Net interest income reached euro 194.5 million, which corresponds to a year-on-year increase of 8.8%, which confirms the recovery trend initiated in the second half of last year.

Net interest income benefited from business growth, namely credit growth of 13.4%, and also by the increase in interest rates, which had a positive impact on customer funds margins.

2.2. Fees and Commissions

Fees and commissions totalled euro 136.2 million, rising by 4.8% year-on- year. Cross selling fees increased 7.3%, with mutual funds commissions being one of the main contributors to this performance with a rise of 14.5%. The performance of the commissions charged for collection services and the commissions on securities and guarantees contributed to the 7.4% increase in traditional banking services.

2.3. Capital Markets Results and Other

Capital markets and other results totalled euro 77.0 million, an increase of euro 1.9 million yoy. Capital markets results reflect continued diversification of market risks, most notably in equities, interest rate and fx. In the first quarter of 2006, equity markets in general posted a positive trend, and the increases in interest rates (in the US and Euro Zone) reflect a more favourable economic environment.

2.4. Operating Costs

Operating costs increased 6.6% year-on-year. As a result of a strict investment policy, particularly in the area of IT systems, depreciation and amortisation decreased 17.8%. Administrative costs were flat when compared to the 1st quarter of 2005.

OPERATING COSTS

euro million

March

2005 2006 Chg %

Staff Costs, o.w 99.6 116.3 16.7

Admin Costs 79.1 79.2 0.2

Depreciation 20.8 17.1 -17.8

Operating Costs 199.5 212.6 6.6

Staff costs increased 16.7%, as a result of the following factors:

-- pension costs and other long term employee benefits in 2005 were

largely concentrated in the third and four quarters; the increase in

these costs also translates the amortisation of actuarial differences

arising from the change in 31 December 2005 of the actuarial

assumptions used to calculate pension liabilities;

-- the variable remunerations/employee bonuses had a significant

adjustment in the last quarter of 2005, explaining the considerable

increase from the 1st quarter of 2005 to the 1st quarter of 2006.

The increase in salaries was 5.3%, driven by international expansion. In the domestic business salaries increased 1.4%.

STAFF COSTS

euro million

March

2005 2006 Chg %

Salaries 74.1 78.0 5.3

Domestic Activity 59.0 59.8 1.4

International Activity 15.1 18.2 20.5

Pensions and other benefits 16.6 24.7 48.8

Bonuses 8.9 13.6 52.8

Staff Costs 99.6 116.3 16.7

3. SUMMARY OF ACTIVITY

The Group's commercial activity was very strong, particularly in customer loans, which rose 13.4% year-on-year. This performance was strongly influenced by the acquisition of 27,081 new individual and 118 corporate Clients in the quarter.

MAIN INDICATORS

euro million

March

2005 2006 Chg %

Total Assets (1) 64,830 70,606 8.9

Assets 45,344 49,611 9.4

Gross Loans (including securitised) 31,780 36,039 13.4

Loans to Individuals 13,106 14,325 9.3

- Mortgage 11,455 12,535 9.4

- Other Loans to Individuals 1,651 1,790 8.4

Corporate Loans 18,674 21,714 16.3

Customer Funds

+ Deposits (2) 20,976 21,877 4.3

+ Debt Securities placed with Clients 3,926 3,937 0.3

= On-Balance Sheet Customer Funds 24,902 25,814 3.7

+ Off-Balance Sheet Funds 14,651 16,311 11.3

= Total Customer Funds 39,553 42,125 6.5

Transformation Ratio (%) (3) 113 122 9 p.p.

(1) Net Assets + Asset Management + Other off-balance Sheet liabilities

+ Securitised credit

(2) Includes: "Customer deposits and Certificates of Deposits

(3) Assuming on-balance sheet credit

On-balance sheet funds moderate growth (+3.7%) reflects the Clients' increased preference for off-balance sheet products, which were up by 11.3%. Off-balance sheet funds sustained growth is supported by a strong offer of mutual funds and bancassurance life products.

3.1. Retail banking

The strong commercial performance is backed by the strategy adopted for retail banking, which relies on the following key factors:

-- reinforcing the value propositions and adapting them to the Clients'

financial needs, differentiating through quality,

-- focusing on higher value Clients and products,

-- increasing efforts to attract new Clients,

-- a specific value proposition for the clients of Tranquilidade.

Mortgage credit grew 9.4% year-on-year, underpinned by production growth of 20%, to which Assurfinance channel contributed with 15.1%.

A specialised approach to the immigrants segment -- the new residents -- was implemented through the launch of BESXpress -- a remittances service provided under a partnership with Bradesco -- and BES Boas vindas (BES welcome) -- a package of banking services for everyday financial transactions.

In March 2006 a new phase of the Assurfinance Programme was launched: T-card ownership was extended to Tranquilidade clients that do not bank with BES and new benefits were offered to T-card holders. The Assurfinance programme contributed with ca. 4,400 Clients, or 16%, to the overall number of Clients attracted in the 1st quarter of the year.

The financial involvement (credit and funds) of the higher value clients continued to grow at a strong pace: 12% in the BES 360 segment and 16.5% in the small businesses segment. In the small business sector, some industry sectors considered strategic performed particularly well.

The 8.4% increase in Other loans to individuals stemmed mainly from consumer credit growth, specifically from pre-approved loans based on the scoring techniques developed by BES Group.

3.2. Corporate Banking

Corporate loans increased 16.3% to euro 21.7 billion. Business growth continued to be underpinned by strict risk assessment and selection criteria and a focus on the diversification of revenues, with increased weight of services and the respective commissioning.

Investment and entrepreneurship continued to deserve a special attention. BES Group was particularly active within the scope of the SIME (PRIME) programme (incentives for corporate and economic modernisation) and the banking protocols with the Portuguese Tourism Institute, where it maintained the lead with a share of 47% of total investment made under these programmes and 30% of all credit granted.

In specialised credit, Besleasing e Factoring continued to post strong business growth: with a market share of 17% in leasing production and 21% in factoring production (credit under management), the company maintained the 2nd position in the ranking of both products. BES has been advertising a recently launched credit line to support micro and small companies with a regional focus. This credit line, which offers special interest rate and term conditions, was created within the scope of the Mutual Guarantee System, which was developed through the IAPMEI's FINICIA Programme(1) for compliance with the objectives established in Axis III of the Portuguese Technological Plan.

(1) IAPMEI - Institute to Support Small and Medium Sized Companies.

FINICIA is a programme for micro-financing promotion.

3.3. Investment Banking

As a result of the positive momentum on the domestic and international capital markets, BES Investimento performed well in the first quarter of the year.

In project finance and securitisation, it was (i) leader of medium and long term structured finance to Monte Adriano in an amount of euro 11 million, (ii) lead arranger of the financing of A41 highway in France (euro 950 million), which has as promoters Bouygues and AP2R, (iii) financial adviser of the Governments of Mozambique and South Africa in the refinancing of the N4 Road concession, which connects Pretoria and Maputo, in an amount of ZAR 2.9 billion, (iv) structure member and leader in the financing of Biocarburantes Castilla la Mancha, which has as promoters Jimenez Belinchon and Ahorro Corporacion Financiera.

In equity capital markets, BES Investimento was coordinator of the local tranche of Company's IPO.

In debt capital markets, BES Investimento was involved in (i) the structuring of commercial paper programmes for Jose de Mello Saudi (euro 10 million), for RAR Group: RAR Holding (euro 30 million) and IP Holding (euro 100 million); (ii) the structuring of debt issues for Sumolis (euro 25 million); (iii) the banking syndicate that underwrote a medium and long term financing for Codere, S.A. (euro 75 million), and (iv) the structuring and placement of a three years Eurobond issue for Banco Panamericano (USD 60 million).

In brokerage, BES Investimento maintained its leadership in the Portuguese market and consolidated its top 10 position in Spain. Discretionary management activity for private individuals was strongly developed. AQ Research awarded ES Research the prize for "Best Recommendations for Iberian Companies" in the first quarter of 2006.

Banco Espirito Santo de Investimento posted net income of euro 11.5 million in the 1st quarter of 2006, corresponding to a year-on-year increase of 4.2% from euro 11.1 million in March 2005. Banking income rose 54.3% to euro 36.6 million, which compares with euro 23.7 million in the same period last year.

Operating costs reached euro 17.3 million, rising 43.2% year-on-year (euro 12.1 million in March 2005) on the increase in costs of the Brazilian subsidiary through the gradual rise of the real, the Bank's international expansion and also the change in the bonuses accounting criteria.

3.4 Direct Channels and Electronic Banking

The number of users of Internet Banking for individual customers -- BESnet -- reached 781,000 in March 2006, corresponding to a year-on-year increase of 18.8%. Over the same period, the number of logins rose 32.6%

The number of day-to-day transactions performed through BESnet, i.e., off-branch, continued to increase, up from 36.7% of the total in the first quarter of 2005 to 50.4% in the first quarter of 2006. Overall, the number of transactions performed through BESnet increased by an expressive 69.4%. Between January and March the monthly average number of visitors to BES's website was 3.2 million, which represents a year-on-year increase of 41.6%.

The number of companies using the Internet banking service for corporate clients - BESnet Negocios - reached 48,000 in March 2006, a year-on-year increase of 24.6%. The increase in the number of logins (27.1%) and transactions (39.7%) shows that companies are increasingly using this service for their business transactions.

Pmelink.pt, the online business centre for small and medium-sized companies promoted under a joint venture between BES, CGD and PT, reached a year-on-year increase of 164% in the number of purchases made through the portal. Over the same period turnover grew 52%, reaching ca. euro 3.0 million. The number of on-line purchasers rose from 21,796 at the end of 2005 to 32,460 at the end of March 2006.

Banco Best's strategy of focusing on the affluent clients segment continues to bear good results. The average initial amount deposited in new accounts increased 50% yoy in the first quarter of 2006. The financial involvement of the new clients attracted in 2006 is also growing at a fast pace. Net funds volume at the end of the period surpassed by 71% the established commercial targets. Assets under management reached euro 631 million, which corresponds to an increase of 15% versus the end of 2005 and a year-on-year increase of 50%.

4. ASSET QUALITY AND PROVISIONING

Asset quality continued to improve: the coverage of overdue loans over 90 days rose to 197% (Mar 05: 173.8%), while the corresponding overdue loans ratio reduced significantly, to 1.31% (Mar 05: 1.65%). This good performance was underpinned by the combined effect of the reduction of overdue loans by euro 53.2 million and the increase in credit provisions by euro 6.4 million.

ASSET QUALITY

March 05 March 06 Change

absolute (%)

Loans to Customers (gross) (eur mn) 28,936 32,346 3,410.00 11.8%

Overdue Loans (eur mn) 557 497 -59.90 -10.8%

Overdue Loans > 90 days (eur mn) 478 425 -53.20 -11.1%

Overdue and Doubtful Loans

(B.Portugal) (a) (eur mn) 628 585 -43.00 -6.8%

Provisions for Credit (eur mn) 831 838 6.40 0.8%

Overdue Loans / Loans to

Customers (gross) % 1.92 1.54 -0.38 p.p.

Overdue Loans > 90 days / Loans

to Customers (gross) % 1.65 1.31 -0.34 p.p.

Overdue and doubtful loans /

Loans to Customers (gross) (a) % 2.17 1.81 -0.36 p.p.

Coverage of Overdue Loans % 149.4 168.7 19.3 p.p.

Coverage of Overdue Loans > 90

days % 173.8 197.0 23.2 p.p.

Coverage of Overdue and

doubtful loans % 132.4 143.2 10.8 p.p.

(a) According to Circular Letter no. 99/03/2003 of Bank of Portugal

BES Group's consistently prudent stance regarding provisioning coverage policy, particularly important in the current domestic economic environment, has reflected in a systematic improvement in coverage ratios. This improvement, together with the lending policy's increased focus on lower risk segments, resulted in a provision charge of euro 39.6 million in the period, which corresponds to 0.49% of the gross loan portfolio (4Q05: 0.41%).

5. SOLVENCY

The main equity exposures in the available for sale portfolio had a significant appreciation, with overall pre-tax potential gains amounting to euro 626.0 million at the end of the period (Dec 05: euro 472.1 million).

MAIN EQUITY EXPOSURES IN AFS PORTFOLIO

euro million

Assets Available for Sale Potential Gains or Losses

31 December 2005 31 March 2006

Banco Bradesco 397.7 488.9

Bradespar 35.0 51.4

Portugal Telecom 29.1 71.2

B. Marocaine Com. Ext. 10.3 1.8

EDP 0.0 12.7

472.1 626.0

Potential gains in these investments, deducted of deferred tax liabilities, are accounted in fair value reserves (equity). For solvency ratio purposes, only 45% of potential gains are eligible for Tier II.

RISK WEIGHTED ASSETS AND SOLVENCY

(Bank of Portugal)

euro million

March 05 December 05 March 06*

Risk Weighted Assets 35,899 37,925 39,171

Regulatory Capital 4,130 4,602 4,646

Tier I 2,253 2,329 2,350

Tier II 1,941 2,328 2,350

Deductions (64) (55) (54)

Preference Shares 600 600 600

Core Tier I 4.6% 4.6% 4.5%

Tier I 6.3% 6.1% 6.0%

Total 11.5% 12.1% 11.9%

* estimate

The Group's solvency ratio remains above minimum requirements of the Bank of Portugal. The net effect of realised capital gains in assets available for sale would translate into a Core Tier I ratio of 5.6%.

6. PRODUCTIVITY AND EFFICIENCY

The Group's productivity and efficiency ratios continued to make good progress: operating costs as a percent of average net assets reduced from 1.88% in 2005 to 1.74% at the end of the first quarter of 2006.

PRODUCTIVITY INDICATORS

2005 March 06 Change

Cost to Income 56.0% 52.2% -3.8 p.p.

Cost to Income ex-Markets 66.5% 64.3% -2.2 p.p.

Operating Costs / Average Net Assets 1.88% 1.74% -0.14 p.p.

The cost to income also improved, having declined from 56% in 2005 to 52.2% in the reporting period.

Crediflash, the Group's unit for credit cards management, will be merged into BES in the first half of 2006. This merger, which implied a provision charge of euro 10.8 million already made in the first quarter of the year, will permit to achieve annual cost savings of euro 3 million and revenue synergies of euro 1.3 million.

7. PROFITABILITY

Based on the quarter's annualised results, Return on equity (ROE) reached 20.5%, and Return on Assets (ROA) increased to 0.86%. This translates a significant improvement versus 2005, when, as referred in due time, these ratios were negatively influenced by an exceptional restructuring provision charged for the merger of BIC into BES.

PROFITABILITY

(%)

2005 Until March 06

Return on Equity (ROE) 13.5 20.5

Return on Assets (ROA) 0.61 0.86

8. BANK OF PORTUGAL REFERENCE INDICATORS

The table below lists the reference indicators under Bank of Portugal instruction no. 16/2004, for both March 2006 and 2005.

BANK OF PORTUGAL REFERENCE INDICATORS

(%)

March 05 March 06

SOLVENCY (e)

Regulatory Capital / Risk Weighted Assets (a) 11.5 11.9

Tier I Capital / Risk Weighted Assets (a) 6.3 6.0

ASSET QUALITY

Overdue & Doubtful Loans (a) / Gross Loans 2.17 1.81

Overdue & Doubtful Loans Net of

Provisions (b) / Net Loans (b) -0.72 -0.80

PROFITABILITY

Income before Taxes and Minorities /

Average Equity (c) 14.9 17.2

Banking Income (d) / Average Net Assets 3.54 3.33

Income before Taxes and Minorities /

Average Net Assets 0.89 1.09

EFFICIENCY

General Admin Costs (d) +

Depreciation / Banking Income (d) 52.0 52.2

Staff Costs / Banking Income (d) 25.9 28.5

(a) Calculated according to BoP Circular Letter no. 99/03/2003

(b) Credit net of provisions for overdue loans and for doubtful loans

(d) Calculated according to BoP Instruction no 16/2004

(e) March 2006 values are estimates

9. BES CAPITAL INCREASE

The General Shareholders' Meeting of 17th April 2006 approved the share capital increase of BES from euro 1,500 million to up to euro 2,500 million, through the issuance of up to 200 million new shares, with nominal value of euro 5 each, as follows:

-- 50,000,000 shares (euro 250 million) issued through the incorporation

of share premiums, in the proportion of 1 new share for each 6 shares

held;

-- up to 150,000,000 shares with subscription reserved for existing

shareholders, in the proportion of 1 new share for each 2 shares held,

at a subscription price of euro 9.20 per share.

The proceeds from the capital increase will be used to purchase a 50% stake in Companhia de Seguros Tranquilidade Vida and to support domestic and international business expansion, also reinforcing core capital ratios.

10. MERGER BY INCORPORATION OF BIC INTO BES AND NEW CORPORATE IDENTITY

The last phase of the merger process of BIC into BES (the migration of all information systems' data) was successfully concluded last February. This merger had been announced on 19th September 2005 and was carried out in several stages: the legal and accounting merger was concluded on 30th December 2005, and the conversion to the new corporate identity and image was completed on 31st January 2006.

At the beginning of 2006 Banco Espirito Santo unveiled its new corporate identity and image, initiating a repositioning of its communication process aimed at strengthening brand associations in terms of proximity, youth and modernity.

The launch of the new corporate identity was the final stage of a process characterised by the launch of several initiatives aimed at improving service quality, segmentation and client convenience and accessibility.

11. OTHER ASPECTS

At the beginning of January 2006 BES acquired a 2.18% stake in the Portuguese electricity utility - EDP - becoming this company's 4th largest private shareholder and reinforcing its core Portuguese shareholders.

At the end of January BES Group, through its subsidiary Espirito Santo Tech Ventures, acquired a 15% stake in YDreams is a Portuguese technology solutions provider specialising in information technology, telecommunications, image processing, geographic information systems and environmental engineering. This acquisition represented an investment of euro 7.5 million and is part of the Group's consistently pursued strategy of supporting corporate entrepreneurship and innovation in Portugal.

On 24 March 2006 BES announced that it had presented a preliminary non- binding offer to KBC for the acquisition of Banco Urquijo in Spain.

THE BOARD OF DIRECTORS

BANCO ESPIRITO SANTO, S.A.

CONSOLIDATED BALANCE SHEET AT 31 MARCH 2006

(eur '000)

March 05 March 06

ASSETS

Cash and deposits at central banks 615,312 674,873

Deposits with banks 390,421 432,661

Financial assets held for trading 3,573,457 3,416,955

Financial assets at fair value

through profit or loss 1,037,863 2,394,443

Available-for-sale financial assets 3,110,119 4,140,574

Loans and advances to banks 6,004,392 4,203,758

Loans and advances to customers 28,105,032 31,508,741

(Provisions) 831,400 837,753

Held to maturity investments 506,059 646,363

Financial Assets with repurchase agreements - -

Hedging derivatives 59,398 118,420

Non current assets held for sale 119,325 77,759

Investment property - -

Property and equipment 391,421 362,781

Intangible assets 67,749 67,311

Investments in associates 50,655 65,523

Current income tax assets 17,078 12,422

Deferred income tax assets 265,681 63,164

Other assets 1,029,695 1,425,358

TOTAL ASSETS 45,343,657 49,611,106

LIABILITIES

Deposits from central banks 359,161 996,258

Financial liabilities held for trading 1,355,295 1,180,445

Financial assets at fair value

through profit or loss - -

Deposits from banks 6,171,074 7,268,556

Due to customers 18,737,583 18,108,549

Debt securities issued 12,463,843 15,364,952

Financial liabilities associated to

transferred assets - -

Hedging derivatives 60,213 144,381

Non current liabilities held for sale - -

Provisions 123,862 177,637

Current income tax liabilities 26,217 52,550

Deferred income tax liabilities 165,527 115,121

Instruments representing capital - -

Subordinated debt 2,055,921 2,337,417

Other liabilities 1,154,265 633,829

TOTAL LIABILITIES 42,672,961 46,379,695

EQUITY

Share capital 1,500,000 1,500,000

Share premium 300,000 300,000

Other capital interests - -

Treasury stock (97,266) (93,858)

Preference Shares 600,000 600,000

Fair value reserve 109,027 470,826

Other reserves and retained earnings 87,214 247,504

Profit for the period / year 80,266 105,143

Anticipated dividends - -

Minority interests 91,455 101,796

TOTAL EQUITY 2,670,696 3,231,411

TOTAL LIABILITIES AND EQUITY 45,343,657 49,611,106

BANCO ESPIRITO SANTO, S.A.

CONSOLIDATED INCOME STATEMENT AT 31 MARCH 2006

(eur '000)

March 05 March 06

Interest and similar income 465,451 581,377

Interest expense and similar charges 286,627 386,894

Net interest income 178,824 194,483

Dividend income 1,832 195

Fee and commission income 109,888 130,461

Fee and commission expense 18,044 18,769

Net gains from financial assets at

fair value through profit or loss 16,018 27,824

Net gains from available-for-sale

financial assets 64,119 28,064

Net gains from foreign exchange differences 4,724 31,415

Net gains from the sale of other

financial assets 507 466

Other operating income 24,409 11,719

Operating Income 382,277 405,858

Staff costs 99,631 116,294

General and administrative expenses 79,061 79,200

Depreciation and amortisation 20,825 17,128

Provisions net of reversals 20,356 23,992

Loans impairment net of reversals 66,102 39,592

Impairment on other financial

assets net of reversals 1,760 (79)

Impairment on other assets net of reversals 18 (1,633)

Negative difference from consolidation - -

Share of profit of associates 1,648 1,801

Income before tax 96,172 133,165

Income Tax

Current tax 15,513 21,974

Deferred tax (602) 3,519

Income before minority interests 81,261 107,672

o.w. after tax income from

discontinued operations - -

Minority interests 995 2,529

Profit for the period 80,266 105,143

The information contained herein is restricted and is not for publication, distribution or release in or into the United States of America, Australia, Canada, Japan or to U.S. persons. This announcement is not an offer of securities for sale or a solicitation of an offer to purchase securities in the United States or any other jurisdiction. The shares referred to herein (the "Securities") have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States or to or for the account or benefit of U.S. persons (as such terms are defined in Regulation S under the Securities Act) absent registration under the Securities Act or an applicable exemption from such registration. There will be No public offering of the Securities in the United States.

This announcement does not contain or constitute an offer or invitation to purchase or subscribe for any securities of Banco Espirito Santo, S.A. and should not be relied upon in connection with any decision to purchase or subscribe for any such securities. Any offer to acquire Securities will be made, and any investor should make his or her investment, solely on the basis of information that will be contained in a prospectus that will be prepared for that purpose. Stabilisation / FSA.

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This press release is only being distributed to and is only directed at (I) persons who are outside the United Kingdom or (II) investment professionals falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (III) high net worth entities, or other persons to whom it may be lawfully be communicated, falling within article 49(2)(a) to (d) of the Order (all such persons together being referred to as "Relevant Persons"). Any person who is not a Relevant Person must not act or rely on this communication or any of its contents. The investment or investment activity to which this communication related is only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the Securities will be engaged in only with the Relevant Persons.

Source: prnewswire