BPI-Prudential Bank Merger and Acquisition

Bank of the Philippine Islands

Incorporation Date: 04 January 1943 Listing Date: October 12, 1971 Number of Directors: 15 Ownership Restrictions: 40%

BPI leader in electronic banking, having

introduced most of the firsts in the industry, such as: automated teller machines (ATMs), a point-of-sale debit system kiosk banking phone banking internet banking mobile banking

owned by the Ayala Corporation

Historical Background

Philippines’ and Southeast Asia’s oldest bank issuer of the country’s first currency notes in

1855 1st branch – Iloilo;1897 financed the following:

first tram service telephone system electric power utility first steamship in the country

Business Evolution

post World War II era, BPI evolved from a purely commercial bank to a fully diversified universal bank

accomplished mainly through mergers and acquisitions in the eighties when it absorbed an investment house, a stockbrokerage company, a leasing company, a savings bank, and a retail finance company

Business Evolution

Since the late 1990s – consummated three bank mergers

1996 – merged with City Trust Banking Corporation 2000

consummated the biggest merger then in the banking industry when it merged with the former Far East Bank & Trust Company (FEBTC)

formalized its acquisition of three major insurance companies in the life, non-life and reinsurance fields

2005 – acquired and merged with Prudential Bank

Business Milestones

April 2007 – Bank of the Philippine Islands (Europe) Plc

October 2008 – BPI, Ayala Corporation and Globe Telecom signed a Memorandum of Agreement to form the country’s first mobile microfinance bank

2009 – entered into a strategic bancassurance partnership with The Philippine American Life Insurance Company (Philamlife) to form BPI-Philam Life Assurance Corp

Principal Subsidiaries

BPI Family Savings Bank, Inc. BPI Capital Corporation BPI Leasing Corporation BPI Direct Savings Bank BPI International Finance Limited, Hong Kong BPI Express Remittance Corporation Bank of the Philippine Island (Europe) Plc, Ayala Plans, Inc. BPI/MS1 Insurance Corporation1MS = Mitsui Sumitomo

Top 5 Stockholders1

PCD NOMINEE CORPORATION (NON-FILIPINO)

AYALA DBS HOLDINGS, INC. AYALA CORPORATION PCD NOMINEE CORPORATION (FILIPINO) ROMAN CATHOLIC ARCHBISHOP OF

MANILA

1As of December 31, 2009

Prudential Bank

1952 – incorporated as an expanded commercial bank

June 2002 – celebrated its 50th anniversary in the banking business

Subsidiaries Prudential Venture Capital Corporation Prudential Investments, Inc. Pilipinas Savings Bank

Prudential Bank in Avenida, Manila

Prudential Bank

caters primarily to middle-marketbased entrepreneurs

The Bank of Tokyo-Mitsubishi, Ltd. holds 12% of the total shares which made it the majority shareholder before the acquisition took place

As of December 31, 2004, it operated a total of 187 offices/branches, consisting of the head office, 91 Metro Manila branches and 95 provincial branches.

Prudential Bank branch side by side with BPI branch in Naga

The Acquisition Process

September 1, 2005, BPI acquired 92% of the share capital of Prudential Bank, Inc. for cash consideration of P5,619 million

In accordance with the provisions of the plan of merger approved by the Bangko Sentral ng Pilipinas and the SEC on December 21 and December 29, 2005, respectively, BPI issued 9.99 million of its common shares with fair value of P515 million to the 8% Prudential minority shareholders

In the sale agreement, BPI bought 80 percent of Prudential from the Santos family, and later further increased its stake to 91.6 percent for P764.44 a share through a tender offering to minority shareholders.

Reasons

Jaime Augusto Zobel de Ayala, BPI’s Chairman, said the purchase would further "enhance" the operations of BPI with increased or widened network.

New incentive package by BSP with respect to mergers and acquisitions

BPI has been on the lookout for some good acquisitions in order to bolster its position as a rising regional financial powerhouse.

Reasons

The merger is seen to offer a good strategic fit to BPI in penetrating the attractive customer segment of Prudential composed mostly of middle market entrepreneurs.

With the merger, BPI will solidify its position as the country’s second largest bank with combined assets totaling P456.09 billion.

BPI expects to gain at least 200,000 new accounts with the acquisition.

Ranking BEFORE the acquisition

Asset Size Total Assets

Ranking Bank PHP, Mil

1 Metrobank 463,884

2 Bank of the Philippine Islands (BPI) 356,231

3 Land Bank of the Philippines 285,260

4 Equitable PCI Bank 284,282

5 Citibank 222,343

15 Security Bank Corp 80,106

16 Union Bank 76,874

17 Philippine Bank of Communications 55,792

18 Bank of Commerce 55,048

19 Prudential Bank 51,220

20 International Exchange Bank 46,406

Ranking BEFORE the acquisition

Deposits (PHP Millions)

Ranking

Bank Total Gov'tNon-Gov't

1 Metrobank 344,345 992 343,353

2 Bank of the Philippine Islands (BPI) 285,872 407 285,465

3 Land Bank of the Philippines 211,120 139,268 71,852

4 Equitable PCI Bank 185,030 154 184,876

5 Philippine National Bank 154,406 28,533 125,873

Total Deposits

15 Standard Chartered 42,713 105 42,608

16 Bank of Commerce 40,894 86 40,808

17 Prudential Bank 39,149 129 39,020

18 International Exchange Bank 36,668 30 36,638

19 Development Bank of the Philippines 36,007 23,651 12,356

20 Philippine Trust Company 34,276 - 34,276

Ranking BEFORE the acquisition

Ranking AFTER the acquisition

Ranking AFTER the acquisition

Ranking AFTER the acquisition Top 5 banks in the Philippines (As of June 30, 2008)

Total Assets as of 30 June2008 (in Million Pesos)

Rank Bank Name Total Assets

 1  Banco de Oro Unibank Inc. (BDO) 643,402

 2 Metropolitan Bank and Trust Co.

(Metrobank)615,911

 3  Bank of the Philippine Islands (BPI) 499,103

 4  Land Bank of the Philippines (LandBank) 369,857

 5 Development Bank of the Philippines

(DBP)322,749

Ranking AFTER the acquisition Top 5 Philippine Banks, in terms of Total

Deposits (2009) Banco de Oro (BDO) Unibank Metrobank (MBT) Bank of the Philippine Islands (BPI) Rizal Commercial Banking Corp (RCBC) Philippine National Bank (PNB)

Top 5 Philippine Banks, in terms of Net Income (2009) Bank of the Philippine Islands (BPI) Metrobank (MBT) Banco de Oro (BDO) Unibank UnionBank of the Philippines (UBP) China Banking Corp. – ChinaBank (CHIB)

Top 5 Philippine Banks, in terms of Total Assets (2009) Banco de Oro (BDO) Unibank Metrobank (MBT) Bank of the Philippine Islands

(BPI) Rizal Commercial Banking Corp

(RCBC) Philippine National Bank (PNB)

Ranking AFTER the acquisitionRankings of the top five in assets are the

following: Landbank 20.91 % BPI 16.32 % BDO 11.64 % PNB 9.91 % Metrobank 7.42 %