Fitch Places Banco BMC's IDRs & National Ratings on Rating Watch Positive.

RIO DE JANEIRO, Brazil & SAO PAULO, Brazil -- Fitch Ratings has today placed the following ratings assigned to Banco BMC SA (BMC) on Rating Watch Positive:

Banco BMC SA (BMC)

--Local foreign currency long-term Issuer Default Rating (IDR) 'B-';

--Foreign currency long-term IDR 'B-';

--Local currency short-term 'B';

--Fixed-rate notes issuance maturing 2008 'B-/RR4';

--Support '5';

--National Short-Term rating 'F3(bra)';

--National long-term rating 'BBB-(bra)'.

In addition, Fitch affirmed BMC's:

--Individual rating at 'D/E';

--Foreign currency short-term at 'B'.

At the same time, Fitch also affirmed the following IDRs on Bradesco, with a Stable Outlook:

--Long-term foreign currency at 'BB+';

--Long-term local currency at 'BBB-';

--Individual rating at 'B/C';

--Local currency short-term at 'F3';

--Short-term at 'B';

--Support rating of '4';

--National short-term rating 'F1+(bra)';

--National long-term rating 'AA+(bra)'.

The Positive Watch reflects the private instrument for commitment of stocks and other covenants signed by Banco Bradesco SA (Bradesco), focusing on the acquisition of total stocks of BMC and its subsidiaries - BMC Asset Management DTVM SA, BMC Previdencia Privada S.A., and of BMC's sales promoter company Credicerto Promotora de Vendas Ltda. The total amount of the deal was BRL800 million, exclusively comprising an exchange of stocks, which will be as follows: BRL600 million in the act of the sale and BRL200 million depending on the performance of BMC in the next two years; during this period, Bradesco will manage BMC as an independent structure, maintaining its main executives. The conclusion of this deal still depends on the due diligence process from Bradesco on the financial companies of BMC Group and on the approval of authorities. Further rating actions will be made only after the end of these processes.

The ratings of BMC reflect the successful restructuring of the bank after 2004 and an appropriate strategy, which has increased the bank's liquidity and funding sources and led to improved efficiency ratios. The ratings also reflect the low quality of BMC's assets and capitalization compared with its peers, its lower profitability after eliminating the effect of an extraordinary item, and its small size. In addition, the bank has shown a greater concentration of its revenues in consignment lending. Controlled by Jayme Pinheiro, BMC's main focus is consignment lending to retirees and pensioners of Instituto Nacional do Seguro Social (INSS), the Brazilian social security agency. With total assets of BRL2.1 billion and equity of BRL264.8 million as per June 2006, it is also active in consumer vehicle financing and loans to medium-sized companies, secured by receivables. After the conclusion of the deal, BMC will be a full subsidiary of Bradesco. Fitch expects BMC to gain scale by reducing administrative and funding costs and by improving synergy with the new owner, since it will be able to sell a more ample product base to its clients.

Bradesco showed total assets of BRL232.9 billion and equity of BRL21.5 billion as of June 2006. Bradesco's local currency IDR is above Brazil's IDR and its National ratings reflect a broad-based national franchise with a strong track record of consistent results through turbulent economic cycles, achieved thanks to solid management of a diversified business and customer base. The foreign currency ratings are at Brazil's country ceiling.

Bradesco's Individual rating reflects steady improvement in performance since mid-2004, driven by loan growth in consumer finance and SME lending with controlled credit losses; a relentless drive to improve cost efficiencies and cross selling among all its business lines; and a reduction in exposure to Brazilian federal government debt. In Fitch's view, Bradesco's strategic goals are clearly defined and achievable, management is conservative, well-tried risk controls are in place, liquidity is ample, and consistent and improving profitability ensures adequate capitalization. Bradesco's diversified revenue stream is a positive, with strong contributions from fees and insurance. After concluding the deal, Fitch expects Bradesco to reveal deeper penetration on the consignment business in Brazil, further diversifying revenues and adding value to its staff, given BMC's knowledge of this niche.

Fitch's national ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign's foreign and local currency ratings are below 'AAA'. National ratings are not internationally comparable since the best relative risk within a country is rated 'AAA' and other credits are rated only relative to this risk. They are signified by the addition of an identifier, for the country concerned, such as 'AAA (bra)' for national ratings in Brazil.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery.

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