Brazil entered the 21st century as a democratic, urbanized society, with universal access to primary education, relatively balanced public accounts and low inflation. Our mindset has also changed and the country no longer fears international competition. By opening up its borders to international trade, Brazil has gained access to global markets.

Over the past 20 years a growing number of Brazilian companies learned to look outward and no longer felt restricted to doing business in the domestic market. The first steps were naturally hesitant: a representative office here, a small subsidiary there. Gradually, however, Brazilian entrepreneurs dared to dream of truly global operations, with significant presence in key markets. Today, major Brazilian companies compete on an equal footing with international players in ways that seemed all but impossible until recently. We now have a solid global presence in the food, beverage, steel, mining, engineering services and aviation industries. The country has changed.

The Brazilian financial system, however, did not keep pace with these achievements. Subject to limiting capital structures, Brazilian banks looked inward, focusing on the vast and extremely competitive local market. A long consolidation process – set in motion by the Real Plan in 1994 – created, over the following decade, a small number of large, agile and efficient banks with a broad national presence. During this same period several international financial institutions entered Brazil, gaining a significant share of the domestic market.

Unlike the rest of Latin America, however, Brazilian banks continued to lead in their home market. But the consortium acquisition of ABN AMRO in late 2007 began to change this picture. For the first time the possibility of competing with an institution which had local and global scale became real. The limitations of local banks were clear: mainly, an inability to follow key customers overseas and a serious threat of losing domestic market share to foreign competition.

It was against this backdrop that Roberto Setubal and I began our initial discussions in 2007. What united us most was the dream of creating the first Brazilian financial platform with the size and the ability to look beyond national borders. To achieve this goal we first needed to build a strong position within Brazil, bringing together capital, human talent, a diversified business base and a significant presence in key markets, exactly what a combination of Itaú and Unibanco would provide: two efficient, highly competitive banks, with clear and often complementary positions in the various segments that comprise the Brazilian financial services industry. From this merger, a potential global player would arise.

Encouraged by the logic of this first but major step, we slowly developed our vision through countless meetings. However, the global context in which these conversations were held began to change significantly during this period. Deteriorating balance sheets of key global financial institutions and the macroeconomic conditions of developed countries, in a perverse feedback process, gradually worsened and reached a singular moment with the collapse of Lehman Brothers in September 2008. At the time, many saw these troubles as being limited to G-7 countries, but it soon became clear that they were also a threat to emerging economies. In retrospect, the transmission mechanisms were quite obvious: less funding for international trade, falling prices for commodities, pressure on exchange rates, and a growing mistrust of the banking system. The market value of banks around the world plummeted, and not even sound financial systems like that of Brazil were spared.

The worsening crisis gave us two choices for our merger plans: we either could put our discussions on hold, resuming them later after the dust had settled, or we could forge ahead to a conclusion. We decided, without hesitation, on the latter course. We knew what we would be able to build together and, more importantly, our many conversations not only reinforced our belief in the merger’s logic, but also developed the mutual trust that is essential for such a deal to succeed. On November 3rd, we announced the birth of Itaú Unibanco.

At the time of writing, three months have gone by since the announcement of the merger. During this period of mutual adaptation, it is already clear that we have created a thoroughly unique financial institution: Itaú Unibanco is the market leader in virtually all of its business lines; the talent pool is unmatched, allowing us to envision the creation of a culture built on the best aspects of Itaú and Unibanco – and surpass them; our capital base will allow a substantial expansion of activity when the market returns to normal; and, on top of all that, a particularly strong balance sheet. The market recognizes the huge potential of this new organization, placing Itaú Unibanco among the world’s 15 largest institutions in terms of market capitalization, the sixth largest in the Western world, and largest in Latin America and the Southern Hemisphere. This is truly an auspicious beginning in the midst of a disoriented market and a world seeking quick answers to an unprecedented crisis.

We now face the enormous challenge of successful integration. Roberto speaks about this in his message to stockholders. However, I look at this challenge with great enthusiasm, because I know that people working at the new bank understand the historic nature of this moment and the extraordinary opportunity we have before us to build a truly unique company. I do not underestimate the difficulties of the process, but every day I see new and unexpected opportunities to grow our business.

Before closing, there are a few people who I would like to thank. Let me start with the entire Unibanco team, who understood how to build a competitive, innovative, and above all, highly skilled organization. It was a pleasure being part of this wonderful experience with you. It was also fun! I also wish to thank the people at Itaú, who have welcomed us with open arms. My long-standing admiration for what you have created grows every day. To Pedro Malan, who chaired the Unibanco Board of Directors for the past five years, my gratitude for your constant support, dedication, and the trust you showed when agreeing to join us. And to Olavo Setúbal – whose absence will always be felt – who was magnanimous in stepping down from his position as Chairman of Banco Itaú to facilitate the merger of the two organizations. Becoming chairman of this new institution means following in the footsteps of great men like Pedro Malan and Olavo Setúbal, so I am fully aware of the responsibility and privilege that it represents.

We have taken an extraordinary step and opportunities abound. Now, let’s get to work.

Sincerely,

Pedro Moreira Salles

Chairman of the Board of Directors of Itaú Unibanco