Cayman Islands Branch, issued US$1,250 million of 5.65% subordinated notes due 2022.

Technology

We are committed to offering the most advanced technology for the convenience of our customers. Therefore, we continuously invest in the development and improvement of our systems.

In 2011, our IT budget consisted of approximately R$3,000 million in expenditures, including application development, and R$1,000 million in investments, with 6,320 employees.

In 2011, we worked on improving our technology, focusing on increasing system efficiency and sustainable development and were able to make better use of our technology resources. We are also committed to better understanding and identifying our customers’ various needs, and our Internet and Mobile Banking is now available 24 hours a day, 7 days a week. Also, in the second half of 2011, the process of integration between Itaú and Unibanco was completed. Today, 100% of the technology platforms are integrated and run in a single environment.

While we were working on branch migration, we disposed of our used hardware using sustainable means gaining 25% more space in our current data center, as well as reducing our power consumption by 40%.

For our environmentally sound and energy saving actions, Itaú Unibanco received the following awards and recognition:

We have workplace contingency and disaster recovery processes for our main businesses. The back-up site is located in Campinas, São Paulo. Both our primary and secondary data centers have dedicated uninterruptible power systems (“UPS”) and generators that are designed to start automatically whenever a power outage occurs.

For 2012, our IT goal is to continue the modernization of our current data center, which began in 2011 and includes the virtualization of servers and the deployment of biometrics throughout the branch network as well as conclude the implementation of the demand management process, which further eliminates inefficiencies in IT processes relating to the demand of the business divisions.

In addition, on January 27, 2012, we announced the construction of a new technology center in which we will concentrate our data processing and storage equipment and is intended to become our main technology hub (“Data Center”). The Data Center will be set up on a 815 thousand-square-meter site in the city of Mogi Mirim, São Paulo representing a total investment of approximately R$800 million. The project is scheduled to be completed in 2014 and will feature approximately 60 thousand square meters of floor area and employ close to 400 direct employees on-site.

Competition

General

The last several years have been characterized by increased competition and consolidation in the financial services industry in Brazil.

Retail Banking

As of December 31, 2011, there were 139 multiple-service banks, 20 commercial banks, and numerous savings and loan, brokerage, leasing and other financial institutions in Brazil.

We, together with Banco Bradesco S.A. (“Bradesco”), Banco Santander (Brasil) S.A. (“Banco Santander”) and HSBC Bank Brasil S.A. (“HSBC”), are the leaders in the non-state-owned multiple-services banking sector. As of September 30, 2011, these banks accounted for 40.0% of the Brazilian banking sector’s total assets. We also face competition from state-owned banks. As of September 30, 2011, Banco do Brasil S.A. (“Banco do Brasil”), BNDES, and Caixa Econômica Federal (“CEF”), ranked first, fourth and fifth in the banking sector, respectively, accounting for 39.3% of the banking system’s total assets.

The table below sets forth the total assets of the top 14 banks in Brazil, ranked according to their share of the Brazilian banking sector’s total assets:

(*) Based on banking services, excluding insurance and pension funds.

(**)Includes the consolidation of 50.0% of Banco Votorantim S.A. based on Banco do Brasil ownership of a 50.0% interest in Banco Votorantim S.A..

Source: Central Bank, 50 Largest Banks and the Consolidated Financial System (September 2011).

With the Association and the establishment of Itaú Unibanco Holding, new business opportunities arose in the domestic market, in which the economies of scale have become crucial for competition. Itaú Unibanco Holding has a leading position in many areas in the domestic financial market. We achieved a market share of 16.2% based on total loans as of November 2011, positioning us at second place in the Brazilian market. Not considering the public banks, we had a leading position based on total loans with 27.8% of the Brazilian market share as of November 2011.

We also have a highly qualified team of employees. We intensified our presence in the Southern Cone (Argentina, Chile, Paraguay and Uruguay) to strengthen our operations in Latin America. Our long-term strategy is to move gradually to a global position, but our strategy gives priority to the consolidation of our presence in the domestic and regional markets.

Credit Cards

The Brazilian credit card market is highly competitive, growing at a compound annual growth rate of 21.4% over the last three years, as of September 30, 2011, according to the Brazilian Association of Credit Card Companies and Services (Associação Brasileira das Empresas de Cartões de Crédito e Serviços). Itaú Unibanco’s major competitors are Bradesco, Banco do Brasil and Banco Santander. Credit card companies are increasingly adopting alliances and co-branding strategies and adapting relationship pricing policies (interest rates, cardholder fees and merchant fees) in order to strengthen their position in the market.

Asset Management

The asset management industry in Brazil has grown in recent years but is still dominated by activities of commercial banks that offer fixed-income funds to customers of retail banks. The primary factors affecting competition in institutional funds are expertise and price.  Our competition in the sector includes large and well-established banks such as Banco do Brasil and Bradesco as well as several other participants such as CEF, HSBC and Banco Santander.

Insurance

The Brazilian insurance market is highly competitive. Our primary competitors in this sector, excluding health insurance, are Bradesco, Banco do Brasil, CEF, Banco Santander and other related companies. On November 30, 2011, this industry consisted of approximately 113 insurance companies of various sizes, including 29 conglomerates and 46 independent companies. The Porto Seguro Alliance resulted in gains in scale and efficiency. Giving effect to our 30.0% ownership interest in Porto Seguro, we had insurance premiums as of November 2011, with 13.8% of Brazilian market share.

Private Retirement Plans and Capitalization Products

Our primary competitors in private retirement plans and capitalization products are controlled by large commercial banks, such as Bradesco, Banco do Brasil, Banco Santander and CEF, which, like us, take advantage of their branch network to gain access to the retail market.

Corporate and Investment Banking

In the wholesale credit market, Itaú BBA contends for the top spot against Banco do Brasil (including its 50.0% stake in Banco Votorantim) based on aggregate loan volume, where it is currently followed by Bradesco and Santander Brasil.

Itaú BBA also has a prominent position in the derivatives market, particularly in structured derivatives. In this market, its main competitors are the international banks, namely Banco Citibank S.A., Banco de Investimentos Credit Suisse (Brasil) S.A., HSBC, Banco JP Morgan S.A., Banco Morgan Stanley S.A. and Banco Santander.

Itaú BBA also has a leading position in the cash management market, where its main challengers are Banco do Brasil, Banco Santander and Bradesco. In 2011, Itaú BBA received the “Domestic Cash Management Provider in Brazil” award from Euromoney, for the fourth consecutive time.

In investment banking, Itaú BBA’s main competitors include Banco Santander, Banco de Investimentos Credit Suisse (Brasil) S.A., Banco Merrill Lynch de Investimentos S.A., Banco Morgan Stanley S.A., Banco JP Morgan S.A., Bradesco and Banco BTG Pactual S.A. In 2011, Itaú BBA ranked in a top-one or two position in each of equity capital markets, debt capital markets and mergers and acquisitions.

Real Estate Financing

The main player in the Brazilian real estate market is CEF, a government owned bank. CEF is focused on real estate financing and, with its aggressive pricing strategy, is the leader in this market. This position is reinforced with the “Minha Casa, Minha Vida” federal program, which is responsible for the construction and financing of one million low income homes and for which CEF is the main operator. There are also two important private bank competitors: Banco Santander and Bradesco. Banco do Brasil, another government owned bank, is also becoming an important player in this market.

REGULATION AND SUPERVISION

The following regulation relates to the Brazilian financial system and Banking sector, unless stated otherwise. The basic institutional framework of the Brazilian financial system was established in 1964 through Law No. 4,595 of December 31, 1964, or the “Banking Reform Law. The Banking Reform Law regulates the national financial system, composed of the CMN, the Central Bank, Banco do Brasil, the BNDES, and many financial institutions from the public and private sectors. This legislation created the CMN, as the regulatory agency responsible for establishing currency and credit policies promoting economic and social development, as well as for the operation of the financial system. This law confers on the CMN powers to set the loan and capital limits, approve monetary budgets, establish exchange and interest rate policies, oversee activities related to stock markets, regulate the organization and operation of financial institutions in the public and private sectors, give authority to the Central Bank over issuing banknotes and setting reserve requirement levels, and setting out general guidelines related to the banking and financial markets.

Principal Regulatory Agencies

The CMN

The CMN, the highest authority responsible for monetary and financial policies in Brazil, is responsible for the overall supervision of Brazilian monetary, credit, budgetary, fiscal and public debt policies. The CMN is chaired by the minister of finance and includes the minister of planning budget and management and the president of the Central Bank. The CMN is authorized to regulate the credit operations which Brazilian financial institutions are engaged in, to regulate the Brazilian currency, to supervise Brazil’s reserves of gold and foreign exchange, to determine Brazilian saving and investment policies and to regulate the Brazilian capital markets. In this regard, the CMN also oversees the activities of the Central Bank and the CVM.

The Central Bank

The Central Bank is responsible for implementing the policies established by the CMN, related to monetary policy and exchange control matters, regulating public and private sector Brazilian financial institutions, monitoring and registration of foreign investment in Brazil and overseeing the Brazilian financial markets. The president of the Central Bank is appointed by the president of Brazil subject to ratification by the Brazilian senate, to perform his duties for an indefinite term. Since January 2011, the president of the Central Bank has been Mr. Alexander Antônio Tombini.

The CVM

The CVM is the body responsible for regulating the Brazilian securities and derivative markets in accordance with the general regulatory framework determined by the CMN. The CVM also regulates its participants, such as companies whose securities are traded on the Brazilian securities markets, investment funds, investors, financial intermediaries and others such as securities custodians, asset managers, independent auditors, securities analysts and consultants.

SUSEP

The Superintendence of Private Insurance (“SUSEP”), a body subject to the Ministry of Finance, established by Decree Law No. 73, of November, 21, 1966, is responsible for the supervision and control of insurance, open private pension plans, capitalization and reinsurance businesses in Brazil.

CNSP

The National Private Insurance Council (Conselho Nacional de Seguros Privados or “CNSP”), also established by Decree Law No. 73, regulates (together with SUSEP) insurance, open private pension plans, capitalization and reinsurance businesses in Brazil. The CNSP is chaired by the minister of finance or his representative and includes the superintendent of private insurance and representatives of the ministry of justice, the ministry of social welfare, the Central Bank and the CVM.

Principal Limitations and Restrictions on Financial Institutions

Under Brazilian banking laws and regulations, financial institutions may not:

Principal Financial Institutions

Public Sector

The federal and state governments of Brazil control several commercial banks and financial institutions devoted to fostering economic development, primarily with respect to the agricultural and industrial sectors. State development banks act as independent regional development agencies in addition to performing commercial banking activities. In the last decade, several public sector multiple-service banks have been privatized and acquired by Brazilian and foreign financial groups. Government-controlled banks include:

Private Sector

The private financial sector includes commercial banks, investment, finance and credit companies, investment banks, multiple-service banks, securities dealers, stock brokerage firms, credit co-operatives, leasing companies, insurance companies and others. In Brazil, the largest participants in the financial markets are financial conglomerates involved in commercial banking, investment banking, financing, leasing, securities dealing, brokerage and insurance. As of December 31, 2011, there were 578 financial institutions operating in the private sector, including:

In addition to the above, the Central Bank also supervises the operations of consumer credit companies (financeiras), securities dealerships (distribuidoras de títulos e valores mobiliários), stock brokerage companies (corretoras de valores), leasing companies (sociedades de arrendamento mercantil), savings and credit associations (associações de poupança e empréstimo) and real estate credit companies (sociedades de crédito imobiliário).

Regulation by the Central Bank

Overview

The Central Bank implements the currency and credit policies established by the CMN, and controls and supervises all public- and private-sector financial institutions. Any amendment to a financial institution’s bylaws, any increase in its capital or any establishment or transfer of its principal place of business or any branch (whether in Brazil or abroad) must be approved by the Central Bank. Central Bank approval is necessary to enable a financial institution to merge with or acquire another financial institution or in any transaction resulting in a change of control of a financial institution. See also “— Antitrust Regulation”. The Central Bank also determines minimum capital requirements, permanent asset limits, lending limits and mandatory reserve requirements. No financial institution may operate in Brazil without the prior approval of the Central Bank.

The Central Bank monitors compliance with accounting and statistical requirements. Financial institutions must submit annual and semi-annual audited financial statements, quarterly financial statements, subject to a limited review, as well as monthly unaudited financial statements, prepared in accordance with the Central Bank rules, all of which must be filed with the Central Bank. Publicly held financial institutions must also submit quarterly financial statements to the CVM, which are subject to a limited review. In addition, financial institutions are required to disclose to the Central Bank all credit transactions, foreign exchange transactions, export and import transactions and any other related economic activity. This disclosure is usually made on a daily basis by computer and through periodic reports and statements. A financial institution and the corporate entities or individuals which control such financial institution have a duty to make available for inspection by the Central Bank its corporate records and any other document which the Central Bank may require in order to carry out its activities.

Capital Adequacy and Leverage/Regulatory Capital Requirements

Existing Requirements

Since January 1995, Brazilian financial institutions have been required to comply with Basel I on risk-based capital adequacy, modified as described below.

In general, Basel I and Basel II require banks to maintain a ratio of capital to assets and certain off-balance sheet items, determined on a risk-weighted basis, of at least 8.0%. At least half of the required capital must consist of Tier 1 Capital, and the balance must consist of Tier 2 Capital. Tier 1 Capital includes equity capital (i.e., common shares and non-cumulative permanent preferred shares), share premium, retained earnings and certain disclosed reserves less goodwill. Tier 2 Capital, or supplementary capital, includes “hidden” reserves, asset revaluation reserves, general loan loss reserves, subordinated debt and other quasi-equity capital instruments (such as cumulative preferred shares, long-term preferred shares and mandatory convertible debt instruments). There are also limitations on the maximum amount of certain Tier 2 Capital items. To assess the capital adequacy of banks under the risk-based capital adequacy guidelines, a bank’s capital is evaluated on the basis of the aggregate amount of its assets and off-balance sheet exposures, such as financial guarantees, letters of credit and foreign currency and interest rate contracts, which are weighted according to their categories of risk.

Brazilian legislation closely tracks the provisions of Basel II standardized or basic approaches for credit, market and operational risks. Among the key differences between Brazilian legislation and Basel II are:

For limited purposes, the Central Bank establishes the criteria for the determination of regulatory capital for Brazilian financial institutions. In accordance with those criteria established by CMN Resolution No. 3,444, the capital of the banks is divided into Tier 1 Capital and Tier 2 Capital.

Tier 1 Capital is represented by shareholders’ equity plus balance of credit income account and blocked deposits account in order to mitigate the capital deficiency, excluding the balance of debt income account, revaluation reserves, contingency reserves, special profit reserves related to mandatory dividends not yet distributed, preferred cumulative stock, preferred redeemable stock, non-realized earnings related to available-per-sale securities market value adjustments and certain tax credits in accordance with Resolution No. 3,059, as amended, established by CMN.

Tier 2 Capital is represented by revaluation reserves, contingency reserves, special profit reserves related to mandatory dividends not yet distributed, preferred cumulative stock, preferred redeemable stock, subordinated debt and hybrid instruments and non-realized earnings related to available-for-sale securities market value adjustments. As mentioned above, Tier 2 Capital must not exceed Tier 1 Capital. In addition, preferred redeemable stock with original maturity of less than 10 years plus the amount of subordinated debt is limited to 50.0% of the amount of Tier 1 Capital.

Regulatory capital is represented by the sum of Tier 1 Capital and Tier 2 Capital and, together with the deductions described in note 32 to our consolidated financial statements as of and for the year ended December 31, 2011, is taken into consideration for the purposes of defining the operational limits of financial institutions.

Basel III Framework

On December 16, 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) issued its new Basel III framework, which was revised and republished on June 1, 2011. The Basel III framework includes higher minimum capital requirements and new conservation and countercyclical buffers, revised risk-based capital measures, and the introduction of a new leverage ratio and two liquidity standards. The new rules will be phased in gradually and, as with other Basel directives, these will not be self-effectuating. Rather, each country must adopt them by legislation or regulation to be imposed upon that country’s home banks.

The Basel III framework will require banks to maintain: (i) a minimum common equity capital ratio of 4.5%, (ii) a minimum Tier 1 Capital ratio of 6% and (iii) a minimum total capital ratio of 8%. In addition to the minimum capital requirements, Basel III will require a “capital conservation buffer” of 2.5% and each national regulator is given discretion to institute a “countercyclical buffer” if it perceives a greater system-wide risk to the banking system as the result of a build-up of excess credit growth in its jurisdiction. The Basel Committee phased in the three basic minimum requirements first, beginning on January 1, 2013, with a longer period for banks to comply with the capital conservation buffer, the “countercyclical buffer” and other requirements, beginning on January 1, 2016.

Basel III also introduces a new leverage ratio. A supervisory monitoring period began on January 1, 2011 and a parallel semi-annual testing run period of a minimum Tier 1 Capital leverage ratio of 3% will begin in January 1, 2013 and run until January 1, 2017. Basel III will require banks to disclose their leverage ratio and its components beginning January 1, 2015.

In addition, Basel III aims to improve risk coverage by reforming the treatment of counterparty credit risk (“CCR”). Going forward, affected banks generally will, among other things, be required to determine their capital requirement for CCR using stressed inputs and be subject to a capital charge for potential mark-to-market losses associated with counterparties’ deteriorating credit-worthiness.

In relation to liquidity, Basel III implements a liquidity coverage ratio (“LCR”) and a net stable funding ratio (“NSFR”). The LCR will require affected banks to maintain sufficient high-quality liquid assets to cover the net cash outflows that could be encountered under a potential liquidity disruption scenario over a thirty-day period. The NFSR establishes a minimum amount of stable sources of funding a bank will be required to maintain based on the liquidity profiles of the bank’s assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments over a one-year period. Basel III provides for an observation period which began in 2011 and it is contemplated that the LCR and the NSFR, including any revisions, will be introduced as minimum standards beginning January 1, 2015 and 2018, respectively.

In addition, on January 13, 2011, the Basel Committee expanded on the Basel III capital rules with additional requirements, also referred to generally as the “January 13 Annex”, applicable to non-common Tier 1 Capital or Tier 2 Capital instruments issued by internationally active banks. These requirements are in addition to the criteria detailed in the Basel III capital rules outlined above. To be included in additional Tier 1 Capital or Tier 2 Capital, the January 13 Annex requires an instrument issued by an internationally active bank to have a provision that requires such instruments, at the option of the relevant authority, to either be written off or converted to common equity upon a “trigger event”. A “trigger event” is the earlier of: (i) a decision that a write-off, without which the bank would become non-viable, is necessary, as determined by the relevant authority; and (ii) the decision to make a public sector injection of capital, or equivalent support, without which the bank would have become non-viable, as determined by the relevant authority. The additional requirements will apply to all instruments issued after January 1, 2013; otherwise, qualifying instruments issued prior to that date will be phased out over a ten-year period, beginning on January 1, 2013.

On November 4, 2011, the Basel Committee published the final document addressing the assessment methodology for determining the systemically important financial institutions (“G-SIFIs”) and the amount of additional regulatory capital requirements that G-SIFIs should meet and the arrangements by which such additional requirements will be phased in. The assessment methodology is based on an indicator-based measurement approach. The selected indicators reflect a G-SIFI’s (i) size, (ii) interconnectedness, (iii) lack of readily available substitute or financial institution infrastructure for the services they provide; (iv) global, or cross-jurisdictional, activity; and (v) complexity, each of them receiving an equal weight of 20.0% in the assessment. The magnitude of additional loss absorbency requirements for G-SIFIs proposed by the Basel Committee ranges from 1% to 2.5% of risk-weighted assets to be met with Common Equity Tier 1 only, as defined in the Basel III framework. The additional loss absorbency requirement for G-SIFIs will be phased-in in parallel with the “capital conservation” and “countercyclical” buffers between January 1, 2016 and year end 2018, becoming fully effective on January 1, 2019.

The Issuer has not been classified as a G-SIFI by the Basel Committee.

Implementation of Basel III in Brazil

On February 17, 2011, the Central Bank issued Notice No. 20,615, or Notice 20,615, containing preliminary guidance and an estimated schedule for the implementation of Basel III in Brazil. Further to Notice 20,615, on February 17, 2012, the Central Bank announced a process for public comment (“Public Hearing 40/2012”), proposing new regulations and the schedule for implementing certain aspects of the Basel III Framework in Brazil. The public comment period is 90 days, ending on May 17, 2012.

If Public Hearing 40/2012 is converted into effective regulation with no material changes, Brazilian banks’ minimum total capital ratio will be calculated as the sum of three components:

According to Public Hearing 40/2012, Brazilian banks’ regulatory capital will continue to comprise two tiers, Tier 1 Capital and Tier 2 Capital, and qualification of financial instruments as Tier 1 Capital or Tier 2 Capital will be based on the ability of such instruments to absorb losses at a viable financial institution. Tier 1 Capital will be further divided into two portions: Common Equity Tier 1 Capital (common equity capital, certain regulatory adjustments and profit reserves, etc.) and Additional Tier 1 Capital (hybrid debt and equity instruments authorized by the Central Bank that comply with certain requirements imposed by the applicable regulation). Existing hybrid instruments and subordinated debt already approved by the Central Bank as Tier 1 Capital or Tier 2 Capital by the date when the proposed regulations are definitively enacted by the CMN will continue to qualify as Tier 1 Capital or Tier 2 Capital, as the case may be, provided that such instruments comply with Basel III requirements as implemented by the Central Bank, including the mandatory loss absorbency provisions required under the January 13 Annex. If such instruments do not comply with these requirements as implemented by the Central Bank it is expected that such instruments will be subject to a phase-out period beginning January 1, 2013, when 10% of the nominal value of such instruments will begin to be deducted annually from the amount that qualifies as Additional Tier 1 Capital or Tier 2 Capital.

Under the proposed regulations of Public Hearing 40/2012, capital requirements will be increased in 2017 to a maximum of 13.0% of risk-weighted assets, of which 2.5% will only be required as a countercyclical measure (the countercyclical capital buffer), with phase-in of the modifications beginning in 2013. Capital requirements will be applied at a consolidated level (consolidado prudencial), as determined by the Central Bank. The proposed regulations define the criteria for calculation of various elements of a financial institution’s risk-weighted assets and also address which instruments will qualify as regulatory capital. As a result of the loss absorption principle outlined by the Basel III Framework, Public Hearing 40/2012 introduces the possibility of regulatory capital being comprised of securities that may be written-off under certain circumstances. Public Hearing 40/2012 also provides for the possibility that holders of such instruments subject to write-off be compensated by the issuer of such instruments with shares eligible to qualify as Common Equity Tier 1 (whereas such compensation in shares may still be subject to further legislative changes).

The following table, provided by Public Hearing 40/2012, presents the proposed schedule for implementation by the Central Bank of the new required regulatory capital ratios.

Additionally, Public Hearing 40/2012 does not address leverage and liquidity ratios, as proposed by the Basel III Framework, but according to Notice 20,615, a maximum leverage ratio of 3% is expected to be required for Brazilian banks from January 1, 2018, with certain disclosure requirements applicable from January 1, 2015. A LCR to address short-term liquidity risk and a NSFR to address long-term liquidity risk are also expected to apply to Brazilian banks from January 1, 2015 and 2018, respectively, with certain calculation and monitoring requirements applicable from January 1, 2012.

Also as part of the implementation of the Basel III framework, on June 30, 2011 the CMN enacted Resolution No. 3,988, which sets forth that Brazilian financial institutions shall implement a capital management function compatible with the nature of their operations, the complexity of the products and services they offer, as well as with the extent of their exposure to risks. Capital management is defined as a process that includes: (i) monitoring and controlling the financial institution’s capital; (ii) assessing capital needs in light of the risks to which the financial institution is subject; and (iii) setting goals and conducting capital planning in order to anticipate capital needs due to changes in market conditions. Financial institutions shall provide to the general public a report describing the structure of their capital management function at least on an annual basis. Financial institutions had until January 31, 2012 to appoint a director responsible for capital management function, which shall be fully implemented by December 31, 2012.

Given that the Central Bank’s current regulation on capital adequacy establishes a more stringent requirement than the internationally agreed minimal capital requirements under the Basel III Framework, as outlined above, and that Public Hearing 40/2012 proposes the full adoption of such requirements in Brazil, we anticipate that implementation of the Basel III Framework might not have the same impacts on Brazilian financial institutions as it will possibly have on financial institutions from developed countries.

The Public Hearing 40/2012 proposed regulations are not definitive, are subject to comment by market participants, may require changes in legislation and may be significantly changed by the Central Bank upon their final implementation.

In any case, until definitive rules implementing Basel III in Brazil are issued, the existing capital rules described above under “— Capital Adequacy and Leverage/Regulatory Capital Requirements” continue to be in force.

Changes in Capital Allocation

On November 11, 2011, CMN and the Central Bank revised certain capital adequacy rules and on December 22, 2011 revised certain reserve requirement rules (see “— Reserve Requirements” below).

On November 11, 2011, the Central Bank enacted Circular No. 3,563 (“Circular 3,563/11”) which amended Circular No. 3,360, of September 12, 2007, establishing certain measures to ease the capital requirements relating to certain retail transactions given the current economic scenario. Circular 3,563/11 reduced the credit risk weight, from 150% to 75% or 100%, applicable to (i) payroll loans, (ii) secured loans for vehicle acquisition or vehicle leasing with a term of up to 60 months, (iii) other individual loans without specific purpose with a term of up to 36 months and (iv) other individual loans without specific purpose with a term longer than 60 months and entered into or renegotiated after November 11, 2011. In contrast, Circular 3,563/11 increased the credit risk weight applicable to long-term individual loans, establishing that a 300% credit risk weight is applicable to individual loans without specific purpose, including payroll loans with a term longer than 60 months entered into or renegotiated on or before November 11, 2011. In addition, Circular 3,563/11 revoked the requirement of a minimum of 20% payment of the outstanding balance on credit cards which would be applicable as of December 1, 2011, maintaining the minimum payment requirement at 15% of the outstanding balance. Finally, Circular 3,563/11 authorized the deduction of provisions from benefits to be paid from financial institutions’ exposure to investment funds with special purpose (Fundos de Investimentos Especialmente Constituidos – FIE) relating to pension plan funds of the type Vida Gerador de Benefício Livre - VGBL or Plano Gerador de Benefício Livre – PGBL.

Reserve Requirements

The Central Bank currently imposes several reserve requirements on Brazilian financial institutions and such reserve amounts must be deposited with the Central Bank. Reserve requirements are a mechanism to control the liquidity of the Brazilian financial system. These reserve requirements are applied to a wide range of banking activities and transactions, such as demand deposits, savings deposits and time deposits.

Subsequent to the most intense periods of the global financial crisis in 2008 and 2009, the CMN and the Central Bank have enacted the following measures in order to provide the Brazilian financial system with greater stability:

On December 22, 2011, the Central Bank issued Circular No. 3,569 (“Circular 3,569/11”), amended on February 10, 2012 by Circular No. 3,576 (“Circular 3,576/12”), consolidating and redefining term deposit reserve requirements applicable to commercial banks, multiservice banks, development banks, investment banks, foreign exchange banks, savings banks and credit, financing and investment companies. The percentage of term deposit reserves eligible to earn interest will be limited to 80% beginning February 2012, 75% beginning April 2012, 70% beginning June 2012 and 64% beginning August 2012. The Central Bank also (i) redefined the transactions where the counterparty is a smaller financial institution that can be deducted from time deposit reserve requirements and (ii) reduced the Tier 1 Regulatory Capital criterion (Patrimônio de Referência, Nível I) applicable to smaller financial institutions from R$2.5 billion to R$2.2 billion for purposes of deductibility from time deposit reserve requirements. Interbank deposit transactions with a smaller financial institution for purposes of such deduction must be concluded before June 29, 2012. In addition, the reduction of term deposit reserve requirements of R$1 billion now applies to financial institutions with Tier I Regulatory Capital ranging between R$5 billion to R$15 billion, instead of from R$5 billion to R$7 billion as previously set forth by Circular No. 3,569/11.

On January 23, 2012, the Central Bank issued Circular No. 3,573, which set forth new rules regarding deductions linked to rural credit financing with agricultural funding for compulsory reserves over demand deposits. The Central Bank allowed deductions corresponding to the: (i) daily average balance of rural credit financings with agricultural funding relating to the 2012 second crop, 2012 winter crop and 2012 northeastern crop contracted between January 1, 2012 and June 30, 2012, and mandatory funds established in the Manual of Rural Lending; and (ii) daily average balance of investments in Interfinancial Deposits Linked to Rural Lending, which funds shall be used in the transactions mentioned in (i) above. Deductions for both (i) and (ii) above are limited to 5% of the requirement calculated under Circular No. 3,274, dated February 2, 2005. Financial institutions are still permitted to deduct from their demand deposit reserve requirements the amount of voluntary instalments of contributions to the Brazilian federal deposit guarantee plan (FundoGarantidor de Créditos (“FGC”).

As of December 31, 2011, we had required reserves funded in cash of R$98,053 million compared to R$85,776 million as of December 31, 2010, of which R$92,323 million and R$81,034 million, respectively, earn interest. The significant increase in reserve amounts from December 31, 2009 to December 31, 2010 is primarily the result of the introduction of amendments by the Central Bank and the CMN to the requirements as described above and that such reserve amounts be funded entirely in cash.

Foreign Currency Exposure

The total exposure in gold, foreign currency and other assets and liabilities indexed or linked to the foreign exchange rate variation undertaken by financial institutions, and their direct and indirect subsidiaries, on a consolidated basis, may not exceed 30.0% of their regulatory capital, in accordance with CMN Resolution No. 3,488.

Liquidity and Fixed Assets Investment Regime

In accordance with CMN Resolution No. 2.669, the Central Bank prohibits Brazilian financial institutions, including us, from holding, on a consolidated basis, permanent assets in excess of 50.0% of their adjusted regulatory capital. Permanent assets include investments in unconsolidated subsidiaries as well as real estate, equipment and intangible assets.

Lending Limits

In accordance with the CMN Resolution No. 2,844, a financial institution, on a consolidated basis, may not extend loans or advances, grant guarantees, enter into credit derivative transactions, underwrite or hold in its investment portfolio securities of any customer or group of affiliated customers that, in the aggregate, exceed 25.0% of the financial institution’s regulatory capital.

Treatment of Past Due Debts

In accordance with CMN Resolution No 2,682, Brazilian financial institutions are required to classify their credit transactions (including leasing transactions and other transactions characterized as credit advances) at different levels and make provisions according to the level attributed to each such transaction. The classification is based on the financial condition of the customer, the terms and conditions of the transaction and the period of time during which the transaction has been in arrears, if any. For purposes of Central Bank requirements, transactions are classified as level AA, A, B, C, D, E, F, G or H, with AA being the highest classification. Credit classifications must be reviewed on a monthly basis and, apart from to additional provisions required by the Central Bank which are deemed necessary by management of those financial institutions, provisions required to be made vary from 0.5% of the value of the transaction, in the case of level A transactions, to 100.0% in the case of level H transactions.

Provision for Loan Losses for Income Tax Deduction Purposes

Brazilian financial institutions are allowed to deduct loan losses as expenses for purposes of determining their taxable income. The period during which these deductions may be made depends on the amounts, maturities and types involved in the transaction, in accordance with article 9 of Law No. 9,430 of December 27, 1996.

Foreign Currency Loans

Financial institutions in Brazil are permitted to borrow foreign-currency denominated funds in the international markets (either through direct loans or through the issuance of debt securities) for any purpose including on-lending those funds in Brazil to Brazilian corporations and financial institutions without the prior written consent of the Central Bank, in accordance with CMN Resolution No. 3,844. The Central Bank may establish limits on the term, interest rate and general conditions of such international loan transactions (including the issuance of bonds and notes by financial institutions). Currently, there are no limits imposed on such transactions, but the inflow of funds to, deriving from or for, loans, including the issuance of notes in the international market, whose average minimum payment term is no longer than 1,800 days is subject to the IOF/FX tax, at a rate of 6.0%. However, if the average minimum term of the loan is longer than 1,800 days, the IOF/FX tax is reduced to zero. Moreover, if a loan transaction with a minimum term longer than 1,800 days is settled partially or completely before completion of 1,800 days term, the IOF/FX tax would be 6.0%, plus interest and penalty. The Central Bank frequently changes these regulations in accordance with the economic scenario and the monetary policy of the Brazilian government.

Cross-border loans between individual or legal entities (including banks) resident or domiciled in Brazil and individual or legal entities resident or domiciled abroad are no longer subject to the prior approval of the Central Bank, but are subject to the prior registration with the Central Bank.

Foreign Currency Position

Transactions involving the sale and purchase of foreign currency in Brazil may only be conducted by institutions authorized to do so by the Central Bank. The Central Bank imposes limits on the foreign exchange sale and purchase positions of institutions authorized to operate in the foreign exchange markets. These limits vary according to the type of financial institution conducting foreign exchange transactions, the foreign exchange sale positions held by those institutions, as well as the shareholders’ equity of the relevant institution. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. In accordance with the Central Bank Circular No. 3,401, other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits in respect to foreign exchange long positions.

On July 8, 2011, the Central Bank enacted Circular No. 3,548, creating a cash reserve requirement for financial institutions with foreign exchange operations, effective as of July 11, 2011, corresponding to 60.0% of the average amount of the last five days foreign exchange short position in excess of the lower of (i) US$1 billion or (ii) the Tier I regulatory capital of the financial institution.

On November 30, 2011, the CMN issued Resolution No. 4,033 which established new rules governing investments by Brazilian banks of foreign currency reserves held outside of Brazil. Among other changes, Resolution No. 4,033 authorized banks with regulatory capital exceeding R$5 billion to lend funds raised through external funding activities to (i) Brazilian companies, (ii) their offshore subsidiaries and (iii) foreign companies, provided that the majority of such foreign company’s voting stock belongs to a shareholder that is, directly or indirectly, an individual or legal entity resident or domiciled in Brazil. Resolution No. 4,033 also authorized banks to acquire, in the primary market, bonds issued or guaranteed by the above mentioned companies.

On January 26, 2012, the Central Bank enacted Resolution No. 4,051, setting forth that securities brokerage firms, securities dealerships and foreign exchange brokerage firms may carry on foreign exchange transactions with clients for prompt settlement of up to US$100,000. Furthermore, Resolution No. 4,051 establishes guidelines for granting advances on foreign exchange contracts, or ACC, and advances on delivered commercial papers, or ACE, relating to service export agreements, limiting them to the services indicated by the Ministry of Development, Industry and Foreign Trade. Finally, Resolution No. 4,051 generally consolidates the policies in effect regarding exports, modifying current CMN Resolution No. 3,568.

On March 1, 2012 the Central Bank of Brazil issued Circular No. 3,580, which amended Brazilian regulations on foreign exchange markets and international capital flows and established limitations on export financings. According to Circular No. 3,580, beginning on the day of its enactment, pre-payments on goods to be exported from Brazil can only be made by the importer of such goods and pre-payments can only be made for a period of up to 360 days.

Transactions with Affiliates

Law No. 7,492 of June 16, 1986, which sets forth crimes against the Brazilian financial system, establishes the extension of credit by a financial institution to any of its controlling shareholders, directors or officers and certain family members of such individuals and any entity controlled directly or indirectly by such financial institution or which is subject to common control with such financial institution as a crime. Violations of Law No. 7,492 are punishable by two to six years’ imprisonment and a fine. On June 30, 1993, the CMN issued Resolution No. 1,996, which requires any such transaction to be reported to the public ministry’s office.

Brazilian banking laws and regulations also impose prohibitions on the extension of credit or guarantee to any company which holds more than 10.0% of the financial institution’s capital and to any company in which they hold more than 10.0% of the capital. This limitation is also applicable in respect to directors and officers of the financial institution and certain of their relatives, as well to those companies in which such persons hold more than 10.0% of the capital.

Establishment of Offices and Investments Abroad

For a Brazilian financial institution to establish foreign offices or directly or indirectly maintain equity interests in financial institutions outside Brazil, it must obtain the prior approval of the Central Bank, which will depend on the applicant Brazilian bank being able to meet certain criteria, including:

Within 180 days of Central Bank approval, the Brazilian financial institution must submit a request to open the branch to the competent foreign authorities and begin operations within one year. Failure to fulfill these conditions may result in cancellation of the authorization.

Compensation of Directors and Officers of Financial Institutions

On November 25, 2010, the CMN issued Resolution No. 3,921, which established new rules related to the compensation of directors and officers of financial institutions. The compensation of directors and officers may be fixed or variable. Variable compensation may be based on specific criteria set forth in Resolution No. 3,921 and is required to be compatible with the financial institution’s risk management policies. At least 50.0% of variable compensation must be paid in stock or stock-based instruments and at least 40.0% of variable compensation must be deferred for future payment by at least 3 years and is subject to claw-backs, based on the result of the institution and business unit during the period of deferral. These new rules took effect on January 1, 2012 and are applicable to compensation of directors and officers based on the services rendered during the year of 2012. In addition, financial institutions that are publicly-held companies or required by the Central Bank to establish an audit committee must also establish a compensation committee prior to the first shareholders’ meeting of 2012. Such committee must follow the requirements set out in Resolution No. 3,921.

Other

On July 28, 2011 the CMN enacted Resolution No. 3,998, supplemented by Central Bank Circular No. 3,553, both effective as of August 22, 2011, which requires that financial institutions in Brazil register assignments of the following types of credit transactions: (i) payroll loans and (ii) vehicle leases. Under Resolution No. 3,998, financial institutions must appoint an officer responsible for registration procedures and specified controls related to these credit transactions and the assignment thereof. The information required to be disclosed upon registration of these credit transactions and their assignment includes: (i) identification of the assignor and assignee, (ii) identification of the financial institution that granted the underlying credit, (iii) certain information with respect to the credit transaction being assigned (e.g., identity of the debtor, specified dates, any guarantees, amounts payable, installments, etc.) and (iv) details of the credit assignment transaction (e.g., amounts assigned, portion of the credit transaction subject to the assignment, specified dates, any guarantees involved).

Bank Insolvency

Insolvency Regime

Financial institution insolvency is largely a matter handled by the Central Bank. The Central Bank will commence and oversee all administrative proceedings, whether for, or in avoidance of, liquidation.

Law No. 11,101, as amended or the Brazilian Insolvency Law, was sanctioned by the president on February 9, 2005, became effective in June 2005 and was amended in June and November 2005; it has significantly reshaped and modernized bankruptcy law in Brazil, until then governed by rules originating in 1945. Among the more important innovations introduced by such law are the following: (i) the availability of reorganization arrangements that, subject to flexible statutory terms and conditions, may be structured under varying forms so as to enable a debtor deemed by its creditors to have business potential to effectively attempt to financially restructure; and (ii) in the event of bankruptcy, the ranking of secured debts ahead of tax liabilities.

While the insolvency of financial institutions remains governed by specific regimes set forth in Law No. 6,024 of March 13, 1974 and Presidential Decree No. 2.321 of February 25, 1987 (intervention, extrajudicial liquidation and temporary special administration regime, each of which is discussed in further detail below), they are subject to the Brazilian Insolvency Law, to the extent applicable, on an ancillary basis, until such time as a specific set of rules is enacted. These specific regimes are imposed by the Central Bank to avoid bankruptcy of financial institutions.

Intervention

The Central Bank may intervene in the operations of a bank in the following circumstances:

The intervention may cease:

Extrajudicial Liquidation

An extrajudicial liquidation of any financial institution (with the exception of public financial institutions controlled by the Brazilian government) may be carried out by the Central Bank if it can be established that:

Liquidation proceedings may otherwise be requested, on reasonable grounds, by the financial institution’s officers or by the intervener appointed by the Central Bank in the intervention proceeding.

Extrajudicial liquidation (i) suspends actions or foreclosures related to the financial institution, during which time no other action or foreclosure may be commenced, (ii) accelerates the term of its obligations and (iii) interrupts the statute of limitations with regard to the obligations of the financial institution. In addition, interest ceases accruing on the obligations of the financial institution until all its obligations to third parties are duly paid.

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Extrajudicial liquidation proceedings may cease:

Temporary Special Administration Regime

In addition to the aforesaid procedures, the Central Bank may also establish the Temporary Special Administration Regime (Regime de Administração Especial Temporária), or RAET, which is a less severe form of Central Bank intervention in private and non-federal public financial institutions and which allows institutions to continue to operate normally. The RAET may be imposed by the Central Bank in the following circumstances:

The main purpose of the RAET is to assist with the recovery of the financial condition of the institution under special administration. Although the RAET does not affect the day-to-day business operations, liabilities or rights of the financial institution, which continue to operate in its ordinary course, the Central Bank has the authority to order corporate reorganizations of the financial institution and its subsidiaries, including changing the corporate type, merger or other types of business consolidations, spin-off or change of control of the financial institution under such regime.

Repayment of Creditors in Liquidation

In the event of the extrajudicial liquidation of a financial institution or a liquidation of a financial institution under the terms of a bankruptcy proceeding, employees’ wages and related labor claims up to a certain amount, secured credits and indemnities and tax claims enjoy the highest priority of any claims against the bankruptcy estate. The FGC, a deposit insurance system, guarantees a maximum amount of R$70,000 of certain deposits and credit instruments held by an individual with a financial institution (or financial institutions of the same financial group). The FGC is funded principally by mandatory contributions from all Brazilian financial institutions that handle customer deposits, currently at 0.0125% per month, in accordance with CMN Resolution No. 3,400, as amended. The payment of unsecured credit, including regular retail customer deposits not payable under the FGC, is subject to the prior payment of all secured credits and other credits to which specific laws may grant special privileges. Additionally, deposits and credit instruments raised outside of Brazil are not payable by the FGC, in accordance with CMN Resolution No. 3,400.

CMN Resolution No. 3,692 of March 26, 2009, authorizes financial institutions to raise funds by means of time deposits guaranteed by the FGC up to a certain amount provided that such deposits (i) have a minimum term of twelve months and a maximum term of sixty months, (ii) are not callable before their term (applicable only for deposits raised after May, 2009), and (iii) are limited to an amount assessed considering bank’s Tier 1 reference net worth and bank’s time deposits, whichever is higher, per deposit of the same bank, limited to R$5 billion. CMN Resolution No. 3,931, enacted on December 3, 2010, reduced the volume of deposits that financial institutions can accept with the guarantee granted by FGC by 20.0% every year from January 2012 to January 2016, thereby ending such guarantee by 2016.

Brazilian Payment and Settlement System

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements. The Brazilian payment and settlement system began operating in April 2002. The Central Bank and the CVM have the power to regulate and supervise this system. Pursuant to these rules, all clearing houses are required to adopt procedures designed to reduce the possibility of systemic crises and to reduce the risks previously borne by the Central Bank. The most important principles of the Brazilian payment and settlement system are: