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.
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