Itau Unibanco Holding SA (ITUB)

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Itau Unibanco Holding NYSE:ITUB SAO:ITUB3 is a highly diversified financial conglomerate formed in late 2008 through a merger of large and in many ways complementary companies, retail and commercial giant Banco Itau and corporate banking group Unibanco, Brazil's third largest private banking institution. Customers in Brazil, Western Europe, the USA, Japan and China are provided with regular, commercial and corporate banking services. Products offered include various loan types with most relating to lease financing, mortgages and personal as well as savings and other types of bank demand deposits. In Brazil where it controls 11% of the retail banking market it operates over 30,000 ATM's (the large ATM presence means the bank's personnel costs are relatively low). Although present in all five regions of Brazil it has wisely invested more heavily in the southeast region (where 67% (2637) of the branches are and a lot of its business growth comes from, Southeast Brazil has only 41% of the country's population but over 60% of its gdp). About 2 to 7 percent of branches specialize in providing specific products and services rather than being full service; they are known as Customer Site Branches. Customer Site Branches increase cost effectiveness by limiting services to those with a higher or growing demand (corporate or commercial), arrangements have also been made with other ATM operators to boost the company's presence in certain provinces. Some business lines (Personnalite, Itau BBAU capital markets) specialize in a specific type of service (private and corporate) while others serve the entire industry (commercial banking division). In March 2009 it entered into a strategic partnership with Mitsubishi and Suzuki car dealerships centered around vehicle lease financing (important since many Brazilian automobile dealers have arrangements with banks and other institutions, 5.8% of the 6 to 7 million vehicle contracts it has (leads all companies in Brazil) are for trucks (2009)).^[1] In late 2010 the company began integrating Unibanco full service and site branches (1200 in the first 9 months) into the Itau brand.^[2]

Abroad there are another 1500 to 2000 branches operated by international subsidiaries based in Latin America (Argentina, Uruguay, Paraguay, Chile), the Cayman Islands, Western Europe, and Japan. Business abroad is more product and service specific depending on the country or region; three of the bank's securities offices are in Asia/the Middle East while six of the eight main private banking offices are located in the America's, Europe's head office is in Portugal (Itau Europa).

2009 was its tenth year as a member of the Dow Jones Sustainability Index (only 316 other companies (6 from Brazil) were included). Major shareholders include Itausa N1 (SAO:ITSA3) which owns 36.6% of the banking group.

Company Overview

• Business outside of Brazil (divided up by country in graph) represents about 15% of the company's total customer deposits, 7% of all loans and leases, 4.7% of total assets and 5.8% of shareholders equity.

Itau Unibanco operates almost 4000 branches and 30,000 ATM's in Brazil (September 2010). Many subsidiaries are made up of former, foreign subsidiaries of other large banks such as Credit Lyonnais, Bank of America (Brazil), Bankboston (Chile and Uruguay). Although the parent company has always been centered around retail banking (13.7 million retail banking customers, mostly in Brazil) through acquisitions and expansion it has become active in all major financial segments. In addition to the following major business lines the bank also serves the public sector (all levels of government), small businesses (430 offices in Brazil with mostly an advisory role to over half a million clients) and the high income Brazilian market (major divisions also have specialized services for that clientele however there are also over 160 branches that offer more streamlined services). It also manages fixed income (and others but the others represent only a small fraction of them) mutual funds (according to Itau it oversees nearly 1500 of them). Of the bank's 101,640 employees (2009 end of year) over 77,000 are in Southeast Brazil and 5,400 are outside of Brazil.

Itau Unibanco benefits from a number of strategic partnerships it has with other companies which gives it both vertical and horizontal integration. It is associated with Brazil's largest vehicle insurer Porto Seguro through joint ownership of Psiupar, a home and car insurer (over 3 million vehicles and 1 million homes), as well retailer Magazine Luiza through Luizacred a distributor and marketer of credit products. There are also others including one with mobile telephone carrier Vivo. The partnerships improve market penetration and thus give the bank an edge over more isolated competitors. Internationally it raised over 1 billion USD in Japan through equity fund, Rio Wind.

• • Commercial Banking (Itau Unibanco) - offers retail banking and private banking products and services (clients range from low to high net worth individuals and companies, they are offered products related to credit and deposits) as well as real estate financing and various types of insurance. The private banking business line provides securities and related services, asset management, and brokerage services.
• Private Banking - 22 to 25 thousand customers in Latin America alone (business abroad is mostly in Argentina, Chile, Uruguay, Mexico and Paraguay).
• Middle Market Banking - over 100,000 customers in 75 cities in Brazil offered investment products and services, insurance, foreign currency exchange, leasing, credit, and retirement plans in addition to regular banking services.

International 2009[1] billion USD fx rate 2.008[3]	Chile	Uruguay	Argentina	Paraguay	Europa	Consolidated
assets	5.33	1.544	1.046	0.946	7.283	16.149
shareholders equity	0.647	0.139	0.0857	0.123	1.263	2.2577
loans/leases	5.258	0.647	0.548	0.4856	2.899	9.8376
deposits	3.486	1.1454	0.7968	0.7968	2.318	8.543
customers	89,000	130,000	250,000	220,000	na	na

Real Estate - partnerships with brokers have improved access to the real estate market.

• Products - credit, hedging derivatives, capital loans, property & casualty, life and auto insurance, retirement plans, vehicle leases, personal loans, savings deposits, mortgages.
  • Credit Cards - Marketed as Itaucard, Hipercard to over 20 million users. Credit cards contributed over $3 billion US to Itau's 2009 revenue (7% higher than in 2008).
• Services - cash management, proprietary trading, international bidding, equipment leasing, electronic payment, treasury, asset management, pension and mutual fund advise, brokerage (insurance), private banking.

Major Divisions

The 3 main operational segments in order of size are Commercial Bank, Consumer Credit and Itaú BBA. Commercial Bank had R$37,473 billion of revenue in 2009 47.77% more than the year before (60.38% of Itau Unibanco's total, down from 62.98% the year before, fee and commission income represented an even small fraction of that 19.53% of the division's total down from 27.47% the year before). Consumer Credit is the second most important revenue generator, in 2009 it experienced the highest percentage growth of the three business segments at 93.88% (up to R$19.632 billion which was 31.63% of the company's total up from 25.15% the year before, fee and commission income nearly doubled in importance going from about 15% to 28.3% in 2009). Itaú BBA had a sluggish year posting a 3.62% increase in revenue (compared to 54.1% for the whole company) which was ironic since the division led the company in growth between 2007 and 2008 (124.1%), fee and commission income grew 55.4%.^[1]

Subsidiaries

Major subsidiaries abroad are Banco Itau (USA), Europa International, Europa Luxembourg, Europa Securities (Western Europe), BIE Bank (Bahamas), Unicorp Bank (Caymans). The following lists them by percent ownership (September 2010).^[4]

• 100% - Banco Dibens, Afinco Americas, Banco Itau Uruguay, Dibens Leasing, Itau Bank, Ltd, Itau Seguros 100%), Itau Unibanco, Itau Vida e Previdencia, Itau XL Seguros Corporativos, Itau Export, Oca Casa Financiera, Unibanco Cayman Bank Ltd.
• 99.99% - Banco Fiat, Banco Itau Argentina, Banco Itau BBA, Banco Itau Chile, Banco Itau Europa Luxembourg, Banco Itau Europa, Banco Itaucard, Banco Itaucred Financiamentos, Cia. Itau de Capitalizacao, Fiat Administradora, Hipercard Banco Multiplo, Itau Administradora de Consorcios Ltda, Orbitall Servicos e PIC, Itau Corretora de Valores.
• 30% to 70% - BIU Participacoes 66.15%, Unibanco Partiicipacoes Societarias 51%, Porto Seguro 30%, Financeira Itau CBD Credito 50%, FAI 50%, Redecard 50%.

Business and Financials

In 2009 60.1% of customer deposts were term deposits (114.7 billion reis), 25.26% were savings accounts (48.2 billion reis), 13.52% were cash deposits (25.8 billion reis). Trading assets (government securities in Brazil (40.8%) and other foreign countries (2.8%, 57% of them coming from the United States), corporate (3.1%) and marketable equity securities (0.7%), investment funds (36.8%), debt bonds (0.6%), derivative instruments (15.1%)) make up an increasingly important part of total assets (16.47% in 2008 compared to less than 15% in the previous two years, in 2008 it rose about 250% to over 10 billion reais).^[1]

In the third quarter of 2010 the credit portfolio reached 313 billion reais (175.746 billion USD based on an average exchange rate of 1.78098 reais per USD). Of that, personal credit lines amounted to 119 billion reais (66.817 billion USD). The bank posted 9.8 billion reais in net income over the 12 months leading to September 2010 (3.2 billionof that in the third quarter, 17.5% higher than the third quarter of 2009), over the period mortgages grew 53% (14% in the third quarter of 2010). Non performing loans were reduced by 6.52% (4.3 from 4.6). 406 million reais of expenses went towards branch migration, without that expenses were steady (1.1% change from the previous period).^[2]

fx rate to USD millions reis millions USD	2007 2.18	2008 1.84	2009[4] 2.008	9M09[5] 2.08383	9M10[5] 1.780977	Change % (9M)		2007 2.18	2008 1.84	2009[4] 2.008	9M09[5] 2.08383	9M10[5] 1.780977	Change % (9M)
revenue	30,730 14,096	40,268 21,885	62,061 30,907	61,368.738 29,450	65,495.840 36,775	6.73% 25%	expenses	18,518 8,494	20,710 6,639	35,843 17,850	27,670.849 13,279	28,508.528 16,007	3.03% 20.5%
operating income				4,688.307 2,249.9	6,424.779 3,607.4	37.04% 60.34%	non operating income				9,639 4,625.6	9,207 5,169.9	5.89% 11.77%
net income	11,900 6,096.3	10,000 5,434.8	10,100 5,029.9	5,471.623 2,625.75	7,218.769 4,053.21	31.93% 55.36%	net income per share				1.21	1.59	31.4%
depreciation ammortization				990.457 475.31	1,053.361 591.44	6.35% 24.43%	change in cash equivalents				2.301 1.104	316.075 151.68	13,600%
ROE	26.2%	24.8%	22.3%	19.8%	23.3%	17.68%	customer deposits	81,625 41,816.1	150,802 81,957.6	190,800 95,020	189,089.392 90,741.3	194,916.650 109,442.3	3.08% 20.61%
net interest income reis	21,332 10,928.3	21,141 11,490.0	40,691 20,264.4				shareholders equity	36,255 18,573.3	34,387 18,688.6	69,277 34,500.5	62,656.290 30,067.9	67,827.873 38,084.2	8.25% 26.7
current assets				7,817.727 3,751.6	1,663.874 934.24	(78.72)% (75.1)%	total assets	444,500 2,277.15	638,100 3,467.93	608,300 3,029.38	653,598.87 313,652.68	768,243.97 431,355.40	17.54% 37.53%
market value				161,000 77,261.6	182,200 102,302.1	13.17% 98.7%	loans/leases	116,459 59,661.4	169,700 92,228.3	245,736 122,378.5

• Third Quarter 2010 deposits and loans on page 60 of company report

Trends and Forces

In May 2010 Bank of America sold 5.36% of its interest in Itau Unibanco Holding for about $4.5 billion. The market reacted strongly to that and the news that Bank of America was going to sell the rest of its interest in the company, Itau Unibanco's shares were down as much as 6%.^[6]

References

1. ↑ ^{1.0 1.1 1.2 1.3} Itau Unibanco Holding SA 2009 SEC Filing (2010-05-17).
2. ↑ ^{2.0 2.1} Itau Unibanco Third Quarter Conference Call (2010-11-04).
3. ↑ International Exchange Rates For 2009 (2010-12-07).
4. ↑ ^{4.0 4.1 4.2} Itau Unibanco Holding 2009 Annual Report (2010).
5. ↑ ^{5.0 5.1 5.2 5.3} Itau Unibanco Holding S.A. 2010 Third Quarter Report (2010-11-03).
6. ↑ Itau Unibanco Holding SA (NYSE:ITUB) Gets Clobbered as Bank of America (NYSE:BAC) Sells Stake in Brazilian Bank (2010-05-19).