A bank to handle the toughest competition

The November 2008 announcement of the creation of Itaú Unibanco, the largest bank merger in Brazilian history, occurred at a unique moment in the evolution of the financial sector and the World economy. The crisis triggered by the collapse of the US financial market created a favourable environment to merge the operations of these two banks. The joining of two major competing financial services institutions reflects their search for large scale operations, which has resulted in a company capable of competing globally, and prepared to ensure the solvency and supply of credit of the domestic banking system.

The highly competitive nature of the Brazilian banking market is demonstrated by the 2007 ABN AMRO Real merger with Spanish bank Santander – which had previously taken over Banespa – bringing about a major local competitor with substantial capital and national and international presence.

At the time, Brazilian banks Itaú and Unibanco were among the country’s ten largest banks. Thanks to the merger, they now lead the local market and have become one of the largest financial institutions in the World, capable of competing and expanding at a global level. Following the creation of Itaú Unibanco, the federal government bank Banco do Brasil announced the takeovers of Brazilian banks Nossa Caixa and Banco Votorantim, acquisitions that have made the market even more competitive.

The first effects of the financial crisis begun in the United States reached Brazil in August of last year, causing a major devaluation of the Real against the dollar. With reduced external funding facilities, Brazilian companies with international presence sought credit in the local market. However, to preserve their liquidity and safeguard against expected loan defaults Brazil’s big banks have become more hesitant to
lend money.

This is the financial environment in which Itaú Unibanco is taking its first steps. Despite external turmoil, the bank trusts in the maturity of the Brazilian economy and in the strength of the institution it has created. The country’s sound macroeconomic position and Itaú Unibanco’s robust base of over 35 million customers ensure the bank’s ability to generate results in coming years.

Itaú Unibanco management expects 2009 to be a particularly difficult year, given the pronounced slowdown of the global economy, with less economic growth, rising unemployment, reduction of consumer purchasing power and a consequent drop in business investments and demand for personal and corporate credit. But economic analysts estimate that Brazil will be less impacted than the World’s major economies, which in itself should open up fresh prospects.

National consolidation and global expansion

Itaú Unibanco was created to become a performance benchmark in the international financial system. The merger of the operations, cultures and talents of the two banks will enable it to consolidate its leadership in the domestic market and compete with the World’s largest companies in the sector.

In 2009, with its focus on integration (see The Road
to Integration), Itaú Unibanco will be concentrating its efforts on the domestic market so it can later expand to other countries. The objectives are to achieve synergies between its businesses and offer the best that both banks were known for. Combining Itaú’s superior skill at generating income with Unibanco’s cost control efficiency, for example, points the way to good opportunities.

The full integration of the two banks is expected to take about two years. Once completed, Itaú Unibanco will work on scaling up its international operations, likely beginning with Latin America, given its geographical, cultural and economic proximity to Brazil. Management anticipates that growth will occur through mergers and associations, primarily with products such as credit cards and insurance.