Latin Finance - November/December 2009 - 34

2009 and that of the its investment banking unit Itaú BBA have been set up, as well as the middle office and wealth management arms. Still underway is the laborious migration of Unibanco’s branch network into Itaú’s. Analysts note the new entity’s need to focus on wrapping up the integration before making further acquisitions or expanding organically, even if it results in an understandable distraction from the competitive Brazilian banking landscape. While Itaú Unibanco has stuck to its pledge to prioritize integration, one thing it has not done is turn inward at the expense of missing out on chances to expand. “We haven’t lost any market share in our various businesses,” says Moreira Salles. In fact, the bank jumped at an opportunity in August that substantially boosted holdings in the insurance sector. It bought a 43% stake in Porto Seguro just weeks after the insurer’s talks with Bradesco for a similar deal – one that involved giving the latter a controlling stake in the venture – fell apart. Itaú Unibanco’s willingness to cede control when it came to negotiating with Porto Seguro did not go unnoticed. “These characteristics [of higher flexibility with regards to ownership] were also present in other deals Itaú Unibanco has entered in the past,” notes Barclays. “The merger of Itaú Unibanco in 2008 with joint control is the best example of this culture of giving up on a piece of something to have a larger share of something bigger,” they note. “The idea of the deal was to become [closely associated] with the country’s best auto insurer,” says Moreira Salles, adding that his bank sought to gain scale through the partnership and patch up a weakness in that segment. The deal involves migrating Itaú Unibanco’s own auto insurance business into Porto Seguro. “Now we are by far the biggest [in that business],” says Moreira Salles. it now has the ability to build outside Brazil, something Itaú had already begun to do in a few Southern Cone countries in the years leading up to the merger. “Itaú Unibanco is the tenth largest global bank by market cap and yet its international operations are very small compared to other top 10 banks,” notes Mark Rosen, head of Credit Suisse’s LatAm financial institutions investment banking group. “International expansion is part of the intrinsic logic of our merger,” says Moreira Salles. “This has been an objective and a natural consequence of the deal,” he adds, noting however, that the bank’s priority remains integration. Pushing overseas: Moreira Salles Itaú Unibanco executives have already begun to discuss a foreign campaign. In an inaugural get-together early October in London, the bank’s newly formed international committee met to plot the best way to initiate the process. Itaú’s investment banking arm already has securities distribution offices in Europe, Asia and the Middle East, but this should not be confused with being an international bank, says Moreira Salles. “When I think of a global company, I don’t think of offices whose business is tied to that of the home office,” says Moreira Salles. “I think of standalone entities in multiple countries, which is how we’ve viewed our presence in places like Chile International Expansion and Paraguay so far,” he adds. Itaú Unibanco’s international committee is chaired by Pedro Malan, former Brazilian minister of finance and chairman of Unibanco’s board. It is comprised of Moreira Salles; Setubal; Inbev board member Marcel Telles; André Lara Resende, whose career includes leading roles at BNDES, Garantia and Brazil’s public credit bureau; Pedro Aspe, Mexico’s former minister of finance; Woods Staton, Buenos Aires-based chairman of Arcos Dorados; Carlos Gohsn, CEO of Nissan-Renault; Jacob Frenkel, former head of Israel’s central bank; and Raghuram Rajan, former IMF chief economist. Meanwhile, at home, Itaú Unibanco faces a growing threat from Santander, which in early October priced an IPO of the Brazil unit, which valued it initially on a P/E and P/BV basis below Bradesco, according to analysts. A $50 billion market cap and 14 billion reais in IPO proceeds give the bank’s widely respected management a powerful mandate to grow and take on Bradesco, Banco do Brasil and Itaú Unibanco. “Santander is an extremely important bank,” says Moreira Salles, noting he thinks it will become a powerful presence in Brazil. Moreira Salles said at the time of the merger announcement in November 2008 that among the main concerns he had that prompted a dialogue with Setubal was the fact that Santander had established itself as a major foreign threat to Brazil’s top banks. “I’m very glad we did what we did, because it resulted in a better position for both [Unibanco and Itaú],” he adds. “I think [Santander’s IPO] is a positive development for us too,” says Moreira Salles, noting the valuation exercise also had a positive effect on how investors view Itaú Unibanco. An added benefit is the fact Santander will have to now open its financial statements to the public, which will help competitors understand its business better. LF One of the big questions for investors is when Itaú Unibanco will begin to grow into a top global bank. Its market cap already competes with the likes of Santander, HSBC, Deutsche and Citi, and UPDATE For the complete interview and daily news on Brazilian banking, see www.latinfinance.com > 34 LatinFinance November/December 2009

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Latin Finance - November/December 2009

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