História

Converging Paths

Viewed from a historical perspective, the creation of Itaú Unibanco is the culmination of convergent paths. Throughout their 63 and 84–year histories, respectively, Itaú and Unibanco have known how to anticipate the challenges of the market, consolidating in times of crisis in the Brazilian economy and expanding their business during periods of growth. The merger of these two banks in 2008 is characteristic of their collective history of mergers and acquisitions.

Itaú Unibanco is now the largest privately-controlled bank in the Southern Hemisphere and one of the 20 largest banks in the World. It was born out of the merger of two institutions that since their establishment – Unibanco began in 1924 in southern Minas Gerais, while Itaú started of-in 1945 in São Paulo – have shared certain essential characteristics. One of the most prominent in both is the ability to be close to their clients by understanding their needs, and being alert to the economic environment, providing financial support to help expand businesses through innovative services.

In 1924 when businessman João Moreira Salles obtained the banking license for what would later become Unibanco, he was running Casa Moreira Salles, a general store in the city of Poços de Caldas which sold dry goods, farming tools, kitchen utensils and clothing and which also offered banking services. At the turn of the 1920s João already had correspondent banking relationships with more than a dozen major banks and had more than two hundred customers, including coffee farmers and investors in the city’s burgeoning tourism industry.

A short while earlier, the Brazilian government had begun reorganizing the domestic banking system. The flagship of this reform was the creation of the Banco do Brasil Rediscount Portfolio, which became a guarantor of the system’s liquidity, a measure that was followed by the establishment of a cheque clearing service, another bank responsibility, and the establishment of bank supervision standards.

It was against this backdrop that for the fiscal year July 1, 1922 to June 30, 1923, the tax return of Casa Moreira Salles registered spectacular growth, due largely to its banking activities, and License No. 272, dated September 27, 1924, officially established Casa Bancária Moreira Salles as a bank.

Itaú’s own origin is similar, though it occurred two decades later, and within a very different context. In 1943 when Egydio Alfredo de Souza Aranha, a textiles industrialist, established Banco Central de Crédito SA, São Paulo was a booming city with 1.3 million inhabitants and over 20,000 motor vehicles. While Unibanco was shaped during a bubbling economy by an entrepreneur from the retail sector, Itaú sprang from industry and another restructuring of the domestic banking system. The first branch opened on January 2, 1945 in downtown São Paulo, and that same year the government created the Banco do Brasil Currency and Credit Superintendency, the precursor to the Central Bank, which came about two decades later.

With the end of World War II, Brazil’s industrial activity began to grow. From Mr. Souza Aranha’s wide network of relationships with industrialists and textile dealers, Banco Central de Crédito started to expand. Within ten months the bank had a branch in Campinas and another in San João da Boa Vista. The following year the bank increased its share capital in order to fund the construction of its new headquarters in downtown São Paulo, plus the opening of new branches in the interior of the São Paulo State.

The history of the Brazilian banking system is marked by consolidation cycles featuring waves of mergers and acquisitions that are generally associated with changes in the sector’s institutional framework or economic crises, alongside periods of strong organic growth, with banks opening new branches in different regions of the country, and in some cases, abroad. Given their leadership positions in the market, it’s not surprising that Itaú and Unibanco have been at the forefront of these movements which characterize the domestic banking sector.

In 1940, for example, the merger of Casa Bancária Moreira Salles with Casa Bancária Botelhos and Banco Machadense, both from southern Minas Gerais State, established Banco Moreira Salles, with a total of 34 branches and representative offices. Within five years it had grown to 63 branches, spread over the States of São Paulo, Minas Gerais and Rio de Janeiro, and soon thereafter to several cities in the State of Paraná. Between 1948 and 1952, 20 branches were opened. This investment phase to expand the number of new branches was followed in the mid-1960s by a period of growth through mergers and acquisitions.

Banco Central de Crédito, which would later become Itaú, remained in the State of São Paulo until the end of the 1950s, when it had a total of 31 branches. In the following decades its story of entrepreneurship would continue and gather strength, this time led by engineer Olavo Egydio Setubal, who, after being invited by his uncle Alfredo and Alfredo’s son-in-law, Dr. Eudora Villela, took over the running of Banco Federal de Crédito. Beginning in the 1960s, the bank went through a major expansion phase, mainly through mergers and acquisitions of other banks. In 1964 it merged with Banco Itaú SA, at the time one of the 50 largest Brazilian banks. In 1966 it acquired Banco Sul Americano do Brasil SA, which belonged to the Moraes Barros family, which gave rise to Banco Federal Itaú Sul Americano. In 1969 it purchased Banco da América, which was an innovator in providing services to higher income customers. Subsequent acquisitions included Banco Aliança SA in 1970, Banco Português do Brasil SA in 1973, and the complex but successful takeover of Banco União Comercial S.A. in 1974.

By the end of this period, the bank, which had only begun 30 years earlier with the minimum capital required by law, now held the second highest amount of deposits in the entire national banking system and was the leader, among privately owned banks, in number of branches, with nearly 500 spread across the country. At this point the institution changed its name to Banco Itaú SA.

Meanwhile, Banco Moreira Salles, which by 1967 already had over 300 branches and about one million accounts, changed its name to União de Bancos Brasileiros, following the acquisition of Rio Grande do Sul-based Banco Agrícola Mercantil, which had been active in nine States and the Federal District. Under this new name in 1970 it took over Rio de Janeiro’s Banco Predial, a credit institution specializing in loans to low income clients, which gave the new bank excellent penetration into the then States of Rio de Janeiro and Guanabara.

In 1974 the group opened its first overseas branch, in Paris.

From the late 1970s to the mid-1990s, the Brazilian economy experienced a long period of low growth combined with high inflation, punctuated by foreign debt crises. During this time the leading banks, who were well positioned in every region, concentrated their investments in automated services and innovation, along with customer segmentation. At the same time, the international expansion strategy gained momentum, which led Itaú in particular to take on an active presence in Argentina by opening a street front bank (taking deposits and servicing the public) in the Buenos Aires region, and a representative office (for corporate operations) in Europe.

A new round of mergers and acquisitions took place following the Real Plan in the mid-1990s, when hyperinflation was finally wrestled to the ground. By this time Itaú and Unibanco were now operating as universal banks and their activities were targeted at various customer segments: personal banking (divided into income groups), commercial banking (divided by size of business), and services such as investment banking, insurance, finance, credit, real estate and securities brokerage, making them leading players on this new stage in the history of Brazilian banking.

The strategy of both institutions was to acquire large scale competitors that had failed to overcome the difficult transition from a hyperinflation economy to one where prices were under control, as well as large State-owned banks through privatization. In 1995 Itaú acquired Banco Francês e Brasileiro, and in the following years bought State banks Banerj (Rio de Janeiro), BEMGE (Minas Gerais), Banestado (Paraná) and BEG (Goiás). In keeping with its market segmentation strategy, in 2002 it merged with Banco BBA-Creditanstalt, which was active in the large corporate customer segment, while in 2003 it purchased Banco Fiat SA, which specialized in vehicle financing operations. In 2006 Itaú took over the operations of BankBoston in Brazil, Chile and Uruguay.

In 1995 Unibanco had to prove its banking credentials after its rapid takeover of Banco Nacional S.A., which the Federal government had previously been forced to step in and run. In the following years a number of institutions from a variety of market segments were absorbed into the Unibanco group, including Fininvest, a leader in direct consumer credit (half the equity was acquired in 1996, the remainder in 2000), and Banco Dibens, which was strong in vehicle purchase financing (Unibanco bought half the company in 1998 and the remainder in 2005). In 2000 Unibanco acquired Credibanco, which was well positioned as a lending agent using BNDES credit lines, as well as Banco Bandeirantes. A large bank with a strong presence in Brazil’s northeast, Bandeirantes was a hotly disputed takeover target among the biggest banks, and its acquisition resulted in the leading Portuguese bank Caixa Geral de Depósitos, which had controlling interest in Bandeirantes, to gain a minority stake in Unibanco. Other mergers in following years included BNL Banco do Brasil, a subsidiary of the Italian Banca Nazionale del Lavoro SpA, in 2004.

There is no end to the similarity in style of the founders, or the expansion and segmentation profile in the histories of Itaú and Unibanco. Just look no further than the two strategists who commanded these banks and took them to the top of the global banking sector. Engineer and industrialist Olavo Egydio Setubal and lawyer and businessman Walther Moreira Salles were part of a select and increasingly rare type of entrepreneur: private businessmen with a remarkable public spirit.

It’s no coincidence that both men attributed the success of their business, ahead of all else, to the boldness of the innovative concepts they introduced and to the employees that carried them out. “A bank is not built only with capital,” Olavo Setubal used to teach. “It is built, above all, by people and ideas.” In explaining to a reporter who had asked him the secret of his great success as a banker and businessman, Walther Moreira Salles replied without hesitation: “It’s very simple, yet extremely difficult: you need to know how to choose people.” For Salles, Unibanco’s major differential was to be “A bank of people, serving people.”

For Olavo Setubal and Walther Moreira Salles breaking paradigms in business life was not enough. On several occasions they both served their country with enthusiasm and distinction. Walther was invited by Horacio Lafer, Minister of Finance in the Getúlio Vargas administration, to be the Director of Sumoc (the then central bank) in 1951, and was three times Brazilian Ambassador to the United States: in 1952, also during the Vargas administration, in 1959 under Juscelino Kubitschek, and in 1960, in an extraordinary role, as negotiator of Brazil’s foreign debt for the Jânio Quadros administration. He was also Minister of Finance under President João Goulart in 1961. For his part, Olavo Setubal was a member of the National Monetary Council in 1974, Mayor of São Paulo, Brazil’s largest city, from 1975 to 1979, chairman of the Partido Popular political party and leader of the Democratic Alliance, a non-partisan group that helped elect Tancredo Neves as President of the Republic and end the military regime, and also Minister of Foreign Affairs in the José Sarney administration, the first civilian government after the reestablishment of democracy in the country.

Messrs. Setubal and Moreira Salles also stamped other marks in common on their banks. Innovative in business, both were pioneers in spreading the use of computers for processing banking operations and offering customer services. Backed by large investments in automation and supported by modern and large operational centers, Itaú’s Electronic Bank and Unibanco’s 30 Hours are the manifestations of their leadership in this critical area of large scale banking.

Patrons of the arts, culture and promoters of social and environmental responsibility, they established independent and effective structures to spread culture and practices that drive sustainability. Instituto Cultural Itaú and Instituto Moreira Salles are innovative, pioneering organizations, as are Fundação Itaú Social and Instituto Unibanco in the
social area.

All the similarities we see in the histories of Itaú and Unibanco – and in the values of their leaders – are helping us build an even stronger bank that can lead in the domestic financial sector and play a key role in the global market.