(Source: Business Wire)
Fitch Ratings has today affirmed the ratings of of the Itau Group of banks. At the same time, the agency has placed the Local Currency short- and-long term Issuer Default ratings (IDRs), as well as the Foreign currency short-term IDR of Unibanco-Uniao de Bancos Brasileiros S.A. (Unibanco) on Rating Watch Positive; the Foreign currency IDRs of the Itau banks and of Unibanco are constrained by Brazil's country ceiling. The rating actions follow the announcement of a joint-venture agreement between the controlling shareholders of Banco Itau Holding Financeira (BIHF) and Unibanco on Nov. 3, 2008. This agreement outlines the merger of their financial operations, which will establish the largest private financial conglomerate in Brazil and in Latin America. The transaction contemplates an exchange of shares, which will mean the migration of the current shareholders of Unibanco Holdings S.A. and Unibanco to a non-financial holding, IU Participacoes, that will control BIHF, to be called Itau Unibanco Holding S.A. (Itau Unibanco Holding). The closing of this agreement is contingent on approval by the Central Bank of Brazil and other relevant authorities. (She full list of rating actions can be found at the end of this release.)
The rating actions on Unibanco reflect the agency's opinion that following the closing of the proposed transaction, Unibanco's risk profile, and its ratings would be equalized with those of BIHF.
The proposed transaction will result in Brazil's largest financial franchise, with its strength deriving from the combination of diversified businesses across the range of financial services products. On Sept. 30, 2008, the combined financial institutions presented total assets of BRL575 billion, loans of BRL225 billion, deposits and debentures of BRL235 billion, net equity of BRL51 billion and assets and funds under management around BRL265 billion. Management estimates that the local regulatory capital ratio of this new holding at that date would have been 15,1%, a level that compares well to other local and regional peers. Given the the realities of the challenging environment, BIHF's diversification of activities should provide a diversified revenue base sufficient to cushion against potential pressures on asset quality, and allowing internal capital generation. In addition, while Fitch notes that both banks have a track record of successfully integrating prior acquisitions, the magnitude of the proposed merger is far beyond that of past experience, and will present important integration risks, both operational and cultural. Itau Unibanco Holdings will initially operate through the existing Itau and Unibanco franchises, maintaining the respective brands over at least the near term; over time, it is likely that synergies will lead to rationalization of legal entities and brands.
Comments to the market since the announcement of the proposed transaction indicate that the new entity will look to both organic growth in Brazil, as well as international growth, both organic and inorganic.
