Espírito Santo Investment p.l.c. Banco Espírito Santo de ... - BES

In addition, Noteholders should be aware of the prevailing and widely reported global credit market conditions
(which continue at the date of this Offering Circular), whereby there is a general lack of liquidity in the secondary
market for instruments similar to the Notes. Such lack of liquidity may result in investors suffering losses on the Notes
in secondary resales even if there is no decline in the performance of the assets of the relevant Issuer. The Issuers
cannot predict which of these circumstances will change and whether, if and when they do change, there will be a more
liquid market for the Notes and instruments similar to the Notes at that time.
Exchange rate risks and exchange controls
The relevant Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain
risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or
currency unit (the Investor's Currency) other than the Specified Currency. These include the risk that exchange rates
may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the
Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify
exchange controls. An appreciation in the value of the Investor's Currency relative to the Specified Currency would
decrease (1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency-equivalent value of the
principal payable on the Notes and (3) the Investor's Currency-equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could
adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected,
or no interest or principal.
Interest rate risks
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates may adversely
affect the value of the Fixed Rate Notes.
Credit ratings may not reflect all risks
One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may not
reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors
that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn by the rating agency at any time.
Specific risks related to BESI's market
Market risk is considered as the potential loss of value in a portfolio of financial instruments, arising from
fluctuations in market variables such as credit spreads, interest rates, currency exchange rates, share and share-index
prices and commodity prices. The market risk of BESI is identified, valued, monitored and controlled by a specific
business unit (the Risk Control Unit), which is fully independent of BESI's business units. The Risk Control Unit is
part of the Risk Department and reports directly to a board member and to the Executive Committee.
The Risk Control Unit is responsible for proposing control checks, performing statistical analysis of the relevant
risk factors, measuring market volatility, analysing liquidity and running sensitivity analysis on the business under
consideration. In addition to the computation results, control checks are also measured against the track record of the
business unit and its strategic objectives, thus reflecting BESI's appetite for each type of risk.
Control checks are submitted to and approved by the Credit and Risk Committee (CRC) of each business unit
and subsequently submitted for approval to the Espírito Santo Investment Executive Committee or CRC in Lisbon.
Control checks are reviewed at least once a year or whenever justified by changes in strategic options or market
conditions. To build a comprehensive as possible risk profile, several complementary risk management measures are
used, such as stop loss and concentration limits. Risk management measures include VaR and Stress Testing and
sensitivity models include BPV and “greeks” (Vega and Rho). The VaR model is adjusted by a back-testing analysis.
The implementation of risk management and control procedures depends on the market and business to which they
apply.
In addition, the financial portfolio of BESI is comprised of some financial instruments where a reference market
price is unavailable. In such cases, these financial instruments are valued using theoretical valuation models. The
valuation models are subsequently employed to manage and control positions, namely to compare them against
approved control checks.
BESI also uses price testing methodology to:
(i)
(ii)
review the models and examine their suitability;
establish the reasonableness, independence and consistency of the data used by the models;
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