Itaú Unibanco (ITUB4/ADR ITUB) and Itaúsa (ITSA4) – Comprehensive Long-Term Investment Analysis

Introduction

Itaú Unibanco (B3: ITUB4, NYSE: ITUB) is Brazil’s largest private-sector bank and one of Latin America’s premier financial institutions. It is renowned for its strong profitability and stable dividends, making it attractive to investors seeking both income and growth. Its holding company, Itaúsa (B3: ITSA4), offers an alternate way to invest in Itaú via a diversified conglomerate structure. This report provides a detailed analysis of Itaú’s business, financial performance, dividends, growth outlook, and valuation relative to peers (Bradesco and Santander Brasil), along with a comparative look at Itaúsa. The goal is to give international (especially U.S.-based) investors clear context on investing in Itaú versus Itaúsa, covering governance, ESG, currency and macro factors, and practical considerations like ADRs and taxation.

Itaú Unibanco’s Business Model and Market Position

Itaú Unibanco is a universal bank offering a full range of financial services: retail and commercial banking, credit cards, investment banking, insurance, asset management, and more. It was formed by the 2008 merger of Banco Itaú and Unibanco, creating Brazil’s largest private bank . With 70 million clients across individuals and companies and a loan portfolio around R$1.2 trillion (roughly US$240 billion) , Itaú is a dominant player in Brazil and has significant operations elsewhere in Latin America. The bank has a presence in 18 countries, focusing on corporate and investment banking, wealth management, and select retail banking markets abroad . Major subsidiaries include Itaú’s banking units in Chile (Itaú Corpbanca, a top-5 Chilean bank) , as well as operations in Argentina (recently divested in 2023), Paraguay, Uruguay, and a corporate banking presence in the U.S. and Europe.

Competitive Position: Itaú consistently ranks at or near the top of Latin America’s banks in size. It is the largest bank in the region by assets (about US$556 billion in 2023) and was recently the second-largest by market capitalization (around US$55–64 billion) . It is Brazil’s most valuable banking brand (Brand Finance valued the Itaú brand at US$8.7 billion in 2023) . The bank’s broad distribution network (3,500+ branches and 41,700 ATMs as of 2023) and digital channels give it extensive reach. Itaú’s scale and diversified services have enabled it to build a large, low-cost funding base (sticky customer deposits) and a robust fee-generating business (from credit cards, asset management, insurance, etc.).

Why Itaú Is So Profitable: Itaú’s sustained success is often attributed to its operational efficiency, prudent risk management, and technology investments . The bank has a culture of stringent cost control and uses data and analytics to price risk effectively, which together result in high margins. Itaú has been a leader in digital banking innovation, which not only improves customer experience but also lowers operating costs by migrating transactions to digital channels . It has also diversified revenue streams across many financial segments and geographies, which provides resilience. According to analysts, Itaú’s vast client base, focus on efficiency, and rigorous credit risk policies have been key drivers of its high profitability . Management fosters a mindset of continuous improvement and competitive paranoia – viewing every new fintech or competitor as an “existential threat” to force the bank to innovate and adapt . This combination of scale, diversification, and agility has allowed Itaú to maintain industry leadership even as Brazil’s banking landscape evolves.

Financial Performance: ROE, Margins, and Growth

Itaú Unibanco is known for stellar financial performance, especially in terms of profitability. The bank regularly delivers a return on equity (ROE) in the high teens to low 20% range – which is very high by global banking standards. In the most recent periods, Itaú’s ROE has been above 20%. For example, in late 2023 Itaú’s ROE reached about 21–22%, far outpacing private peers (Santander Brasil ~17% ROE) and reflecting a recovery from pandemic lows . In the first quarter of 2024, Itaú’s ROE hit 21.9%, up from 20.7% a year earlier . This strong profitability is underpinned by healthy net interest margins and excellent cost efficiency. Itaú’s net interest margin (NIM) benefits from its low funding costs (large deposit base) and ability to price loans profitably; meanwhile, fee income from services contributes significantly to revenue, balancing out credit cyclicality.

Crucially, Itaú runs a very lean operation for a bank its size – its efficiency ratio (cost-to-income) reached record lows around 38% (36.8% in Brazil) in early 2024 . This means only ~38 cents of every revenue real is spent on operating costs, a level of efficiency that leads the industry. By comparison, rivals like Bradesco and Santander Brasil have higher cost-to-income ratios (often in the 40–50% range), partly explaining Itaú’s superior profitability. Itaú’s expense discipline, even while investing in technology and customer service, has kept profit margins robust. In Q1 2024, administrative and personnel costs rose about 7–10% (due in part to inflation and wage agreements), yet the bank still improved its efficiency ratio to the best on record . Such efficiency enables strong net profit growth even in periods of moderate revenue growth.

In terms of earnings growth, Itaú has shown resilience and an upward trend. Net income for 2023 was R$33.9 billion (approximately US$6–7 billion) , and Q1 2024 profit grew ~15.8% year-on-year to R$9.8 billion . Over a longer horizon, Itaú’s profits have compounded significantly – a 5-year earnings CAGR of ~23% was observed (partly boosted by rebounding post-COVID results) . Even during Brazil’s economic volatility, Itaú managed to avoid losses; it has never posted an annual loss in recent history, a testament to prudent risk management. During the 2020 pandemic, Itaú’s ROE dipped (to ~14–15% ) due to higher loan-loss provisions, but still remained healthy and rebounded quickly as provisions normalized. By contrast, rival Bradesco saw its ROE plunge to ~11% in early 2023 amid a spike in bad loans, prompting a CEO change . Itaú weathered the same credit cycle with far less impact, illustrating its superior credit risk models and conservative provisioning. Non-performing loan (NPL) ratios at Itaú have improved recently – in Q1 2024, NPLs were down to 2.7%, the lowest in two years , and provisions for loan losses actually decreased as credit quality improved with post-pandemic economic recovery.

Another strength is Itaú’s solid capitalization: its Basel capital adequacy ratio stands around 14.5%, above the bank’s own target of ~11.5% . In fact, Itaú has been generating capital faster than it can deploy it in growth, which management notes could translate into higher dividends if the trend continues . In summary, Itaú combines high margins (thanks to strong fee income and NIM), low costs, and controlled credit losses to produce an industry-leading ROE and consistent earnings growth. Its track record outshines peers – for instance, in the latest comparisons Itaú and the state-run Banco do Brasil produced ROEs above 21%, whereas private competitors like Bradesco and Santander were in the low-to-mid teens or lower . This superior performance is a key reason Itaú’s stock commands a valuation premium in the market (discussed more in the valuation section below).

Dividend Policy and Historical Yield

Itaú Unibanco has a shareholder-friendly dividend policy, with a long history of regular payouts. Notably, Itaú is one of the few Brazilian companies to pay monthly dividends. Since 1980, the bank has paid some form of dividend or interest on capital every month . The recurring monthly dividend is relatively small (currently about R$0.015 per share each month on both common and preferred shares , roughly equivalent to R$0.18 annually), but it provides steady income. In addition, Itaú typically declares larger supplemental dividends (or interest on capital payments) on a semiannual basis. These larger distributions are decided at shareholders’ meetings, usually after the first half and at year-end . For example, in 2023 the bank’s total payouts included two large installments around March and August, alongside the small monthly amounts.

Dividends vs. JCP: Brazilian companies like Itaú can distribute profits as either regular dividends or “Juros sobre Capital Próprio” (JCP), which are interest on equity payments. Itaú uses both. The key difference is taxation: dividends are tax-free for both local and foreign shareholders (companies pay them from post-tax profits), whereas JCP is taxed at 15% withholding for the recipient . The advantage of JCP for the company is that it’s tax-deductible (treated as interest expense), allowing potentially larger net distributions. Itaú historically pays a portion of its payouts as JCP (often the monthly R$0.015 is labeled as JCP, and additional JCP amounts are declared periodically) . For investors, the gross amounts of dividend vs JCP are similar, but JCP arrives with 15% tax withheld at source . After years of debate, Brazil still (as of 2025) does not tax dividends for non-residents and residents alike . However, the government has proposed introducing a 10% withholding tax on dividends paid abroad in future tax reforms . Currently, foreign investors in Itaú’s ADR enjoy the dividends largely tax-free from Brazil (only any JCP portion faces 15% withholding). This favorable tax treatment has been one reason Brazilian blue-chips like Itaú have attracted yield-seeking international investors.

Payout Ratios: By law, Itaú’s bylaws must allocate at least 25% of annual profits to shareholders (common in Brazil) . In practice, Itaú’s payout ratio has varied with earnings and capital needs. Over the past decade, payout ratios ranged roughly from 30% up to 90% in exceptional years . In “normal” years, Itaú tends to distribute around one-third of its earnings. For example, in 2022 it paid out about 36% of net profit; in 2023, around 31% was distributed . During economic stress or regulatory restriction, the bank trims payouts (e.g. in 2020, during the pandemic, it paid only 25% of profits as dividends due to Central Bank guidance for banks to preserve capital). Conversely, in very profitable years or when capital levels overshoot targets, Itaú can pay special dividends – notably in 2017–2019 the payout spiked (69–90% of profits) , possibly aided by one-time gains (such as partial sale of its stake in XP Inc. or other adjustments).

Dividend Yield Track Record: Itaú’s dividend yield has averaged in the mid-single digits. Over the last decade, the average yield was ~5–6% . In recent years: 2021 yield was ~4.3%, 2022 about 4.1%, 2023 around 3.7% . The yield jumped in 2024 to nearly 7.85% as the stock price had been lower and the bank distributed higher payouts post-pandemic. (This 2024 figure includes the large dividends declared in early 2024 against 2023 earnings.) The chart below summarizes valuations and yields for Itaú and peers:

Bank (Ticker)	P/E (Trailing)	P/B (Trailing)	ROE (Recent)	Dividend Yield (Trailing)
Itaú Unibanco (ITUB4)	~9×	~1.9×	~20–22%	~7–8%
Bradesco (BBDC4)	~5–6×	~0.6–0.7×	~12% (2023)	~8–11%
Santander Brasil (SANB11)	~7–8×	~0.8–0.9×	~15% (2023)	~8%

Table: Valuation and performance metrics for Itaú and key peers. Itaú trades at a premium due to its higher ROE and consistent performance.

As the table suggests, Itaú’s current dividend yield ~7-8% (trailing 12-month basis) is actually at the higher end of its historical range , reflecting generous payouts in 2023/24 and a stock price that has lagged somewhat. However, investors should note that a portion of this yield came from special dividends; going forward, if earnings grow and payout ratio stays ~30%, the yield may normalize closer to mid-single digits. Still, Itaú’s appeal is as a reliable dividend payer – it has paid some dividend every year for decades, including monthly income, which is relatively unique. As one Brazilian analyst noted, Itaú’s yield, while modest compared to some high-yield sectors, is valued because of its consistency and the bank’s strong earnings that back it up . The stability of Itaú’s dividends (supported by steady profits and excess capital generation) is a key attraction for long-term investors.

Growth Outlook: Digital Banking, Credit Expansion, and LatAm Strategy

Looking ahead, Itaú’s growth will be driven by both technological transformation and traditional banking opportunities in Brazil and Latin America:

• Digital Transformation: Itaú has been proactively modernizing its platforms and services to defend its turf against fintechs and digital banks. Management famously maintains a paranoid stance about new entrants, which has spurred rapid innovation . Itaú’s mobile app and online banking capabilities are considered among the best in Brazil, leading to high digital engagement from customers. The bank launched initiatives like “iti” digital wallet and has invested in fintech partnerships (e.g. acquired a stake in fintech Quanto for open banking in 2020 ). Itaú has also revamped its internal systems, adopting agile methodologies and creating separate units to speed up tech development. These efforts have paid off in efficiency gains and customer retention. As the banking market shifts toward digital channels (Brazil has seen a boom in digital bank accounts and payments), Itaú appears well-positioned – it can leverage its scale and data (70 million clients) to offer competitive digital products, while using technology to cut costs. Unlike some incumbents that struggled, Itaú has “sailed serenely on” by continuously evolving under the surface . The bank’s strategic plan explicitly focuses on customer-centric digital services, aiming to be a leader in both customer satisfaction and sustainable performance . This should help Itaú retain market share against pure-digital players (like Nubank) and perhaps even monetize new services (e.g. its investment platform, insurance marketplace, loyalty program “Iupp” launched in 2021 , etc.). In summary, digitalization is a growth enabler by boosting efficiency and unlocking new revenue streams (such as fees from digital services, fintech partnerships, and broader reach to underbanked customers).
• Credit Expansion in Brazil: Brazil’s credit market has long-term room for growth – credit-to-GDP is relatively low (~50-60%) compared to developed markets, and as interest rates stabilize or decline, credit demand should rise. In the short term, Brazil is emerging from a high interest rate cycle (the central bank’s Selic rate hit 13.75% to combat inflation, but cuts are anticipated in 2024–2025). Lower rates should stimulate loan growth and improve borrowers’ repayment capacity. Itaú’s management, for instance, gave guidance for mid-to-high single digit loan portfolio growth (6.5–9.5%) for 2024 , expecting acceleration in the second half as the bank carefully ends a period of risk reduction. In Q1 2024, loan growth was only ~2.8% YoY (as Itaú deliberately tightened credit in riskier segments) , but the bank indicated confidence that growth will pick up by late 2024 as economic conditions improve. Key areas for expansion include consumer lending (credit cards, personal loans) once rates ease, mortgages (a still under-penetrated market in Brazil), and SME loans. Itaú also has a large corporate loan book, and with Brazil’s economy expected to grow modestly, corporate credit demand (for investment, working capital) could support growth. Additionally, Itaú could regain growth in segments like auto loans or payroll loans if it chooses to, although competition is intense there. Importantly, Itaú’s risk discipline means it may prioritize quality over quantity – as seen in 2023, it cut back lending to reduce future NPLs . This may sacrifice some short-term growth, but it sets the stage for healthier expansion when conditions are right. Overall, Brazil’s banking sector is expected to return to earnings growth in 2024–25 after a dip in 2022–23, and Itaú (with its scale and superior credit models) is likely to capture a good share of that renewed growth.
• Latin American Footprint: Outside Brazil, Itaú’s strategy in LatAm provides both diversification and growth avenues. Its biggest foreign operation is in Chile, where Itaú Corpbanca (ITCB) is a top 4 bank after Itaú merged its Chilean unit with Corpbanca in 2014 . While the Chilean banking market is mature, Itaú has aimed to improve Corpbanca’s profitability (Chilean ROEs have been lower, but there’s room for synergy and digital improvements). Itaú increased its stake in the Chilean unit to 65.6% in 2021 , underlining commitment to that market. In Colombia, Itaú Corpbanca also operates a banking subsidiary (from the Corpbanca expansion), though market share there is smaller. Elsewhere, Itaú has banks in Paraguay and Uruguay which are profitable, if small, and it runs private banking and asset management units serving wealthy Latin American clients (including many Brazilians) from hubs like Miami, Zurich, and Nassau. These international operations contribute to Itaú’s revenue (and help service Brazilian multinationals abroad), though Brazil still accounts for the bulk (~85%+) of profits. The growth outlook abroad is moderate – Chile’s economy is stable but low-growth, and Itaú has been selective in other markets. However, these operations give Itaú a regional presence that few peers (aside from Santander) can match. If opportunities arise (for example, an acquisition in a high-growth Latin market), Itaú could leverage its strength to expand further. For now, the Latin footprint mainly diversifies income and provides incremental growth and scale. It also lets Itaú learn from different markets’ innovations (for instance, Chile’s faster adoption of some fintech services) and cross-sell services to multinational clients.
• New Business Avenues: Itaú is also growing in non-traditional areas, often through partnerships or subsidiaries. It has a strong position in credit cards and payments (including a partnership with Rede for card processing). It formed a venture with Brazil’s largest retailer Magazine Luiza in fintech, and a Techfin joint venture with TOTVS (a software company) in 2022 to finance SME customers through ERP systems . Itaú’s insurance joint venture with Porto Seguro (auto/home insurance) continues to generate steady income . Additionally, Itaú is building an ecosystem of services (e.g., its “beyond banking” strategy ) to deepen customer ties – offering discounts, loyalty points, even a marketplace platform (Itaú’s “Iupp” shopping platform). These initiatives aim to drive customer engagement and fee income. While none of these is transformational alone, together they indicate that Itaú is not standing still; it’s seeking incremental growth and innovation on multiple fronts.

Bottom line: Itaú’s growth outlook is solid albeit not explosive – as a large incumbent, it benefits from Brazil’s economic growth and rising financial penetration, and it’s shoring up its competitive moat via digital transformation. Analysts generally expect Itaú to increase earnings in the next few years, aided by lower credit costs (as bad loans subside) and a recovery in loan growth . There is upside if Brazil’s interest rates drop faster than expected, boosting credit volumes and perhaps capital market activity (Itaú’s investment banking fees would rise). However, growth could be tempered by competition (fintechs nibbling at fees or public banks like Caixa competing aggressively in credit) and any economic hiccups. Overall, Itaú’s entrenched market position and adaptive strategy suggest it should continue to deliver moderate, sustainable growth – an appealing profile for a long-term investor seeking both dividends and capital appreciation.

Valuation and Peer Comparison

Itaú’s stock has historically traded at a premium valuation relative to other Brazilian banks, reflecting its superior profitability and lower risk profile. As of mid-2025, Itaú Unibanco’s shares (ITUB4) were trading around 1.8–2.0 times book value and about 9–10 times trailing earnings . In contrast, peers like Banco Bradesco (BBDC) and Banco Santander Brasil (SANB) trade at deep discounts to book and lower P/E multiples. For example, Bradesco’s stock is around 0.6–0.7× book and ~5–6× earnings, while Santander Brasil is ~0.8–0.9× book and ~7–8× earnings . This discrepancy is largely justified by ROE differences – Itaú’s ROE is roughly double that of Bradesco’s in the wake of 2023’s challenges, and well above Santander’s. In the latest quarter of comparison, Itaú and Banco do Brasil posted ROEs above 21%, whereas Bradesco was recovering from ~11–15% levels and Santander Brasil around ~17% . Higher ROE supports a higher P/B multiple (since a bank consistently earning ~20% on equity can trade near 2× book and still offer a ~10% return on market value).

It is also notable that Itaú’s earnings held up better, so its P/E is not much higher than peers’ despite the higher stock price – this is because E (earnings) in the denominator is larger for Itaú relative to its equity. In 2022–2023, Bradesco saw earnings drop sharply due to provisioning (hence its trailing P/E might look low if one assumes earnings will mean-revert upwards), whereas Itaú’s earnings grew, compressing its P/E. On a forward basis, if Bradesco’s profits rebound in 2024, its forward P/E would be higher than the trailing ~5×, perhaps normalizing toward 7–8×, still cheaper than Itaú’s. Santander Brasil’s ROE has been persistently lower than Itaú’s (high-single-digit to mid-teens ROE in recent years), which explains its valuation discount. Santander’s loan book is more concentrated in riskier consumer finance, which led to lower profitability recently.

Banco do Brasil (not in table above), the large state-controlled bank, is another peer often compared. It actually achieved ROE similar to Itaú (around 20%+ in 2023) and trades at an even lower multiple (~0.8× book, ~5× earnings) , largely due to investor concerns about government influence and risk of non-market policies. While BBAS3 might look like a deep value play, many foreign investors prefer Itaú for its private-sector governance and consistent management, accepting the premium for peace of mind.

For a U.S. investor evaluating Itaú’s ADR (ITUB), the valuation is essentially the same as ITUB4 in Brazil (1 ADR = 1 preferred share). At around $6–7 per ADR (as of mid-2025), the P/E ~9–10× equates to an earnings yield of ~10%, and the dividend yield of ~7% in BRL terms translates similarly after currency conversion (before any taxes). Compared to U.S. banks, these multiples are low – large U.S. banks often trade near 1× book and 10× earnings, but they generally have ROEs in the 8–12% range. Itaú’s ~20% ROE stands out, but then again, Brazil’s country risk and economic volatility are higher, warranting some discount in multiples.

Key Valuation Takeaways: Itaú’s premium valuation is supported by fundamentals: it has higher growth and profitability, and lower volatility than its peers. Investors have historically been willing to pay ~2× book for Itaú because it consistently earns well above its cost of equity and has a strong franchise. In times of economic stress, that premium tends to widen (as more investors flock to the “safe haven” Itaú and dump riskier banks). We saw this in 2022–23: Itaú’s stock was more resilient, while Bradesco’s fell nearly 40% at one point, widening the gap in multiples. Conversely, when the cycle turns and other banks recover, Itaú might underperform slightly in stock price (given it has less “catch-up” potential). Nevertheless, over the long run, Itaú has delivered better total returns.

From a valuation perspective, Itaú is not “cheap” in absolute terms, but it offers a blend of yield and growth at a reasonable price. A ~10% earnings yield (P/E ~10) with much of that paid out as dividends (payout ~30–40% currently) and the rest reinvested at high ROE is an attractive proposition if you believe the Brazilian economy will be stable or improving. There’s also possibly an element of “quality premium” – Itaú’s governance and management quality (discussed next) justifies a richer valuation, much like how market leaders in other sectors trade above their peers.

For completeness, Itaúsa (ITSA4), the holding company, trades at a significant discount to its sum-of-parts NAV. We will discuss Itaúsa in detail later, but note that Itaúsa’s P/E (~7–8×) and dividend yield (~7–9%) appear even lower/higher than Itaú’s on the surface . This is because the market applies a holding company discount (around 20–30%) to Itaúsa’s assets, even though Itaú is the main asset. Thus, for investors willing to own the holding company structure, Itaú’s earnings can effectively be bought more cheaply via Itaúsa – with some trade-offs which we’ll cover.

In summary, relative to peers Itaú looks expensive on P/B but deservedly so, given it consistently delivers higher ROE (20%+) than peers (typically 10–15%) . Its P/E is mid-range and dividend yield competitive. The valuation implies market confidence in Itaú’s ongoing dominance and stability. Potential catalysts for upside in valuation could be stronger-than-expected earnings growth or a decline in Brazil’s equity risk premium (for instance, if Brazil’s interest rates fall and foreign inflows increase, boosting multiples). Conversely, risks like a domestic downturn or adverse political developments could compress all bank valuations – though Itaú would likely remain relatively resilient thanks to its strengths.

Governance, ESG Practices, and Management Track Record

Corporate Governance: Itaú Unibanco is controlled by prominent Brazilian families (Setúbal, Villela, Moreira Salles) through both direct holdings and through the holding company Itaúsa. Despite family control, Itaú is known for high corporate governance standards. Its preferred shares (ITUB4) carry tag-along rights (80% of offer price) to protect minority investors , and the bank adheres to Level 1 governance on B3, reflecting good practices (e.g., equitable treatment of prefs and commons in dividends). Over the years, Itaú’s board and management have included independent voices and highly experienced bankers. The Itaú and Unibanco merger in 2008 combined two conservative banking cultures, and the resulting governance structure has emphasized continuity and risk oversight. The management is professional (the CEO and executive team are seasoned bankers, not just family members). In fact, since the 2000s, the bank’s top executives (e.g., CEOs like Candido Bracher and current CEO Milton Maluhy Filho) have been career bankers. The long-time former CEO (and current co-chairman) Roberto Setúbal – a member of the controlling family – is credited with instilling a culture of prudence and long-term vision. Having significant “skin in the game” (the families via Itaúsa own ~37% of the bank ) aligns incentives with minority shareholders, as the owners benefit from sustainable growth and dividends.

Itaú’s governance reputation is reflected in its relatively high market valuations and its inclusion in indices like the B3 Corporate Governance Index and others. There have been no major governance scandals or minority abuse issues reported in recent history – a contrast to some state-controlled or smaller banks in Brazil. The bank’s disclosures and transparency are also considered strong; it publishes financials to both Brazilian and U.S. SEC standards (as it’s listed on NYSE).

Management Track Record: Itaú’s management has a track record of navigating crises and industry changes deftly. For example, during Brazil’s deep recession of 2015–2016, Itaú remained solidly profitable each quarter, whereas some smaller banks faltered. In 2020’s pandemic shock, Itaú quickly built provisions and managed capital such that it emerged with asset quality under control and was one of the first to restore higher payouts. The management’s philosophy, as described by CFO Alexsandro Broedel, is one of constant vigilance – they treat every new competitor or technology as a serious threat and react proactively . This mindset has led Itaú to invest heavily in fintech and digital capabilities at the right time, rather than complacently reaping profits. The result is that “Itaú has maintained its leadership with an ease that belies the radical transformation going on under the surface”, as Euromoney noted .

The bank’s risk management is often praised. Itaú tends to have lower loan default ratios and more conservative underwriting than peers, which is a management choice. When competitors chased higher-yield risky loans, Itaú often held back if it didn’t like the risk/reward – sacrificing short-term market share for long-term quality. This discipline comes from the top and permeates the credit culture. The payoff is visible in episodes like 2022–2023: some rivals had to deal with surging delinquencies (e.g., Bradesco’s spike in retail NPLs and some corporate losses), while Itaú’s credit book was more resilient .

Another hallmark of Itaú’s management is strategic foresight. Mergers and acquisitions have been well-timed: the Unibanco merger (2008) made Itaú the largest private bank just as the industry was consolidating; acquiring Citibank’s retail business in Brazil (2016) expanded its high-income client base ; merging with CorpBanca (2014) gave it a foothold in Chile at scale . Not all moves are perfect (the purchase of 49.9% of XP Investimentos in 2017 eventually led to a spin-off after conflicts of interest, but even that was resolved by distributing XP shares to Itaú’s owners in a fair manner). The willingness to adapt strategy – e.g., divesting non-core assets like Argentina operations in 2023 to focus on profitable markets – also reflects pragmatic management.

ESG Practices: Itaú Unibanco has made Environmental, Social, and Governance (ESG) a core part of its strategy in recent years. The bank publishes an annual Integrated Report aligning with GRI and SASB standards, and an ESG Report detailing its sustainability initiatives . Environmentally, Itaú has committed to the Net-Zero Banking Alliance, aiming for net-zero greenhouse gas emissions in its operations and portfolio by 2050 . It has financed renewable energy and low-carbon projects; since 2019, Itaú provided over R$170 billion in financing for positive environmental and social impact projects . The bank has also issued green bonds and incorporated climate risk into its risk management framework . On social aspects, Itaú invests heavily in financial education and inclusion programs, and it was one of the largest corporate contributors to social programs in Brazil (over R$824 million in private social investments in 2023 for education, culture, and community development) . During the pandemic, Itaú led efforts to support small businesses and donated to public health initiatives.

Governance-wise, beyond shareholder rights, Itaú has strong internal controls and an independent Audit Committee. It has been recognized in sustainability indices such as the Dow Jones Sustainability Index (DJSI) and Brazil’s ISE (Corporate Sustainability Index) in past years. Third-party ESG ratings (e.g., Sustainalytics) rate Itaú’s ESG risk as moderate, reflecting good management of most ESG issues . Notably, Itaú has linked a portion of management compensation to sustainability targets , reinforcing accountability. There is also a focus on diversity and inclusion within the workforce – the bank has programs to increase representation of women in leadership and promote racial diversity in its hiring in Brazil (an important issue in the Brazilian corporate context).

Summary of Governance/Management: Itaú offers investors a high level of comfort in terms of stewardship and ethical management. The controlling shareholders have a long-term outlook (Itaú has been in the Setúbal family for generations) and have demonstrated they prioritize the bank’s stability over risky gambles. Management’s execution has been excellent, balancing innovation with caution. This is reflected in numerous awards (e.g., Itaú often wins “Best Bank in Brazil” accolades from publications, and in 2023 its CEO was recognized for leadership in banking). For investors, this means Itaú is less likely to have unpleasant surprises from governance issues or strategic missteps, which is particularly reassuring in an emerging market context.

Itaúsa (ITSA4): Holding Company Structure and Holdings

What is Itaúsa? Itaúsa S.A. is the investment holding company through which the founding families own their stake in Itaú Unibanco. Itaúsa is a publicly traded conglomerate in its own right, listed on the B3 exchange (ITSA3 common, ITSA4 preferred). Itaúsa’s primary asset is its shareholding in Itaú Unibanco, but it also owns stakes in several other businesses, making it a diversified holding. For investors, Itaúsa offers an indirect way to invest in Itaú (since Itaúsa’s value mostly comes from Itaú) with the added twist of other industrial and infrastructure investments and often at a discount.

Structure and Major Holdings: As of early 2025, Itaúsa’s portfolio comprised:

• Itaú Unibanco: ~37.2% ownership of Itaú’s total capital . This is by far the most significant holding – at current market prices, Itaúsa’s stake in Itaú was worth about R$126 billion, accounting for ~93% of Itaúsa’s net asset value . In other words, Itaúsa is essentially a proxy for owning Itaú, albeit indirectly.
• Dexco (DXCO3): ~37.8% stake in Dexco, worth ~R$1.6 billion . Dexco (formerly Duratex) is a leading manufacturer of wood panels, flooring, and bathroom fixtures in Brazil. It’s an industrial business linked to civil construction and real estate cycles.
• Alpargatas (ALPA4): ~29.5% stake, worth ~R$1.37 billion . Alpargatas is best known as the company behind the Havaianas flip-flop brand, a global footwear brand. It also has other shoe/apparel lines. Alpargatas provides Itaúsa exposure to consumer goods/fashion.
• CCR S.A. (CCRO3): ~10.4% stake, worth ~R$2.43 billion . CCR is one of Brazil’s largest infrastructure concession companies (operates toll roads, urban mobility systems, and airports). Itaúsa’s holding here gives it a foothold in infrastructure sector growth.
• Aegea Saneamento: 12.9% stake in Aegea . Aegea is a private water and sewage treatment company – one of Brazil’s biggest in water utilities. (Aegea is not publicly listed; Itaúsa carries this stake at book value ~R$2.39 billion ).
• COPA Energia: 48.9% stake, valued ~R$1.74 billion . Copa Energia is a holding in the liquefied petroleum gas (LPG) distribution business. Itaúsa partnered to acquire Liquigás (a major LPG distributor) and merged it with Copagaz to form Copa Energia. This investment gives exposure to Brazil’s cooking gas/fuel distribution market (again a non-bank, cash-generative business).
• NTS (Nova Transportadora do Sudeste): 8.5% stake, worth ~R$1.59 billion . NTS is a natural gas pipeline operator in Brazil, providing stable, utility-like cash flows from transporting gas. Itaúsa invested in NTS when Petrobras sold a stake in this pipeline network.
• Other assets/liabilities: Itaúsa has some other minor assets and corporate net debt; as of Q1 2025, net other items were about –R$1.55 billion (a small offset) .

In aggregate, Itaúsa’s net asset value (NAV) (sum of parts) at market value was roughly R$135.7 billion, whereas its own market capitalization was about R$102.5 billion (at a share price of R$9.45) . This implied a holding company discount of ~24.5% . Such a discount means investors buying Itaúsa were effectively getting Itaú (and the other assets) at ~75 cents on the real, compared to buying those assets individually. Holding companies often trade at a discount due to factors like corporate overhead, potential tax frictions, and less liquidity or complexity. In Itaúsa’s case, management argues the “real” economic discount might be even higher if some unlisted assets were marked to fair value .

Dividend Model: Itaúsa’s business model is essentially to collect dividends from its investees and redistribute them (after a small haircut for its own expenses or investments). Itaú Unibanco’s dividends are the major income source for Itaúsa. Additionally, Dexco, Alpargatas, CCR, etc., pay dividends (though some, like Alpargatas, have had profit challenges recently, limiting payouts). Itaúsa typically pays quarterly dividends to its shareholders (at least a token amount) and often additional dividends in line with big receipts from Itaú. According to Itaúsa’s policy, it at minimum follows the statutory 25% payout, but in practice often pays out much more – sometimes > 70% of its earnings – unless it’s retaining cash for a new investment. In 2022, for instance, Itaúsa had a payout around 65.8% . The result is that Itaúsa has sported a higher dividend yield than Itaú’s stock. Currently, Itaúsa’s dividend yield is around 7–8% (trailing) , compared to Itaú’s ~4–5% (excluding the recent special payouts). Itaúsa’s 5-year average yield is ~4–5%, with the yield elevated recently due to the stock price decline and solid dividends received from Itaú . In essence, Itaúsa offers a way to get a slightly juicier yield, funded largely by Itaú’s own distributions. This makes Itaúsa popular among local income investors – it consistently ranks among the highest-yielding large-cap stocks in Brazil .

It’s worth noting that Itaúsa’s dividends are also paid as a mix of JCP and dividends, similar to Itaú. Itaúsa had been paying a small quarterly amount (around R$0.02 per share each quarter) as interim dividends , plus larger extraordinary payouts when its subsidiaries pay (for example, after Itaú’s big year-end dividend, Itaúsa often announces a chunky payout). The timing and amounts can fluctuate, but Itaúsa’s management has signaled a commitment to steady and growing dividends over time, barring big investment needs.

Other Holdings Impact: The non-Itaú holdings give Itaúsa a bit of diversification. For instance, Dexco and Alpargatas are tied to the consumer and housing cycle; CCR and NTS are infrastructure plays that can benefit from Brazil’s development and have stable cash flows from concessions; Aegea taps into the long-term growth of sanitation investments in Brazil (as regulatory changes push more privatization in water services). However, these collectively form only ~7% of NAV, so their impact on Itaúsa’s overall value is limited. They can slightly boost or drag Itaúsa’s results: e.g., if Alpargatas stock doubles, that’s a ~1% NAV increase; if Dexco’s profits fall, Itaúsa’s income drops a bit. In 2020, all three publicly listed investees (Itaú, Alpargatas, Dexco) saw profit declines due to COVID, which hit Itaúsa’s consolidated earnings . But generally, Itaú’s performance drives Itaúsa’s performance. Itaúsa management can also reshuffle the portfolio – recently they have acquired stakes (Aegea, Copa Energia, NTS) to deploy capital into sectors offering good returns, and they reduced exposure to others (for example, they sold an older stake in XP Inc. that Itaú had spun off, and previously had exited a stake in gas distributor Petrobras Distribuidora). These moves aim to add value beyond just holding Itaú, but so far Itaú still dwarfs everything else.

One important aspect for investors: Itaúsa’s NAV discount essentially means you’re buying Itaú’s stock via Itaúsa at a marked-down price. This can be an advantage – any narrowing of the discount could give extra upside. Historically, Itaúsa’s discount has ranged perhaps between 20% and 30% most of the time . At times of market stress, the discount widened (reportedly it hit very high levels in 2022) , presenting a buying opportunity. Analysts have often pointed out that Itaúsa is an attractive “value play” on Itaú, precisely because of this discount . However, one should not assume the gap will fully close – holding company discounts are persistent. Itaúsa does take steps that could improve the discount: it has done share buybacks and it communicates the value of its parts transparently in investor materials. If one of the other assets were monetized at a high valuation or if Itaúsa decided to spin off pieces, the discount could shrink. But absent such catalysts, investors should expect some discount to remain as the price of the added complexity.

Governance of Itaúsa: Itaúsa is controlled by the same families as Itaú, and its governance is also solid by holding company standards. It generally respects proportional dividends for both common and preferred shares (ITSA4 being non-voting pref, which gets the same payouts as common). Itaúsa’s decision-making in the past has been quite conservative (they are not prone to reckless acquisitions; the ventures into non-financials have been in established companies with co-investors, not speculative startups). Essentially, Itaúsa acts as a capital allocator for the family wealth, with a bias toward stability and dividends. Minority investors in Itaúsa benefit indirectly from the family’s interest in preserving value.

In summary, Itaúsa provides:

• Indirect Itaú exposure at a discount: ~0.75x “look-through” value of Itaú’s shares, plus some diversification .
• Higher dividend yield: historically a couple of percentage points higher yield than Itaú itself .
• Exposure to other sectors: albeit small, could add some growth or defensive balance (e.g., infrastructure).
• Long-term stewardship: run by the same ethos as Itaú, focusing on sustainable returns.

However, the trade-offs include an additional layer between investor and the bank (minority investors in Itaúsa have no direct say in Itaú’s affairs, only via Itaúsa’s influence) and the possibility that the discount remains, meaning you might not fully realize the underlying value if, say, Itaú’s stock surges (Itaúsa will also rise, but likely still at a discount). We’ll next weigh the pros and cons of investing in Itaúsa vs investing directly in Itaú.

Investing in ITUB4 vs. ITSA4: Pros and Cons

Both Itaú Unibanco stock (ITUB4 or ADR ITUB) and Itaúsa stock (ITSA4) can be attractive to foreign investors, but they have different characteristics. Below is a breakdown of the advantages and disadvantages of each route:

Advantages of Investing Directly in Itaú (ITUB4 / ADR ITUB):

• Pure Play on the Bank: By owning Itaú directly, you get undiluted exposure to Brazil’s strongest bank. Your investment’s performance will directly track Itaú’s financial results and market sentiment towards the bank. There is no intermediary layer or other business influences.
• Simplicity and Liquidity: Itaú’s ADR (ticker ITUB on NYSE) is very liquid, trading millions of shares daily and easily accessible to U.S. investors . It represents one preferred share of Itaú Unibanco , and dividends from the ADR come directly from Itaú’s distributions. There are no additional complexities in receiving dividends (apart from minor ADR fees). In contrast, Itaúsa has no NYSE ADR; its OTC ticker (ITVMF) is very illiquid, so a direct U.S. investor would typically need to trade Itaúsa on the Brazilian exchange.
• Corporate Governance and Control: Owning Itaú shares (even via ADR) gives you the rights accorded to those shares (e.g., tag-along rights at 80% of a control premium in a takeover scenario ). While as a minority you have limited say, you are at least a shareholder of the operating company. With Itaúsa, you are one step removed from the bank – your fate depends on Itaúsa management’s decisions (which historically align with Itaú, but theoretically could diverge).
• Focused Exposure: If you believe in the banking sector outlook and Itaú’s execution, holding ITUB4 is a focused bet. You won’t be affected by, say, a downturn in the footwear market or an infrastructure project issue (which could happen with Itaúsa’s other holdings). For investors who want a large, stable bank in their portfolio, Itaú fits that bill cleanly.
• Market Visibility: Itaú is widely covered by analysts and is a component of indices (e.g., MSCI EM, etc.). The stock tends to react quickly to banking news (interest rate changes, bank earnings). Itaúsa, being a holdco, sometimes trades at its own rhythm (e.g., news about one of its industrial holdings could affect it). If you prefer your investment to move primarily with Brazilian financial sector performance, Itaú is more direct.

Advantages of Investing in Itaúsa (ITSA4):

• Buy Itaú at a Discount: The biggest draw is acquiring Itaú’s underlying value for potentially ~25% less. As noted, Itaúsa’s shares trade at a significant discount to the sum of its parts . This means the investor is effectively getting R$1 of Itaú (and other assets) for about R$0.75. If the discount narrows in the future, Itaúsa’s stock could outperform Itaú’s stock. For instance, if Itaú’s value rises 10% and the discount narrows from 25% to 20%, Itaúsa’s share price might rise ~16% (more leverage to the upside).
• Higher Dividend Yield: Itaúsa usually yields more than the bank. Currently ITSA4 yields ~7–8%, versus Itaú’s ~4–5% (excluding special dividends) . Itaúsa pays out a large portion of the dividends it receives, and because its stock price is discounted, the yield on its price is higher. For an income-focused investor, Itaúsa might provide a better cash flow. It’s essentially a dividend flow-through vehicle – Itaú and others pay Itaúsa, which in turn pays you, with minimal additional taxation in Brazil (Itaúsa itself doesn’t incur tax on dividends received, it passes them on).
• Some Diversification: With Itaúsa, you’re not 100% in banking. While Itaú is 90+% of the exposure, the other ~10% in industrials and infrastructure could offer slight counterbalance. For example, if at some point Brazilian banks face headwinds but infrastructure picks up (say, lower interest rates make toll road stocks rally), Itaúsa might benefit at the margins. It also positions you to indirectly participate in any upside in those investments. One could view Itaúsa as a mini Berkshire-Hathaway style conglomerate (though far more concentrated) that could over time expand its portfolio. If the management successfully grows those businesses or acquires new ones at bargain prices, Itaúsa’s NAV could grow faster than just Itaú’s growth alone.
• Strategic Moves and Active Management: The families and management of Itaúsa actively manage the portfolio to enhance value. They have demonstrated willingness to invest in new sectors (like sanitation, gas) and divest when appropriate (e.g., selling XP stake). If you trust their capital allocation skill, Itaúsa could add value beyond just holding Itaú. Also, Itaúsa has used share buybacks when its discount was very high, which can boost per-share value for remaining shareholders.
• Potential Catalyst from Holdings: If one of the non-bank holdings experiences a positive event (say, Alpargatas sells Havaianas brand at a lucrative price, or CCR gets a concession win that boosts its stock), Itaúsa could get a bump that is unrelated to Itaú’s performance. These are harder to predict, but it’s an element of optionality.

Disadvantages / Risks of Itaúsa vs Itaú:

• Holding Discount May Persist: There’s no guarantee the NAV discount will close. It’s been a long-term feature and could even widen in bad times (investors might flee holdcos first). So while you are “buying cheap,” you might also “stay cheap.” In a scenario where Itaú’s stock rises slowly and steadily, Itaúsa might always lag by that 20–30% margin. You might never unlock full underlying value unless structural changes occur (like a major asset sale or a going-private event, both of which seem unlikely in near term).
• Less Liquidity for Foreigners: As mentioned, Itaúsa lacks a NYSE ADR. International investors would need to access the Brazilian market directly (which is doable through many brokers, but involves additional steps like FX, custody, etc.). ITUB ADR, on the other hand, trades on NYSE with ample liquidity . This also means Itaúsa is not in as many international indices, possibly limiting demand from global funds. Liquidity in Brazil for ITSA4 is actually quite good (it’s a large company in local terms), but for a strictly U.S.-based retail investor, ITUB is far more convenient.
• Exposure to Non-Banking Businesses: Diversification cuts both ways. Those other companies come with their own risks. For instance, Alpargatas has struggled recently with declining sales of Havaianas in some markets; its stock fell significantly and it suspended dividends – this hurt Itaúsa’s earnings somewhat. Dexco is cyclical; a downturn in construction can reduce its profit and dividend. In 2020, these industrial holdings all had profit drops , compounding the hit from banking. So an Itaúsa investor faces extra moving parts: you have to monitor not just the bank but also these disparate sectors. Adverse developments in any could weigh on Itaúsa’s share price beyond what Itaú is doing.
• Opaque or Private Assets: Some holdings (Aegea, Copa Energia, NTS) are not publicly listed, so their market value is not transparent and they don’t report as frequently. Itaúsa values Aegea and Copa Energia at book value, but the real fair value could be different . There’s also some net debt at Itaúsa level. So there is a bit more complexity in valuation. With Itaú direct, you know it’s one publicly traded entity; with Itaúsa, you’re trusting management’s valuation of unlisted pieces and handling of debt.
• Corporate Layer and Taxes: While Brazil currently doesn’t tax dividends, if tax laws change (e.g., that proposed 10% tax on dividends abroad or a tax on dividends generally), having a holdco layer could introduce some inefficiency. For example, if Brazil ever taxed dividends at source for locals, dividends Itaúsa receives from Itaú might get taxed, and then Itaúsa would pay out after-tax dividends (though likely it could credit the tax). This is speculative, but an extra layer can sometimes mean minor tax leakage or at least a delay (dividends pass through quarterly rather than immediately). Presently, however, there’s no double taxation – Itaúsa’s dividends from Itaú are tax-free and it passes to shareholders either as dividends (still tax-free to them) or as JCP (with 15% tax at distribution). So current tax impact is neutral, but it’s something to watch in reforms.

In short, choose ITUB for a straightforward investment in Brazil’s top bank, especially if you value liquidity and simplicity, and want to avoid any conglomerate discount issues. Choose ITSA if you prioritize a higher yield and don’t mind the long-term holding company nature, believing that the discount either offers a margin of safety or might narrow. Many Brazilian investors actually hold both: Itaú for direct exposure and Itaúsa for income. U.S. investors might lean towards ITUB due to ease of access.

Currency Risk and Macroeconomic Exposure

Investing in Itaú (or Itaúsa) as a foreign investor inherently comes with currency risk and exposure to Brazil’s macroeconomic conditions:

Currency Risk (BRL/USD): Both ITUB and ITSA stocks and dividends are denominated in Brazilian reais. The ADR’s price in USD will reflect the BRL value of the underlying shares. If the Brazilian real depreciates against your home currency (e.g., USD), it will erode your returns. For instance, if Itaú’s stock rises 10% in BRL but the BRL falls 15% vs USD in that period, a U.S. investor would see a net loss in USD terms. The Real has historically been a volatile currency, influenced by Brazil’s inflation, commodity prices, and political stability. Over the past decade, USD/BRL has swung widely (from ~R$1.5 per USD in 2011 to as high as R$5.7 in 2021, and around R$5 in 2025). This volatility can significantly impact the dollar returns of even a well-performing Brazilian stock. On the flip side, if the real appreciates, it can boost returns. For example, during commodity booms or when Brazil has high interest rates attracting capital, the BRL often strengthens – a U.S. investor would then get an FX bonus on top of local stock gains.

Investors should thus factor in their view on Brazil’s currency. Currently, Brazil offers very high interest rates (real yields positive), which could support the BRL if global investors seek yield. Also, if Brazil’s government pursues prudent fiscal policies, the currency may strengthen. However, Brazil’s currency can weaken due to political uncertainties, lower commodity prices (Brazil is a big exporter of iron ore, oil, soy, etc.), or global risk-off events. It’s wise to expect currency fluctuations and possibly hedge if the exposure is large and if a hedging mechanism is available. That said, over the very long term, currency moves might even out somewhat if inflation differentials are as expected (Brazil’s inflation-targeting regime aims for ~3–4% inflation; U.S. ~2%, so one might expect some gradual BRL depreciation long-term). The key is that currency swings can be larger in the short-to-medium term than the stock’s own moves.

Macroeconomic Exposure: Being a bank, Itaú’s fortunes are tied to Brazil’s economy. Key macro factors include:

• GDP Growth: If Brazil’s economy grows robustly, banks benefit from higher credit demand, better loan performance, and more fee business (capital markets, M&A, etc.). Brazil had a rough 2015–2016 (deep recession) and a sharp contraction in 2020, but has grown modestly since. The IMF projects around 2% growth for Brazil in coming years. If growth accelerates (due to reforms or global tailwinds), Itaú stands to gain. Conversely, a recession or stagnation in Brazil would hurt loan growth and potentially increase defaults.
• Interest Rates and Inflation: Brazil’s interest rate swings are among the most important factors for banks. High interest rates (like the 13.75% Selic in 2022) mean high loan rates and big interest income, but they also can crimp borrowing and increase default risk. Lower interest rates reduce banks’ lending rates and the yield on their large government bond portfolios, potentially squeezing margins – but they stimulate credit volume and reduce NPLs. Typically, Brazilian banks’ net interest margins compress when rates fall, but volume picks up; when rates rise, margins expand but volume and asset quality suffer. Itaú has managed well through cycles, adjusting its mix of fixed vs floating loans and its securities portfolio to stabilize NIM. It’s also worth noting Brazilian banks earn a lot from non-interest income (fees), which is less rate-sensitive. As of 2025, inflation in Brazil is moderate (~4-5%) and the central bank is expected to cut rates from their peak. This likely will be net positive for Itaú: credit losses will drop (already NPLs are improving) and loan growth will resume, though NIM might tighten slightly. If inflation were to surge unexpectedly (due to commodity shocks or fiscal issues), rates could climb again, posing a headwind.
• Political and Regulatory Environment: Brazil’s political climate can impact banks. Currently, President Lula’s administration (since 2023) leans left, but has not indicated any desire to interfere heavily in private banks. However, policies like credit for low-income housing, caps on interest for certain loans, or increased taxes can emerge. In the past, Brazilian governments have, for example, pressured state banks to lower lending rates to spur economic activity – which can indirectly pressure private banks to follow or lose market share. There’s also always a chance of new taxes or regulations: e.g., a financial transactions tax (CPMF) was debated historically; higher taxes on bank profits (the “social contribution” tax rate for banks has been raised and lowered before). Right now, a potential change is the tax on dividends which could indirectly affect investors. Overall, Itaú’s large size and importance make it unlikely to be specifically targeted, but broad sector measures can happen. The governance risk for Itaú specifically is lower than for state-controlled Banco do Brasil (where political appointees influence strategy), but as a system, all banks operate under the Central Bank’s watch. The Brazilian Central Bank is considered relatively independent and has been supportive of a stable, competitive banking system (e.g., encouraging fintech but also ensuring banks are well-capitalized).
• Competitive Landscape: Macroeconomic exposure also includes competition from new entrants. The rise of fintechs and digital banks (like Nubank, PagSeguro, fintech lenders) in Brazil is a secular trend. While not exactly “macro,” it’s an industry-wide factor that can affect growth and margins. So far, incumbents like Itaú have defended their territory by innovating, but competition has put pressure on fees (for example, many banking services that used to generate fee income are now offered for free by digital banks, forcing Itaú to adapt its fee structure for current accounts). This competitive pressure is likely to persist, which might cap how much Itaú can grow certain fee lines or how it prices some loans. However, the Brazilian banking pie is large and still growing, and Itaú’s brand and trust factor are strong advantages.

In summary, an investor in Itaú/ Itaúsa should be confident in Brazil’s long-term economic trajectory and prepared for short-term macro swings. The good news is Itaú has proven quite resilient to macro volatility – it remained profitable in downturns and thrived in expansions. It also has a big capital buffer to absorb shocks. But external factors like a commodities slump hitting Brazil’s economy, a political crisis, or global emerging market sell-offs can all weigh on Itaú’s stock (and sometimes heavily, as seen in past episodes where Brazilian equities plunged). Currency risk will magnify those moves for foreign investors. Prudent investors might limit position sizes or use hedges to manage these risks. The upside of taking these risks is that valuations already reflect a Brazil discount – if Brazil outperforms expectations (economically or politically), there could be significant rerating and currency upside, benefiting Itaú investors greatly.

How to Invest: Itaú’s ADR, Taxation, and Liquidity Considerations

For international investors, especially those in the U.S., Itaú’s ADR (ITUB) is the most straightforward way to invest in the company. Here are key points on investing and related considerations:

• ADR Details: Itaú Unibanco’s ADR is listed on the New York Stock Exchange under ticker ITUB. Each ADR represents one Itaú Unibanco preferred share (ITUB4) . The ADR has been listed since 2002 and is highly liquid, with a market cap around $60+ billion and active daily trading . Purchasing the ADR gives you the rights economically equivalent to the underlying ITUB4 shares, including dividends. The custodian (Itaú Unibanco’s own custody in Brazil) and depositary bank (usually BNY Mellon for Itaú’s ADR) handle the conversion between ADRs and local shares .
• Dividends on the ADR: When Itaú pays dividends or JCP in Brazil, ADR holders receive the proportional amount in U.S. dollars. The depositary converts BRL to USD on payment, typically minus a small ADR fee (often ~$0.005 to $0.02 per share). If any Brazilian tax is withheld (e.g., 15% on JCP), the ADR holder will receive the net amount. For example, if Itaú declares R$1.00/share as a dividend, the ADR should get roughly R$1.00 worth in USD. If it declares R$1.00 as JCP, the ADR will get ~R$0.85 worth in USD (after 15% tax). The depositary will usually issue an ADR dividend notice showing the gross and net. U.S. investors can use the 15% tax withheld as a foreign tax credit on their tax return (if in a taxable account). Important: Brazil currently does not tax regular dividends, so most of Itaú’s payouts (the dividend portion) come through with no Brazilian withholding . Only the JCP portions have that 15% withheld . There is talk of Brazil instituting a 10% tax on dividends to non-residents in the future , but as of now it’s not law. If it happens, ADR investors might see an across-the-board 10% withholding on dividends too. Investors should stay updated on Brazilian tax changes.
• Taxation for U.S. investors: Beyond Brazilian source tax, U.S. investors will pay U.S. taxes on foreign dividends just like domestic ones. Itaú’s dividends are qualified dividends (Brazil has a tax treaty with the U.S. that should allow them to count as such, and the stock is readily tradable on NYSE), so they typically qualify for the lower dividend tax rate in the U.S. (for individuals). Any Brazilian tax (like the JCP 15%) can be claimed as a foreign tax credit to avoid double taxation. In tax-deferred accounts (IRAs, etc.), foreign tax paid can’t be recovered, but since pure dividends aren’t taxed by Brazil, that’s not a big issue except for the JCP portion. In recent years, Itaú’s JCP has been a minority of the total payout, but that can vary.
• Liquidity and Trading: ITUB’s liquidity is excellent – one can trade in and out with minimal spread. Itaúsa, by contrast, does not have a NYSE listing. There is an OTC ticker (ITSAY or ITSAF/ITVMF are sometimes seen – these likely represent unsponsored ADRs or foreign ordinaries) , but volume there is extremely low. Therefore, foreign investors who want Itaúsa typically need access to the Brazilian market (B3). Some global brokerages (interactive brokers, etc.) allow trading on B3, but many retail U.S. brokers do not. This is a key consideration: if you cannot easily buy Itaúsa, buying Itaú ADR is the practical choice.
• Currency Exchange: Buying ITUB ADR means you don’t have to deal with currency conversion yourself – you purchase in USD, and the ADR reflects BRL moves automatically. If one buys ITUB4 in Brazil, you’d need to convert USD to BRL to do so. The ADR simplifies that process but at the cost of some small ongoing ADR fees. The ADR price will closely track the Brazilian price adjusted for exchange rate (any deviations are usually arbitraged away by investors who can convert ADRs to local shares or vice versa).
• Market Hours and News Flow: Keep in mind Brazilian market news might come outside U.S. hours. The ADR will often move in pre-market if something happened in Brazil (like earnings release before U.S. open). Itaú typically reports earnings in the evening (Brazil time) after B3 closes, which is after U.S. market close as well, so both markets react the next day. It’s wise to follow Brazil news or subscribe to alerts if you hold the ADR.
• Liquidity of Dividends: Another note – Itaú and Itaúsa pay dividends in BRL to local shareholders often on a monthly basis (very small amounts). For ADR holders, the depositary usually accumulates the tiny monthly amounts and pays them out periodically in larger chunks (to avoid administrative hassle of paying fractions of a cent monthly). You might see, for example, quarterly ADR dividend payments that bundle the past three monthly dividends. Major additional dividends will be passed promptly though. Always check the ADR announcements from BNY Mellon (or the depositary) for the schedule.
• Costs: Owning the ADR might involve slightly higher expense (custody fees). Some brokers pass the ADR custody fee to holders (it could be $0.01-$0.03 per share annually). These are minor but worth noting if you hold a very large position.
• Alternative funds: If one doesn’t want to pick individual stocks, there are Brazil ETFs (like EWZ, which includes Itaú and Itaúsa among holdings) or LatAm bank funds. But for a focused investment, ITUB ADR is quite accessible.

In summary, for a U.S. investor, ITUB ADR is the recommended instrument to gain exposure to Itaú Unibanco. It offers convenience and robust liquidity, and you get essentially the same economic benefits as holding the local shares. Itaúsa is a bit trickier for foreigners due to access issues; unless you have the means to trade in Brazil, you might skip Itaúsa or use an international brokerage that can handle it. Some investors also consider currency-hedged products or Brazilian Real ETFs if they want to manage currency risk separately.

Liquidity considerations: Itaúsa’s stock (ITSA4) is actually one of the most liquid stocks on B3 in Brazil – it often trades in high volumes and is part of the Bovespa index. So domestic liquidity is fine. The main barrier is the lack of an easy ADR. If one is keen on Itaúsa despite that, one idea is to buy Itaúsa’s stock on B3 and hold it through a local custodian or via a Brazilian brokerage arm. But that’s beyond the comfort level of many U.S. retail investors.

Finally, when investing in any Brazilian stock, consider the macroeconomic timing and diversification. Itaú is a great company, but being tied to one country’s fate means portfolio allocation should be sized appropriately. The Easy Brazil Investing perspective would likely remind readers to view Itaú as a core long-term holding that can deliver solid dividends and growth, but to be mindful of cycles (maybe even take advantage of downturns to accumulate). The combination of Itaú’s quality and Brazil’s emerging market dynamics can be powerful for returns – historically, Itaú has outperformed many global banks and even the local index over multi-decade periods.

Conclusion

Itaú Unibanco stands out as a blue-chip Brazilian investment, offering a rare mix of high profitability, steady dividends, and growth potential in a developing market. Its strong business model – universal banking with a tech-driven, customer-centric approach – and proven financial performance (ROEs ~20%+, efficient operations) make it a top pick for exposure to Latin America’s financial sector. Itaú’s consistent dividend policy (monthly payouts and additional semiannual distributions) provides income investors with regular cash flow, and its prudent management ensures those dividends are supported by earnings. The growth outlook is positive: digital innovation is keeping Itaú competitive against fintech rivals, an eventual easing of interest rates should spur credit growth, and the bank’s Latin America footprint and new business ventures add further avenues for expansion.

At current levels, Itaú’s valuations are reasonable for its quality – it trades at a premium to peers, but rightly so given its superior returns and resilience . Peers like Bradesco and Santander Brasil may look cheaper, but they come with higher risk and historically lower profitability. Itaú offers a “sleep-well-at-night” factor in the volatile Brazilian market, supported by its exemplary governance and management. The controlling shareholders and professional executives have a long track record of creating value while upholding high standards of risk management and ESG commitments. This means as an investor you are partnering with a management team that has navigated Brazil’s ups and downs and emerged stronger – a critical point for long-term confidence.

For those considering Itaúsa vs Itaú, the decision boils down to investment style: Itaúsa provides a value play with a higher yield (and that enticing NAV discount of ~25% ), plus exposure to a basket of other Brazilian sectors. It’s suitable if you prioritize income and are comfortable with the holding company structure for a potentially higher total return (should the discount narrow). On the other hand, investing directly in Itaú (especially via the convenient ITUB ADR) gives a pure, focused investment in the bank, with greater liquidity and simplicity – likely the preferred choice for many foreign investors. Both have their merits, and indeed both ultimately derive their strength from Itaú Unibanco’s performance – which, as this analysis has detailed, appears robust and set to continue delivering.

Risks to monitor include macroeconomic shifts (inflation, recession risk, political changes) that could impact Brazilian banks broadly, and currency fluctuations which will affect USD returns. Nevertheless, Itaú’s conservative loan book and hefty capital buffers position it to withstand shocks better than most. Moreover, Brazil’s current economic trends (inflation under control, potential interest rate cuts, and ongoing reforms) provide a supportive backdrop for banks in the coming years – a stark improvement from a few years ago.

In conclusion, Itaú Unibanco offers foreign investors an attractive combination of dividend income and growth tied to the largest economy in South America. Its ADR allows easy participation in this story, and for those willing to venture into the holding company, Itaúsa sweetens the yield and value proposition. As always, one should invest with a long-term horizon: Itaú has been in operation for nearly a century, and its ability to adapt and thrive suggests it will remain a cornerstone of Brazilian finance for decades to come. For an international investor looking at Brazil, Itaú (and by extension Itaúsa) is a cornerstone investment – a way to benefit from Brazil’s financial deepening and economic growth, backed by a bank that has proven itself time and again as a champion of prudent, profitable growth .

Sources: This analysis drew on a variety of sources, including Itaú and Itaúsa investor relations reports for factual data on financials and holdings , Brazilian financial press for insights on recent performance , and global news outlets for context on economic and tax changes , among others. The aim was to provide a well-rounded view combining quantitative metrics with qualitative assessment of strategy and risks. With prudent investing and due attention to the risk factors, Itaú Unibanco and Itaúsa present compelling cases as part of a long-term, diversified investment portfolio for those interested in emerging market opportunities.