AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 2007

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20–F

(Mark One)

o		Registration Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

or

þ		Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006

or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

or

o		Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-30852

GRUPO FINANCIERO GALICIA S.A.

(Exact name of Registrant as specified in its charter)

GALICIA FINANCIAL GROUP

(Translation of Registrant’s name into English)

REPUBLIC OF ARGENTINA

(Jurisdiction of incorporation or organization)

Grupo Financiero Galicia S.A.
Tte. Gral. Juan D. Perón 456
C1038 AAJ-Buenos Aires, Argentina
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Class B Ordinary Shares, Ps.1.00 par value, ten shares of which are represented by
American Depositary Shares

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Class A Ordinary Shares, Ps.1.00 par value			281,221,650
Class B Ordinary Shares, Ps.1.00 par value			960,185,367

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and larger accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

 

 

TABLE OF CONTENTS

		Page
Item 1. Identity of Directors, Senior Management and Advisers			3
Item 2. Offer Statistics and Expected Timetable			3
Item 3. Key Information			3
Selected Financial Data			3
Exchange Rate Information			6
Risk Factors			7
Item 4. Information on the Company			14
Organization			14
Organizational Structure			14
History			15
Capital Investments and Divestitures			20
Business Overview			21
Competition			34
Sales and Marketing			35
Property			36
Selected Statistical Information			37
Government Regulation			70
Argentine Banking System and Regulation			77
Item 4A. Unresolved Staff Comments			88
Item 5. Operating and Financial Review and Prospects			88
Item 5A. Operating Results			88
Overview			89
Currency Composition of Our Balance Sheet			91
The Argentine Economy and Financial System in 2006			91
Inflation			93
Results of Operations for the Fiscal Years Ended December 31, 2006, December 31, 2005 and December 31, 2004			93
U.S. GAAP and Argentine Banking GAAP Reconciliation			108
Results by Segments			112
Consolidated Assets			120
Exposure to the Argentine Public Sector			121
Off-Balance Sheet Arrangements			122
Securitization of Assets			123
Funding			124
Contractual Obligations			127
Other Commitments			128
Critical Accounting Policies			129
U.S. GAAP – Critical Accounting Policies			130
Principal Trends			133
Item 5B. Liquidity and Capital Resources			135
Liquidity			135
Capital			142
Capital Expenditures			143
Item 6. Directors, Senior Management and Employees			143
Our Board of Directors			143
Functions of Our Board of Directors			145
Our Supervisory Committee			146
Compensation of Our Directors			147
Management of Grupo Financiero Galicia			147
Board of Directors of Banco Galicia			148
Functions of the Board of Directors of Banco Galicia			150

TABLE OF CONTENTS
(Continued)

		Page
Banco Galicia’s Executive Officers			152
Banco Galicia’s Supervisory Committee			154
Compensation of Banco Galicia’s Directors and Officers			154
Employees			155
Nasdaq Corporate Governance Standards			156
Share Ownership			158
Item 7. Major Shareholders and Related Party Transactions			158
Major Shareholders			158
Related Party Transactions			160
Item 8. Financial Information			161
Legal Proceedings			161
Dividend Policy and Dividends			163
Significant Changes			164
Item 9. The Offer and Listing			165
Shares and ADSs			165
Argentine Securities Market			168
Market Regulations			169
Item 10. Additional Information			170
Description of Our Bylaws			170
Exchange Controls			176
Taxation			176
Material Contracts			182
Documents on Display			183
Item 11. Quantitative and Qualitative Disclosures About Market Risk			183
General			183
Interest Rate Risk			183
Foreign Exchange Rate Risk			191
Currency Mismatches			192
Market Risk			194
Item 12. Description of Securities Other Than Equity Securities			194
Item 13. Defaults, Dividend Arrearages and Delinquencies			195
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			195
Item 15. Controls and Procedures			195
Item 16. [Reserved]			196
Item 16A. Audit Committee Financial Expert			196
Item 16B. Code of Ethics			196
Item 16C. Principal Accountants’ Fees and Services			196
Item 16D. Exemptions from the Listing Standards for Audit Committees			197
Item 16E. Purchases of Equity Securities by the Issuer and affiliated Purchasers			197
Item 17. Financial Statements			198
Item 18. Financial Statements			198
Item 19. Exhibits			198
EX-4.6: FORM OF SECOND AMENDMENT TO RESTRUCTURED LOAN FACILITY
EX-12.1: CERTIFICATION
EX-12.2: CERTIFICATION
EX-13.1: CERTIFICATION
EX-13.2: CERTIFICATION

PRESENTATION OF FINANCIAL INFORMATION

     Our consolidated financial statements consolidate the accounts of Grupo Financiero Galicia S.A. and its subsidiaries. Therefore, our consolidated financial statements include our accounts and the accounts of:

-		Sudamericana Holding S.A., or Sudamericana, and its subsidiaries;
-		Galicia Warrants S.A.;
-		Net Investment S.A. and its subsidiaries;
-		Galval Agente de Valores S.A.; and
-		Banco de Galicia y Buenos Aires S.A., its wholly-owned subsidiary, Banco Galicia Uruguay S.A., which we refer to as “Galicia Uruguay”, and its subsidiaries and other subsidiaries and affiliated companies required to be consolidated under Argentine Banking GAAP, which we refer to collectively as the “Bank” or “Banco Galicia”.

     In this annual report, references to “we,” “our,” and “us” are to Grupo Financiero Galicia S.A. and its consolidated subsidiaries. References to Grupo Financiero Galicia are on a non-consolidated basis.

     We were formed on September 14, 1999, as a financial services holding company to hold all of the shares of the capital stock of Banco Galicia held by members of the Escasany, Ayerza and Braun families. Our most significant asset is our ownership in Banco Galicia. As of December 31, 2004, our ownership interest in Banco Galicia was 93.59% and, as of December 31, 2005, and December 31, 2006, our ownership interest was 93.60%.

     We maintain our financial books and records in Argentine pesos and prepare our financial statements to conform to the accounting rules of the Argentine Central Bank, which prescribes the generally accepted accounting principles for all financial institutions in Argentina. This annual report refers to those accounting principles as “Argentine Banking GAAP.” Argentine Banking GAAP differs in certain relevant respects from generally accepted accounting principles in Argentina, which we refer to as “Argentine GAAP”. Argentine Banking GAAP also differs in certain significant respects from generally accepted accounting principles in the United States, which we refer to as “U.S. GAAP”. See Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—U.S. GAAP and Argentine Banking GAAP Reconciliation” and note 38 to our consolidated audited financial statements included in this annual report for a description of the principal differences between Argentine GAAP and Argentine Banking GAAP and note 39 to our financial statements for reconciliation of the principal differences between Argentine Banking GAAP and U.S. GAAP for the periods up to December 31, 2006. A reconciliation to U.S. GAAP of our net income and total shareholders’ equity is presented for the three fiscal years ended December 31, 2006.

     In this annual report, references to “US$,” “U.S. dollars,” and “dollars” are to United States dollars and references to “Ps.” or “pesos” are to Argentine pesos. Argentine Central Bank Communiqué “A” 3671, dated July 25, 2002, required that the published reference exchange rate of the Argentine Central Bank be used by banks to value all foreign currency accounts. Unless stated otherwise, in this annual report, references to the exchange rate since that time are to the reference exchange rate published by the Argentine Central Bank.

     The exchange rates used in the December 31, 2006, December 31, 2005 and December 31, 2004 consolidated financial statements were Ps.3.0695, Ps.3.0315 and Ps.2.9738 per US$ 1.00, respectively, as quoted by the Argentine Central Bank.

     Argentina experienced a high rate of inflation in 2002. Therefore, on July 17, 2002, through Decree No. 1269/02, the Argentine Government reestablished the practice of restating financial information to account for inflation for periods beginning on or after January 1, 2002. This was regulated by Communiqué “A” 3702 of the Argentine Central Bank, Resolution No. 415/02 of the National Securities Commission, which we refer to as the “CNV”. Starting on January 1, 2002, we began to adjust our financial statements for inflation based on changes in the wholesale price index (which we refer to as the “WPI”) published by the National Institute of Statistics and Census, or “INDEC”. Through Decree No. 664/03, Argentine Central Bank’s Communiqué “A” 3921 and Resolution No. 441/03 of the CNV, dated April 8, 2003, the Government eliminated the requirement that financial statements be prepared in constant currency, effective for financial periods ending on or after March 1, 2003.

     Accordingly, information included in this annual report as of and for the three fiscal years ended December 31, 2006 does not include any effect of inflation accounting. Information included in this annual report as of and for the fiscal year ended December 31, 2003 includes the effects of inflation accounting through February 28, 2003, with the WPI having increased 0.87% between January 1, 2003 and February 28, 2003. Information included in this annual report as of and for the fiscal year ended December 31, 2002 includes the effects of inflation, with the WPI having increased 118.44% between January 1, 2002 and December 31, 2002, and was restated in constant currency of February 2003 by applying the 0.87% increase in the WPI between January 1, 2003 and February 28, 2003. The information included in this annual report as of and for periods prior to January 1, 2002 has been restated in constant pesos as of February 28, 2003 by applying the approximately 120.35% increase in the WPI for the period from January 1, 2002 to February 28, 2003.

     Throughout this annual report, “asymmetric pesification” refers to the compulsory conversion in January 2002 of most dollar-denominated assets and certain liabilities of Argentine financial institutions into peso-denominated assets and liabilities at different exchange rates. In addition, “Compensatory Bond” and “Hedge Bond” refer to the bonds that the Government has issued to the Bank (as well as to other financial institutions), as compensation for the negative effects on its financial condition as a result of the asymmetric pesification. This is more fully described in Item 4. “Information on the Company—Government Regulation—Main Regulatory Changes since 2002.”

     Unless otherwise indicated, we have derived all deposit and loan market shares and other financial industry information from information published by the Argentine Central Bank.

     We have expressed all amounts in millions of pesos, except percentages, ratios, multiples and per-share data.

     This annual report contains forward-looking statements that involve substantial risks and uncertainties, including, in particular, statements about our plans, strategies and prospects under the captions Item 4. “Information on the CompanyCapital Investments and Divestitures,” Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—Main Trends” and Item 5. “Operating and Financial Review and Prospects—Item 5B. Liquidity and Capital Resources.” All statements other than statements of historical facts contained in this annual report (including statements regarding our future financial position, business strategy, budgets, projected costs and management’s plans and objectives for future operations) are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of such words as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not provide any assurance with respect to these statements. Because these statements are subject to risks and uncertainties, actual results may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially and adversely include but are not limited to:

	•		changes in general economic, business, political, legal, social or other conditions in Argentina or elsewhere in Latin America;
	•		changes in capital markets in general that may affect policies or attitudes toward lending to Argentina or Argentine companies;
	•		our inability to obtain additional debt or equity financing on attractive conditions or at all, which may limit our ability to fund existing operations and to finance new activities; and
	•		the other factors discussed under Item 3. “Key Information—Risk Factors” in this annual report.

     You should not place undue reliance on forward-looking statements, which speak only as of the date that they were made. Moreover, you should consider these cautionary statements in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to forward-looking statements after completion of this annual report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

     In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

     Not applicable.

Item 2. Offer Statistics and Expected Timetable

     Not applicable.

Item 3. Key Information

Selected Financial Data

•

The following table presents summary historical financial and other information about us as of the dates and for the periods indicated.

•

The financial statements for the fiscal years ended December 31, 2004, December 31, 2005 and December 31, 2006 do not include any effect for inflation accounting. The financial statements for the fiscal year ended December 31, 2003 include the effects of inflation accounting through February 28, 2003. The financial statements as of and for the fiscal year ended December 31, 2002, and the financial data for prior periods have been restated in constant pesos of February 28, 2003.

•

The selected consolidated financial information as of December 31, 2006 and December 31, 2005, and for the fiscal years ended December 31, 2006, 2005 and 2004 has been derived from our audited consolidated financial statements included in this annual report.

•

The selected consolidated financial information as of December 31, 2003 and 2002 has been derived from our audited consolidated financial statements not included in this annual report.

•

We prepare our financial statements in accordance with Argentine Banking GAAP, which differs from Argentine GAAP and U.S. GAAP. Our audited consolidated financial statements contain a description of the principal differences between Argentine GAAP and Argentine Banking GAAP and a reconciliation to U.S. GAAP of our shareholders’ equity as of December 31, 2006 and December 31, 2005, and our net income for the three years ended December 31, 2006. See notes 38 and 39 to our audited consolidated financial statements included in this annual report.

•

You should read this data in conjunction with Item 5. “Operating and Financial Review and Prospects” and our audited consolidated financial statements.

		Fiscal Year Ended December 31,
		2006				2006				2005				2004				2003				2002
																						(in millions
																						of February
		(in millions																				28, 2003,
		of U.S.																				constant
		dollars,																				pesos,
		except as																				except as
		noted)( 1 )				(in millions of pesos, except as noted)(1)																noted)(1)
Consolidated Income Statement in Accordance with Argentine Banking GAAP
Financial Income			733.0				2,249.8				2,398.6				1,391.6				1,452.1				5,757.3
Financial Expenses			609.7				1,871.6				1,845.9				1,167.4				1,304.8				4,560.4
Net Financial Income (2)			123.3				378.2				552.7				224.2				147.3				1,196.9
Provision for Losses on Loans and Other Receivables			36.1				110.9				76.7				190.2				286.4				1,648.6
Income / (Loss) before Taxes			24.5				75.3				126.5				(66.1	)			(221.6	)			(2,812.9	)
Income Tax			(30.7	)			(94.2	)			(19.3	)			(43.8	)			(0.6	)			(66.4	)
Net Income / (Loss) before the Absorption			(6.2	)			(18.9	)			107.2				(109.9	)			(222.2	)			(2,879.3	)
Absorption Approved in the Annual Shareholders Meeting			—				—				—				—				—				1,370.0
Net Income / (Loss) after the Absorption			(6.2	)			(18.9	)			107.2				(109.9	)			(222.2	)			(1,509.3	)
Net Income / (Loss) after the Absorption per Share (in Pesos) (*)			—				(0.015	)			0.086				(0.093	)			(0.203	)			(1.382	)
Cash Dividends per Share (in Pesos)			—				—				—				—				—				—
Book Value per Share (in Pesos)			—				1.296				1.310				1.224				1.299				1.465
Stock Dividends per Share (in Pesos)			—				—				—				—				—				—
Amounts in Accordance with U.S. GAAP
Net Income / (Loss)			1,148.4				3,524.9				731.0				(1.1	)			731.3				422.5
Adjusted Net Income (Loss) per Share (in Pesos)			—				2.841				0.589				(0.001	)			0.669				0.386
Book Value / (Deficit) per Share (in Pesos)			—				0.117				(1.714	)			(2.574	)			4.077				(4.964	)
Financial Income			1,771.1				5,436.3				2,958.7				1,448.7				2,752.0				2,613.1
Financial Expenses			600.6				1,843.6				1,845.9				1,167.4				1,502.9				4,560.4
Net Financial Income / (Loss)			1,170.5				3,592.7				1,112.8				281.3				1,249.1				(1,947.3	)
Provision for Losses on Loans and Other Receivables			52.2				160.3				113.5				210.0				274.6				928.8
Income Tax			(90.3	)			(277.1	)			19.3				35.4				(38.4	)			66.5
Consolidated Balance Sheet in Accordance with Argentine Banking GAAP
Cash and Due from Banks			747.6				2,294.8				1,041.2				988.7				826.2				576.8
Government Securities, Net			1,038.7				3,188.3				5,967.4				5,518.0				6,407.1				1,786.5
Loans, Net			3,425.5				10,514.6				10,555.2				8,438.2				7,506.5				10,682.1
Total Assets			7,699.7				23,634.2				25,635.7				23,650.6				22,822.9				23,864.1
Deposits			3,511.8				10,779.4				8,421.7				6,756.9				5,584.0				5,209.4
Other Funds (3)			3,663.9				11,246.3				15,587.2				15,374.2				15,819.5				17,053.9
Total Shareholders’ Equity			524.0				1,608.5				1,626.8				1,519.5				1,419.4				1,600.8
Average Total Assets (4)			8,019.1				24,614.5				24,238.1				22,725.9				22,530.3				29,500.9
Percentage of Period-end Balance Sheet Items Denominated in Dollars:
Loans, Net of Allowances			16.68				16.68				9.84				10.43				9.36				9.11
Total Assets			28.91				28.91				26.55				32.92				36.39				43.20
Deposits			14.13				14.13				15.55				20.89				29.67				40.08
Total Liabilities			30.39				30.39				25.81				29.57				36.87				43.98
Amounts in Accordance with U.S. GAAP
Trading Securities			67.8				208.2				790.0				564.7				328.8				35.5
Available-for-Sale Securities			1,698.8				5,214.6				5,350.3				3,923.1				3,727.9				1,380.6
Total Assets			7,859.8				24,125.8				19,949.3				17,007.3				14,835.2				14,821.9
Total Liabilities			7812.3				23,980.0				22,077.6				20,203.0				19,288.5				20,244.2
Shareholders’ Equity (Deficit)			47.5				145.8				(2,128.3	)			(3,195.7	)			(4,453.3	)			(5,422.3	)

		Fiscal Year Ended December 31,
		2006				2005				2004				2003				2002
																		(in millions of
																		February 28,
																		2003, constant
																		pesos, except
		(in millions of pesos, except as noted)(1)																as noted)(1)
Selected Ratios
Ratios in Accordance with Argentine Banking GAAP
Profitability and Efficiency
Net Yield on Interest Earning Assets (5)			1.21	%			2.38	%			1.02	%			0.89	%			3.66	%
Financial Margin (6)			1.74				2.53				1.08				0.71				4.44
Return on Average Assets (7)			0.0004				0.59				(0.42	)			(0.95	)			(6.04	)
Return on Average Shareholders’ Equity (8)			(1.15	)			6.83				(7.32	)			(14.53	)			(62.06	)
Net Income from Services as a Percentage of Operating Income (9)			63.99				48.65				66.06				73.08				24.95
Efficiency ratio (10)			92.80				72.56				94.46				113.91				61.58
Capital
Shareholders’ Equity as a Percentage of Total Assets			6.81	%			6.35	%			6.42	%			6.22	%			6.71	%
Total Liabilities as a Multiple of Shareholders’ Equity			13.69	x			14.76	x			14.56	x			15.08	x			13.91	x
Total Capital Ratio (11)			15.03	%			20.78	%			25.11	%			—				—
Liquidity
Cash and Due from Banks as a Percentage of Total Deposits			21.29	%			12.36	%			14.63	%			14.80	%			11.07	%
Loans, Net as a Percentage of Total Assets			44.49				41.17				35.68				32.89				44.76
Credit Quality
Past Due Loans (12) as a Percentage of Total Loans			2.38	%			2.34	%			4.97	%			11.70	%			9.93	%
Non-Accrual Loans (13) as a Percentage of Total Loans			2.59				3.50				7.74				15.04				13.08
Allowance for Loan Losses as a Percentage of Non-accrual Loans(13)			117.16				111.90				90.51				90.61				104.45
Net Charge-Offs (14) as a Percentage of Average Loans			1.42				1.49				3.77				1.98				1.89
Ratios in Accordance with U.S. GAAP
Capital
Shareholders’ Equity (deficit) as a Percentage of Total Assets			0.60	%			(10.67	)%			(18.79	)%			(30.02	)%			(36.58	)%
Total Liabilities as a Multiple of Total Shareholders’ Equity			164.46x				(10.37	)x			(6.32	)x			(4.33	)x			(3.73	)x
Liquidity
Loans, Net as a Percentage of Total Assets			40.05	%			50.15	%			43.91	%			43.32	%			55.03	%
Credit Quality
Allowance for Loan Losses as a Percentage of Non-Accrual Loans			168.58	%			139.49	%			84.75	%			85.98	%			101.48	%
Inflation and Exchange Rate
Inflation (Deflation) (15) (16)			7.01	%			10.69	%			7.84	%			2.03	%			118.44	%
Currency Devaluation Rate (16) (%)			1.25				1.94				1.39				(12.79	)			236.30
CER (17)			10.08				11.75				5.48				3.66				40.53
CVS (18)			—				—				5.32				15.85				0.83

Exchange Rate Information

     The following table sets forth the annual high, low, average and period-end exchange rates for U.S. dollars for the periods indicated, expressed in pesos per dollar and not adjusted for inflation.

		Exchange Rate (1)
		High				Low				Average (2)				Period-End
		(in pesos per US dollar)
2001			1.0000				1.0000				1.0000	(3)			1.0000
2002			3.9000				1.0000				3.0724	(3)			3.3630
2003			3.3625				2.7485				2.9491	(3)			2.9330
2004			3.0718				2.8037				2.9415	(3)			2.9738
2005			3.0523				2.8592				2.9233	(3)			3.0315
2006			3.1072				3.0305				3.0740	(3)			3.0695
December 2006			3.0792				3.0492				3.0603				3.0695

		Exchange Rate (1)
		High				Low				Average (2)				Period-End
		(in pesos per US dollar)
January 2007			3.1068				3.0553				3.0850				3.1063
February 2007			3.1058				3.0975				3.1026				3.1010
March 2007			3.1060				3.0963				3.1010				3.1007
April 2007			3.1008				3.0808				3.0891				3.0898
May 2007			3.0852				3.0727				3.0800				3.0785

     As of June 22, 2007, the exchange rate was Ps.3.0825 for US$ 1.00.

Risk Factors

     You should carefully consider the risks described below in addition to the other information contained in this annual report. We also may face risks and uncertainties that are not presently known to us or that we currently deem immaterial, which may impair our business. Substantially all of our operations, property and customers are located in Argentina. Accordingly, the quality of our loan portfolio and our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing from time to time in Argentina. In general, you take more risk when you invest in the securities of issuers in emerging markets such as Argentina than when you invest in the securities of issuers in the United States and certain other markets.

Risk Factors Relating to Argentina

The current growth and stabilization may not be sustainable, which could adversely affect the economy, the financial system and our financial condition and prospects

     During 2001 and 2002, Argentina went through a period of great political, economic and social instability, which led to a significant decline in economic activity, a banking crisis, the default on part of Argentina’s sovereign debt, the devaluation of the Argentine peso in January 2002 and high inflation during that year. If the current administration is not capable of implementing economic policies needed to turn the economic growth Argentina is experiencing since late 2002 into a sustainable development process in the long run, or if it is not capable of keeping inflation under control, there is a considerable risk that political and economic instability could reemerge. This would likely have a negative impact on the Argentine economy and on the financial system, including our operations and financial condition.

Inflation may rise from current levels and undermine the economy and our financial condition

     In 2005, inflation as measured by the variation in consumer prices was 12.3%, while in 2004 and 2003 it had been 6.1% and 3.5%, respectively. This implies that, during 2005, inflation practically doubled that of the prior year, and the same occurred in 2004 as compared to 2003. In 2006, inflation as measured by the variation in consumer prices was 9.8%, and although it was lower than that registered during the previous year, we cannot guarantee that it will not increase again.

     Inflation may continue increasing in Argentina, due to the following facts: (i) the country’s economy is growing at very high rates, which implies strong aggregate demand increases, (ii) the current growth is occurring in a context in which relative prices still require certain adjustments, as not all of the economic sectors have been able to pass through into prices, to the same extent, the impact of the 2002 devaluation of the peso, (iii) the strong post- crisis growth, for more than four years, has led to an increasing use of installed capacity and to a progressive reduction of the “output gap” existing immediately following the crisis; and (iv) even though aggregate investment has been growing, the effects of such growth on aggregate supply are not immediate.

     In the past, inflation has materially undermined the Argentine economy and the Government’s ability to create conditions that foster economic growth. In addition, high inflation or high volatility in inflation rates would negatively and materially affect the business volume of the financial system and preclude the development of

financial intermediation activities. This could negatively affect the overall level of economic activity and employment. High inflation would also undermine Argentina’s foreign competitiveness by diluting the positive effects of the peso devaluation, with the same negative effects on the level of economic activity and employment. All of these factors would also have a negative impact on our business and financial condition.

A significant devaluation of the peso may adversely affect the Argentine economy and our operations

     Despite the positive effects of the real depreciation of the peso on the competitiveness of certain sectors of the Argentine economy, it has also resulted in far-reaching negative impacts on the Argentine economy and on businesses and individuals’ financial condition. As an example, the peso devaluation had a negative impact on the ability of the Government and Argentine companies and financial institutions to repay their foreign currency-denominated debt, led to very high inflation and significantly reduced real wages. It also had a negative impact on economic sectors whose business is predominantly dependent on domestic demand. A further significant devaluation of the peso, would likely have the same negative effects on the Government, the financial system, companies and individuals, and would have a negative impact on us and our operations.

Argentina’s economy and its real, financial and securities market remain vulnerable to external shocks which could have an adverse effect on the country’s economic growth and on our operations and prospects

     Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other emerging market countries. Although economic conditions vary from country to country, investors’ reactions to the events occurring in one country may substantially affect capital flows into and securities of issuers in other similar countries, including Argentina. Lower capital inflows and declining securities prices negatively affect the real economy through higher interest rates or currency volatility.

     In the past, Argentina’s economy has been adversely affected by economic developments in other emerging market countries. Among others, the political and economic events that occurred in Mexico in 1994 and the collapse of several Asian economies between 1997 and 1998, adversely impacted the Argentine economy. Similar developments can be expected to affect the Argentine economy in the future.

     In addition, Argentina may also be affected by economic conditions of major trade partners, such as Brazil, or countries with developed economies, such as the United States, that are significant trade partners and/or have influence over world economic cycles. For instance, if interest rates rose significantly in developed economies, including the United States, Argentina and other emerging market economies could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth. If these countries were also Argentina’s trade partners, the negative effect would be increased through a decrease in Argentine exports. All of these factors could negatively impact our prospects and operations.

A decline in international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth and on our financial condition and prospects

     Argentina’s financial recovery from the 2001-2002 crisis has been significantly assisted by the increase in prices for Argentina’s main commodity exports, such as soy. These high commodity prices have contributed to the increase in Argentine exports since the third quarter of 2002 and to high Government revenues from taxes on exports. The prices of the primary goods that Argentina exports are at historically high levels. If international commodity prices decreased significantly, the growth of the Argentine economy, as well as its exports, could be adversely affected. Such occurrence would have a negative impact on the levels of Government revenues and the Government’s ability to service its debt, and could either generate recessionary or inflationary pressures, depending on the Government’s reaction. Either of these results would negatively impact our financial condition and prospects.

The foreign exchange market is subject to controls and the Argentine Central Bank could implement more restrictive measures in the future that could adversely affect our business operations

     At the end of 2001 and in 2002, the Government and the Argentine Central Bank established controls over the foreign exchange market and over transfers of funds abroad, substantially limiting the ability of the companies to

retain foreign currency or make debt payments abroad. The existence of such controls and the prevailing significant surplus in the country’s trade balance (which resulted in greater availability of foreign currency) contributed to the appreciation of the peso and to the increased availability of foreign currency, which resulted in the easing of many of these restrictions.

     However, restrictions still exist that limit access to the foreign exchange market by residents and non-residents and their ability to make transfers of foreign currency and payments abroad. In addition, the Government issued a decree in June 2005 that established new controls and restrictions in connection with capital inflows. For more information, see Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market.”

     If imposed in an economic environment where access to local capital is substantially constrained, these controls could have a negative effect on the economy, and on our business, by limiting economic agents’ ability to obtain financing. Moreover, Argentina could again establish restrictions on the foreign exchange market and on transfers abroad, among others, in the future, in response to significant capital outflows or to a significant depreciation of the peso. These restrictions may hamper foreign investors’ ability to receive payments in connection with debt or equity securities of Argentine issuers such as us.

Volatility of the regulatory environment in Argentina could continue to be high and future Argentine governmental policies could adversely affect the Argentine economy as a whole as well as financial institutions like us

     The Government has historically exercised significant influence over the country’s economy and financial institutions in particular have operated in a highly regulated environment for extended periods of time. Laws and regulations currently governing the economy or the financial sector may change in the future. Any future changes in the regulatory environment and Government policies may adversely affect financial institutions in Argentina, including us, as well as their business, financial condition or results of operations or their ability to service their foreign currency debt obligations. The lack of a stable regulatory environment would impose significant limitations on the operation of the banking system and would affect our future financial condition and results of operations.

Government measures may adversely affect the Argentine economy as a whole, as well as our business operations

     During the 2001-2002 crisis, Argentina experienced social and political turmoil, including civilian unrest, riots, looting, nationwide protests, strikes and street demonstrations. Despite Argentina’s ongoing economic recovery and relative stabilization, the social and political tensions and high levels of poverty and unemployment continue. Future government policies to preempt or in response to social unrest may include nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the economy and thereby our business.

Elections for the executive and legislative branches of the Government in 2007 may generate uncertainty with respect to the economic policies to be adopted and could cause volatility in the Argentine market and thus affect us and our operations and/or cause volatility in the market price of our securities

     From March 2007 through October 2007, elections will be held for the executive and legislative branches of the Government, both on a national and provincial level. During past elections, the Argentine market has suffered from excess volatility due to uncertainty regarding the economic policies that will be adopted by the new Government. The elections to be held in 2007, and in particular the presidential election to be held in October of this year, may cause uncertainty regarding the economic policy to be adopted (both if a new president is chosen and if the incumbent president is re-elected), which could affect us and our operations and/or cause volatility in of the market price of our securities.

Risk Factors Relating to the Argentine Financial System

The negative consequences of the 2001-2002 crisis on the profile and activities of the financial system may not be overcome in the short term or at all

     Immediately after the 2001 and 2002 crisis, the financial system practically ceased acting as an intermediary between savings and credit. Even though the financial system’s private sector deposits and loans increased substantially from the 2002 levels, financial penetration in Argentina, measured in terms of total financial system’s private-sector deposits and loans as a percentage of the Gross Domestic Product, or GDP, remains low when compared with international levels and with past levels recorded in the country, especially in the case of loans to the private sector. These loans represented approximately 11.4% of the GDP at the end of 2006, as compared to approximately 23.3% at the end of 1999. The period of time necessary for the Argentine financial system’s credit activity to return to pre-crisis levels remains uncertain. In addition, even though deposits in the financial system are increasing, most new deposits are either sight or short-term time deposits. The sources of medium and long-term funding for financial institutions are currently limited, and have consisted to a large extent, mainly since 2004, of the securitization of loan portfolios, which implies a growing commercial banking disintermediation. Due to these reasons, and to the characteristics of credit demand, the loan expansion recorded since 2004 was largely based on short-term loans to individuals and companies.

     For the financial system to be able to reach an adequate intermediation level and, at the same time, develop a medium and long-term credit business without assuming excessive risks in terms of maturity gaps, the growth in deposits and loans will need to continue over time, the maturities of assets and liabilities in the financial system will need to extend, the public’s confidence in the Argentine financial system will need to recover to levels enabling a substantial part of the country’s savings to be channeled to the financial system, and a process of sustained growth with macroeconomic stability will need to consolidate. These trends may not materialize and, even if they do, financial intermediation activities may not develop to the extent needed nor attain the necessary volume so as to allow the income generation capacity of Argentine financial institutions, including us, to improve.

The post-crisis improvement in financial institutions’ asset quality could be interrupted if the Argentine economy stops growing

     The current improvement of the quality of the financial system’s private-sector loan portfolio may not continue as such improvement depends on the continuity of economic growth in Argentina. In addition, certain financial institutions’ assets, such as ours, currently include a substantial exposure to debt instruments issued by the Argentine public sector. Thus, the value of a large portion of the assets held by certain Argentine banks, as well as those banks’ income generation capacity, is currently dependent on the Argentine public sector’s repayment capacity, which is also tied to, among other things, to the continuity of economic growth, both of which could be undermined in the future.

An increasing number of judgments against financial institutions, in connection with the pesification and restructuring of deposits in 2002 may result in a deterioration of financial institutions’ deposit base and liquidity, including ours

     As a consequence of the pesification of deposits originally denominated in dollars and the restructuring of such deposits, in 2002 individuals and entities initiated a significant number of legal actions against financial institutions, including us, on the basis that these measures violated constitutional and other rights (these legal actions were known as “amparo claims”). The emergency measures implemented by the Government during and in respect of the 2001-2002 crisis have been declared unconstitutional by most appellate and lower courts and, as a result, financial institutions have been required to reimburse the relevant dollar-denominated deposits, or their equivalent in pesos, at the then current free market exchange rate. These rulings have resulted in a significant withdrawal of deposits from the financial system and the Bank in 2002, and in significant losses for financial institutions up to date, including us, as a result of having to reimburse the restructured deposits (mostly dollar-denominated deposits before pesification, referred to herein as the “Reprogrammed Deposits”) at market exchange rates rather than at the rate at which deposits were pesified and booked. The Government has not provided compensation for these losses and has expressed that it does not intend to do so.

     The recent rulings pronounced by the Argentine Supreme Court of Justice, or the “Supreme Court”, in connection with the pesification of deposits refer to particular cases and, under Argentine law, Supreme Court rulings are not precedent setting for lower courts. Whether these rulings will be followed in similar cases to be heard by lower courts is uncertain as is the final resolution of such similar cases. If there was an increasing number of judgments against financial institutions like us, the financial system’s liquidity could be adversely impacted and financial institutions, including us, could incur further significant losses.

New limitations to creditors’ rights in Argentina and to the ability to foreclose on certain guarantees and collateral may adversely impact financial institutions such as us

     In order to protect debtors, which were affected by the 2001-2002 crisis, the Government passed various laws and regulations temporarily suspending the ability of creditors to foreclose on collateral and to exercise their rights pursuant to guarantees and similar instruments. Such regulations have restricted Argentine creditors, such as us, from initiating collection actions or lawsuits to recover on defaulted loans. Even though these rules have ceased to be applicable, we cannot assure you that under an adverse economic environment or other circumstances, the Government may not pass new rules and regulations affecting the ability of creditors to enforce their rights pursuant to debt agreements, guarantees and similar instruments, which new rules and regulations may have a negative effect on the financial system and our business.

Risk Factors Relating to us

We are a holding company and our ability to pay cash dividends depends on the ability of our subsidiaries to pay dividends to us

     We are a holding company and as such we conduct all of our operations through our subsidiaries. As a holding company, we expect dividends or other intercompany transfers of funds from our subsidiaries to be our primary source of funds to pay our expenses and dividends. Banco Galicia is our most significant subsidiary. As of December 31, 2006, Banco Galicia’s consolidated assets represented 99.3% of our consolidated assets. While we do not anticipate conducting operations at our level, any expenses we incur, in excess of minimum levels, will reduce amounts available to be distributed to our shareholders. The ability of our subsidiaries to pay dividends and make other payments to us will depend on their results of operations and financial condition and may be restricted by, among other things, applicable corporate and other laws and regulations and contractual limitations. In addition, our ability to pay dividends will be subject to legal and other requirements.

     We have not received dividends from Banco Galicia since October 2001. In addition, Banco Galicia is restricted from paying dividends as, among other things, under Argentine Central Bank regulations it must reduce its retained earnings available to be distributed as cash dividends by the difference between the market value and the carrying value of all of its public-sector assets, after netting the legal reserve and other reserves established by Banco Galicia’s bylaws. Also, the loan agreements entered into by Banco Galicia, as part of the restructuring of its debt denominated in foreign currency and subject to foreign law, limit its ability to pay dividends. See Item 8. “Financial Information—Dividend Policy and Dividends—Dividend Policy.”

We may operate finance-related businesses that have little or no regulatory supervision

     We may operate finance-related businesses outside of Banco Galicia that are not regulated by the Argentine Central Bank. These businesses will be subject only to those regulatory limitations that may be applicable to them. We may enter into businesses that have little or no regulatory supervision or that entail greater risks than our existing businesses, and which may adversely impact our business and financial condition.

We are subject to corporate disclosure and accounting standards that may limit the information available to our shareholders

     A principal objective of the securities laws of the United States, Argentina and other countries is to promote full and fair disclosure of all material information of companies issuing securities. However, there may be less publicly available information about us than is regularly published by or about listed companies in certain

countries with highly developed capital markets, such as the United States. While we are subject to the periodic reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the “Exchange Act”, the periodic disclosure required of non-U.S. issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Furthermore, we are not required to comply with the SEC’s proxy rules in connection with shareholders’ meetings.

     In addition, we maintain our financial books and records in pesos and prepare our financial statements in conformity with Argentine Banking GAAP, which differs in certain respects from Argentine GAAP and U.S. GAAP. See Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—U.S. GAAP and Argentine Banking GAAP Reconciliation” and note 39 to our consolidated audited financial statements included in this annual report for a description of the principal differences between Argentine Banking GAAP and U.S. GAAP.

     Also, for a description of the differences between Argentine and Nasdaq corporate governance requirements, see Item 6. “Directors, Senior Management and Employees—Nasdaq Corporate Governance Standards.”

Our shareholders may be subject to liability for certain votes of their securities

     Shareholders who have a conflict of interest with us and who do not abstain from voting may be held liable for damages to us. Also, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or our bylaws may be held liable for damages to us or to other third parties, including other shareholders.

U.S. holders of our class B shares may not be able to exercise preemptive and accretion rights

     Under Argentine law, holders of our class B shares (including shares underlying our ADSs) have preemptive and accretion rights with respect to future issuances of class B shares. United States holders of our class B shares may not be able to exercise such preemptive and accretion rights unless a registration statement under the Securities Act of 1933 is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to such rights or the shares related thereto. Therefore, if we elect not to file a registration statement with respect to such rights or if an exemption from registration is not otherwise available, a United States holder of class B shares (including those underlying our ADSs) may not be able to exercise such rights. In addition, the depositary may not be able to sell such rights and distribute the proceeds thereof to a United States holder of class B shares (including those underlying our ADSs) as contemplated in the Depositary agreement, in which case such rights may lapse.

Our assets are concentrated in Argentine public-sector debt instruments making our future financial condition strongly dependent on the Government’s credit quality and ability and willingness to comply with its repayment obligations

     As of December 31, 2006, our exposure to the Argentine public sector (as shown under Item 5A. “Operating Results—Exposure to the Argentine Public Sector”), amounted to approximately Ps.8,898.0 million, representing 37.7% of our total assets. As of the same date, our net exposure to the public sector (excluding liabilities with the Argentine Central Bank and without taking into account the Bank’s deposits in the Argentine Central Bank), amounted to approximately Ps.5,872.0 million, representing 24.9% of our total assets.

     The value of our assets, our income and cash flow generation capacity and our future financial condition strongly depend on the Government’s ability to comply with its payment obligations in respect of these public-sector assets. In turn, the ability of the Government to comply with its payment obligations with respect to such public-sector assets is dependent on, among other things, its ability to establish an economic policy that is successful in promoting sustainable economic growth in the long run, generating tax revenues and controlling public expenses, all or some of which may not occur.

We carry a significant portion of our public-sector assets at values that do not reflect their market value, which is substantially lower than their respective book value

     We carry our public-sector assets under Argentine Banking GAAP, in accordance with Argentine Central Bank valuation rules, as explained under Item 4. “Information on the Company—Selected Financial Information—Government and Corporate Securities—Valuation,” and Item 5A. “Operating Results—Critical Accounting Policies—Government Securities and Other Accounts Receivable with the Government.” The book values of our position in Bogar Bonds, Boden 2012 Bonds and Discount Bonds and GDP Linked Negotiable Units are greater than their respective quoted market values.

     The estimated difference between the aggregate book value of the above mentioned assets and their respective aggregate market value as of December 31, 2006, amounted to Ps.531.0 million, as explained under Item 4. “Information on the Company—Selected Financial Information—Government and Corporate Securities.” As market conditions change, adjustments to the market value of the above mentioned assets are not reflected in our financial condition. Future sales or settlements of these assets will reflect the market conditions at the time and may result in losses, representing the difference between the settlement amount and the then carrying value, thereby adversely affecting our financial results.

Our net position in CER-adjusted assets exposes us to increases in the real interest rate

     The actions taken by the Government to address the crisis in 2001-2002 economic crisis have created mismatches between our assets and liabilities in terms of currency, yield and maturities. Currently, we carry a net position in CER-adjusted assets (the CER is a coefficient based on the variation of consumer prices) bearing fixed interest rates over adjusted principal. This position is funded by peso-denominated liabilities (with no principal adjustment linked to inflation), bearing market interest rates that mainly reprice in the short term. See Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—Currency Composition of Our Balance Sheet.” This mismatch exposes us to the fluctuations in the real interest rate, with an adverse impact on income resulting from a significant increase in the real interest rate (which occurs when the nominal interest rate increases more than the inflation rate).

A breach of any of the covenants under the Bank’s debt agreements and the agreement entered into by the Bank and us as part of the restructuring of the Bank’s foreign debt in 2004 could result in the occurrence of an event of default under these agreements

     The loan agreements and indenture entered into by the Bank as part of its foreign debt restructuring in May 2004, include certain covenants that, among other things, restrict the Bank’s ability to pay dividends on stock or purchase its stock or the stock of its subsidiaries or use the proceeds of the sale of certain assets or from the issuance of debt or equity securities. Some of these agreements also require that the Bank maintain specified financial ratios. We agreed to maintain certain corporate governance standards and to provide the Bank’s creditors with certain financial information and reports on a quarterly and annual basis. A breach of any of these covenants or the Bank’s inability to maintain the required ratios could result in an event of default under these agreements. In the event of a default, the relevant lenders could elect, among other options, to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable. For more information see Item 10. “Additional Information—Material Contracts.”

It may be difficult for us to fully overcome all of the residual negative effects of the 2001-2002 crisis

     It is difficult to predict whether we will be able to increase fee income and loan origination to the private sector so as to generate sufficient increased financial revenue and income from services in order for operating results to more than offset losses from the amortization of amparo claims and the negative margin on our matched position in foreign currency resulting from the low yield of the Boden 2012 Bonds corresponding to the Compensatory Bond and the Hedge Bond. Although demand for fee-related products and services as well as for credit is increasing in Argentina, together with the growth of the economy, the demand for financial products may not continue to increase or may not increase to the extent or at the necessary pace. In addition, we may not be able to sufficiently increase our business volume or margins between lending and borrowing could decrease or be insufficient for our operating income to exceed the above mentioned losses. We may not be able to increase our operating results in the required amount or at the required pace in order to offset these losses.

Increased competition and consolidation in the banking industry may adversely affect our operations

     As a result of and following the crisis, there has been significant consolidation in the Argentine financial/banking market. This consolidation is likely to continue in the near future. In addition, the financial system’s recent growth and its current growth prospects have generated increased competition from all of the banks operating in Argentina. The increase in competition and consolidation may adversely affect our results of operations and our income generation capacity by reducing margins and prices and/or by potentially reducing our volume of operations and market share.

Item 4. Information on the Company

Organization

     We were incorporated on September 14, 1999, as a stock corporation (a “sociedad anónima”) under the laws of Argentina under the name Grupo Financiero Galicia S.A. Our domicile is in Buenos Aires, Argentina. Under our bylaws, our corporate duration is until June 30, 2100. Our duration can be extended by resolution taken at a general extraordinary shareholders’ meeting. Our principal executive offices are located at Teniente General Juan D. Perón 456, Second Floor, (1038) Buenos Aires, Argentina. Our telephone number is (54-11) 4343-7528.

     Our agent for service of process in the United States is CT Corporation System, presently located at 111 Eighth Avenue, 13th Floor, New York, New York 10011.

Organizational Structure

     The following table illustrates our organizational structure as of December 31, 2006. Percentages indicate the ownership interests held. All of the companies shown in the chart are incorporated in Argentina, except for:

•		Galicia Uruguay, incorporated in Uruguay and currently not an operating financial institution (See “History—Banco Galicia Uruguay S.A. and Galicia (Cayman) Ltd.”);
•		Galval Agente de Valores S.A. or “Galval”, incorporated in Uruguay;
•		Galicia Pension Fund Ltd. and Galicia (Cayman) Ltd. or “Galicia Cayman”, incorporated in the Cayman Islands (See “History—Banco Galicia Uruguay S.A. and Galicia (Cayman) Ltd.”);
•		Net Investment BV (in liquidation), incorporated in the Netherlands; and
•		Ancud Comercial S.A., incorporated in the Dominican Republic.

History

     We were formed as a financial services holding company to hold all of the shares of the capital stock of Banco Galicia held by members of the Escasany, Ayerza and Braun families. We were formed with an initial nominal capital of 24,000 common shares, 12,516 of which were designated class A shares and 11,484 of which were designated as class B shares. Following our formation, the holding companies which held the shares in Banco Galicia on behalf of the Escasany, Ayerza and Braun families were merged into us. Following the merger, we held 46.34% of the outstanding shares of Banco Galicia. Simultaneously with the merger, we increased our capital from 24,000 to 543,000,000 common shares, 281,221,650 of which were designated as class A shares and 261,778,350 of which were designated as class B shares. Following this capital increase, all of our class A shares were held by EBA Holding S.A., an Argentine corporation that is 100% owned by our controlling shareholders, and our class B shares were held directly by our controlling shareholders in an amount equal to their ownership interests in the holding companies that were merged into us.

     On May 16, 2000, we held an extraordinary shareholders’ meeting during which our shareholders unanimously approved a capital increase of up to Ps.628,704,540 and the public offering and listings of our class B shares. All of the new common shares were designated as class B shares, with a par value of Ps.1.00. During this

extraordinary shareholders’ meeting, all of our existing shareholders waived their preemptive rights in order to establish the basis for the exchange offer of our shares for Banco Galicia shares. At the same shareholders’ meeting, the shareholders determined that the exchange ratio for the exchange offer would be one class B share of Banco Galicia for 2.5 of our class B shares and one ADS of Banco Galicia for one of our ADSs. We completed the exchange offer in July 2000 with a capital increase of Ps.549,407,017. At the completion of the exchange offer, our only significant asset was our 93.23% interest in Banco Galicia. By the end of 2005, our interest was 93.60% as a result of open-market purchases.

     On January 2, 2004, we held an extraordinary shareholders’ meeting during which our shareholders approved a capital increase through the issuance of up to 149,000,000 preferred shares, each of them mandatorily convertible into one of our class B shares on the first anniversary of the date of issuance, or cash from a preemptive and accretion rights offering to our shareholders. On May 13, 2004, we issued 149,000,000 preferred non-voting shares, with preference over the ordinary shares in the event of our liquidation, each with a face value of one peso. The preferred shares were converted into class B shares on May 13, 2005. With this capital increase, our capital was increased to Ps.1,241,407,017. This capital increase was implemented due to the restructuring of the Bank’s foreign debt. See “—Restructuring of our Subsidiaries’ Debt—Banco Galicia—Restructuring of the Foreign Debt of the Bank’s Head Office in Argentina and its Cayman Branch—Terms of the Foreign Debt Restructuring.”

     We are a holding company whose corporate purpose is exclusively related to financial services and investment activities. Under our bylaws, we may not carry out transactions described in the Financial Institutions’ Law (Ley de Entidades Financieras, Law No.21,526). Therefore, it is not our intention to compete with Banco Galicia. Rather, we seek to broaden and complement Banco Galicia’s operations and businesses through holdings in companies and undertakings whose objectives are related to financial activities. Consequently, we operate in financial and related activities that Banco Galicia cannot undertake or in which it can only participate in a limited way or in those activities that would not be profitable for the Bank due to current regulations.

     In January 2005, we created Galval, a securities broker based in Uruguay, with the purpose of providing trading and custody services. We own 100% of the capital and voting rights of this subsidiary.

Restructuring of our Subsidiaries’ Debt

Banco Galicia

     As a result of the liquidity crisis experienced by the Argentine financial system and the Bank in late 2001 and early 2002, and of the economic policy measures implemented by the Government in order to address the crisis, the Bank restructured its foreign currency denominated debt that was subject to foreign law (which we refer to as the “foreign debt”) of the Head Office in Argentina and its former Cayman Branch. This restructuring was completed in May 2004. The Argentine crisis also affected the Bank’s former New York Branch and its subsidiaries Galicia Uruguay and Galicia Cayman, the debt of which was also restructured between 2002 and 2003. In 2004, the Bank also restructured debt with the Argentine Central Bank acquired during the 2001-2002 crisis.

     Approval of the Bank’s Foreign Debt Restructuring and Argentine Central Bank Debt Restructuring

     On December 3, 2003, the Argentine Central Bank informed the Bank that its board of directors had approved the terms and conditions of the proposed restructuring of the foreign debt of the Bank’s Head Office and the Bank’s Cayman Branch.

     On February 3, 2004, the Argentine Central Bank informed the Bank that it had approved the Bank’s request to adhere to the system established by Decree No. 739/03 and modified by Decree No. 1262/03, for the repayment of the financial assistance owed to the Argentine Central Bank, as well as the amortization schedule for that debt proposed by the Bank, which began on March 2004 and originally ended on October 2011. The schedule was based on the minimum amortization set up by the applicable rules and on the proceeds of the assets eligible as collateral for such debt pursuant to these rules.

     Through Resolution No. 152/04, dated May 14, 2004, the Argentine Central Bank approved the economic terms of the restructuring of the foreign debt of the Bank’s Head Office in Argentina and its Cayman Branch.

     The Bank repaid in advance the financial assistance received from the Argentine Central Bank, the last payment having been made on March 2, 2007. See Item 5 “Operating and Financial Review and Prospects—Item 5A. Operating Results—Funding” and Item 8. “Financial Information—Significant Changes.”

     Restructuring of the Foreign Debt of the Bank’s Head Office in Argentina and its Cayman Branch

     On May 18, 2004, the Bank successfully completed the restructuring of US$ 1,320.9 million of the foreign debt of its Head Office in Argentina and its Cayman Branch, which consisted of both bank debt (including debt with multilateral credit agencies) and bonds. This amount represented 98.2% of the foreign debt eligible for restructuring. Since July 1, 2004, the Bank made all of the scheduled semiannual interest payments on the debt instruments issued as a result of the restructuring of its foreign debt closed in May 2004 and as of mid-2005, it had fully repaid all of the restructured trade debt.

Terms of the Foreign Debt Restructuring

     In the Bank’s foreign debt restructuring, the Bank offered its bondholders and bank creditors the ability to exchange their existing debt for units comprised of a new long-term debt instrument maturing in 2014 and a new subordinated debt instrument maturing in 2019 in a par-for-par first step exchange offer. The bondholders and bank creditors were then given the option to participate in a second step to the exchange, in which they could receive for their units:

	•		cash (at a discount) (the “cash offer”);
	•		Boden 2012 Bonds (at a discount) (the “Boden offer”);
	•		new long-term debt instruments (at par); or
	•		new medium-term debt instruments (at par) and up to 149 million preferred shares of our preferred shares (or, instead of such shares, cash, if any, paid to us by existing shareholders electing to subscribe for our preferred shares in a preemptive rights offering) (the “equity participation option”).

     Each of the optional second-step offers was subject to proration. In addition, creditors that agreed to sign firm commitments for new trade facilities in an aggregate principal amount up to US$ 35 million were permitted to elect to receive new medium-term debt instruments maturing in 2010 (at par) (the “new money option”).

     By offering the units, which contained a subordinated component, in the par-for-par first step exchange offer, the Bank’s main objective was to generate complementary regulatory capital for an extended period. The second step was intended to satisfy creditors’ varying investment preferences.

     To make the Bank’s foreign debt restructuring possible:

	•		We issued 149 million preferred shares on May 13, 2004, each of them mandatorily convertible into one of our class B shares a year later, which occurred on May 12, 2005. As a result of the exercises made by the existing shareholders in our preemptive rights offering, creditors opting for the equity participation offer received 87.8 million preferred shares and US$ 30 million in cash and we received US$ 100 million of subordinated bonds in exchange for the above-mentioned shares and cash.
	•		We entered into an agreement with the Bank’s bank creditors in which we agreed to maintain certain corporate governance standards and to provide them with certain financial information and reports on a quarterly and annual basis.

     In addition, in accordance with the terms of the Bank’s foreign debt restructuring, the Bank made a US$ 15.5 million cash payment for interest accrued until April 30, 2002, and applied US$ 42.4 million not used in the cash offer to prepay at par (plus capitalized interest) long-term instruments to be delivered to creditors participating in the restructuring.

     Based on the final amounts validly tendered, on May 18, 2004, the Bank:

	•		paid US$13.6 million to creditors participating in the cash offer;
	•		transferred US$ 36.9 million of nominal value of Boden 2012 Bonds to creditors participating in the Boden offer; and
	•		issued the following new debt instruments:

	–		US$ 648.5 million of long-term dollar-denominated debt instruments, of which US$ 464.8 million were dollar-denominated negotiable obligations due 2014 (referred to as the “Step Up Notes Due 2014” or the “2014 Notes”) issued under an indenture.
	–		US$ 399.8 million of medium-term dollar-denominated debt instruments, of which US$ 352.8 million were dollar-denominated negotiable obligations due 2010 (referred to as the “Floating Rate Notes Due 2010” or the “2010 Notes”) issued under an indenture.
	–		US$ 230.0 million of subordinated dollar-denominated debt instruments, of which US$ 218.2 million were dollar-denominated negotiable obligations due 2019 (referred to as the “Subordinated Notes Due 2019” or the “2019 Notes”) issued under an indenture.

     The Bank also restructured trade debt for a principal amount of US$ 25.3 million in exchange for US$ 26.6 million of new trade debt to be repaid in 12 equal, consecutive monthly installments beginning in June 2004 and ending in May 2005.

     The following table shows certain information on the Bank’s debt restructuring:

Principal amount of:		In US$ millions
a) Old debt to be restructured as of December 31, 2003			1,349.6
b) Old debt to be restructured as of April 27, 2004 (1)			1,344.7	(2)
c) Old debt participating in the restructuring as of April 27, 2004 (1)			1,320.9
d) New debt, including past due interest capitalized (3) (4)			1,399.6
e) New debt issued (4) (5)			1,278.3
f) Old debt not restructured as of May 18, 2004 (6)			22.9	(7)
g) Old debt not restructured as of December 31, 2006			4.4

     During February 2007, we repurchased part of the restructured debt that was instrumented as loans maturing in 2010 and in 2014 for an aggregate residual amount of US$ 178.8 million. These transactions were carried at market value thus generating a US$ 6.9 million profit with respect to the book value of the loans. The repurchase was funded from the proceeds of the sale of Boden 2012 Bonds in the market, which generated a loss of approximately US$ 8.9 million due to the difference between the market price and the book value of such bonds. See Item 8. “Financial Information—Significant Changes.”

     For more information on the debt instruments issued in the restructuring, see Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—Contractual Obligations.”

     Restructuring of the Bank’s New York Branch Debt

     In mid 2002, the Bank restructured the liabilities of its New York Branch, which then totaled US$ 328 million, and constituted a necessary step to ensure the orderly winding down of the affairs of this Branch, which was

closed on January 30, 2003. As December 31, 2006, US$ 38.6 million in aggregate principal amount of two negotiable obligations issued by the Bank’s Head Office in Argentina maturing in 2007 (referred to as the “2007 Notes”) to restructure the New York Branch debt are outstanding.

     Capitalization as a Result of the Restructuring of the Foreign Debt

     As a result of the restructuring of the foreign debt of the Bank’s Head Office in Argentina and its Cayman Branch, the Bank increased its regulatory capital by US$ 278.9 million. Specifically, this capital increase resulted from:

	•		the exchange of debt subject to restructuring for cash and Boden 2012 Bonds at a discount and the capitalization of interest at a rate lower than the contractual rate recorded in the Bank’s books, which generated in aggregate a US$ 48.9 million increase in shareholders’ equity; and
	•		the issuance of US$ 230.0 million of subordinated debt computable as supplemental capital in accordance with the Argentine Central Bank’s capital adequacy rules.

     As a result of the earlier restructuring of the debt of the Bank’s New York Branch in 2002, the Bank had increased its capitalization by US$ 42.6 million by exchanging the old debt for new debt or cash at a discount.

Banco Galicia Uruguay S.A. and Galicia (Cayman) Ltd.

     Galicia Uruguay

     As a result of the effects that the Argentine crisis had on Galicia Uruguay, in early 2002, the Central Bank of Uruguay suspended its activities and assumed control and management of Galicia Uruguay, which control and management by the Central Bank of Uruguay ended on February 22, 2007. In December 2002, Galicia Uruguay restructured its deposits into debt maturing in 2011. On June 1, 2004, Galicia Uruguay’s license to operate as a domestic commercial bank was revoked by the Central Bank of Uruguay. At the date of this annual report, Galicia Uruguay is not engaged in any active business and its activities are limited to repaying its existing restructured debt. Between 2003 and 2005, Galicia Uruguay carried out several exchanges of restructured liabilities for cash, Boden 2012 Bonds and new negotiable obligations issued by Galicia Uruguay. The objective of these exchanges was to reprofile on a voluntary basis the already restructured deposit base, both to satisfy differing depositors’ liquidity-return preferences and to improve the distribution of cash flows over time. All payments in accordance with the restructuring agreement have been made.

     On July 13, 2005, we forgave US$ 43 million of subordinated negotiable obligations issued by Galicia Uruguay.

     During the third quarter of 2006, Galicia Uruguay established a program for the issuance of negotiable obligations for an amount of up to US$ 108.1 million, in order to convert its privately issued negotiable obligations due on 2011 into public securities and offer the holders of transferable time-deposit certificates the possibility to exchange these certificates for such public securities. On October 17, 2006, Galicia Uruguay issued its Series I Negotiable Obligations under the program for US$ 48.5 million.

     The payments made, the exchange offers effected and the forgiveness of Galicia Uruguay’s debt held by us, generated an increase in the Bank’s and Galicia Uruguay’s shareholders’ equity and also a significant reduction in Galicia Uruguay’s consolidated liabilities. As of December 31, 2006, the consolidated principal amount of Galicia Uruguay’s restructured liabilities (time deposits and negotiable obligations) had decreased to US$ 117.2 million, which represented approximately 10% of the original restructured amount, in only four years. As of December 31, 2006, the shareholders’ equity of Galicia Uruguay was Ps.107.3 million.

     Galicia (Cayman) Ltd.

     Galicia Uruguay’s situation also adversely affected its subsidiary Galicia Cayman. Galicia Cayman commenced voluntary liquidation and surrendered its banking license effective as of December 31, 2002. By late May 2003, Galicia Cayman together with the provisional liquidators designated by the Grand Cayman Islands Court,

completed a debt restructuring plan and, with the authorization of such Court, presented it to all Galicia Cayman creditors for their consideration. The plan was approved, in whole, by the vote of 99.7% of creditors, exceeding the legal majority required, on July 10, 2003, and on July 16, 2003, it became effective and mandatory for all creditors.

     On February 2, 2006, and as a consequence of the presentation filed by the administrators of the plan, the Grand Court of the Cayman Islands declared the plan as terminated, and ended the involvement of any third parties in the company’s management beginning on February 23, 2006.

Capital Increase of the Bank Approved by the Shareholder’s Meeting held on October 11, 2006

     The Ordinary and Extraordinary Shareholder’s Meeting held on October 11, 2006 resolved to increase the capital stock of the Bank in up to 100 million ordinary (common) book-entry, class B shares, with one vote per share and a nominal value of Ps.1 per share. The new shares can be subscribed, at the option of the subscriber, in cash or in 2010 Notes, 2014 Notes and 2019 Notes issued by the Bank in 2004. The offer is scheduled to be made to the shareholders of the Bank and not to third parties.

     The purpose of the capital increase is to guarantee the Bank’s compliance with Argentine Central Bank’s capital adequacy rules, in view of increasing capital requirements. These are due not only to the current and projected growth of the Bank’s business volume with the private sector but also to the Argentine Central Bank’s regulations that establish increasing capital requirements on public-sector assets.

     On December 14, 2006, through its Resolution N° 15,534, the CNV authorized the public offering of the new shares and approved the principal values at which the 2010 Notes, 2014 Notes and 2019 Notes would be capitalized. On December 18, 2006, the BASE granted the final authorization for listing of the new shares. The authorization from the Superintendencia de Entidades Financieras y Cambiarias of the Argentine Central Bank (referred to as the “Financial Superintendency”) was granted on May 11, 2007.

     On May 23, 2007, the terms and conditions of the capital increase were published. Among others: the values at which the 2010 Notes, 2014 Notes and 2019 Notes would be accepted and the date of commencement and expiration of the subscription period for the offering. On May 30, 2007, the subscription price was published. On that date, the Bank was notified of two court orders issued at the request of a minority shareholder and issued on that date, one of which ordered the suspension of the capital increase process, the reason why the subscription period has not commenced. The Bank has appealed both court orders. As a result, the suspension order was lifted on June 12, 2007 and the other order is still pending resolution. The capital increase is expected to take place in the third quarter of 2007.

Capital Investments and Divestitures

     During 2006, our capital expenditures amounted to Ps.136.5 million, distributed as follows:

	•		Ps.41.7 million in fixed assets;
	•		Ps.46.7 million in construction in progress; and
	•		Ps.48.1 million in organizational and IT system development expenses.

     During 2005, our capital expenditures amounted to Ps.88.9 million, distributed as follows:

	•		Ps.30.5 million in fixed assets;
	•		Ps.38.1 million in construction in progress; and
	•		Ps.20.3 million in organizational and IT system development expenses.

     During 2004, our capital expenditures amounted to Ps.42.4 million, distributed as follows:

	•		Ps.15.1 million in fixed assets;
	•		Ps.9.7 million in construction in progress; and
	•		Ps.17.6 million in organizational and IT system development expenses.

     During 2006, 2005 and 2004, we invested Ps.0.007 million, Ps.0.2 million and Ps.0.1 million in the aggregate in Banco Galicia through open-market purchases of the Bank’s common shares.

     In April 2005, after having obtained the necessary authorizations, Sudamericana sold 100% of the shares it held in Instituto de Salta Compañía de Seguros de Vida S.A. for Ps.6.8 million.

     During 2006, the Bank sold its shares in Inversora Nihuiles S.A. and Inversora Diamante S.A., representing 12.5% of the total votes and shares of Inversora Nihuiles S.A. and 12.5% of the votes and shares of Inversora Diamante S.A., for an aggregate amount of US$ 9.3 million, representing the book value for such shares.

     On December 19, 2006, Tarjeta Naranja S.A. acquired a 99.4% ownership interest in Ancud Comercial S.A., a company incorporated in the Dominican Republic for Ps.0.009 million. On the same date, a US$ 4.0 million capital contribution was made by Tarjeta Naranja S.A. to such company. The total amount of the investment in such company was Ps.12.1 million.

     We have budgeted capital expenditures for the fiscal year ending December 31, 2007, for the following purposes and amounts:

(in millions of pesos)
Construction of the new corporate tower (construction, furniture, equipment, phones, etc.)		Ps	.44.6
Fixed Assets			62.2
Organizational and IT System Development			79.2
Total		Ps	.186.0

     We expect to finance our capital expenditures from the cash flow derived from our operations.

Business Overview

     We are principally engaged in commercial banking and provide a wide variety of banking products and services to large corporations, small- and medium-sized enterprises, or SMEs, and individuals. Depending on the type of customer, these services include personal and corporate loans, deposit-taking, credit and debit cards, residential mortgage loans, fiduciary and custodial services and electronic banking. We are also involved in other finance-related businesses, such as investment banking, insurance distribution and asset management.

     We provide financial services through one of the most extensive and diversified distribution platforms of all private-sector financial institutions in Argentina, through 232 full-service banking branches in Argentina, 584 automated teller machines, or ATMs, and 530 self-service terminals as of December 31, 2006, along with other electronic banking facilities such as phone banking and e-banking. In addition, we provide financial services to consumers through regional credit-card companies which had 113 service centers as of the same date. As of December 31, 2006, our banking distribution network covered all of the Argentine provinces and all of the main cities of Argentina.

     In addition, we provide our own insurance products through Sudamericana and B2B and other Internet based services through Net Investment S.A.

Retail Banking Business

     We provide a wide range of financial products and services to individuals, covering both transactions, loans and investments. On the transactions side, we offer customers checking and savings accounts, credit and debit cards, foreign exchange brokerage and payroll direct deposit. On the investments side, our products and services include certificates of deposit, mutual funds and insurance products. In addition, we provide credit for the acquisition of consumer goods and housing mainly through personal loans, residential mortgages, pledge and credit-card loans.

     The Bank’s Retail Banking Division manages our banking business with individuals and small retailers. It is made up of the following departments: i) the Retail Marketing Department, which is in charge of maintaining and

creating a wide range of financial products and services marketed through the branch network and self-service and electronic banking channels and the Internet; ii) the Consumer Banking Department, which is responsible for the consumer-finance business that we conduct through the regional credit-card companies and iii) Private Banking, which is in charge of service to high net worth customers.

     The working philosophy of the Retail Banking Division consists of two basic strategies: first, to think constantly of the customer through one-to-one marketing and, second, to work on the cultural change that this provokes throughout the organization. During 2006, we launched an ambitious plan of segmented efforts meant to strengthen customer relations and to foster a more intense use of retail banking products. The different efforts, the response to which improves as we improve our customer knowledge, are based on continuous technical and technological advances and on all the tools that are part of the CRM (Customer Relationship Management) strategy we have implemented for over 15 years.

     Information is one of the basic pillars of this strategy. We therefore focus on the enrichment and exploitation of our corporate data warehouse and on the Retail Banking Division’s data mart. This has allowed us to increase our knowledge of our customers and our portfolio segmentation, working in micro-segmentation and the identification of even more precise targets.

     With regards to communications through mass media, during 2006, the Bank maintained a constant and consistent presence in the City of Buenos Aires as well as in the provinces, with specific actions for each market. This brought about a clear leadership with respect to advertising awareness and “top of mind” of the Galicia brand, which strengthened its position.

Retail Banking (this section figures are not consolidated with the regional credit-card companies)

     Our retail deposit base has grown significantly during the last few years, recording a 25% growth during fiscal year 2006. The products that boosted this significant addition of new clients were mainly consumer loans and credit cards.

     In fiscal year 2006, peso-denominated retail deposits grew by more than Ps.1,095 million, which represents an increase of 37%, thus exceeding the increase experienced by this segment within the financial system as a whole, as occurred during prior years. During 2005, peso-denominated retail deposits grew 34%.

     The number of deposit accounts also grew significantly. In 2006, our portfolio of individual current accounts increased by 25%, with the monthly average of new accounts reaching a peak of 4,000, while this increase was 15% during 2005. In respect of savings accounts, there was an increase of 5% in the number of such accounts and an 11% increase in the average balances per account, compared to a 9% and a 19% respectively in 2005.

     The credit- and debit-card business has experienced high growth in the last few years, in the context of a growing economy and sustained commercial efforts. During 2006, the amount in pesos corresponding to purchases made during the year with Visa, Visa Electron, American Express and MasterCard cards issued by the Bank only (excluding those issued by the regional credit-card companies) exceeded Ps.4,200 million and over 57 million transactions were made. In turn, the number of managed accounts rose 31%. These increases were achieved by means of important campaigns focused on new clients and by encouraging consumption by existing customers through promotions in different stores and campaigns promoting the financing of purchases in installments.

     During 2005, the MasterCard card was re-launched with a very good response by customers. The amount of purchases made using the credit and debit cards managed by the Bank only was approximately Ps.3,000 million, and the corresponding number of transactions amounted to 34.5 million. At the same time, the number of credit cards managed by the Bank only increased by 17% during 2005.

     With respect to consumer loans, in 2006, we continued to focus on our client base, with the purpose of continuing its growth while minimizing risk, but have also focused on the placement of such loans among non-customers. We reached out to this market through mass communication and direct marketing actions. This allowed us to attain our goals and expectations for the period by reaching a 171% annual increase in origination and a 140%

increase in the consumer loan portfolio, as compared to 2005, where we achieved a 130% increase in origination and a 267% increase in the portfolio (unconsolidated), as compared to 2004.

     As in prior years, the mortgage loan market reported no significant growth, since there is still a very wide gap between real-estate values and the purchasing power of salaries that limits the capacity of potential borrowers to afford the installments on a mortgage loan. Despite the market’s characteristics, we launched the “Zero Expenses” campaign with a strong presence in mass media. Furthermore, mortgage credit lines were modified in order to broaden and improve the available offering and allow for a greater access to such loans. We currently offer a broad range of loan purposes, maturities (up to 240 months) and rates (fixed, variable and combined). During fiscal year 2006, our mortgage loan portfolio increased by 15% as compared to 2005 and the average monthly origination increased by 225% from the previous fiscal year level.

     We market Sudamericana’s life, life-related and other insurance products through the Bank’s distribution network and the Bank also sells property and casualty insurance from other companies. Through the Bank, we offer a wide range of products, having consolidated in the last few years our position as an integral provider of financial services. Beginning in September 2006, the Bank added the insurance coverage “Integral de Comercio” (Comprehensive Insurance for Retailers). Also, during fiscal year 2006, the Bank improved the sale of home insurance policies, exceeding the goal of 100,000 policies through a 29% growth. With respect to the marketing of auto insurance policies, the Bank achieved a 15% increase, thus exceeding 30,700 policies. As for insurance for ATM robbery, “PG24”, 360,000 policies were outstanding at the end of 2006. Also, the Bank strengthened its position within the life insurance segment, achieving a 60% increase in coverage of personal injuries.

     During 2005, the product “Protección Hogar” (Home Protection), insurance for residential units, launched in 2004 by Galicia Patrimoniales Compañía de Seguros S.A. (referred to as Galicia Patrimoniales), a subsidiary of Sudamericana, and car insurance products from other companies were successfully marketed. In this line of business, the Bank’s portfolio experienced a 30% increase during the year. Additionally, the Bank reached 265,000 PG24 outstanding insurance policies (an insurance to cover robberies at ATM’s). At the end of fiscal year 2005, the Bank managed approximately 420,000 insurance policies (excluding credit related ones), 16% higher than in the previous year.

     As in prior years, another business that reported a large increase was payroll direct deposit. The number of individuals with direct deposit of their salary at the Bank increased by more than 25% and the amounts deposited increased by more than 42%, a portion of which was attributable to the increases in salaries recorded during 2006.

Consumer Banking

     We pursue the consumer finance business aimed at the non-bancarized segment of the population through the operating subsidiaries of Tarjetas Regionales S.A., a wholly owned subsidiary of the Bank. Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A. issue credit cards with proprietary brands which are marketed in certain regions of Argentina and provide consumer financing through these credit cards.

Tarjeta Naranja S.A. operates mainly in northern, central and southern Argentina. In December 2003, Tarjeta Comfiar S.A., a company that operated mostly in the province of Santa Fe, was merged into Tarjeta Naranja S.A. Tarjetas Cuyanas S.A. operates mainly in the provinces of the Cuyo region and Tarjetas del Mar S.A. operates mainly in the city of Mar del Plata and the surrounding area and other locations of the Province of Buenos Aires.

     All three companies are currently expanding their geographical reach.

     During 2006 and for the fourth consecutive year, boosted by the high growth of the economy as a whole and of consumption in particular, the regional credit-card companies continued to grow, increasing their customer base, the loans granted to its customers and their network of branches, thus generating very good economic results.

     The number of credit-card statements issued by these companies during fiscal year 2006 increased by 22%, annual retailer invoicing exceeded Ps.4,300 million (or 29%) and the companies’ gross loan portfolio, before provisions and including the portfolio transferred to financial trusts, amounted to nearly Ps.1,900 million (or 36%) at

the end of 2006. In addition, ten service centers were added to the distribution network of these companies (or 6%, totaling 167 service centers) and staff increased by 672 people (or 26%), thus exceeding 3,200 employees. Tarjeta Naranja expanded into the Greater Buenos Aires area where it opened its largest premises in the country, located at Morón. Also, during 2006, the sale of insurance products especially designed for these companies’ customer profiles continued to increase and credit cards Mira-VISA and Naranja-Master, new credit lines and financing plans for the purchase of home appliances in large stores were launched.

     In turn, the quality of the loan portfolio maintained the strong levels of 2005, with these companies’ aggregate non-accrual to total portfolio ratio at the end of fiscal year 2006 being 2.95%, with values, in certain months that were very close to the minimum historical value (2.48% at the end of 2005). At the end of 2004, this ratio was 3,26%, being lower than in prior years.

     As a consequence of growth, during fiscal year 2006, the regional credit-card companies focused on increasing their sources of funds to finance such growth. It is worth mentioning the increase in the credit lines available from banks, the extension to the companies of syndicated loans, the six issuances of financial trusts securities for Ps.353.5 million (almost Ps.139.4 million more than in 2005) and the three issuances of negotiable obligations for Ps.453.5 million, which almost doubled the amounts issued in the previous year. Among them, it is important to highlight the successful placement abroad of the Class IV Series of Tarjeta Naranja, for Ps.307 million, a 4-year term and an innovative structure, which was unique in the country at the time. It is also worth mentioning that, in all public offerings, the demand from investors, institutions and individuals, extensively exceeded the amounts issued and that the securities issued by these companies were issued at low interest rates.

     In 2006, the Board of Directors of Tarjetas Regionales S.A. decided to capitalize Tarjetas del Mar S.A. and Tarjetas Cuyanas S.A., proportionally to its stock holdings, thus these companies increased their capital by Ps.72 million and Ps.12 million, respectively.

     As a result of combining the ability to leverage market opportunities, the resourcefulness and strength in selling quality products and services, highly appreciated by customers, a good risk management and the efforts to improve efficiency and competitiveness and to obtain the necessary funding, net income of the regional credit-card companies for fiscal year 2006 was Ps.104.5 million, of which Ps.70.9 million corresponded to the Bank through Tarjetas Regionales S.A.

     In mid 2004, Tarjeta Naranja S.A. reinitiated a geographical expansion plan, contemplating to reach a target market with a population of approximately 2 million people. This expansion continued in 2005 and 2006.

     During 2005, the aggregate number of credit-card statements issued by the regional credit-card companies increased 22%, their aggregate gross loan portfolio (including the portfolio that was securitized) exceeded Ps.1,200 million, a 53% increase, and the aggregate number of cards managed increased by 28.3%. These companies opened twenty-two new service centers and branches and staff increased by 370 employees, which represented a growth of 16% and 17%, respectively. In addition, these companies started operations in two new provinces, La Pampa and Buenos Aires, designed new products, such as insurance packs, launched campaigns for the placement of Tarjeta Visa-Nevada cards and the Tarjeta Naranja MasterCard cards, developed a new credit line and maintained the usual promotions.

Private Banking

     Through Galicia Private Banking, we offer premium, professional financial services to medium- to high- net worth individuals. This is performed through the management of their portfolio of investments and the provision of financial advising. Galicia Private Banking offers its customers a wide range of domestic financial investment alternatives, giving priority to the Bank’s products (deposits, FIMA mutual funds, among others) and financial trust debt instruments and negotiable obligations where the Bank acts as book runner.

     During fiscal year 2006, Galicia Private Banking increased the number of its customers and its managed portfolio. During 2006 and 2005, placement of trust notes and negotiable obligations, including those issued by the regional credit-card companies was significant. In line with our strategy to stand out from our competitors through

service quality, as in 2005, Galicia Private Banking implemented a client loyalty program and, during the last quarter of fiscal year 2006, it put into practice a customer satisfaction measurement program. A high index was attained with regards to the general perception of services rendered, exceeding the general levels in the market.

Distribution

     The Bank’s Distribution Division defines and monitors policies, action plans, and sales goals for the different channels of the Bank in order to ensure the fulfillment of the Bank’s volume and profitability goals, sales efficiency, the integration of the different distribution channels and customer satisfaction. The departments managing the traditional channels and the Alternative Channels Department report to this Division.

Traditional Channels

     The size and the wide geographical coverage of the Bank’s branch network contribute to making our distribution network one of our more important competitive advantages. These aspects are strengthened by a unified management system through the use of the Bank’s Intranet, state-of-the-art systems’ and communications’ technology, a consistent incentive plan and a continuous follow-up of the quality of service.

     During fiscal year 2006, we opened eight bank branches, one in each of the following districts: Jesús María (Córdoba), Trenque Lauquen and Zárate (Buenos Aires), Reconquista (Santa Fe), Río Grande and Ushuaia (Tierra del Fuego), Trelew (Chubut), and Cipolletti (Río Negro). As a result, at the end of 2006, our network of banking branches amounted to 232 and covered all of the Argentine provinces. At the close of 2006, our network’s geographical distribution was the following:

Geographical Area		Number of Branches
City of Buenos Aires			76
Greater Buenos Aires (GBA)			59
Rest of the Province of Buenos Aires			31
Santa Fe			14
Córdoba			13
Mendoza			9
Entre Ríos			4
Chubut			3
Río Negro			3
Corrientes			2
La Pampa			2
Misiones			2
Tierra del Fuego			2
Catamarca			1
Chaco			1
Formosa			1
Jujuy			1
La Rioja			1
Neuquén			1
Salta			1
Santa Cruz			1
Santiago del Estero			1
San Juan			1
San Luis			1
Tucumán			1
Total			232

     In 2006, in order to increase business efficiency, achieve a better integration among sales channels and improve service quality, we reinforced the new customer service model that was implemented in all branches during 2005. To this end, we redefined customer service for a larger number of branches through the assignment of business officers for medium- and high-income individuals as well as for companies. In the latter case, emphasis was placed on the development of the agricultural and livestock sector and the whole range of the on SMEs segment.

Alternative Channels

     Service, transactions and sales channels (other than traditional branches) that service both individual and corporate customers, consist of the Customer Contact Center, e-galicia.com, Red Galicia 24, Galicia Móvil, the Retail Sales Unit and the Real Estate Center. The last three sectors have been added during the fiscal year. As in previous fiscal years, the level of use of alternative channels by the Bank’s customers recorded an upward trend. As of December 31, 2006, 77.8% of customer transactions were carried out through these channels, representing an increase from the 76.9% and 74.5% ratios corresponding to December 31, 2005 and 2004, respectively.

     For 2007, expectations are of an increase in the level of use of these channels in line with the business goals defined by the Bank.

Customer Contact Center, or CCC: The CCC consists of the following sectors: Fonobanco (our phone-banking service), Fonobanco Seguros (the phone-banking unit specializing in aftermarket service for insurance policies marketed among Bank customers), Foreign Trade (responsible for assisting individuals and customer companies about the whole range of foreign-trade transactions and providing advice on the regulations in force), Galicia Responde (the unit that receives and answers customer suggestions and complaints), Telemarketing (the Bank’s sales and telephone advice facility), the Investments Center, the Collection Center and the switchboard. These units also have support areas for ongoing improvement in service quality. During fiscal year 2006, the CCC managed over 18 million incoming and outgoing contacts, which implied a 57% increase compared to the previous fiscal year. During 2005, the Customer Contact Center handled over 12 million incoming and outgoing calls. This volume was similar to that recorded during the previous fiscal year.

Red Galicia 24: By the end of 2006, Red Galicia 24 had 588 ATMs and 530 self-service terminals installed in the Bank’s branch network and other locations throughout the country, mainly in gas stations and supermarkets. This network of state-of-the-art technology terminals, one of the largest in Argentina, is the means to solve transactional needs for our customers and users of interconnection networks in a dynamic, simple, safe, and affordable way, on a 24-7 basis. The volume of transactions through this network has experienced a sustained increase in the last couple of years. Transactions through the Bank’s ATM network increased by 12% from the previous year, while transactions through its self-service terminals increased by 14%. Following with the plan for the improvement of service quality and the increase of capabilities and functions, the Bank continued to replace ATMs and initiated the technical upgrade of self-service terminals. These actions will continue during 2007.

e-galicia.com: Through e-galicia.com, we aim at “putting the Bank into the PC” and offer a wide range of transactional capabilities, the differentiating feature of the e-galicia.com service. Through alliances with different companies, customers have access to certain benefits that at the same time promote the use of the channel. e-galicia.com has operating segments for both individuals (“Home Banking”) and companies (“Galicia Office”), enabling its customers to operate as if they were carrying out their banking transactions over the telephone, at an ATM or in a traditional branch.

Every year, the number of Internet users increases substantially and our customers demand new services to help them operate on line as they would in a traditional branch. During the past few years, e-galicia.com has shown an exponential evolution. In 2006, through Home Banking alone, 4 million monthly enquiries and transactions were made, which represents almost a 35% increase from the level as of the end of 2005. During 2005, the corresponding increase was of 40% up from the 2.3 million transactions at the end of 2004. As to the number of users, the increasing trend also continued, with a 25% increase in 2006.

Galicia Móvil: Galicia Móvil was launched during fiscal year 2006 as a new service channel available through cellular phones. In its initial stage, it is meant for small payments, as well as balances and credit-cards due date alarms, time deposits, and automatic debits. We were the first financial institution in Argentina to offer small payment services through cellular phones.

Retail Sales Unit: During 2006, we developed this unit which constitutes a specialized sales force in retail banking products. At the end of fiscal year 2006, this unit had a team of 100 sales representatives in the country’s main markets and accounted for a significant portion of credit cards and current accounts sold.

Real Estate Center: Also during fiscal year 2006, we created the Real Estate Center, which strengthens and encourages placement of mortgage loans through the interaction with the loan-originating realtors. In order to do so, the center has trained personnel specialized in these credit lines who provide constant advice to realtors and customized service to each referred customer.

Wholesale Banking Business

     Through the Bank’s Wholesale Banking Division we carry our banking business with the corporate sector and other public- and private-sector entities. We provide these customers commercial banking services as well as investment banking, capital markets, foreign trade, corporate and real-estate business development services and non-financial public sector services. The Wholesale Banking Division is dedicated to the development of solutions meant to satisfy the needs of customers pertaining to the different sectors of the economy. One of its main objectives is to continuously strengthen the ability to create close, lasting relationships between the Bank and companies.

     During fiscal year 2006, we continued to increase lending to the different sectors of activity. In 2006, the Division’s loan portfolio increased by Ps.980 million, up 35% from the 2005 fiscal year-end balance. Loan origination was more than Ps.11,500 million, including the purchase of checks and negotiable instruments for Ps.7,200 million, an area in which we have maintained a leading position for several years. For the third consecutive year, we have been leaders in the leasing market, with an 18% market share. Also, deposits raised within Wholesale Banking Division’s customers recorded an increase of 32.3%.

     In 2005, there was an important expansion of the portfolio of peso-denominated loans, both at floating, as well as fixed interest rates. In terms of dollar-denominated loans, the Bank entered into an agreement with the International Finance Corporation, or IFC, to finance investment projects of export-oriented enterprises, the Bank being the first bank to reach such an agreement with the IFC after the crisis.

     With regards to collection and payment services, the product offering was broadened through the launch of new products and services and the implementation of improvements meant to make businesses operations easier. Our income from this activity increased by 29.7% in 2006 as compared to fiscal year 2005. For example, in order to make collections more efficient and faster, Cobranzas con Tarjetas was launched, a new service that allows companies to receive their customers’ payments directly at self-service terminals and ATMs that are part of the Banelco network, by means of a magnetic card. In the same line, in 2005, we were the first financial institution to provide our customers support in connection with the Argentine Tax Authority’s new on-line tax-payment system, thereby becoming a leader in terms of the number of related transactions and increasing our market share in such area.

     Also, there were innovative developments in Galicia Office, the leading e-banking channel for corporations. Since the end of 2005, this system added the ability to request transfers abroad.

     In order to continue to develop geographical areas and customers, in September 2006 we opened a new Corporate Banking Center in San Miguel de Tucumán, which was an addition to those located at Rosario, Mar del Plata, Mendoza and Córdoba. Each of these centers offer specialized counseling on SMEs, agribusiness, corporate and foreign trade services. Furthermore, in line with the strategy of providing more and better services to companies and their staff, during 2006, we installed a significant number of ATMs on various companies’ premises.

     With regards to commercial cards, in 2006, we launched VISA Corporate Aerolíneas Plus, a credit card exclusively for the corporate sector. The Visa Business Banco Galicia card was in first place in terms of market share over the total of Commercial Cards Visa, both in terms of amount of purchases and number of accounts and active cards, a position it had attained in 2005, and Tarjeta Galicia Rural (Galicia Rural Card) also increased its leadership.

     The wholesale Banking Division continued to promote activities focused on agro-industrial training, among the most important of which was the subscription of an agreement with the Austral University in order to foster the education on agribusiness –an agreement that included special discounts for customers willing to take part in the Executive Master in Agribusiness as well as in seminars and special programs– and the sponsorship of the educations programs of CEIDA (Agro-industrial Leadership Educational Center) and EGEA (distance learning for agro-industrial business management), both of the Argentine Rural Society.

Corporate Banking

     The Bank’s Corporate Banking unit specializes in services to large economic groups. We have strengthened our position in this segment in the last few years, having recorded an important increase in activity levels, mainly with respect to collection, payment and foreign trade services. In 2006, we achieved again closer relationships with companies within this segment, through the supply of custom-made products and services, mainly related to collections and value-added technological solutions.

     The increase in the number of customers required the hiring of new personnel in order to maintain the personalized, specialized service the Bank always provided these customers.

Middle-Market Banking

     Through the Bank’s Middle-Market Banking department, we provide services to SMEs and agribusiness segments, in which we are leaders and which constitute strategic objectives where the challenge is in maintaining the leading position we have had for so many years. Likewise, based on customer knowledge and relations, we have established ourselves as an important player in the large middle-market corporate sector, due to our active role in the financing of working capital and investment projects and our leasing business.

     Through Galicia Convenios (Galicia Agreements), in 2006, new financing agreements were executed with prime companies and institutions in order to offer special benefits with regards to interest rates and maturities. The goal of Galicia Convenios is to achieve synergies stemming from the relationship between the Bank and large corporations, SMEs and agribusinesses, offering each of them the financial support that benefit both parties.

     As in prior years, we maintained an active involvement in programs fostered by the SePyME (Small- and Medium-Size Enterprises Secretariat) for the financing of investment projects and capital goods and also used the second tranche of the credit line granted by the IFC in order to fund export-oriented investment projects. We have also signed an agreement with the Fondo Tecnológico Argentino (Argentine Technological Fund or FONTAR) to finance technological innovation projects.

     In order to continue to support the growth of SMEs, in December 2006, we launched SMEs Transformation Program, with the involvement of Banco Galicia, Fundes, Imes, Intel, Microsoft, and Telecom. This program is a strategic alliance between technological and financial industries intended for SMEs located in the greater Buenos Aires area and is aimed at strengthening these companies’ competitiveness through the implementation of technological improvements such as more efficient software, hardware and communications. Banco Galicia participates by channeling and financing these transactions.

     During 2006, we strengthened the customer service model through the creation of units specialized in micro companies and small companies and the addition of a specialized officer, exclusively for the service of Middle-Market Banking customers within the branch network.

     In addition, we have a close, long-standing relationship with the agribusiness sector, having always been very close to producers and to the entire value chain. Our Agribusiness Department, made up of professional agronomists specialized in finance and using state-of-the-art technology, seeks to understand the producers’ needs and contribute to their development through the provision of custom-made financial solutions.

     Tarjeta Galicia Rural is the most functional method of payment and credit in the agribusiness sector. In 2006, Tarjeta Galicia Rural bolstered its continuous growth and confirmed its leadership in the agricultural cards market with a 60% market share and a significant increase in its active portfolio and points of sale. In 2006, there was a 65% increase in the amount of purchases made as compared to the previous fiscal year. During 2006, as in prior years, new financing agreements were entered into and existing ones were renewed, which included preferential terms and special rates. These agreements involve the different value chains of the industry as well as different economic sectors, such as the fuel, spare parts, machinery, seeds, fertilizer, and agrochemical sectors, among others. Likewise, we carried out successful marketing activities in order to attract users and dealers. During 2005, these agreements had been extended to suppliers of additional intermediate goods used by the agribusiness sector, and the use of Tarjeta Galicia Rural was expanded and generalized in areas outside of the main agriculture regions, such as Santiago del Estero, Salta and Jujuy.

Investment Banking and Capital Markets

     Through the Bank’s Investment Banking and the Capital Markets Departments, we contribute to the achievement of the long-term strategic goals of our Wholesale Banking customers and those of the Bank itself, through the integral development of complex capital market products and services. Since 2004, and following the dissolution of Galicia Capital Markets S.A., these Departments are responsible for providing the services previously provided by this subsidiary.

     During 2006, we implemented several highly complex financial transactions. We completed the last debt restructuring and liability swap transactions still pending in connection with the Bank’s Wholesale Banking customers and organized several long-term structured products for corporate customers, including syndicated loans. With regards to mergers and acquisitions, we advised the Bank regarding the sale of its interests in Inversora Nihuiles S.A. and Inversora Diamante S.A. Also, during 2006, we strengthened our leading position in the structuring of financial trusts through our participation in 19 transactions, accounting for Ps.1,490 million in trust assets. During 2006, we structured and placed eight financial trusts for a total amount of Ps.114 million. In addition, we structured four financial trusts with the Bank’s own portfolio, for Ps.434 million, apart from six financial trusts and two series of negotiable obligations corresponding to the regional credit-card companies, which amounted to Ps.354 million and Ps.65 million, respectively.

     During 2005, we structured and placed four trusts the underlying assets of which were Bank assets, thus generating funding for Ps.258 million in the aggregate, to support the creation of new assets. Similarly, the total volume of negotiable obligations and trust structuring and placement for customers, among them the regional credit-card companies, amounted to Ps.432 million in 2005.

     During 2004, these departments worked on the renegotiation of our past due commercial customers’ portfolios, and provided customers with investment banking services.

Corporate and Real-Estate Business Development

     Through this unit, which reports to the Bank’s Wholesale Banking Business Division, we develop business transactions with the corporate sector and leverage and channel the opportunities for commercial development, structuring and financing of real-estate projects within the residential, corporate, commercial and tourism-related segments. During 2006, we completed several financing transactions for hotel undertakings, urban residential projects, and commercial premises belonging to our customer companies, thus leveraging the development recorded in the Argentine real-estate industry during this period. Also, during 2006, we closed important real-estate leasing transactions for business and industrial companies throughout the country, which allowed us to be considered a financial system’s leader in this kind of activity.

Non-Financial Public Sector

     During 2006, we completed the development stage of the “Management Tools for Electronic Government” project, having worked in pilot districts, and a final proposal, which was approved by the Argentine Municipal Federation last November. Initiatives were started in order to implement such tools in the above-mentioned districts and in the City of Mendoza.

Foreign Trade

     The Argentine market has been adapting to the exchange system enforced by the Argentine Central Bank in the past years, which is relatively flexible in some aspects and more stringent in others. Foreign trade activities have progressively benefited from the sustained release of foreign exchange regulations that began in late 2002, despite the introduction of certain controls and deposit requirements on capital inflows established in 2005.

     The volume of foreign-trade transactions routed through us increased to US$ 5,525 million, up 25.5% from 2005. Considering exclusively commercial transactions (i.e., imports and exports), the increase in 2006 was of 24%, a growth that is higher than that of the total amount of foreign-trade transactions for the country as a whole, which was 17.8%. In our case, these two items amounted to US$ 4.1 billion, equivalent to 4.96% of Argentina’s foreign trade during 2006. This increase stems from over 170,000 transactions processed during the year, up 15% from the number of transactions processed in 2005. During 2005, the volume of foreign-trade transactions channeled through us was US$ 3,675 million, 46.7% higher than in 2004. Considering exclusively commercial transactions (i.e., imports and exports), the increase was of 63.8%, higher than the increase in the country as a whole, which was 20.6%. In our case, the amount of these transactions was US$ 3,219 million, equivalent to 4.7% of Argentina’s foreign trade during 2005, higher than the 3.4% achieved in 2004.

     These results were the consequence of a series of actions which, in line with our “relationship banking” concept, were meant to make us a clear benchmark for customers with respect to foreign trade. All these actions allowed us to increase penetration in customers’ business transactions and to add 390 new SMEs as foreign-trade customers during 2006, representing an 8% increase from the previous year-end level. Also, investments continued to be made on the development and perfecting of versatile IT tools and products that allow customers to operate on line. All of the above, apart from helping us stand out from our competitors, made companies’ transactions easier and contributed to their efficiency.

     Through Galicia Factoring y Leasing S.A. we offer international factoring services, supplementing the Bank’s services offering and making available to customers all alternatives for their foreign-trade transactions.

Galicia Office

     Galicia Office is e-galicia.com’s exclusive section for corporations. Through Galicia Office, companies may, at no cost, review on line the statements of all their bank products (such as accounts, loans, investments and receivables from Visa and Galicia Rural transactions). They may also access a range of information about their entire portfolio of checks and checks returned, request and confirm checkbooks, make transfers between their accounts and to those of third parties within or outside the Bank, make investments, inquire about their foreign trade transactions, pay their employees’ salaries safely, renew their digital signature online and pay their suppliers.

     As in previous years, Galicia Office continued to grow and exceed the levels reached since it was launched, both in terms of users, queries and transactions, thereby remaining a leader in electronic corporate banking. Galicia Office, closed fiscal year 2006 with 23,000 active customers, accounting for 60% of the client base, and an increase in the number of transactions of 64% and in their volume of 78% as compared to the prior year.

     In order to offer more and better technological solutions that optimize operational processes, we carried out new developments during 2006. Among those developments was the new functionality of the Payroll Module, which allows for the management of the payroll and direct deposit of salaries and the control of each transaction’s status. With respect to payroll direct deposit, the increase in the aggregate amount of transactions recorded was of approximately 230% between January and December 2006. Like in previous years, the Foreign-Trade Module

recorded an increase in the number of users, inquiries and transactions, carrying out transfers abroad and processing payment orders in the amount of Ps.933 million.

     In 2006, a foreign consulting firm was hired to assess Galicia Office’s IT security processes. The evaluation concluded successfully.

     Through Galicia Compras, Galicia Office’s SMEs customers may access products and services, from supplies and commonly used materials to specialized services rendered by world-class suppliers. Through Red de Campo, Galicia Office’s customers can find updated information about the industry, the weather and the marketplace.

Treasury and Asset Management

     Through the Bank’s Treasury Division we provide services and distribute financial products, among others, to corporations, financial entities, mutual funds, pension and retirement funds (AFJPs), insurance companies, and others. This Division is responsible for the centralized management of the Bank’s treasury operations and its liquidity, as well as the Bank’s foreign-exchange and securities portfolio. We undertake securities trading in the different markets, sometimes in our capacity as agent of the Argentine Over-The-Counter Market, or MAE, and others through Galicia Valores S.A., a brokerage firm that operates on the BASE. Finally, this Division is responsible for our international business relations.

Financial Operations

During 2006, highly favorable economic indicators continued to prevail in general. The low yields registered by assets of mature economies, as well as the significant improvement in the fundamentals of emerging economies made the emerging markets an attractive destination for international financial investments. The significant capital inflow recorded during 2006 was evidenced, among others, in a substantial decrease in Argentina’s country risk levels, which reached an historical low and allowed the spread to other economies in the region to decrease. During 2005, the capital markets reported a significant improvement, as a result of the restructuring of the Government’s foreign debt. This led to a significant reduction in the sovereign risk. This improvement continued from that observed during 2003 and 2004.

     This context brought about the expansion of traded volumes within the domestic capital market. With regards to fixed-income instruments, during 2006, the market’s traded volume exceeded that of the previous fiscal year by 11.6%, up from the US$ 73,103 million traded in 2005 to US$ 81,624 million in 2006. This increase was of 106% in 2005 as compared with 2004. In turn, in 2006, the total amount traded by us reached US$ 2,046 million, with a 33% increase compared to the previous year, which allowed us to continue increasing our market share. The increase during 2005 amounted to 366% from 2004 levels. In the equity market, the total traded volume amounted to Ps.80,929 million in 2006, Ps.85,952 million in 2005 and Ps.49,366 million in 2004. Galicia Valores S.A. contributed with a total of Ps.1,515 million in 2006, accounting for a 1.87% share, Ps.1,524 million in 2005 and Ps.1,312 million in 2004.

     During 2006, we successfully placed 25 issuances of financial trust securities and negotiable obligations, both the Bank’s and that of third parties, for a total amount of Ps.1,526 million, thus leading the market. Also, we took part, in our capacity as book runner in the issuance of securities for Ps.588 million by the Gas I Financial Trust. This financial trust was the first instrument in the Argentine capital markets developed in order to finance infrastructure works. During 2005, we successfully placed 20 issuances (our own and that of third parties) of financial trust securities and negotiable obligations, for a total of Ps.630 million, and were positioned as one of the primary participants in this market.

     With regard to the foreign-exchange market, during 2006, we achieved a new increase in traded volumes related to foreign-trade operations, thus exceeding the figures recorded in the previous fiscal year by 20%. In the wholesale foreign-exchange market, the total amount corresponding to transactions executed by us through the MAE amounted to US$ 5,485 million, which accounted for a 7.99% share. During 2005, as in 2004, we focused especially on foreign-exchange transactions related to foreign trade, reaching a 47% increase in the volume traded in 2005 as

compared to 2004. In the foreign-exchange wholesale market, our activity through the MAE amounted to US$ 5,089 million, ranking as one of the three leading private-sector financial institutions in December 2005.

Asset Management

     Galicia Administradora de Fondos S.A. is the fund manager for the FIMA mutual funds for which the Bank acts as distributor and custodian. These funds are invested in different assets such as government securities, shares or bank deposits, depending on the investment objective of each mutual fund.

     During 2006, assets under management increased by 62%, varying from Ps.296.7 million as of December 30, 2005, to Ps.480.0 million as of December 29, 2006, distributed in a product family composed of 12 funds. This sound growth was reflected mainly in money market and fixed income funds, two products with a strong demand from individuals and companies. Market expectations for 2007 are mainly focused on the mutual fund industry continuing growth, in respect of managed volume as well as product competitiveness.

     After the difficult climate created for investors by the economic and financial crisis of 2001 and 2002, interest in these products returned in 2003. Investor interest in this kind of products continued growing in 2004 and 2005, mainly in time-deposit funds in 2004, and to a lesser extent, in equity and fixed-income funds and during 2005, mainly in fixed-income funds (bonds) and “money-market” funds (basically, investing in remunerated bank accounts and time deposits), which totaled Ps.296.7 million as of December 31, 2005 compared to Ps.170 million as of December 31, 2003.

International

     The Office of International Banking and Financing Relations is responsible for managing our business relations with correspondent banks, international credit agencies and international mutual funds.

     In 2006, the improved perception of Argentina within the international economic community and our positive image supported by constant presence in international events brought about a larger offering of commercial lines by correspondents, together with new improvements in terms offered, both maturities and costs, which allowed us to comfortably attend to all foreign-trade transactions by our customers. Also, with resources provided by the IFC, we continued to finance environmentally-friendly medium- and long-term investment projects by SMEs active in the agribusiness and export sectors.

     In 2005, we recorded a gradual increase in trade facilities from our correspondent banks, with a gradual reduction of spreads and extension of terms, which allowed us to attend to all of the foreign-trade transactions of our customers. The IFC line was approved in May 2005 for US$ 40 million and a seven year tenor.

     Until the first half of 2004, this unit’s activities mainly concentrated on its participation our foreign debt restructuring process and the winding down of our operating units abroad. See “—History—Restructuring of Our Subsidiaries’ Debt—Banco Galicia.” In the second half of 2004, this sector’s activities focused on resuming international relations with the purpose of reestablishing foreign financing sources for the development of our business.

Sudamericana Holding S.A.

     Sudamericana is a group of life, retirement and property and casualty, or P&C, insurance companies. We own an 87.5% ownership interest in Sudamericana. Banco Galicia holds the remaining 12.5%. In line with our strategy, this investment allows us to implement our plan to consolidate our leadership as a financial services provider and supplement those businesses that Banco Galicia may only conduct to a limited extent due to prevailing regulations.

     Total insurance production (amount of premiums written) of life, retirement and P&C insurance companies controlled by Sudamericana amounted to Ps.54.9 million during 2006. As of December 31, 2006, Sudamericana’s subsidiaries had more than 2.2 million insured taking into account all of the insurance sectors in which it conducts

business, both through individual and group policies. The amount of premiums written in 2006 was 45.0% higher than in the previous year (excluding Instituto de Salta Compañía de Seguros de Vida S.A.’s turnover in 2005 due to the sale of this company in April 2005).

     In 2006, the focus was placed on continuing to increase the company’s turnover by increasing sales and improving the insurance policy laps ratio, strengthening distribution through the bank assurance model and improving customer service quality. In 2006, Ps.30.9 million of annualized premiums were sold, 20% higher than in the prior year. In June 2006, in order to continue improving operating efficiency, Galicia Vida Compañía de Seguros S.A. (the group’s life company, referred to as Galicia Vida) and Galicia Patrimoniales (the group’s P&C company) were merged into Galicia Seguros, which allowed for a reduction in administrative expenses and the simplification of a large number of processes.

     The business plan for the short-term is targeted at expanding the turnover volume, which, together with improvements in operating efficiency, will allow for greater profitability.

Net Investment S.A.

     Net Investment S.A., or Net Investment, provides B2B e-commerce support services and virtual markets for transactions between companies and suppliers. Our ownership interest in the company is 87.5%, while the remaining 12.5% is held by Banco Galicia. Net Investment was a holding company whose initial purpose was to invest and develop businesses related to technology, communications, the internet, connectivity, and contents, in projects with positive cash flows and profits. On February 1, 2007 Tradecom Argentina -the only operating subsidiary of Net Investment- was merged into Net Investment and the merger was registered with the Inspección General de Justicia, the Argentine Superintendency of Companies, or IGJ.

     During 2006, Tradecom Argentina S.A. continued with its commercial policy aimed at improving its products, such as the “Current Account Viewer” and the “Suppliers’ Portal”. It also developed new products such as “invoice preloading”, the “retention certificates module” and the “delivery activation service”. In addition, we carried out constant research and development of products. Sales increased considerably from those recorded for fiscal year 2005 due to the incorporation of major customers from Brazil that had been previously serviced by Tradecom Brasil S.A. Our objective is to continue participating in this business, where the increasing interest of companies for the use of e-procurement services is significant and in activities that contribute to our comprehensive business and that of Banco Galicia.

Galicia Warrants S.A.

     We own 87.5% of the capital stock of Galicia Warrants S.A., or Galicia Warrants, a company dedicated to the issuance of deposit certificates and warrants, and the remaining 12.5% interest is owned by Banco Galicia. Founded in 1993, Galicia Warrants is a leading company in its market. Through the custody of goods, Galicia Warrants supports the business of its customers, medium and large companies, and enables such customers access to credit and financing guaranteed by the property kept in its custody and evidenced by the corresponding certificates it issues.

     Both the production increase of export-related sectors, among which the agriculture and livestock sector had an outstanding performance, which was favored by high commodity prices, and the increase in credit demand caused Galicia Warrants to increase its activity level, mainly in the agro-industry and commodity sectors, which allowed it to improve its results of operations while maintaining a selected customer base. The sustained growth of Argentina’s real economy and of its financial system will be determining factors for the success of Galicia Warrants. In the present context, Galicia Warrants is expected to increase its activity level.

Galval Agente de Valores S.A.

     We hold a 100% interest in Galval, a company that provides brokerage services in Uruguay. As of September 2005, Galval started to operate gradually and, as of December 31, 2006, it held securities in custody in

the amount of US$ 156.0 million, an amount considerably higher than the US$ 11.8 million at the end of the previous fiscal year.

Competition

     Due to our financial holding structure, competition is experienced at the level of our operating subsidiaries. We face strong competition in most of the areas in which we are active. For a breakdown of total revenues, for each of the past three fiscal years, for the three activities discussed below (i.e. banking, credit-cards and insurance), please see Item 5. “Operating and Financial Review and Prospects—Item 5A. Operating Results—Results by Segments.”

Banking

     Banco Galicia faces significant competition in all of its principal areas of operation.

     The Bank faces competition from foreign banks operating in Argentina, mainly large retail banks which are subsidiaries or branches of banks with global operations, Argentine national and provincial government-owned banks, private-sector domestic banks and to a lesser extent from cooperative banks, as well as from non-bank financial institutions.

     In respect of private-sector customers, the relevant segment for the Bank, competition is increasing from the large foreign retail banks and from certain domestically-owned private-sector banks, which prior to the crisis operated in merchant or private banking and that after the crisis acquired the retail operations of banks that left the business as a result of the crisis. Competition from public-sector banks has decreased from the immediate post-crisis period, as the public initially attracted to such institutions as a safe harbor began to search for better service with private-sector financial institutions.

     The Bank’s estimated deposit market share of private-sector deposits in the Argentine financial system only, based on daily information published by the Argentine Central Bank, increased to 8.43% as of December 31, 2006, compared to 7.96% as of December 31, 2005 and 7.07% as of December 31, 2004.

     The Bank has consistently increased its deposit market share following the 2001-2002 crisis and is one of the leading banks in Argentina and the largest domestically owned private-sector bank measured by its assets. As of December 31, 2006, measured by its deposits in Argentina only, the Bank was ranked fifth in the whole financial system and third among private-sector banks (including foreign banks).

     In terms of the overall business, the Bank has a leadership position in the retail market, is one of the leading providers of commercial banking services and has a leadership position in the middle-market and agribusiness sectors.

     For information on the Argentine banking system, please see “—Argentine Banking System and Regulation—Argentine Banking System.”

Regional Credit-Card Companies

     No official data is available about the consumer finance market of the different regions of the interior of Argentina in which the regional credit-card companies operate. However, the operation of the regional credit-card companies is estimated to be the largest in its kind in Argentina. Since 2005, and especially during 2006, the regional credit-card companies have faced increased competition in the segments in which they operate, partly from the banking system in search for new market niches and partly from other players, both local and foreign. After the 2001-2002 economic crisis, which significantly affected these companies’ competitors and led many of them to cease operations, and until 2004, competition had been relatively low.

Insurance Industry

     During 2006, the industry consolidation continued. The number of insurance companies authorized by the National Insurance Superintendency decreased from 175 at the end of 2005 to 170 at the end of 2006.

     Total insurance is gradually resuming the growth pace it had experienced before the economic crisis that took place in 2001, reaching in 2006, and pursuant to official estimates, Ps.17,236 million in premiums written expressed in current values, 28.1% higher than in the previous year. This growth was mainly driven by workers’ compensation (50.1%) and life insurance (33.6%) sectors. Meanwhile, retirement insurance recovered from the decrease of the previous year and increased 24.9% when compared to 2005.

     The property insurance sector reached Ps.11,994 million (70% of total insurance for 2006). Automotive insurance continues to be the most important segment in terms of volume of premiums written (it represents 44.6% of the property insurance sector) and, even though it increased 20.6% when compared to the previous year, it increased at a lower rate in comparison to the other sectors.

     In turn, the individual insurance sector reached Ps.5,242 million (30% of total insurance for 2006, 20% corresponding to life insurance and 10% to retirement insurance). In 2006, non-pension-linked life insurance represented 41.4% of the individual insurance sector, followed by pension-linked retirement insurance (26.0%), pension-linked life insurance (25.3%), and the rest of the retirement insurance sector (7.3%).

Sales and Marketing

     Banco Galicia’s distribution capabilities are our principal marketing channel.

     Through Banco Galicia, we operate one of the most extensive and diversified distribution networks among private-sector financial institutions in Argentina. The Bank’s distribution network is one of the largest and most flexible distribution platforms in the country and has a nationwide coverage.

     The Bank markets all of its financial products and services to high-, medium- and medium-low-income individuals, including loans, insurance and FIMA family of mutual funds, through its branch network. Within the branches, the sales force is specialized by segment. The Bank’s sales policy encourages tellers to perform sales functions as well. Wealthy individuals who are private banking customers are served by specialized officers through a special network of service centers and a head office facility. The Bank’s distribution channel for the non-bancarized segment of the population is the network of offices of the regional credit-card companies.

     Commercial banking services to large corporations (including medium to large companies) and banks are provided in a centralized manner. Branch officers are responsible for the Bank’s relationship with middle-market and small businesses and most of the agriculture/livestock sector customers.

     All of the Bank’s individual and corporate customers have access to the Bank’s electronic distribution channels, including the ATM network and self-service terminals, a multifunction call center, the e-banking website and to banking services through the cell phone. The Bank’s call center includes the telephone-banking service and performs sales and post-sale service, provides advice, receives complaints and performs credit recovery functions. During the month of December 2006, 77.8% of customer transactions were made through the Bank’s alternative channels.

     In addition, the Bank has a special sales unit specializing in marketing various retail banking products and services, and a centralized unit specializing in the marketing of mortgage loans, which works together with realtors.

     In 2005, a new sales and service model was designed and implemented, with the purpose of increasing commercial efficacy, establishing an integrated strategy among the different distribution channels and improving the quality of service. In order to achieve these goals, the Bank made progress in the specialization of the distribution channels (readjusting the product offering by segment/channel), the development of the payroll direct deposit business, the redesign of the customer service model at the branches, and the attraction of new open-market customers. A plan for the migration of cash operations to automatic means in order to reduce the operating burden and waiting time at the branches was also added. In 2006, the new customer service model implemented in all

branches during the previous year was reinforced. To this end, customer service was redefined for a larger number of branches through the assignment of business officers for medium- and high-income individuals as well as for companies. In the latter case, emphasis was placed on the development of the agricultural and livestock sector and the whole range of the SMEs segment.

     The Bank uses a data warehouse to perform segmentation and profitability analyses, estimate performance patterns and cross-selling indices and forecast client response based on historical information and data-mining. The Bank has a customer oriented service approach and a segmented marketing approach. In the late 1990s, the data warehouse capabilities began to be used to design marketing campaigns focused on specific segments of the Bank’s customer base. The Bank’s marketing strategy is focused on the development of long-term relationships with customers based on its knowledge of those customers. As part of this client-oriented strategy, in the late 1990s, the Bank began to implement customer relationship management technology to support continuous improvement of its relationship with customers.

     Since 2003, the Bank implemented several programs mainly aimed at improving customer focus among Bank team members. As a consequence, Banco Galicia’s image and “top of mind” (immediate brand recollection) improved significantly. The Bank’s investment in advertisement continued to increase since then, accompanying the general market’s trend and particularly, the financial system’s increase in investment and number of advertisers. These actions, along with massive events in shopping centers across the country and many direct-marketing actions have reinforced the perception of the Bank as a close and friendly bank and have strengthened the image of the brand, allowing the Bank to regain the “top of mind” leadership in its category.

     The Bank considers quality of service as an element capable of distinguishing it from competitors. In order to measure this indicator, the Bank performs various surveys. The customer satisfaction surveys for the last quarter of 2003 and 2004 showed a significant upturn in customers satisfaction rates, which regained the pre-crisis levels. During 2005, the Bank implemented new measures and activities, especially at the branch level, and during 2006, started the implementation of a three-year plan for the purpose of strengthening the organizational culture through certain values such as commitment, kindness, and accuracy, while continuing with the assessment of service quality at the branches.

     This assessment is part of an incentive program and is based on the ongoing monitoring of the following indicators: customer satisfaction, service quality and the response to claims. The general score received by the branches in terms of quality of service averaged 8.96 points (from 10), and 127 branches exceeded the goal set up for the fiscal year, which was 8.80 points. Also, as done every year since 2001, a benchmarking survey was jointly carried out with the main competitor banks. The survey results awarded the Bank first place with respect to customer satisfaction.

     In November 2005, the Bank adhered to the “Code of Banking Practices” established by the four bank associations of Argentina, which will further contribute to the improvement of the quality of service offered by the Bank.

Property

     The following are our main principal assets:

						Square
Property				Address		Meters				Main Uses
Grupo Financiero Galicia
		- Owned		-Tte. Gral. Juan D. Perón 456, 2nd floor, Buenos Aires, Argentina			146			Administrative activities
				-Maipú 241, Buenos Aires, Argentina (1)			1,619			Administrative activities
Galicia Retiro Compañía de Seguros S.A.
		- Owned		-Maipú 241, Buenos Aires, Argentina			723			Administrative activities
Galicia Vida Compañía de Seguros S.A.
		- Owned		-Maipú 241, Buenos Aires, Argentina			915			Administrative activities
Net Investment S.A.
		- Owned		-Tte. Gral. Juan D. Perón 456, 2nd floor, Buenos Aires, Argentina			45			Administrative activities

						Square
Property				Address		Meters				Main Uses
		- Rented		-25 de Mayo 702, 3rd floor, Buenos Aires, Argentina			290			Administrative activities
Galicia Warrants S.A.
		- Owned		-Tte. Gral. Juan D. Perón 456, 6th floor, Buenos Aires, Argentina			118			Administrative activities
				-Ruta Nacional 18, Km. 209, San Salvador, Entre Ríos, Argentina			47,917			Storage
		- Rented		-Alto Verde, Chicligasta, Tucumán, Argentina			2,000			Storage
				-Alsina 3450, San Miguel de Tucumán, Tucumán, Argentina			12,800			Storage
				-Pasaje 1° de Mayo Esquina 25 de Mayo, Barrio el Corte Alderete, Tucumán, Argentina			2,000			Storage
				-Ruta Prov. 316 km. 14, Obispo Colombres, Depto. Alta Cruz, Tucumán, Argentina			3,000			Storage
				-San Martín 784, San Miguel de Tucumán, Tucumán, Argentina			85			Administrative activities
Banco de Galicia y Buenos Aires S.A.
		- Owned		-Tte. Gral. Juan D. Perón 407, Buenos Aires, Argentina			17,270			Administrative activities
				-Florida 361, Buenos Aires, Argentina			7,340			Administrative activities
		- Rented		-Tte. Gral. Juan D. Perón 525, Buenos Aires, Argentina			9,325			Administrative activities
				-San Martín 178/200, Buenos Aires, Argentina			3,630			Administrative activities
Banco Galicia Uruguay S.A.
		- Owned		-Luis Alberto Herrera 1248, 21st and 22nd floors, Edificio World Trade Center, Montevideo, Uruguay			880			Administrative activities
				-Punta del Este, Uruguay						Former Branch
		- Rented		-Montevideo, Uruguay						Storage
Tarjeta Naranja S.A.
		- Owned		-Sucre 152, 154 and 541, Córdoba, Argentina			6,500			Administrative activities
				-San Jerónimo 2348, 2350, Santa Fe, Argentina			1,500			Administrative activities
		- Rented		-Sucre 145/151, La Rioja 364 and 375, and Los Andes 197, Córdoba, Argentina			6,100			Administrative activities, printing centre and storage
Tarjetas Cuyanas S.A.
		- Rented		-Belgrano 1415, Mendoza, Argentina			1,160			Administrative activities
				-Olascoaga 348, San José, Mendoza, Argentina			580			Storage
Tarjetas del Mar S.A.
		- Rented		-Luro 3001, Mar del Plata, Buenos Aires, Argentina			240			Administrative Activities
				-Luro 2943, Mar del Plata, Buenos Aires, Argentina			765			Administrative Activities

(1)		We lease seven units to the Bank, equivalent to 1,373 square meters, for Ps.14,800 per month, and hold a 45 square meters unit vacant for storage. The remaining unit is occupied by Galicia Vida.

     In addition, in 1994, Banco Galicia purchased the building located at Reconquista 188/200, in Buenos Aires and, between 1992 and 2000, it purchased the building located at Tte. Gral. Juan D. Perón 444, in Buenos Aires. In these locations, the Bank is constructing a new corporate tower. The Bank will centralize a significant portion of its offices that are currently in the vicinity in this new corporate tower. The new corporate tower consists of approximately 42,000 square meters. The construction works are expected to be completed during 2007 and the estimated investment for 2007 is of approximately Ps.44.6 million.

     As of December 31, 2006, our distribution network consisted of:

          -Banco Galicia: 232 branches located in Argentina, 137 of which were owned and 95 of which were rented by Banco Galicia, located in all of Argentina’s 23 provinces.

          -Tarjeta Naranja S.A.: 92 sales points located in 21 of the 23 Argentine provinces, 91 of which were rented by the company.

          -Tarjetas Cuyanas S.A.: 19 sales points located in the provinces of Mendoza, San Juan, San Luis, La Pampa, La Rioja, Catamarca, Neuquén and Tucumán. All of them were rented.

          -Tarjetas del Mar S.A.: 3 sales points located in the Province of Buenos Aires. Both the Head Office and the branches were rented.

Selected Statistical Information

     You should read this information in conjunction with the other information provided in this annual report, including our audited consolidated financial statements and Item 5. “Operating and Financial Review and Prospects.” We prepared this information from our financial records, which are maintained under accounting methods established by the Argentine Central Bank under Argentine Banking GAAP, and do not reflect adjustments necessary to reflect the information in accordance with U.S. GAAP.

     Unless otherwise stated, in this section the exchange rate used to convert foreign currency amounts into pesos was the exchange rate as of each relevant date or period end that the Argentine Central Bank quoted. For the preparation of the financial statements as of December 31, 2004, December 2005 and 2006, the exchange rates used were Ps.2.9738, Ps.3.0315 and Ps.3.0695 per US$ 1.00, respectively. See Item 3. “Key Information––Exchange Rate Information.”

     Information included in this section as of and for the three fiscal years ended December 31, 2006 does not include any effect of inflation accounting. Information included in this section as of and for the fiscal year ended December 31, 2002 and 2003 include the effects of inflation accounting through February 28, 2003. See “Presentation of Financial Information”.

     High rates of inflation affect the comparability of financial performance on a period-to-period basis. Although inflation accounting improves the comparability of the financial information, it does not eliminate or correct many of the distortions created by inflation that will affect period-to-period comparisons of financial information.

Average Balance Sheet and Income from Interest-Earning Assets and Expenses from Interest-Bearing Liabilities

     The average balances of interest-earning assets and interest-bearing liabilities, including the related interest receivable and payable, are calculated on a daily basis for Banco Galicia, Galicia Uruguay and Tarjetas Regionales S.A. on a consolidated basis. The average balances of interest-earning assets and interest bearing liabilities are calculated on a monthly basis for Grupo Financiero Galicia and its other non-banking subsidiaries.

     Average balances have been separated between those denominated in pesos and those denominated in dollars. The nominal interest rate is the amount of interest earned or paid during the period divided by the related average balance.

     Net gains/losses on government securities and related differences in market quotations are included in interest earned. We manage our trading activities in government securities as an integral part of our business. We do not distinguish between interest income and market gains or losses on its government securities portfolio. The non-accrual loans balance is included in the average loan balance calculation.

     The following table shows our consolidated average balances, interest earned or paid and nominal interest rates for interest-earning assets and interest-bearing liabilities for the fiscal year ended December 31, 2006.

		Fiscal Year Ended December 31, 2006 (*)
		Pesos												Dollars												Total
						Interest				Average								Interest				Average								Interest				Average
		Average				Earned/				Yield/				Average				Earned/				Yield/				Average				Earned/				Yield/
		Balance				Paid				Rate				Balance				Paid				Rate				Balance				Paid				Rate
		(in millions of pesos, except rates)
Assets
Government Securities		Ps.	3,501.5			Ps.	252.5				7.21			Ps.	1,174.3			Ps.	60.0				5.11			Ps.	4,675.8			Ps.	312.5				6.68
Loans
Private Sector			5,148.2				754.0				14.65				1,333.3				75.1				5.63				6,481.5				829.1				12.79
Public Sector			4,369.5				496.3				11.36				—				—				—				4,369.5				496.3				11.36
Total Loans			9,517.7				1,250.3				13.14				1,333.3				75.1				5.63				10,851.0				1,325.4				12.21
Other(1)			1,778.4				125.5				7.06				4,447.4				158.8				3.57				6,225.8				284.3				4.57
Total Interest-Earning Assets			14,797.6				1,628.3				11.00	%			6,955.0				293.9				4.23	%			21,752.6				1,922.2				8.84	%
Cash and Gold			432.7				—				—				210.0				—				—				642.7				—				—
Equity in Other Companies			561.1				—				—				44.2				—				—				605.3				—				—
Other Assets			1,970.2				—				—				80.8				—				—				2,051.0				—				—
Allowances			(348.8	)			—				—				(88.3	)			—				—				(437.1	)			—				—
Total Assets		Ps.	17,412.8				—				—			Ps.	7,201.7				—				—			Ps.	24,614.5				—				—

		Fiscal Year Ended December 31, 2006 (*)
		Pesos												Dollars												Total
						Interest				Average								Interest				Average								Interest				Average
		Average				Earned/				Yield/				Average				Earned/				Yield/				Average				Earned/				Yield/
		Balance				Paid				Rate				Balance				Paid				Rate				Balance				Paid				Rate
		(in millions of pesos, except rates)
Liabilities and Equity
Deposits
Current Accounts			536.8				21.0				3.91				122.0				—				—				658.8				21.0				3.19
Saving Accounts			1,283.0				4.4				0.34				506.3				—				—				1,789.3				4.4				0.25
Time Deposits			4,556.3				405.8				8.91				741.6				9.6				1.29				5,297.9				415.4				7.84
Total Interest-Bearing Deposits			6,376.1				431.2				6.76				1,369.9				9.6				0.70				7,746.0				440.8				5.69
Argentine Central Bank			6,083.0				769.5				12.65				0.1				—				—				6,083.1				769.5				12.65
Other Financial Entities			265.9				35.1				13.20				172.9				11.3				6.54				438.8				46.4				10.57
Debt Securities			170.7				24.4				14.29				3,261.7				270.5				8.29				3,432.4				294.9				8.59
Other			108.8				12.2				11.21				1,084.9				96.2				8.87				1,193.7				108.4				9.08
Total Interest-Bearing Liabilities			13,004.5				1,272.4				9.78				5,889.5				387.6				6.58				18,894.0				1,660.0				8.79
Demand deposits			1,735.8				—				—				20.6				—				—				1,756.4				—				—
Other Liabilities			1,651.9				—				—				518.8				—				—				2,170.7				—				—
Minority Interests			144.1				—				—				—				—				—				144.1				—				—
Shareholders’ Equity			1,649.3				—				—				—				—				—				1,649.3				—				—
Total Liabilities and Equity		Ps.	18,185.6				—				—			Ps.	6,428.9				—				—			Ps.	24,614.5				—				—
Spread and Net Yield
Interest Rate Spread											1.22	%											(2.35	)%											0.05	%
Cost of Funds Supporting Interest-Earning Assets											8.60												5.57												7.63
Net Yield on Interest-Earning Assets											2.41												(1.35	)											1.21

(*)		Rates include the CER adjustment.
(1)		Includes the amounts corresponding to the Hedge Bond to be received, among others.

     The following table shows our consolidated average balances, interest earned or paid and nominal interest rates for interest-earning assets and interest-bearing liabilities for the fiscal year ended December 31, 2005.

		Fiscal Year Ended December 31, 2005 (*)
		Pesos												Dollars												Total
						Interest				Average								Interest				Average								Interest				Average
		Average				Earned/				Yield/				Average				Earned/				Yield/				Average				Earned/				Yield/
		Balance				Paid				Rate				Balance				Paid				Rate				Balance				Paid				Rate
		(in millions of pesos, except rates)
Assets
Government Securities		Ps.	4,945.8			Ps.	660.9				13.36			Ps.	801.9			Ps.	16.4				2.05			Ps.	5,747.7			Ps.	677.3				11.78
Loans
Private Sector			3,917.2				610.3				15.58				989.9				39.6				4.00				4,907.1				649.9				13.24
Public Sector			4,839.8				714.9				14.77				—				—				—				4,839.8				714.9				14.77
Total Loans			8,757.0				1,325.2				15.13				989.9				39.6				4.00				9,746.9				1,364.8				14.00
Other(1)			1,584.4				134.6				8.50				4,765.2				138.7				2.91				6,349.6				273.3				4.30
Total Interest-Earning Assets			15,287.2				2,120.7				13.87	%			6,557.0				194.7				2.97	%			21,844.2				2,315.4				10.60	%
Cash and Gold			357.1				—				—				184.2				—				—				541.3				—				—
Equity in Other Companies			446.7				—				—				43.5				—				—				490.2				—				—
Other Assets			1,901.2				—				—				89.3				—				—				1,990.5				—				—
Allowances			(555.7	)			—				—				(72.4	)			—				—				(628.1	)			—				—
Total Assets		Ps.	17,436.5				—				—			Ps.	6,801.6				—				—			Ps.	24,238.1				—				—
Liabilities and Equity
Deposits
Current Accounts			536.8				15.3				2.85				78.2				—				—				615.0				15.3				2.49
Saving Accounts			1,023.9				4.7				0.46				364.1				—				—				1,388.0				4.7				0.34
Time Deposits			3,351.3				238.9				7.13				767.8				7.9				1.03				4,119.1				246.8				5.99
Total Interest-Bearing Deposits			4,912.0				258.9				5.27				1,210.1				7.9				0.65				6,122.1				266.8				4.36