LatinFinance - November/December 2016 - 16

have to see how the local capital markets will accept these deals at
the terms and prices that they need."
IB poised for growth
Itaú and its competitors would surely welcome a trend for
infrastructure financing to shift away from government-backed
lenders and into the capital markets - especially after the past 12
months: investment banking is another area hard hit by Brazil's
economy. Itaú BBA, LatinFinance's Investment Bank of the Year
Brazil, has performed best in the domestic market, but it has still had
a tough time.
The investment bank rose in Dealogic's league tables for Brazilian
mergers and acquisitions, for example, ranking top in the 12 months
to the end of June after placing fourth in the same period a year
earlier.
And yet, overall business was sharply down: the bank worked
on $15.5 billion worth of deals between July 2015 and June 2016,
and $23.6 billion a year earlier. It was a similar story in loans, where

Strengthening the balance sheet
Itaú Unibanco's non-performing loan rate (% of total loans)
6
5
4
3
2
1

15 to 90 day NPL Ratio
90 day NPL ratio

0
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Source: Itaú Unibanco, LatinFinance

it held onto its position as the top local bank, but executed less
business.
Still, the bank is bullish on the path ahead.
"Despite the fact that equities and debt capital markets for most of
the year had much lower activity levels than historically we've seen,
the M&A pipeline was quite robust," says Christian Egan, deputy
head of corporate and investment banking at Itaú BBA. "And the way
we forecast it, we are going to have a record year in terms of M&A."
Egan says he is optimistic about business in 2017. M&A will
continue to be very strong and he forecasts a rebound in equity
capital markets and local fixed income.
"The credit market in Brazil for institutional investors has been
muted for the past year and a half to two years," he says. "As rates
start to converge towards single digits there will be demand from
international accounts, whether it's mutual funds, hedge funds or
pension funds, to move from the traditional government bonds into
private credit in general. The market could easily double or triple
next year, from the very low base we saw this year."
A number of executives left Itaú BBA in late 2015 and early 2016,

16 L ATINFINA NCE.COM - November/December 2016

beginning with the chief executive of investment banking, Jean-Marc
Etlin. Others quickly followed, including the global head of equity
markets, Facundo Vázquez, and Douglas Chen, a managing director
in debt capital markets.
But Egan says the team has traditionally been small, and he does
not expect that to change.
"We historically had a very tight team. We never had north of
350 employees in the entire investment bank, across equities,
fixed income and investment banking. We don't see this number
dramatically changing. We have strong talent internally and we are
properly staffed."
New competition
Across Itaú, a search for efficiency will be paramount in the years
ahead as lending rates reduce, putting pressure on net interest
margins.
"The spreads in Brazil are very high," says JPMorgan's Falavina.
"They're high in real terms. Banks are generally not very leveraged
and still managed to deliver good ROE. They tend to be safe because
they have low leverage, but the negative aspect is you need very high
net interest margins to deliver high profitability. So it all comes down
to efficiency."
It's not just a changing rate environment, however. New
competitors will accelerate the erosion of margins, says Setúbal. The
bank is paying "a lot of attention" to financial technology startups.
"We respect them a lot," he says.
"We have to be prepared to reduce margins in order to compete
with them. We also have to prepare to be able to offer clients similar
quality apps. And this will definitely reduce margins for banks. At
the end of the day, the winner of this will be the client. They will
have an easier, faster relationship with financial institutions."
Indeed, Setúbal appears more concerned about the competition
from fintechs than the bank's more established peers, saying
efficiency will be critical to keeping up.
"The large institutions are our competitors today. But as we go
into the future the new entrants probably will be more competitive
and we have to pay attention to them as well. Probably most banks
that we see today, the big banks, will be there somehow - some of
them will lose more and some of them will gain space. And probably
fintechs will take some share of the market."
Inorganic expansion will also be on the radar as a route to
growing profits. While the bank prides itself on its international
reach, only 12% of its operations are outside Brazil, notes S&P's Dias.
"We are expanding in Latin America. We would like to have a
stronger position in some of the markets where we are today," says
Setúbal. He says the bank could "for sure" grow in Colombia, and
has room to expand also in Argentina and Chile.
Analysts roundly praise Itaú's acquisition of a controlling stake in

DOMINGOS FALAVINA, JPMORGAN

"TO RETAIN HIGH PROFITABILITY
WITH AN UNUSUALLY HIGH TAX
BRACKET IN A COMPRESSING YIELD
ENVIRONMENT, IT BECOMES VERY
CHALLENGING"


http://www.LATINFINANCE.COM

Table of Contents for the Digital Edition of LatinFinance - November/December 2016

Contents
LatinFinance - November/December 2016 - Cover1
LatinFinance - November/December 2016 - Cover2
LatinFinance - November/December 2016 - Contents
LatinFinance - November/December 2016 - 2
LatinFinance - November/December 2016 - 3
LatinFinance - November/December 2016 - 4
LatinFinance - November/December 2016 - 5
LatinFinance - November/December 2016 - 6
LatinFinance - November/December 2016 - 7
LatinFinance - November/December 2016 - 8
LatinFinance - November/December 2016 - 9
LatinFinance - November/December 2016 - 10
LatinFinance - November/December 2016 - 11
LatinFinance - November/December 2016 - 12
LatinFinance - November/December 2016 - 13
LatinFinance - November/December 2016 - 14
LatinFinance - November/December 2016 - 15
LatinFinance - November/December 2016 - 16
LatinFinance - November/December 2016 - 17
LatinFinance - November/December 2016 - 18
LatinFinance - November/December 2016 - 19
LatinFinance - November/December 2016 - 20
LatinFinance - November/December 2016 - 21
LatinFinance - November/December 2016 - 22
LatinFinance - November/December 2016 - 23
LatinFinance - November/December 2016 - 24
LatinFinance - November/December 2016 - 25
LatinFinance - November/December 2016 - 26
LatinFinance - November/December 2016 - 27
LatinFinance - November/December 2016 - 28
LatinFinance - November/December 2016 - 29
LatinFinance - November/December 2016 - 30
LatinFinance - November/December 2016 - 31
LatinFinance - November/December 2016 - 32
LatinFinance - November/December 2016 - 33
LatinFinance - November/December 2016 - 34
LatinFinance - November/December 2016 - 35
LatinFinance - November/December 2016 - 36
LatinFinance - November/December 2016 - 37
LatinFinance - November/December 2016 - 38
LatinFinance - November/December 2016 - 39
LatinFinance - November/December 2016 - 40
LatinFinance - November/December 2016 - 41
LatinFinance - November/December 2016 - 42
LatinFinance - November/December 2016 - 43
LatinFinance - November/December 2016 - 44
LatinFinance - November/December 2016 - 45
LatinFinance - November/December 2016 - 46
LatinFinance - November/December 2016 - 47
LatinFinance - November/December 2016 - 48
LatinFinance - November/December 2016 - 49
LatinFinance - November/December 2016 - 50
LatinFinance - November/December 2016 - 51
LatinFinance - November/December 2016 - 52
LatinFinance - November/December 2016 - Cover3
LatinFinance - November/December 2016 - Cover4
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