BANCO MERCANTIL (SCHWEIZ) AG ZURICH Report of the Group ...

BANCO MERCANTIL (SCHWEIZ) AG
ZURICH
Report of the Group Auditors to
The General Meeting of the Shareholders
Consolidated Financial Statements 2006
9 February 2007
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Report of the group auditors
to the general meeting of
Banco Mercantil (Schweiz) AG
Zurich
PricewaterhouseCoopers AG
Birchstrasse 160
8050 Zürich
Phone +41 58 792 44 00
Fax +41 58 792 44 10
As auditors of the group, we have audited the consolidated financial statements (balance sheet, income
statement, statement of cash flows and notes to the financial statements) of Banco Mercantil
(Schweiz) AG for the year ended December 31, 2006.
These consolidated financial statements are the responsibility of the board of directors. Our responsibility
is to express an opinion on these consolidated financial statements based on our audit.
We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit
be planned and performed to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement. We have examined on a test basis evidence
supporting the amounts and disclosures in the consolidated financial statements. We have also assessed
the accounting principles used, significant estimates made and the overall consolidated
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position,
the results of operations and the cash flows in accordance with the accounting rules for banks
and comply with Swiss law.
We recommend that the consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Pascal Portmann Alex Henzi
Auditor in charge
Zurich, 9 February 2007
Enclosure:
- Consolidated financial statements (balance sheet, income statement, statement of cash flows
and notes to the financial statements)

Financial Statement
Consolidated Balance Sheet
in CHF 31.12.2006 31.12.2005 Change
Assets
Liquid funds 317'558
Money market instruments 65'009'997
Due from banks 152'458'828
Due from customers 111'718'965
Financial investments 7'994'661
Fixed assets 1'064'542
Intangible assets 427'104
Accrued income and prepaid expenses 3'059'923
Other assets 3'615'118
Total assets 345'666'696
Total due from non-consolidated holdings and shareholder 3'568'516
Liabilities and shareholder's equity
Due to banks 7'723'611
Due to customers, other 288'052'501
Accrued expenses and deferred income 2'820'659
Other liabilities 181'269
Valuation adjustments and provisions 3'409'339
Share capital 33'500'000
Legal reserves 169'000
Retained earnings 7'373'814
Consolidated net profit for the year 2'436'503
Total liabilities and shareholder's equity 345'666'696
Off-Balance Sheet Transactions
94'425
59'078'443
156'737'827
63'063'958
10'832'750
1'135'850
415'761
1'821'136
1'685'882
294'866'032
991'031
5'039'766
242'617'204
1'579'487
807'346
3'240'991
33'500'000
151'000
6'545'830
1'384'408
294'866'032
223'133
5'931'554
-4'278'999
48'655'007
-2'838'089
-71'308
11'343
1'238'787
1'929'236
50'800'664
2'577'485
2'683'845
45'435'297
1'241'172
-626'077
168'348
Contingent liabilities 10'943'305 4'800'291 6'143'014
Irrevocable commitments 238'000 796'211 -558'211
Derivative instruments
- contract value 42'564'870 37'848'057 4'716'813
- positive replacement value 3'613'818 1'685'882 1'927'936
- negative replacement value 85'560 679'690 -594'130
Fiduciary transactions 40'354'072 18'010'903 22'343'169
-
18'000
827'984
1'052'095
50'800'664
Total due to non-consolidated holdings and shareholder - - -

Consolidated Income Statement
in CHF 2006 2005 Change
Ordinary operating income and expense
Interest income
Interest and discount income 16'853'927
Interest and dividend income on financial investments 507'085
Interest expense -10'172'560
Net interest income 7'188'452
Income from commission and services
Commission income on lending activities 379'982
Commission income on asset management 2'121'023
Commission income on other services 195'489
Commission expense -641'050
Net commission income 2'055'444
Income from trading operations 169'644
9'314'643
759'903
-4'886'279
5'188'267
271'368
1'756'755
157'804
-535'299
1'650'628
198'360
7'539'284
-252'818
-5'286'281
2'000'185
108'614
364'268
37'685
-105'751
404'816
-28'716
Other ordinary income
Results from sale of financial investments - - -
Other ordinary income 1'144 761'160 -760'016
Other ordinary expense - - -
Total other ordinary income 1'144 761'160 -760'016
Total operating income 9'414'684
Operating expenses
Personnel expenses -3'066'285
Other operating expenses -2'544'159
Total operating expenses -5'610'444
Gross profit 3'804'240
Consolidated net income for the year
Gross profit 3'804'240
Depreciation and write-offs of non-current assets -612'056
Valuation adjustments, provisions and losses -790'915
Subtotal 2'401'269
7'798'415
-2'536'595
-2'164'474
-4'701'069
3'097'346
3'097'346
-508'728
-1'234'930
1'353'688
1'616'269
-529'690
-379'685
-909'375
706'894
706'894
-103'328
444'015
1'047'581
Extraordinary income 95'234 90'086
5'148
Extraordinary expenses - - -
Taxes -60'000 -59'366
-634
Consolidated net income for the year 2'436'503
1'384'408
1'052'095

Consolidated statement of cash flows
in CHF 2006 2005
Source Application Balance Source Application Balance
of funds of funds of funds of funds
Consolidated net profit for the year 2'436'503 - 1'384'408 -
Depreciation and write-offs of non-current assets 612'056 - 508'728 -
Valuation adjustments and provisions 168'348 - 1'282'734 -
Consolidated translation adjustments - 538'424 1'016'827 -
Accrued income and prepaid expenses - 1'238'789 - 523'409
Accrued expenses and deferred income 1'241'173 - 929'907 -
Other assets - 1'929'236 4'118'778 -
Other liabilities - 626'077 37'686 -
Net cash flows from operating results 4'458'080 4'332'526 125'554 9'279'068 523'409 8'755'659
Share capital - - 8'500'000 -
Capital increase costs - - - 101'590
Net cash flows from equity transactions - - - 8'500'000 101'590 8'398'410
Fixed assets - 147'384 - 1'124'800
Intangible assets - 404'706 - 164'994
Net cash flows from investment activities - 552'090 552'090 - 1'289'794 1'289'794
Due to customers, other - 717'277 1'200'266 -
Money market instruments - 1'418'750 - -
Due from banks 1'317'900 - 379'349 -
Due from customers 12'173'718 - - 8'578'053
Financial investments 3'321'845 - 2'980'187 -
Medium and long term operations (>1 year) 16'813'463 2'136'027 14'677'436 4'559'802 8'578'053 4'018'251
Due to banks 2'683'845 - - 2'304'253
Due to customers, other 46'152'574 - 83'047'197 -
Money market instruments - 4'512'804 - 50'629'178
Due from banks 2'961'099 - - 65'202'005
Due from customers - 60'828'725 17'019'276 -
Financial investments - 483'756 6'238'825 -
Short term operations 51'797'518 65'825'285 14'027'767 106'305'298 118'135'436 11'830'138
Net cash flows from banking operations 68'610'981 67'961'312 649'669 110'865'100 126'713'489 15'848'389
Decrease / Increase in cash position - 223'133 - 15'886
Change in liquid funds - 223'133 223'133 - 15'886 15'886
Total source of funds / application of funds 73'069'061 73'069'061 - 128'644'168 128'644'168 -

Notes to the consolidated financial statement
1. Information on business activities and number of employees
General information
Banco Mercantil (Schweiz) AG, until January 27, 2000,
operating under the name BMS Finanz AG, was
incorporated in May 1988 in Zurich. Its activities in the
areas of trade finance, private banking and fiduciary
transactions are focused on Latin America and
complemented by the banking activities of its wholly
owned subsidiaries BMC Bank & Trust Ltd., Grand
Cayman and BMS Advisory Services Ltd., British Virgin
Island.
It is intended to continue intensifying the expansion of
the private banking activities for the clientele of the
Grupo Mercantil Servicios Financieros. For this,
significant investments were made during the past years
in the installation of a new banking software platform
with electronic banking facilities for our customers to
support and enhance the range of services in this area. It
is also intended to continue developing the traditional
trade finance activities between Europe and Latin
America.
Balance Sheet transactions
Short-term financial investments with European banks
and trade financing for Latin American banks as well as
short-term lending to Latin American and US corporate
borrowers, largely related to preliminary and
supplementary trade financing, represent the major
assets of the bank. Investments in securities of Latin
American and European borrowers complement the
bank’s balance sheet business. Exposures with
maturities of over one year are entered but limited to the
bank’s net equity.
Funding is obtained through customer deposits and also
through credit lines from major European banks.
Income from commissions and services
Income from commissions and services results mainly
from letter of credit transactions as well as from the
issuance of guarantees, from custody fees, brokerage
and other service fees related to fiduciary investments of
private customers.
Other activities
For investment and also for liquidity purposes, Banco
Mercantil (Schweiz) maintains an investment portfolio
consisting mainly of fixed income securities of Latin
American and European borrowers.
Risk Management
The analysis and control of risks is performed in close
cooperation with the Risk Management Group of our
parent company in Caracas.
Credit approval is based on requirements as to quality,
collaterals, limits and credit authority as laid down in the
Group internal risk policy. All credit risk positions,
including those from derivative instruments, are limited
and monitored continuously by a credit line system
based on counterparty and country risk.
Foreign exposures are entered into and monitored in
compliance with the internal risk policy. The assessment
procedure, except for exposures in industrialized
countries (Category 1), where country risk is negligible,
is based on the rating of the Interagency Country
Exposure Committee (ICERC) and on the Group’s own
internal rating system. The internal evaluation is based
on economic trends and political and social
developments and derived from various group-internal
and external sources (Categories 2 – 6).
The risk provisioning requirements for country risk and
counterparty risk are calculated independently on the
basis of an internal rating process.
Liquidity and interest rate risks are monitored and
managed on a consolidated basis.
Foreign exchange risks are to a large extent restricted by
internal limits for open currency positions.
Derivative financial instruments are used exclusively to
hedge open foreign exchange positions and interest rate
risks.
When trading in securities, Banco Mercantil (Schweiz)
does not engage in open positions from which market
risks could arise.
All other operating risks, especially those related to the
internal organization and information systems, are
monitored through internal policies and directives.
The Board of Directors and Senior Management are
regularly informed of the risks related to asset value,
financial position, liquidity, earnings and operations
through a management information system.

Outsourcing
Banco Mercantil (Schweiz) has outsourced the operation
of its banking system to PriBaSys AG in Zurich and the
operation of SWIFT and SIC to Biveroni Batschelet
Partners AG in Baden. These outsourcing arrangements
were set up under detailed Service Level Agreements
according to the regulations of the Swiss Federal
Banking Commission. All personnel of the service
providers are placed under the bank secrecy act, which
safeguards the requirements of confidentiality.
Personnel
Banco Mercantil (Schweiz) employed 23 persons
including part-time employees. It also receives support
from the head office and affiliates in areas such as
internal audit, loan review, IT, and credit and country risk
analysis.

2. Accounting and valuation principles
General principles
The Bank’s accounting and valuation principles comply
with the Swiss Code of Obligations, the Bank Law, and
guidelines of the Federal Banking Commission.
Consolidation principles
Besides the figures of Banco Mercantil (Schweiz), the
consolidated financial statements include the financial
statements of BMC Bank and Trust Ltd, Grand Cayman
and BMS Advisory Services Ltd., British Virgin Islands
which are fully consolidated.
The capital is consolidated using the Anglo-Saxon
purchase method, i.e. at the time of acquisition.
Upon elimination of intercompany transactions, the
assets, liabilities, income and expenses of the
subsidiaries are included in the relevant line items in the
consolidated financial statements.
Translation differences resulting from the consolidation
are included in the line item “currency translation
differences”, which is part of the capital resources.
The consolidated financial statements reflect a true and
fair view of the net assets as well as of profitability and
the financial situation.
Accounting and booking of transactions
All transactions are recorded in the Group’s balance
sheet on a trade date basis, except for forward
transactions, which are reported from the trade date as
off-balance sheet items and from the settlement date in
the balance sheet. All transactions are valued from the
trade date onward.
Foreign currency translation
Transactions in foreign currencies are translated at daily
exchange rates. Foreign currency positions, with the
exception of participations, are converted at the average
exchange rates prevailing at the year-end closing date.
Resulting conversion profits and losses are included in
the income statement. Participations are valued at the
exchange rates prevailing at the time of the purchase. In
the event of a decline in the value of such an investment,
giving due account also to the fluctuation of exchange
rates, a valuation adjustment is made.
Assets and liabilities of group companies are translated
using the exchange rate as at the balance sheet date,
and income and expenses at the average exchange rate
of the year. The difference arising from the use of
different exchange rates is directly recognized in capital
resources and disclosed as currency translation
difference.
The following exchange rates were used as at the
balance sheet date (major currencies):
2006 2005
USD 1.2207 1.3179
EUR 1.6073 1.5543
The balance sheet of the subsidiaries carrying its books
in USD was translated using the above mentioned
exchange rate as at the balance sheet date, and the
income statement was translated using the average rate
for the year of 1.2537/USD (2005: 1.2464).
General valuation principles
Each item reflected in the balance sheet is valued
individually.
Cash, Due from Money Market Instruments, Due
from banks, Deposits
They are stated at their nominal value, or at historical
cost, less specific valuation adjustments for doubtful
receivables. Money market instruments are adjusted for
discounts. Unearned discounts on money market
instruments are accrued over their life within the
corresponding balance sheet item.
Due from customers
Doubtful receivables, i.e. loans for which it is unlikely that
the customer will be able to comply with its future
obligations, are valued individually and the impairment of
value is covered by a specific provision. Off-balance
sheet transactions, such as firm commitments,
guarantees and derivative financial instruments are also
included in this valuation. Loans are classified as
impaired at the latest when a borrower is in arrears with
payments of capital and/or interest for a period of over
90 days. Interest in arrears for a period of over 90 days
are considered overdue. Overdue interest and interest of
which collection is considered at risk are not reflected as
income but directly allocated to valuation adjustments
and provisions. Loans are placed on a non-accrual
status when the collectibility of their interest is
considered doubtful to the extent that an accrual would
be imprudent.

The amount of the impairment is measured by the
difference between the book value of the loan and the
estimated collectible amount, considering the
counterparty risk and the net value from the execution of
any collateral. If the process of execution is expected to
take longer than a year, then a present value calculation
is made of the expected cash flows to be generated from
the execution process. Specific provisions are deducted
directly from the corresponding asset item.
Loans that are believed to be entirely or partially
uncollectible or for which the bank consents to their
remission, are charged off against the provision for loan
losses. Recoveries of previously charged-off amounts
are directly credited to the allowance for loan losses.
A generic allowance for loan losses is made, based on
set rates per credit rating category, to cover for not yet
recognizable loan loss risks inherent in the credit
portfolio.
Doubtful receivables are classified again at full value if
payments of outstanding capital and interest are
resumed according to the contractual terms and also
credit standing criteria are fulfilled.
Financial investments
Fixed income securities held as available for sale are
valued at the lower of cost or market. The net balances
of value adjustments are made through “Other Ordinary
Income” or “Other Ordinary Expense”, respectively.
Write-ups are recognized up to the acquisition costs,
provided the market value which had fallen below the
acquisition cost recovers again. Such value adjustment
is recognized as described above.
Debt securities acquired with the intention to hold them
to maturity are recorded with the accrual method, i.e.
premiums or discounts are accrued over their remaining
life. Interest-related gains or losses from sale before
maturity or prepayment are deferred and accrued over
the remaining life, i.e., until the original maturity. Value
reductions or subsequent increases, resulting from
credit rating are treated as “available for sale” in the
income statement .
Buildings and participations acquired from the credit
business earmarked for disposal are registered as
financial investments and valued at the lower of cost or
market, i.e. at the lower of acquisition cost or liquidation
value.
Other fixed assets / intangible assets
Other fixed assets and intangible assets are stated at
cost plus value-creating investments less depreciation
computed on a straight line basis over their expected
useful life – of 3 years for software, IT and
communication systems, 5 years for furniture, and
installations in new premises over the duration of the
rental contract.
Valuation adjustments and provisions
Specific valuation adjustments and provisions are
created for all recognizable risks both on and off-balance
sheet. Valuation adjustments and provisions which are
no longer required in the reporting period are reversed
affecting income.
Specific valuation adjustments and provisions are
directly deducted from the corresponding asset item.
Generic provisions for default risks as well as other risks
are recorded under this balance sheet position.
Employee benefit obligation
Banco Mercantil (Schweiz) maintains two defined
contribution pension plans for its employees in
Switzerland. The bank bears the expenses of the
pension plans of all its employees as well as their
survivors in accordance with the Swiss social security
law. The benefit obligations as well as the coverage
capital are disincorporated into legally independent
pension funds or foundations of insurance companies.
The organization, management and financing of the
pension plans conform to the legal regulations, to the
articles of the funds as well as to current pension
regulations.
The bank records its contributions as employer in
“personnel expenses”.
Taxes
Tax expenditure is calculated on basis of the actual profit
of the individual group companies.
Contingent liabilities, irrevocable commitments
Contingent liabilities and irrevocable commitments are
stated at their nominal value. Provisions for recognizable
risks are created and recorded under “valuation
adjustments and provisions” on the liability side.
Derivative financial instruments
Derivative financial instruments are recorded at nominal
value in the off-balance sheet.
Gains or losses arising from hedge instruments are
reflected in the same income item as that of the hedged
underlying transaction.

3. Information on the Balance sheet
3.1 Listing of collateral of loans and off-balance sheet transactions
in CHF 1000 Type of collateral
Total
Loans
Mortgage
collateral
Due from customers 30'953
Total loans 31.12.2006 30'953
Previous year 10'465
Off-balance sheet transactions
Other
collateral
41'150
41'150
19'540
Contingent liabilities - 10'044
Without
collateral
39'616
39'616
33'059
Irrevocable commitments - - 238
Total off-balance sheet transactions 31.12.2006 - 10'044
Previous year - 4'547
Doubtful loans and the corresponding specific provisions as per December 31, 2006 amounted to CHF 164M.
3.2 Financial investments
in CHF 1000
Debt securities 7'187
- of which valued at accrual method 7'187
899
1'137
1'049
111'719
111'719
63'064
10'943
238
11'181
5'596
Book value Fair value
31.12.2006 31.12.2005 31.12.2006 31.12.2005
10'655
10'655
- of which valued at lower of cost or market - - - -
Shares 808
Total financial investments 7'995
3.3 Fixed assets
178
10'833
7'201
7'201
810
8'011
10'782
10'782
181
10'963
in CHF 1000 Historical Accumu- Book value
2006
Cost lated depre- previous Invest- Disinvest- Depreciation/ Book Value
ciation year ments ment Write-offs 31.12.2006
Fixed assets
Other fixed assets 1'747
Total fixed assets 1'747
Intangible assets
Software implementation costs 1'460
Total intangible assets 1'460
611
611
1'045
1'045
1'136
1'136
415
415
132
132
338
338
- 203
- 203
- 326
- 326
Fire insurance value of other fixed assets 970
1'065
1'065
427
427

3.4 Other Assets and Other Liabilities
in CHF 1000
Other
Assets
Replacement value from derivative financial
instruments
Contracts as own trader
- Trading position 45
- Balance sheet structure management 3'569
Total derivative financial instruments 3'614
Other
Liabilities
86
Other
Assets
32
- 1'654
86
1'686
Other
Liabilities
Indirect Taxes - 17
- 9
Sundry accounts - - - -
Other assets and liabilities 1
78
- 118
Total other assets and other liabilities 3'615
3.5 Disclosure of liabilities to own pension plans
31.12.2006 31.12.2005
The bank’s employees dispose of two legally independent personnel pension plans. One plan covers the obligatory benefits
according to the swiss pension fund law, while the second plan covers all the non-obligatory benefits. Both plans are defined
contribution plans. As in the previous year, the bank had no further obligations towards these pension plans. There were no
reserves from employer’s contributions. The bank’s employees are insured at a life insurance company in the scope of an affiliation
agreement with collective foundations. These are full-coverage contracts which cover all retirement, invalidity and death
benefits and which guarantee a 100% coverage rate at all times. As a result, the Bank can neither draw any economic benefit
nor is under obligation to make additional contributions for its employees.
3.6 Valuation adjustments and provisions, reserves for general banking risks
in CHF 1000 Balance
previous year
Valuation adjustments and
provisions for credit and
country risks 2'940
Specific
usage
Recoveries,
doubtful interest,
currency
differences
- -145
181
New creation
charged to
income
statement
778
1'686
Reversals
credited to
income
17
663
680
807
Balance
current year
- 3'573
Valuation adjustments and
provisions for investments - - - - - -
Other Provisions (operating loss) 460
Total valuation adjustments and
provisions 3'400
less: set-offs with investments -159
Total valuation adjustments and
provisions as of balance sheet 3'241
Doubtful loans of CHF 164M are fully provisioned.
-460
-460
-145
-5
- - - -
778
- 3'573
-164
3'409

3.7 Schedule of share capital and disclosure of shareholders
in CHF 1000
Capital structure
Nominal
amount
Shareholder's equity 33'500
Number of
shares
33'500
Capital with
dividend rights
33'500
Nominal
amount
33'500
Number of
shares
33'500
Capital with
dividend rights
Significant shareholders and shareholder groups
with voting rights
31.12.2006 31.12.2005
Nominal Share in % Nominal Share in %
Holding Mercantil Internacional, C.A., Caracas, Venezuela 33'500 100.0% 25'000
74.6%
Mercantil Servicios Financieros, C.A., Caracas, Venezuela - - 8'500
25.4%
Shareholder of Holding Mercantil Internacional, C.A.:
Mercantil Servicios Financieros, C.A., Caracas, Venezuela 33'500
31.12.2006 31.12.2005
100.0% 33'500
33'500
100.0%
Mercantil Servicios Financieros (MSF) is a financial holding registered on the Caracas Stock Exchange. The capital structure of MSF
is comprised of A (58%) and B (42%) shares, with B shares having limited voting rights. Its shares are held primarily by Venezuelan
investors. Approximately 55% of the B shares are owned through an American Depositary Receipt (ADR) program, therefore MSF does
not have information who the holders of the ADR's are. Shareholders with ownership of over 5%, as known to MSF are:
- Gustavo J. Vollmer Group (14.5% A shares and 4.8% B shares); 10.4% participation
- Vadesa Group (Capriles Family) (14.3% A shares; 0% B shares); 8.3% participation
- Gustavo A. Marturet Group (8.3% A shares; 1.1% B shares); 5.3% participation
- Travieso Sanchez Group (8.0% A shares; 3.9% B shares); 6.3% participation

3.8 Statement of changes in shareholder's equity
in CHF 1000 31.12.2006 31.12.2005
Shareholder's equity at beginning of current year
Share capital 33'500
Capital Reserves 151
Retained earnings (incl. Currency translation differences) 6'546
Consolidated net profit 1'384
Total shareholder's equity at beginning of current year (before profit distribution) 41'581
25'000
146
5'469
167
30'782
+ Capital increase - 8'500
- Capital increase costs - -102
+ Consolidated net profit for the year 2'437
1'384
+ Currency translation adjustments -538
1'017
Total shareholder's equity at end of current year (before profit distribution) 43'480
Thereof:
Share capital 33'500
Capital Reserves 169
Retained earnings (incl. currency translation differences) 7'374
Consolidated net profit 2'437
On the basis of the legal provision the capital reserves may not be distributed.
41'581
33'500
151
6'546
1'384

3.9 Maturity structure of current assets, financial investments and liabilities
in CHF 1000
Current assets and financial investments
Liquid funds 318
at sight redeemable
by
notice
within
3 months
Money market instruments - - 57'370
Due from Banks 11'807
Due from Customers 167
Financial investments 4
Total current assets and
financial investments 31.12.2006
12'296
Previous year 14'638
Current liabilities
Due to banks 110
Due to customers, other 43'383
Total current liabilities 31.12.2006 43'493
Previous year 48'774
within
3-12
months
within
1-5 years
after
5 years
Total
- - - - - 318
- 122'097
69
47'661
- 4'018
69
167
7'723
7'723
13'351
231'146
148'723
- 5'393
169'380
174'773
133'091
Maturity
6'221
18'555
30'522
162
55'460
72'279
2'221
63'005
65'226
47'162
1'419
29'776
2'590
33'785
43'527
3.10 Disclosure of amounts due from and due to affiliated companies as well as
loans and exposures to directors and senior executives
4'562
4'562
5'279
- 65'010
- - 152'459
3'524
1'221
4'745
10'473
111'719
7'995
337'501
289'807
- - 7'724
- 288'053
- 295'777
- 247'657
in CHF 1000 31.12.2006 31.12.2005
Due from affiliated companies 9'596
Due to affiliated companies 118
Loans to directors and senior executives 22
Transactions with related parties
Transactions with related parties such as securities transactions, international payments, placement of funds and deposits
are made under conditions as they would apply with third parties. The bank earned USD 594'151 in advisory fees for
services rendered to an affiliated company in year 2005. In the year 2006 these services were no longer provided.
11'241
195
46

3.11 Balance sheet by domestic and foreign origin (by domicile)
in CHF 1000
Assets
31.12.2006 31.12.2005
Domestic Foreign Domestic Foreign
Liquid Funds 318
- 94
-
Money market instruments - 65'010
- 59'078
Due from banks 8'256 144'203
8'393 148'345
Due from customers 1'279 110'440
2'507 60'557
Financial investments 1
7'994
1 10'832
Fixed assets 1'065
- 1'136
-
Intangible assets 427
- 416
-
Accrued income and prepaid expenses 599
2'460
885
936
Other assets 46
3'569
32
1'654
Total assets 11'991
Liabilities
Due to banks 3'221
Due to customers, other 297
Accrued expenses and deferred income 424
Other liabilities 181
Valuation adjustments and provisions 1'214
Share capital 33'500
Legal reserves 169
Retained earnings (losses) 268
Consolidated net profit (loss) for the year 604
Total liabilities 39'878
333'676
4'503
287'756
2'396
2'195
7'106
1'833
305'789
13'464
2'000
2'436
457
- 144
1'374
- 33'500
- 151
-162
369
40'269
281'402
3'040
240'181
1'123
663
1'867
-
-
6'708
1'015
254'597

3.12.1 Geographical analysis of assets (by domicile)
in CHF 1000
Europe 82'520
Switzerland 11'991
Other west European countries 70'529
North-America 117'348
31.12.2006 31.12.2005
Amount in % Amount in %
23.9% 72'793
3.5% 13'464
20.4% 59'329
34.0% 106'048
Latin-America 145'692
42.1% 116'025
39.3%
Bahamas 2'563
0.7% 1'318
0.4%
Bolivia 188
0.1% - 0.0%
Brazil 19'946
5.8% 17'209
5.8%
Cayman Islands 2'464
0.7% 1'114
0.4%
Chile - 0.0% 5'1401.7%
Colombia 14'893
4.3% 17'001
5.8%
Costa Rica 4'883
1.4% 9'489
3.2%
Dominican Republic 7'446
2.2% - 0.0%
Ecuador 2'914
0.8% 3'083
1.0%
El Salvador 17'797
5.1% 18'846
6.4%
Guatemala 12'854
3.7% 6'195
2.1%
Honduras - 0.0% 5'2721.8%
Mexico 26'427
Panama 4'524
Peru 15'200
Venezuela 8'251
Virgin Islands (British) 2'847
Virgin Islands (USA) 2'495
Other 107
Total assets 345'667
7.6% 6'253
1.3% 9'563
4.4% 165
2.5% 14'038
0.8% 1'339
24.7%
4.6%
20.1%
36.0%
2.1%
3.2%
0.1%
4.8%
0.5%
0.7% - 0.0%
0.0% - 0.0%
100.0% 294'866
100.0%

3.12.2 Breakdown of exposure by country of risk and by rating categories
in CHF 1000
31.12.2006 31.12.2005
Amount in % Amount in %
Category 1 206'454
57.9% 184'895
61.5%
Australia 4'801
1.3% 5'252
1.7%
Austria 4'822
1.4% 5'129
1.7%
Belgium 3
- 3
-
Canada 3'662
1.0% - -
Denmark - - 5'249
1.7%
France 9'729
2.7% 11'425
3.8%
Germany 33'1289.3%
45'674
15.2%
Great Britain 6'535
1.8% 1'355
0.5%
Italy 2'250
0.6% 8'878
3.0%
Luxembourg 9'915
2.8% 11'332
3.8%
Netherlands 5'672
1.6% 5'2161.7%
Norway - - 5'261
1.8%
Spain 7'492
2.1% 7'461
2.5%
Sweden 14'619
4.1% 5'260
1.8%
Switzerland 21'926
6.1% 13'671
4.5%
USA 81'900
23.1% 53'729
17.8%
Category 2 40'357
11.3% 15'561
5.2%
Bahamas 2'563
0.7% - -
Chile - - 5'140
1.7%
Hongkong 19
- - -
Mexico 26'741
7.6% 6'627
2.2%
Netherlands Antillese 1
- - -
South Africa 514
0.1% - -
Virgin Islands (British) 10'519
2.9% 3'794
1.3%
Category 3 90'503
Brazil 19'864
Colombia 14'893
Costa Rica 4'883
Guatemala 12'854
Panama 5'021
Peru 15'191
El Salvador 17'797
25.4% 80'040
5.5% 16'976
4.2% 17'001
1.4% 10'807
3.6% 6'327
1.4% 9'921
4.3% 162
5.0% 18'846
26.6%
5.6%
5.7%
3.6%
2.1%
3.3%
0.1%
6.2%
Category 4 17'653
4.9% 16'883
5.7%
Dominican Republic 7'446
2.1% - -
Honduras - - 5'272
1.8%
Venezuela 10'207
2.8% 11'611
3.9%
Category 5 and 6 1'881
Bolivia 188
Ecuador 1'693
Total 356'848
0.5% 3'083
1.0%
- - -
0.5% 3'083
1.0%
100.0% 300'462
100.0%

3.13 Balance sheet by currencies
in CHF 1000
Assets
CHF
Currencies
EUR USD other
Liquid Funds 285
31
- 2
Money market instruments - 82
64'928
-
Due from banks 637
49'020 102'549
253
Due from customers 152
765 110'802
-
Financial investments 1
6'432
1'562
-
Fixed assets 1'065
- - -
Intangible assets 427
- - -
Accrued income and prepaid expenses 87
394
2'578
-
Other assets 3'615
- - -
Total balance sheet effective assets 6'269
Claims from transactions related to forex spot,
forward and option transactions 35'938
Total assets 42'207
Liabilities
Due to banks 2'000
Due to customers, other 165
Accrued expenses and deferred income 393
Other liabilities 181
Valuation adjustments and provisions 1'214
Share capital 33'500
Legal reserves 169
Retained earnings (losses) 268
Consolidated net profit for the year 604
Total balance sheet effective liabilities 38'494
Claims from transactions related to forex spot,
forward and option transactions 3'895
Total liabilities 42'389
Net position per currency 182
56'724
2'019
58'743
12
56'410
223
56'645
2'005
58'650
-93
282'419
2'326
284'745
5'712
229'012
2'202
255
2'281
2'536
-
2'466
- - -
- 2'195
- - -
- - -
- 7'106
- 1'833
248'060
36'665
284'725
-20
2
-
-
-
2'468
-
2'468
-68

4. Information on Off-Balance Sheet Transactions
4.1 Analysis of contingent liabilities
in CHF 1000 31.12.2006 31.12.2005 Change
Guarantees to secure credits and similar 10'943
4'800
6'143
Guarantees for warranty and similar - - -
Irrevocable commitments 238
796
-558
Total contingent liabilities 11'181
4.2 Outstanding derivative instruments
in CHF 1000 positive
replacement value
Foreign exchange
Forward contracts with maturity under 1 year 3'614
- thereof trading instruments 45
- thereof hedging instruments 3'569
Total 31.12.2006 3'614
Previous year 1'686
- thereof trading instruments 32
- thereof hedging instruments 1'654
4.3 Analysis of fiduciary transactions
5'596
negative
replacement value
86
86
5'585
Contract
Volume
42'565
6'627
- 35'938
86
680
17
663
42'565
37'848
1'910
35'938
in CHF 1000 31.12.2006 31.12.2005 Change
Fiduciary placements with third party banks 11'404
Fiduciary placements with affiliated banks 28'950
Total fiduciary transactions 40'354
18'011
18'011
-6'607
- 28'950
22'343

5. Information on the Income Statement
5.1 Income from trading activities
in CHF 1000 31.12.2006 31.12.2005 Change
Foreign exchange 170
Total trading income 170
5.2 Personnel expenses
in CHF 1000 31.12.2006 31.12.2005 Change
Salaries and allowances 2'579
Contributions to pension funds 192
Social security contributions 239
Other personnel expenses 56
Total personnel expenses 3'066
5.3 Other operating expenses
in CHF 1000 31.12.2006 31.12.2005 Change
Expenses for premises 263
Expenses for IT, machinery, furniture
vehicles and other equipment 922
Other operating expenses 1'359
Total other operating expenses 2'544
5.4 Tax expenses
Tax expenditure includes current income and annual capital tax and is calculated on the actual income
(after offsetting potential tax losses) as well as on the actual taxable capital.
5.5 Comments to extraordinary income and expenses, to significant reversals
of general banking risks and of freed valuation adjustments and reserves
The extraordinary income of CHF 95M resulted from the following:
- BMS moved to new premises in 2005 and expensed the cost of lease contract of the old premise until end of the lease
agreement in March 2007. The lease agreement was terminated in November 2006 and therefore the remaining nonaccrued
expensed costs of the lease agreement of CHF 75M were reversed.
- A prior years surplus in daily benefits under health insurance of CHF 20M.
198
198
2'143
165
190
39
2'537
528
639
997
2'164
-28
-28
436
27
49
17
529
-265
283
362
380

BANCO MERCANTIL (SCHWEIZ) AG
ZURICH
Report of the Statutory Auditors
to the General Meeting of
Shareholders for the year 2006
9 February 2007
With offices in Aarau, Basel, Berne, Chur, Geneva, Lausanne, Lugano, Lucerne, Neuchâtel, Sitten, St. Gallen, Thun, Winterthur, Zug and Zu-
rich, PricewaterhouseCoopers AG is a provider of auditing services and tax, legal and business consultancy services.
PricewaterhouseCoopers AG is a partner in a global network of companies that are legally independent of one another and is located in some
140 countries throughout the world.

Report of the statutory auditors
to the general meeting of
Banco Mercantil (Schweiz) AG
Zurich
PricewaterhouseCoopers AG
Birchstrasse 160
8050 Zürich
Phone +41 58 792 44 00
Fax +41 58 792 44 10
As statutory auditors, we have audited the accounting records and the financial statements (balance
sheet, income statement and notes) of Banco Mercantil (Schweiz) AG for the year ended
December 31, 2006.
These financial statements are the responsibility of the board of directors. Our responsibility is to
express an opinion on these financial statements based on our audit. We confirm that we meet the
legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit
be planned and performed to obtain reasonable assurance about whether the financial statements
are free from material misstatement. We have examined on a test basis evidence supporting the
amounts and disclosures in the financial statements. We have also assessed the accounting principles
used, significant estimates made and the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and financial statements and the proposed appropriation of
available earnings comply with the Swiss law and the company's articles of incorporation.
We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Pascal Portmann Alex Henzi
Auditor in charge
Zurich, 9 February 2007
Enclosures:
- Financial statements (balance sheet, income statement and notes)
- Proposed appropriation of the available earnings

Financial Statement
Balance Sheet
in CHF 31.12.2006 31.12.2005 Change
Assets
Liquid funds 317'558
Money market instruments 131'444
Due from banks 21'818'985
Due from customers 50'185'767
Financial investments 1'612'852
Participations 12'847'002
Fixed assets 1'064'542
Intangible assets 427'104
Accrued income and prepaid expenses 725'463
Other assets 3'615'118
Total assets 92'745'835
Total due from non-consolidated holdings and shareholder 3'711'062
Liabilities and shareholder's equity
Due to banks 7'858'834
Due to customers, other 46'718'665
Accrued expenses and deferred income 423'388
Other liabilities 1'989'522
Valuation adjustments and provisions 1'214'252
Share capital 33'500'000
Legal reserves 169'000
Retained earnings 268'475
Net profit 603'699
Total liabilities and shareholder's equity 92'745'835
Total due to non-consolidated holdings and shareholder 135'225
Off-Balance Sheet Transactions
94'425
2'749'332
20'540'106
51'365'061
2'419'179
12'847'002
1'135'850
495'229
996'770
1'685'882
94'328'836
1'109'770
6'879'454
49'944'869
456'625
1'736'623
1'373'790
33'500'000
151'000
-60'650
347'125
94'328'836
1'847'712
223'133
-2'617'888
1'278'879
-1'179'294
-806'327
Contingent liabilities 10'943'305 4'800'291 6'143'014
Irrevocable commitments 238'000 796'211 -558'211
Derivative instruments
- contract value 42'564'870 37'848'057 4'716'813
- positive replacement value 3'613'818 1'685'882 1'927'936
- negative replacement value 1'893'814 1'608'968 284'846
Fiduciary transactions 300'519'213 227'387'762 73'131'451
-
-71'308
-68'125
-271'307
1'929'236
-1'583'001
2'601'292
979'380
-3'226'204
-33'237
252'899
-159'538
-
18'000
329'125
256'574
-1'583'001
-1'712'487

Income Statement
in CHF 2006 2005 Change
Ordinary operating income and expense
Interest income
Interest and discount income 5'062'897
Interest and dividend income on financial investments 83'449
Interest expense -936'748
Net interest income 4'209'598
Income from commission and services
Commission income on lending activities 379'982
Commission income on asset management 1'341'175
Commission income on other services 654'295
Commission expense -101'317
Net commission income 2'274'135
Income from trading operations 157'546
3'627'262
148'621
-700'763
3'075'120
271'368
1'043'516
486'894
-103'416
1'698'362
214'987
1'435'635
-65'172
-235'985
1'134'478
108'614
297'659
167'401
2'099
575'773
-57'441
Other ordinary income
Participation income - 327'550 -327'550
Other ordinary income 1'144 761'160 -760'016
Other ordinary expense - - -
Total other ordinary income 1'144 1'088'710 -1'087'566
Total operating income 6'642'423
Operating expenses
Personnel expenses -3'066'285
Other operating expenses -2'082'888
Total operating expenses -5'149'173
Gross profit 1'493'250
Net income for the year
Gross profit 1'493'250
Depreciation and write-offs of non-current assets -612'056
Valuation adjustments, provisions and losses -312'729
Subtotal 568'465
6'077'179
-2'536'595
-1'843'191
-4'379'786
1'697'393
1'697'393
-530'850
-760'052
406'491
565'244
-529'690
-239'697
-769'387
-204'143
-204'143
-81'206
447'323
161'974
Extraordinary income 95'234
- 95'234
Extraordinary expenses - - -
Taxes -60'000
-59'366
-634
Net income for the year 603'699
Distribution of profit
Net profit for the year 603'699
Retained profit / losses brought forward 268'475
Balance sheet profit
Allocation of profit
872'174
Allocation to legal reserves -31'000
Retained profit / losses brought forward 841'174
347'125
347'125
-60'650
286'475
-18'000
268'475
256'574
256'574
329'125
585'699
-13'000
572'699

Notes to the parent financial statement
1. Information on business activities and number of employees
General information
Banco Mercantil (Schweiz) AG, until January 27,
2000, operating under the name BMS Finanz AG,
was incorporated in May 1988 in Zurich. Its activities
in the areas of trade finance, private banking and
fiduciary transactions are focused on Latin America
and complemented by the banking activities of its
wholly owned subsidiaries BMC Bank & Trust Ltd.,
Grand Cayman and BMS Advisory Services Ltd.,
British Virgin Island.
It is intended to continue intensifying the expansion
of the private banking activities for the clientele of the
Grupo Mercantil Servicios Financieros. For this,
significant investments were made during the past
years in the installation of a new banking software
platform with electronic banking facilities for our
customers to support and enhance the range of
services in this area. It is also intended to continue
developing the traditional trade finance activities
between Europe and Latin America.
Balance Sheet transactions
Short-term financial investments with European
banks and trade financing for Latin American banks
as well as short-term lending to Latin American and
US corporate borrowers, largely related to
preliminary and supplementary trade financing,
represent the major assets of the bank. Investments
in securities of Latin American and European
borrowers complement the bank’s balance sheet
business. Exposures with maturities of over one year
are entered but limited to the bank’s net equity.
Funding is obtained through customer deposits and
also through credit lines from major European banks.
Income from commissions and services
Income from commissions and services results
mainly from letter of credit transactions as well as
from the issuance of guarantees, from custody fees,
brokerage and other service fees related to fiduciary
investments of private customers.
Other activities
For investment and also for liquidity purposes, Banco
Mercantil (Schweiz) maintains an investment portfolio
consisting mainly of fixed income securities of Latin
American and European borrowers.
Risk Management
The analysis and control of risks is performed in
close cooperation with the Risk Management Group
of our parent company in Caracas.
Credit approval is based on requirements as to
quality, collaterals, limits and credit authority as laid
down in the Group internal risk policy. All credit risk
positions, including those from derivative
instruments, are limited and monitored continuously
by a credit line system based on counterparty and
country risk.
Foreign exposures are entered into and monitored in
compliance with the internal risk policy. The assessment
procedure, except for exposures in industrialized
countries (Category 1), where country risk is
negligible, is based on the rating of the Interagency
Country Exposure Committee (ICERC) and on the
Group’s own internal rating system. The internal evaluation
is based on economic trends and political and
social developments and derived from various groupinternal
and external sources (Categories 2 – 6).
The risk provisioning requirements for country risk
and counterparty risk are calculated independently
on the basis of an internal rating process.
Liquidity and interest rate risks are monitored and
managed on a consolidated basis.
Foreign exchange risks are to a large extent restricted
by internal limits for open currency positions.
Derivative financial instruments are used exclusively
to hedge open foreign exchange positions and
interest rate risks.
When trading in securities, Banco Mercantil
(Schweiz) does not engage in open positions from
which market risks could arise.
All other operating risks, especially those related to
the internal organization and information systems,
are monitored through internal policies and
directives.
The Board of Directors and Senior Management are
regularly informed of the risks related to asset value,
financial position, liquidity, earnings and operations
through a management information system.

Outsourcing
Banco Mercantil (Schweiz) has outsourced the
operation of its banking system to PriBaSys AG in
Zurich and the operation of SWIFT and SIC to
Biveroni Batschelet Partners AG in Baden. These
outsourcing arrangements were set up under detailed
Service Level Agreements according to the
regulations of the Swiss Federal Banking
Commission. All personnel of the service providers
are placed under the bank secrecy act, which
safeguards the requirements of confidentiality.
Personnel
Banco Mercantil (Schweiz) employed 23 persons
including part-time employees. It also receives
support from the head office and affiliates in areas
such as internal audit, loan review, IT, and credit and
country risk analysis.

2. Accounting and valuation principles
General principles
The Bank’s accounting and valuation principles
comply with the Swiss Code of Obligations, the Bank
Law, and guidelines of the Federal Banking
Commission.
Accounting and booking of transactions
All transactions are recorded in the balance sheet on
a trade date basis, except for forward transactions,
which are reported from the trade date as off-balance
sheet items and from the settlement date in the
balance sheet. All transactions are valued from the
trade date onward.
Foreign currency translation
Transactions in foreign currencies are translated at
daily exchange rates. Foreign currency positions,
with the exception of participations, are converted at
the average exchange rates prevailing at the yearend
closing date. Resulting conversion profits and
losses are included in the income statement.
Participations are valued at the exchange rates
prevailing at the time of the purchase. In the event of
a decline in the value of such an investment, giving
due account also to the fluctuation of exchange rates,
a valuation adjustment is made.
The following exchange rates were used as at the
balance sheet date (major currencies):
2006 2005
USD 1.2207 1.3179
EUR 1.6073 1.5543
General valuation principles
Each item reflected in the balance sheet is valued
individually.
Cash, Due from Money Market Instruments, Due
from banks, Deposits
They are stated at their nominal value, or at historical
cost, less specific valuation adjustments for doubtful
receivables. Money market instruments are adjusted
for discounts. Unearned discounts on money market
instruments are accrued over their life within the
corresponding balance sheet item.
Due from customers
Doubtful receivables, i.e. loans for which it is unlikely
that the customer will be able to comply with its future
obligations, are valued individually and the impairment
of value is covered by a specific provision.
Off-balance sheet transactions, such as firm
commitments, guaranties and derivative financial
instruments are also included in this valuation. Loans
are classified as impaired at the latest when a
borrower is in arrears with payments of capital and/or
interest for a period of over 90 days. Interest in
arrears for a period of over 90 days are considered
overdue. Overdue interest and interest of which
collection is considered at risk are not reflected as
income but directly allocated to valuation adjustments
and provisions. Loans are placed on a non-accrual
status when the collectibility of their interest is
considered doubtful to the extent that an accrual
would be imprudent.
The amount of the impairment is measured by the
difference between the book value of the loan and
the estimated collectible amount, considering the
counterparty risk and the net value from the
execution of any collateral. If the process of
execution is expected to take longer than a year,
then a present value calculation is made of the
expected cash flows to be generated from the
execution process. Specific provisions are deducted
directly from the corresponding asset item.
Loans that are believed to be entirely or partially
uncollectible or for which the bank consents to their
remission, are charged off against the provision for
loan losses. Recoveries of previously charged-off
amounts are directly credited to the allowance for
loan losses.
A generic allowance for loan losses is made, based
on set rates per credit rating category, to cover for
not yet recognizable loan loss risks inherent in the
credit portfolio.
Doubtful receivables are classified again at full value
if payments of outstanding capital and interest are
resumed according to the contractual terms and also
credit standing criteria are fulfilled.

Financial investments
Fixed income securities held as available for sale are
valued at the lower of cost or market. The net
balances of value adjustments are made through
“Other Ordinary Income” or “Other Ordinary
Expense”, respectively. Write-ups are recognized up
to the acquisition costs, provided the market value
which had fallen below the acquisition cost recovers
again. Such value adjustment is recognized as
described above.
Debt securities acquired with the intention to hold
them to maturity are recorded with the accrual
method, i.e. premiums or discounts are accrued over
their remaining life. Interest-related gains or losses
from sale before maturity or prepayment are deferred
and accrued over the remaining life, i.e., until the
original maturity. Value reductions or subsequent
increases, resulting from credit rating are treated as
“available for sale” in the income statement .
Buildings and participations acquired from the credit
business earmarked for disposal are registered as
financial investments and valued at the lower of cost
or market, i.e. at the lower of acquisition cost or
liquidation value.
Investments in subsidiaries
The investments in subsidiaries are reflected at
historical cost in Swiss Francs.
Other fixed assets / intangible assets
Other fixed assets and intangible assets are stated at
cost plus value-creating investments less
depreciation computed on a straight line basis over
their expected useful life – of 3 years for software, IT
and communication systems, 5 years for furniture,
and installations in new premises over the duration of
the rental contract.
Valuation adjustments and provisions
Specific valuation adjustments and provisions are
created for all recognizable risks both on and offbalance
sheet. Valuation adjustments and provisions
which are no longer required in the reporting period
are reversed affecting income.
Specific valuation adjustments and provisions are
directly deducted from the corresponding asset item.
Generic provisions for default risks as well as other
risks are recorded under this balance sheet position.
Employee benefit obligation
Banco Mercantil (Schweiz) maintains two defined
contribution pension plans for its employees in
Switzerland. The bank bears the expenses of the
pension plans of all its employees as well as their
survivors in accordance with the Swiss social security
law. The benefit obligations as well as the coverage
capital are disincorporated into legally independent
pension funds or foundations of insurance
companies. The organization, management and
financing of the pension plans conform to the legal
regulations, to the articles of the funds as well as to
current pension regulations.
The bank records its contributions as employer in
“personnel expenses”.
Taxes
Tax expenditure is calculated on basis of the actual
profit of the individual group companies.
Contingent liabilities, irrevocable commitments
Contingent liabilities and irrevocable commitments
are stated at their nominal value. Provisions for
recognizable risks are created and recorded under
“valuation adjustments and provisions” on the liability
side.
Derivative financial instruments
Derivative financial instruments are recorded at
nominal value in the off-balance sheet.
Gains or losses arising from hedge instruments are
reflected in the same income item as that of the
hedged underlying transaction.

3. Information on the Balance sheet
3.1 Disclosure of liabilities to own pension plans
The bank’s employees dispose of two legally independent personnel pension plans. One plan covers the obligatory benefits
according to the swiss pension fund law, while the second plan covers all the non-obligatory benefits. Both plans are defined
contribution plans. As in the previous year, the bank had no further obligations towards these pension plans. There were no
reserves from employer’s contributions. The bank’s employees are insured at a life insurance company in the scope of an affiliation
agreement with collective foundations. These are full-coverage contracts which cover all retirement, invalidity and death
benefits and which guarantee a 100% coverage rate at all times. As a result, the Bank can neither draw any economic benefit
nor is under obligation to make additional contributions for its employees.
3.2 Valuation adjustments and provisions, reserves for general banking risks
in CHF 1000 Balance
previous year
Valuation adjustments and
provisions for credit and
country risks 1'073
Specific
usage
Change in
definition of
purpose, reclassification
Recoveries,
doubtful interest,
currency
differences
- - 5
New creation
charged to
income
statement
300
Reversals
credited to
income
Balance
current year
- 1'378
Valuation adjustments and
provisions for investments - - - - - - -
Other Provisions (operating loss) 460
Total valuation adjustments and
provisions 1'533
less: set-offs with investments
Total valuation adjustments and
-159
provisions as of balance sheet 1'374
Doubtful loans of CHF 164M are fully provisioned.
-460
-460
- - - - -
- 5
-5
300
- 1'378
-164
1'214

3.3 Schedule of share capital and disclosure of shareholders
in CHF 1000
Capital structure
Nominal
amount
Shareholder's equity 33'500
Number of
shares
33'500
Capital with
dividend rights
33'500
Nominal
amount
33'500
Number of
shares
33'500
Capital with
dividend rights
Significant shareholders and shareholder groups
with voting rights
31.12.2006 31.12.2005
Nominal Share in % Nominal Share in %
Holding Mercantil Internacional, C.A., Caracas, Venezuela 33'500
100% 25'000
74.6%
Mercantil Servicios Financieros, C.A., Caracas, Venezuela - - 8'500
25.4%
Shareholder of Holding Mercantil Internacional, C.A.:
Mercantil Servicios Financieros, C.A., Caracas, Venezuela 33'500
31.12.2006 31.12.2005
100% 33'500
Mercantil Servicios Financieros (MSF) is a financial holding registered on the Caracas Stock Exchange. The capital structure of MSF
is comprised of A (58%) and B (42%) shares, with B shares having limited voting rights. Its shares are held primarily by Venezuelan
investors. Approximately 55% of the B shares are owned through an American Depositary Receipt (ADR) program, therefore MSF does
not have information who the holders of the ADR's are. Shareholders with ownership of over 5%, as known to MSF are:
- Gustavo J. Vollmer Group (14.5% A shares and 4.8% B shares); 10.4% participation
- Vadesa Group (Capriles Family) (14.3% A shares; 0% B shares); 8.3% participation
- Gustavo A. Marturet Group (8.3% A shares; 1.1% B shares); 5.3% participation
- Travieso Sanchez Group (8.0% A shares; 3.9% B shares); 6.3% participation
3.4 Statement of changes in shareholder's equity
in CHF 1000 31.12.2006 31.12.2005
Shareholder's equity at beginning of current year
Share capital 33'500
Legal reserve 151
Retained earnings/losses 286
Total shareholder's equity at beginning of current year (before profit distribution) 33'937
33'500
100%
25'000
146
-56
25'090
+ Capital increase - 8'500
+ Net profit for the year 604
347
Total shareholder's equity at end of current year (before profit distribution) 34'541
Thereof:
Share capital 33'500
Legal reserve 169
Retained earnings/losses 872
33'937
33'500
151
286

3.5 Disclosure of amounts due from and due to affiliated companies as well as
loans and exposures to directors and senior executives
in CHF 1000 31.12.2006 31.12.2005
Due from affiliated companies 5'964
Due to affiliated companies 110
Loans to directors and senior executives 22
Transactions with related parties
Transactions with related parties such as securities transactions, international payments, placement of funds and deposits
are made under conditions as they would apply with third parties. The bank earned USD 594'151 in advisory fees for
services rendered to an affiliated company in year 2005. In the year 2006 these services were no longer provided.
2'654
185
46

3.6 Breakdown of exposure by country of risk and by rating categories
in CHF 1000
31.12.2006 31.12.2005
Amount in % Amount in %
Category 1 70'69068.0%
69'694
69.7%
Belgium 3
- 3
-
France - - 2'947
2.9%
Germany 4'8424.7%
7'247
7.3%
Great Britain 1'472
1.4% 1'355
1.4%
Italy 2'250
2.2% 2'473
2.5%
Luxembourg 1'176
1.1% 1'117
1.1%
Netherlands 804
0.8% - -
Spain 2'670
2.6% 2'331
2.3%
Switzerland 9'826
9.5% 7'797
7.8%
USA 47'647
45.7% 44'424
44.4%
Category 2 22'204
Cayman Islands 12'860
Hongkong 19
Mexico 1'106
Netherlands Antillese 1
South Africa 514
Virgin Islands (British) 7'704
21.4% 17'879
17.9%
12.4% 12'851
12.9%
- - -
1.1% 1'234
1.2%
- - -
0.5% - -
7.4% 3'794
3.8%
Category 3 2'689
2.6% 2'322
2.3%
Brazil 89
0.1% - -
Guatemala - - 1'055
1.1%
Panama 1'237
1.2% 1'1051.1%
Peru 136
0.1% 162
0.2%
El Salvador 1'227
1.2% - -
Category 4 8'156
Venezuela 8'156
7.8% 8'659
7.8% 8'659
Category 5 and 6 188
0.2% 1'3701.4%
Ecuador - - 1'370
1.4%
Bolivia 188
0.2% - -
Total 103'927
100.0% 99'924
8.7%
8.7%
100.0%

4. Information on Off-Balance Sheet Transactions
4.1 Outstanding derivative instruments
in CHF 1000 positive
replacement value
Foreign exchange
Forward contracts with maturity under 1 year 3'614
- thereof trading instruments 45
- thereof hedging instruments 3'569
Total 31.12.2006 3'614
Previous year 1'686
- thereof trading instruments 32
- thereof hedging instruments 1'654
4.2 Analysis of fiduciary transactions
negative
replacement value
1'894
86
1'808
1'894
1'609
16
1'593
Contract
Volume
42'565
6'627
35'938
42'565
37'848
1'910
35'938
in CHF 1000 31.12.2006 31.12.2005 Change
Fiduciary placements with third party banks 59'400
Fiduciary placements with affiliated banks 241'119
Total fiduciary transactions 300'519
34'933
192'455
227'388
24'467
48'664
73'131

5. Information on the Income Statement
5.1 Income from trading activities
in CHF 1000 31.12.2006 31.12.2005 Change
Foreign exchange 158
Total income from trading operations 158
5.2 Tax expenses
Tax expenditure includes current income and annual capital tax and is calculated on the actual income
(after offsetting potential tax losses) as well as on the actual taxable capital.
5.3 Comments to extraordinary income and expenses, to significant reversals
of general banking risks and of freed valuation adjustments and reserves
The extraordinary income of CHF 95M resulted from the following:
- BMS moved to new premises in 2005 and expensed the cost of lease contract of the old premise until end of the lease
agreement in March 2007. The lease agreement was terminated in November 2006 and therefore the remaining nonaccrued
expensed costs of the lease agreement of CHF 75M were reversed.
- A prior years surplus in daily benefits under health insurance of CHF 20M.
215
215
-57
-57