BEST OVERALL BANK: BANCO ITAU
Banco Itau makes no secret of its ambitions. It has spent much of the last couple of years brazenly swallowing up a number of smaller banks ? most recently buying Banco Fiat and BBA-Creditanstalt, boosting its consumer finance base and giving it a strong corporate-banking presence for the first time. In doing so, the bank has consolidated its top position in the country ? the deals have beefed up the bank's scale, customer base and access to cheaper funding while granting entry into new growth markets.
So it's no surprise that senior management is satisfied. ?We are very happy about the results of the integration,? says Roberto Setubal, president and CEO of Banco Itau, in an interview with Emerging Markets. ?We want to grow the bank. And we have opportunities to acquire other businesses.?
The bank's experience, superior earnings, conservative risk profile and strong financial fundamentals are all part of what makes Itau Brazil's ? and the region's ? best bank.
Itau's hunger for growth is part of a very careful plan to pick up assets in strategically vital areas. Partly as a result of all this growth, and partly out of its ?permanent quest for upgrading its operations?, what it might acquire next is still undecided, but in terms of new growth areas, Setubal says his bank will concentrate on two sectors: small and medium-sized industries, and the insurance business.
The ratings agencies agree that Itau's growth and acquisition strategies have paid off. Standard and Poor's emphasizes that the bank's expansion has brought it a well-diversified business profile that puts it in a comfortable position relative to its rivals.
Banco Itau has gone through a fundamental corporate reorganization over the last couple of years. It set up Banco Itau Holding Financeira (Itau Holding), which incorporates all of Banco Itau's shares. Itau Holding is basically a multiple bank under the supervision of the Brazilian central bank and acts essentially as a ?financial holding?, centralizing the areas of risk management, audit and treasury of the financial conglomerate.
The rationale behind setting up Itau Holding is the bank's corporate strategy, the so-called ?segmentation strategy?, which aims to sort out internal businesses into discrete units. Simply put, the idea is to manage the bank's diverse businesses better, by granting greater operational autonomy to its several internal segments ? a fact that also leads to more transparency in financial statements.
Itau Holdings is now Brazil's second-largest bank, with total assets of $36.4
billion. Itausa, a major Brazilian conglomerate, is the controlling shareholder in Itau Holdings.
Chief executive: Roberto Setubal
Total assets: $36,403 million
Return on equity: 31.19%
Credit ratings: B3 (Moody's); B+ (S&P); B+ (Fitch)
BEST INVESTMENT BANK: UNIBANCO
Unibanco has worked hard to compete with its two bigger rivals ? Banco Bradesco and Banco Itau. But it's an effort that has paid off: the bank has the best investment banking division in the country ? and, for that matter, the region. Although it's Brazil's third biggest private-sector bank, it has differentiated itself partly through its focus on corporate investment banking.
Unibanco holds leading positions in various segments of the Brazilian market. Its strategy there draws on its industry-specific expertise and close client relationships to serve its corporate customers ? the wholesale banking group serves Brazil's top 1,000 corporations and over 2,000 mid-market companies ? in addition to about 400 institutional investors.
The bank's pioneering initiative was to integrate its commercial and investment banking operations. This integration has allowed the bank to achieve leading positions in all segments of activity: corporate lending, capital markets, advisory services, cash management, treasury and private banking.
It also has a strong relationship with local development bank BNDES in areas such as trade finance and cash management. In addition, the wholesale bank is well placed in debt capital markets, advisory services and in project finance.
Last year operating income was R$1.9 billion, reflecting 76% growth compared to the previous year. This growth was mainly driven by increased profit from financial intermediation and a reduction in provisions for loan losses of 20.8%. Its consolidated total assets amounted to R$69.6 billion at the end of 2003, an increase of 13% since the end of 2002.
Unibanco has also firmed up its position as the leading Brazilian bank in mergers and acquisitions, having acted as financial adviser in 13 recently completed operations, totalling more than $950 million. Among the bank's more notable mandates were advising on the Klabin Group's divestiture of Riocell and Bacell, the divestiture of Universo Online for Editora Abril and the acquisition of 72.57% of Termopernambuco by Guaraniana.
Among Unibanco's other businesses are retail banking, insurance and pensions, and wealth management. Its retail bank serves individuals through its consumer finance business ? Fininvest, Dibens, InvestCred and LuizaCred brand names. It also serves small and lower-middle market companies. On the insurance front, Unibanco has been the fastest growing company in the country.
Unibanco currently boasts about 1,400 branches and 8,500 consumer finance outlets throughout Brazil. Pedro Malan, formerly vice-chairman of the board, was appointed the bank's new chairman in
April 2004.
Chairman: Pedro Malan
Total assets: $24,100 million
Return on equity: 15.69%
Credit ratings: B2 (Moody's); B+ (S&P); B+ (Fitch)
BEST TRADE FINANCE BANK: BANCO DO BRAZIL
Banco do Brasil is by far Brazil's largest trade finance bank. It is also the best. The bank had a market share of 23% of all export foreign exchange transactions in 2002. This share increased to 29% for 2003. The bank closed 2002 with total transaction volumes for exports financing of $5.5 billion and $7.6 billion for 2003.
The bank also closed three deals worth $50 million each last year, with tenors of up to eight years. Funds were extended to Acesita, Copesul and Votorantim ? all steel and cement companies. The bank was also lead manager of the Usiminas $135 million prepayment of steel exports, which carried a five-year guarantee from JBIC. In that deal the risk was shared with three other banks.
Structured export deals picked up strongly in 2003. Banco do Brasil started last year with a $400 million portfolio in structured deals and finished up with $800 million, while tenors went out to eight years. More growth is expected this year with opportunities arising from infrastructure investment. Local banks are being very aggressive and it's very competitive. Volumes are increasing, but margins will go down because the country is improving.
Credit lines from foreign banks to local lenders have not only stabilized since the 2002 lows but these lines are now extended for longer tenors (up to one year) than previously. Banco do Brasil developed a good strategy for raising money abroad by issuing securities ? it raised $940 million in 2003 through diversified types of instruments. This in turn allowed it to provide good financing to exporters.
In Brazil, where commodity prices continue to rise, fuelling increased demand for inventory finance, the soybean sector is seeing huge growth, to the extent that Brazil is forecast to replace the US as the world's largest producer within a couple of years. Confidence is returning, along with the banks, and margins are being driven down.
Undoubtedly the most important export sectors in Brazil are agribusiness and steel. But the good outlook pertains mainly to upper-tier local producing and international trading companies in a range of commodities, in particular soft commodities.
Trade finance volumes are likely to climb higher for Brazil. Positive developments have been strongly supported by BNDES, and financial intermediation in the banking industry should gradually increase.
At the same time, Brazil is focusing more heavily on Asian markets for raw material exports as well as Brazil's emergence as a manufacturing centre and the future possibilities for more south-south trade.
The Brazilian government owns 77.6% of Banco do Brasil, and many of the remaining shares belong to the bank's employee pension fund.
President: Cassio Casseb Lima
Total assets: $79,657 million
Return on equity: 22.28%
Credit ratings: B3 (Moody's); B+ (S&P); B+ (Fitch)
BEST PROJECT FINANCE BANK: UNIBANCO
Having completed 11 project finance advisory mandates last year, Unibanco's wholesale bank is maintaining a trajectory that has placed it at the forefront of the project finance business in Latin America. It drew on its extensive expertise, built up over the years, to advise companies on structuring project finance deals last year worth a total of R$1 billion, across a variety of sectors: water and sewage infrastructure, transport, agribusiness, and pulp and paper.
Unibanco has a $1.5 billion volume of credit lines outstanding with more than 100 international banks, plus a pool of 3,000 corporate customers. In addition, among Brazilian local banks, Unibanco has the largest portfolio of facilities with export credit agencies (ECAs) and multilaterals.
Unibanco picked up a feasibility study mandate in the mass transport sector for Companhia do Metropolitano de Sao Paulo for the project to connect the district of Vila Sonia to Estacao da Luz, in Sao Paulo. In addition, there were significant innovations in financing structures for upgrading mass transportation systems in the metropolitan areas of Goiania and Rio de Janeiro, established with proceeds from cash flows of corporate-issued employee transportation vouchers.
Among the deals it completed last year was a five-year, $25 million financing, backed by the IFC, for the development and production of the Coral oilfield, in the Santos Basin. The bank also acted as financial adviser to Queiroz Galvao Drilling and Coplex Petroleum as lead manager in the project finance deal. In a complementary transaction, the project received an additional $5 million loan from DEG.
In the power industry, Unibanco lead-managed a 10-year, R$33.6 million syndicated loan, funded by BNDES, to increase the co-generation capacity of Cia. Acucareira Vale do Rosario.
The bank was also involved in a pioneering power project ? a biogas scheme at the Bandeirantes waste collection facility in Sao Paulo, which will have the largest power production potential of its kind in the world. The project involves R$48 million in total investment.
In general, Brazil has been the venue in recent years of some ground-breaking project financings, especially in the power sector. Although many of the larger deals have tended to rely on international commercial banks, the local players are now firmly in the game.
Unibanco Holdings, which controls Unibanco, is owned primarily by private-sector Brazilians. European banks, including Portugal's Caixa Geral de Depositos, hold significant minority stakes. Unibanco Holdings itself recently acquired the Brazilian unit of BNL, an Italian banking group.
Chairman: Pedro Malan
Total assets: $24,100 million
Return on equity: 15.69%
Credit ratings: B2 (Moody's); B+ (S&P); B+ (Fitch)