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: Fiscal year ended December 31, 2006
Filing Date: March 15, 2007
Business Overview: A commercial bank authorized by the Central Bank of Argentina (BCRA), focusing on small- and medium-sized enterprises, regional economies, and medium- to low-income individuals. The bank operates through a network of subsidiaries including Nuevo Banco Suquía S.A., Banco del Tucumán S.A., and Nuevo Banco Bisel S.A.

Key Financial Metrics (Consolidated)

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

Material Changes vs. Prior Period

• Asset Growth: Total consolidated assets increased by approximately 53% (from Ps. 9.49 billion to Ps. 14.50 billion), driven primarily by loan portfolio expansion and acquisitions.
• Profitability Surge: Net income rose 61.5% to Ps. 424.3 million. This was significantly aided by Ps. 192.5 million in "Recovered loans and allowances reversed" and Ps. 289 million in income from long-term investments (though consolidated investment income was lower at Ps. 289k due to consolidation adjustments, the stand-alone figure was Ps. 326 million).
• Loan Portfolio Expansion: Net loans more than doubled, increasing from Ps. 3.43 billion to Ps. 6.53 billion. Personal loans and credit card loans saw substantial growth.
• Capital Structure: The bank completed a capital increase of Ps. 75 million in 2006. Additionally, it issued Ps. 460.4 million (approx. USD 150 million) in new subordinated corporate bonds in December 2006, significantly increasing long-term debt.
• Acquisitions: The bank acquired controlling interests in Banco del Tucumán S.A. (79.84% at year-end, later increased to 89.92%) and Nuevo Banco Bisel S.A. (92.73%), which were consolidated in 2006 but not 2005.

Guidance, Outlook, Risks, and Unusual Items

• Accounting Standards Discrepancy: The financial statements are prepared under Central Bank of Argentina (BCRA) rules, which differ from professional accounting standards (CPCECABA) and US GAAP. Notable differences include the valuation of government securities and loans to the non-financial government sector, and the treatment of deferred taxes. The auditor noted these differences are significant but did not quantify all effects.
• Legal and Regulatory Risks: The bank faces ongoing litigation related to the 2001-2002 economic crisis ("pesification" of deposits). The Argentine Supreme Court ruled in December 2006 that depositors are entitled to reimbursement in pesos at a 1.40-to-1 exchange rate plus CER adjustment and 4% interest. The bank has capitalized Ps. 54.4 million in intangible assets related to these court orders, which restricts earnings distribution.
• Dividend Restrictions: Earnings distribution is restricted by Central Bank rules, including a requirement to set aside 20% of net income for legal reserves and specific reserves for subordinated bond interest. Additionally, a loan agreement with Crédit Suisse First Boston restricts dividend distribution if certain covenants are not met.
• Unusual Items: A significant portion of the 2006 income (Ps. 192.5 million) came from the reversal of loan loss allowances and recovered loans, rather than core interest income growth alone. The bank also recorded Ps. 73.1 million in income from the amortization of negative goodwill from a prior acquisition.

Investor Verification Checklist

• Reconciliation of Accounting Standards: Verify the impact of the differences between BCRA rules and professional accounting standards (Note 5), specifically regarding the valuation of government securities and deferred taxes, as these are not fully quantified in the filing.
• Asset Quality and Provisions: Review the "Recovered loans and allowances reversed" line item (Ps. 192.5 million) to understand the sustainability of the profit surge and the quality of the loan portfolio.
• Legal Exposure: Assess the potential liability from the Supreme Court ruling on deposit pesification and the adequacy of the Ps. 54.4 million capitalized intangible asset reserve.
• Debt Covenants: Confirm compliance with the covenants in the new USD 150 million subordinated bond issuance and the USD 50 million loan from Crédit Suisse, which restrict dividend payments.
• Acquisition Integration: Evaluate the financial performance and integration status of the newly acquired subsidiaries (Banco del Tucumán and Nuevo Banco Bisel) which contributed significantly to the asset base growth.