After two months of discreet talks, Itaú Unibanco closed on Thursday (May, 11th) the purchase of 49.9% of the total capital of XP Investimentos for R$ 6.3 Billion, which includes R$ 600 million in resources that the bank will inject into the company. With the transaction, the country’s largest private bank reserves its space in the process of “de-banking” in progress, in which people are leaving traditional banks for brokerage accounts with banking services. “I believe this transaction will take Itaú and other banks out of the comfort zone, as it will strengthen XP and increase its ability to compete in the investment market,” said Roberto Setubal, co-chairman of Itaú Unibanco’s board of directors.
Itaú has agreed to pay R$ 710 million (approximately US$ 220 million) for the retail operations of Citibank in Brazil. The transaction was announced this morning. Citi primarily serves high-income customers and has 315,000 account holders in the country.
In the acquisition, Itaú acquired loan portfolio, credit cards, deposits, asset management, insurance brokerage and the 71 branches that Citi has today in the main regions of the country. That is R$ 35 billion in deposits and assets under management, 1.1 million credit cards issued and a credit portfolio of R$ 6 billion reais. After the acquisition, Itaú Unibanco will have R$ 1.404 trillion in assets.
The acquisition still needs to receive the approval of the Central Bank and CADE (Administrative Council for Economic Defense)
Citibank joins HSBC in retreating from Brazil. HSBC announced at the end of 2015 that it sold its Brazilian operations to Bradesco. In a deal already approved by anti-trust authorities, Bradesco acquired HSBC and brought their assets closer to Itaú, largest private-controlled bank in Brazil, by that metric. HSBC was a lot bigger than Citi in Brazil, but today’s acquisition shows Itaú is not willing to let this largest label go.
Itaú has a 5-star rating from Easy Brazil Investing and continues to be a great way to play the Brazilian economic recovery.
HSBC confirmed on Tuesday that will leave Brazil and Turkey, in a restructuring plan that will eliminate 50,000 jobs worldwide. In the dispute by the British bank business portfolio in Brazil, Bradesco took the lead with an offer of $ 3.4 billion by the British bank, ahead of Santander and Itaú Unibanco.
HSBC is one of the ten largest players in Brazil, the seventh largest bank in operations in the country with 2.2% stake in the asset market and 1.9% of loans and 853 branches, corresponding to 3.7% of system. The bank also has R$ 57 billion in deposits for a market share of 2.9%. The bank’s loan portfolio consists mainly of commercial loans (70%), while loans to individuals account for 22% and 8% are mortgages. Analysts estimate a potential valuation of the bank’s assets from R$10 billion to R$ 14 billion (US $ 3.5 billion to $ 4.6 billion).
For Bradesco, in addition to having an opportunity to get closer to Itaú Unibanco in terms of assets, the purchase is of particular importance in terms of synergies that it can bring to the bank. Bradesco is particularly interested in the portfolio of high-income customers and HSBC’s micro credit company, Losango.
Itaú is the second largest bank in Brazil. Only behind Banco do Brasil, which is a government-controlled bank, even though part of its equity is traded at Bovespa. We do not recommend exposure to government-controlled companies in Brazil so Itaú is the largest bank we cover in LATAM.
Itaú Unibanco was formed as the merge of two of Brazil’s largest banks: Itaú and Unibanco. When they merged, they were the 2nd and 3rd private-controlled banks respectively, created a huge institution and left Bradesco in second place.
There is a joke in Brazil that goes: “The three best businesses for you to have in Brazil are: 1st a well-managed bank, 2nd a bank and 3rd a badly-managed bank ”.
Ok. The joke may be an exaggeration. But the banking industry does have a lot going for it in Brazil. Unlike in most developed countries, where small banks and credit unions are always present and relatively strong, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have together around 70% of the market share. This oligopoly along with the high switching-cost in the banking industry gives them a good pricing advantage.
The banking industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10% and ROE around 20%. These two factors reduce considerably the risk for small investors in these banks.
Itaú Unibanco has over R$1.4 Trillion in assets (Approximately US$ 500 Billion). It provides retail banking, investment banking, real estate financing, leasing, consumer credit card, foreign exchange and foreign trade financing services.
Itau Unibanco Holding
|Industry*||Banking, Insurance, Card Processing|
|Bovespa Ticker||ITUB3, ITUB4|
BR Foods owns three very strong brands in the food market in Brazil: Perdigão, Sadia and Batavo. With more than 55,000 employees, it is one the largest Brazilian processed food companies. Its international operations reach more than 140 countries. The firm sells over 3,000 products both domestically and abroad, with a focus on the sale of processed food products, poultry, pork, beef, and dairy products.
Sadia and Perdigão are in the processed meat industry and used to be the two major players in the market until they merged in 2008, creating Brazil Foods. Batavo is the leading brand in dairy products in Brazil.
In a scenario where the middle-class is growing quickly in Brazil, BR Foods is well positioned to take advantage of this growing demand.
Also, BR Foods brands should allow it to pass to the consumers the rising costs from agricultural commodities, thus providing a nice inflation hedge.
Below is the full list of products BR Foods sell in Brazil and abroad (click the images to enlarge):
Easy Brazil Investing Rating
Brasil Food’s competitive advantage is built on its brands, distribution network and scale. All these factors along with the exposure to fast-growing markets, grant BRFS the 5 star EBI Rating.
BRF-Brasil Foods S.A.
Bradesco is the third-largest bank in Brazil. Unlike in most developed countries where small banks and credit unions are always present, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have around 70% of the market share together. This oligopoly along with the high switching-cost in the banking industry gives these 4 banks a good pricing advantage.
The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.
Bradesco has over $800 Billion in assets and ROE around 20%. Its main two segments are banking and insurance, with each contributing almost equally to the company’s bottom-line.
With 4600 branches throughout the country, Bradesco is the only of the major banks to be present in every city in Brazil. This strong presence will allow Bradesco to take advantage of Brazil’s growth over the next decades.
Bradesco’s competitive advantage is built on its presence, brand, scale, high switching-cost and the oligopoly in the industry. These factors along with the exposure to a fast-growing market, grant Bradesco the highest EBI Rating: 5 stars.
Banco Bradesco S.A.
|Bovespa Ticker||BBDC3, BBDC4|
Ask any Brazilian what is their favorite beer and you are likely to get one of these three answers: Skol, Brahma or Antarctica. Since we are talking about Ambev in this post, you must be guessing Ambev owns Skol, which is the dominant beer brand in Brazil. That’s partly right. Ambev does own Skol. But Ambev also owns Brahma and Antarctica. That’s right: they own all three dominant beer brands in Brazil. Together, these three brands have around 70% of the market share in Brazil. On top of that, the brand preference by the consumers’ taste gives Ambev a good pricing power and they have been able to smoothly pass cost increases to the consumers and to keep margins up.
Ambev also owns Premium brands like Antarctica Original and Bohemia. Premium beer has a good growing outlook in Brazil and Latin America over the next decades due to the growing countries’ middle-class.
Ambev is present in 14 countries in the Americas and they lead in 6 of the countries where they operate: Brazil, Argentina, Canada, Paraguay, Uruguay and Bolivia.
They also distribute Pepsi and Quilmes in most countries in South America, Budweiser in Canada and Brazil and Stella Artois in South America and Canada.
Ambev’s competitive advantage is built on its brands, distribution network and scale. All these factors along with the exposure to fast-growing markets, grant Ambev the highest EBI Rating: 5 stars.
Ambev – Companhia de Bebidas das Américas
|ADR Ticker||ABV, ABVC
|Investor Relations Website||http://ir.ambev.com.br/default_en.asp?idioma=1&conta=44|
|Bovespa Ticker||AMBV3, AMBV4|