Itau to take over Unibanco, forming biggest Latam bank

Mon Nov 3, 2008 6:33pm EST
By Todd Benson and Elzio Barreto
SAO PAULO (Reuters) - Brazilian bank Itau (ITAU4.SA: Quote, Profile, Research, Stock Buzz) will take over smaller rival Unibanco (UBBR11.SA: Quote, Profile, Research, Stock Buzz) (UBB.N: Quote, Profile, Research, Stock Buzz) in an all-stock deal that will create the largest financial group in Latin America, the companies said on Monday.
The tie-up comes as banks around the world are under pressure from the global financial crisis, which has reduced the availability of credit and forced a consolidation of the banking industry from the United States to Europe.
The deal also caps weeks of frenzied activity in Brazil's financial sector, with big banks like Itau (ITU.N: Quote, Profile, Research, Stock Buzz), Unibanco and Bradesco (BBDC4.SA: Quote, Profile, Research, Stock Buzz) (BBD.N: Quote, Profile, Research, Stock Buzz) taking advantage of looser central bank regulations to snap up loan portfolios from smaller firms squeezed by the credit crunch.
With the global crisis battering banks around the globe, Itau and Unibanco rushed out their third-quarter results ahead of schedule in recent weeks to reassure investors that they were not overexposed to foreign currency derivatives. Both reported strong profits, sparking a rebound in their shares.
"We shouldn't let the current situation contaminate our analysis into thinking that one bank bought the other because it was in trouble," said Luiz Miguel Santacreu, a bank analyst at Austin Rating in Sao Paulo. "This is about the consolidation of the banking sector globally and in Brazil."
The transaction -- which Itau and Unibanco said they had been negotiating for the last 15 months -- cast a spotlight on the Brazilian financial sector, with some analysts speculating that some smaller banks may need to be bought to rescue them from trouble.
The deal also could put pressure on Bradesco, which has long been the largest private-sector bank in Brazil, to pursue acquisitions in a bid to hold on to the No. 1 ranking among non-government banks, analysts said.
Itau and Unibanco, which described the deal as a chance to bulk up for future growth, said more consolidation was likely.
"Obviously, the Brazilian market has changed," Itau Chief Executive Roberto Setubal said at a news conference. "This can trigger some other acquisitions by other banks, which is something that will happen naturally."