BMA

Business Context and Reporting Period

Company: Macro Bank Inc. (Banco Macro S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2007 (Interim)
Filing Date: July 23, 2007
Business Overview: Macro Bank is an Argentine commercial bank authorized by the Central Bank of Argentina (BCRA). It operates through a network of branches and subsidiaries, including Nuevo Banco Suquía S.A., Nuevo Banco Bisel S.A., and Banco del Tucumán S.A. The bank focuses on traditional banking products for companies and individuals, with a significant presence in regional areas outside Buenos Aires.

Key Financial Metrics (Consolidated)

All figures in thousands of Argentine Pesos (Ps.) unless otherwise noted.

Material Changes vs. Prior Period

• Profitability Surge: Net income increased by approximately 69% year-over-year, rising from Ps. 72,895,000 in Q1 2006 to Ps. 123,175,000 in Q1 2007. This was driven by a significant expansion in the Gross Intermediation Margin (up 92% to Ps. 259,531,000) and Service-Charge Income (up 65% to Ps. 146,851,000).
• Asset Growth: Total consolidated assets grew by approximately 15.7% from December 31, 2006, to March 31, 2007, reaching Ps. 16.78 billion. This growth was fueled by a Ps. 800 million increase in loans and a Ps. 1.26 billion increase in government and private securities.
• Deposit Expansion: Total deposits increased by Ps. 912 million (9%) to Ps. 10.98 billion, with Time Deposits showing the largest absolute growth.
• Expense Management: While Administrative Expenses increased by 69% to Ps. 217,550,000 (partly due to consolidation of new subsidiaries), the efficiency ratio improved relative to the surge in income.
• Loan Loss Provisions: The provision for loan losses doubled to Ps. 17,321,000, reflecting a more conservative approach or increased risk assessment in the portfolio.

Guidance, Outlook, Risks, and Unusual Items

• Merger Activity: The Bank entered into a preliminary merger agreement on March 14, 2007, to merge Nuevo Banco Suquía S.A. into Banco Macro S.A., effective retroactively to January 1, 2007. Shareholder approval was scheduled for June 4, 2007, pending regulatory authorization.
• Corporate Bond Issuance: In January 2007, the Bank issued Ps. 471,914,000 (approx. USD 150 million) in non-subordinated corporate bonds maturing in 2017. In December 2006, it issued Ps. 478,079,000 (approx. USD 150 million) in subordinated notes. Proceeds are intended to fund lending activities.
• Accounting Standards Discrepancy: The financial statements are prepared in accordance with Central Bank of Argentina rules, which differ from professional accounting standards in Argentina and GAAP in other countries. Significant differences include the valuation of guaranteed loans, treatment of intangible assets related to court orders ("amparos"), and the method for recognizing income tax (cash basis vs. deferred tax method).
• Legal and Regulatory Risks:
  • Court Orders (Amparos): The Bank faces ongoing litigation regarding the "pesification" of deposits following the 2001-2002 economic crisis. The Argentine Supreme Court ruled in December 2006 that deposits should be reimbursed at a specific exchange rate (Ps. 1.40 to USD 1) adjusted by the CER index. The Bank has capitalized Ps. 69,877,000 in intangible assets related to these differences.
  • Tax Disputes: The Bank is involved in tax disputes with the Federal Public Revenue Agency (AFIP) regarding the deductibility of non-performing secured loans. Management believes these are unlikely to result in additional charges.
• Dividend Distribution: On April 26, 2007, the Shareholders' Meeting approved the distribution of cash dividends totaling Ps. 102,592,000, subject to regulatory authorization and restrictions related to subordinated bond agreements.

Key Facts for Investor Verification

• Merger Status: Verify the final regulatory approval and completion date of the merger with Nuevo Banco Suquía S.A.
• Accounting Adjustments: Assess the potential impact of converting financial statements from Central Bank rules to IFRS or US GAAP, specifically regarding the valuation of government-guaranteed loans and deferred tax liabilities.
• Legal Exposure: Monitor the final resolution of the "amparo" lawsuits regarding deposit reimbursement and the potential for additional provisions beyond the Ps. 69.9 million already capitalized.
• Liquidity Position: Review the cash flow statement, which shows a net decrease in cash and cash equivalents of Ps. 702,767,000 during the quarter, primarily due to increased lending and securities purchases.
• Related Party Transactions: Note the significant exposure to related parties, including investments in subsidiaries and loans to related individuals, totaling Ps. 1.73 billion in credit assistance as of March 31, 2007.