Banco Itaú S.A.
Banco Itaú S.A.
Incorporated: 1944 as Banco Central de Crédito
Total Assets: R$35.06 billion (1996)
Stock Exchanges: Brazil
SICs: 6000 Depository Institutions; 6021 National Commercial Banks; 6211 Security Brokers & Dealers
Headquartered in Brazil’s financial capital of Sao Paulo, Banco Itaú S.A. ranks second only to Banco Bradesco S.A. among the nation’s largest nongovernmental financial institutions. Although not the biggest of Brazil’s banks, it was, in 1996, one of the few ever to have been listed among Euromoney’s ranking of “The World’s 100 Best Banks.” By the mid-1990s, Itaú boasted more than 1,800 branches in 455 cities; more than 7,700 automated teller machines (ATMs); and an innovative telebanking network. With more than 16.7 million checking, savings, and mutual fund accounts, Itaú claims an estimated 11 percent of the Brazilian retail banking market. Its operations are segmented into four primary groups: Itaúcorp is dedicated to serving corporate accounts; Itaú “Empresas” deals with mid-sized firms; branch banks offer nationwide access to individual accounts via ATM, telephone, and personal service; and Itaú Private Bank offers portfolio management to wealthy individuals. Banco Itaú’s Itaúseg insurance subsidiary holds an eight percent share of the nation’s insurance market.
Itaú is the lead affiliate of Investimentos Itaú S.A., also known as Itaúsa, one of Brazil’s most profitable private sector conglomerates. The parent company ranks among Fortune magazine’s ranking of the world’s 500 largest corporations.
Itaúsa’s interests include insurance, building materials, chemicals, electronics, and real estate, as well as banking.
Origins in 1940s
Banco Itaú was founded in Sao Paulo January 2, 1945 as Banco Central de Crédito. It was then as small as the law allowed, with only ten million cruzeiros (US $513,000) in capital. But growth came quickly. Over the course of its first decade-and-a-half in business, Banco Central de Crédito expanded to rank among Brazil’s 75 largest banks, having more than 30 branch outlets and doubling its capital by 1953. The institution changed its name to Banco Federal de Crédito that year to reflect its augmented stature.
This period in the bank’s history was played out against an environment of political and economic instability. The near-dictatorship of Getzlio Vargas in the 1930s and early 1940s yielded to an experiment in democracy from 1945 to 1960. The nation enjoyed robust industrial growth and expansion of infra-structure during Juscelino Kubitschek de Oliveira’s term in office in the late 1950s, when Brazil’s GNP rose six percent to seven percent annually. But that growth was financed in large part by a spiraling national debt, which almost doubled from 1956 to 1961 and sent the nation on an inflationary roller coaster ride that would reign almost continuously through the remainder of the 20th century.
By the early 1960s, triple-digit annual percentage rates of inflation, rapid currency devaluation, and a flat gross domestic product had forced the nation’s banks to “index” many transactions to the rate of inflation. For example, savings accounts would guarantee a return of a given number of percentage points above inflation, instead of a particular interest rate.
From the outset, Banco Federal de Crédito concentrated its operations in Brazil’s urban areas, especially those in the south-east. This strategy would prove wise, for the nation experienced a profound population shift from the outlying areas to the cities in the last half of the 20th century. By the early 1980s, substantially more than two-thirds of the country’s people were urbanites. The bank’s “hometown,” Sao Paulo, would grow to become one of the world’s most populous cities.
Mergers and Acquisitions in the 1960s and 1970s
Itaú’s growth to prominence among Brazil’s financial institutions was, in large part, due to its participation in a long period of consolidation in the banking industry. Following a major reorganization in the late 1950s and early 1960s, Banco Federal de Crédito pursued several mergers and acquisitions that expanded both its capitalization and its geographical reach. The program began with a 1964 union with Banco Itaú to form Banco Federal Itaú S.A. Two years later, the group added Banco Sul Americano S.A. This marriage not only lengthened the bank’s name to Banco Federal Itaú Sul Americano S.A. but also brought its total roster of branches to more than 180 and increased its capital to US $6.7 million. A 1969 merger with Banco da America catapulted the growing institution into Brazil’s top ten, with nearly 275 branches and US $14.8 million in capital.
A military coup d’état in 1964 ushered in a period of government-led economic planning that brought about “the Brazilian miracle” of the late 1960s and early 1970s. Under the Castelo Branco administration from 1964 to 1966, the country entered an exceptional era of rising standards of living, low inflation, and economic expansion. This trend continued into the early 1970s despite a series of political crises.
Following the acquisitions of Banco Aliança S.A. and Banco Português do Brasil S.A. in the early 1970s, the institution shortened its name to the more manageable and memorable Banco Itaú S.A. in 1973. A 1974 union with Banco Uniao Comercial made it Brazil’s second largest nongovernmental bank, with 561 branch locations throughout the country.
1980s Bring Renewed Economic Challenges
Bank patrons countered rampant inflation in the early 1980s by making daily transfers of funds to accounts with higher yields. Along with many of Brazil’s leading banks, Itaú made its services more accessible to accommodate the increased number of transactions, more than tripling the number of branch outlets from the mid-1970s to the mid-1990s.
In an effort to combat inflation without slowing economic growth, Brazil’s Sarney administration ratified the “Cruzado Plan” in 1986. This strategy embraced a new fixed rate currency, the cruzado, as well as price and wage freezes. The government even limited banking hours to just five midday hours to hinder activity. These new imperatives forced many Brazilian banks to rationalize heretofore generous staffing levels. Tens, if not hundreds, of thousands of bank employees were put out of work. Due in part to its acquisition of Banco Pinto de Mahalhahes in 1985, Itaú bucked this trend for a brief period. Its employment levels actually rose from 74,700 in 1986 to 84,200 in 1988. But in the years to come, the bank reduced its employee roster by more than half, to less than 32,000 by 1996.
New Frontiers in the 1990s
Technology helped increase the productivity, efficiency, and service quotient of the workers who remained. Investment in automation began in 1979 and by the early 1990s Itaú’s electronic services included telebanking via the Itaúfone, Itaúfax, and Bankfone networks and Itaú Bankline for online computer commerce. The institution’s vast series of more than 7,700 ATMs included nearly 800 machines installed on customers’ premises. By 1996, substantially more than half of Itaú’s total teller transactions were made through one of these self-service outlets.
The 1990s also brought international expansion at Itaú. Aided by the creation of the Mercosur free-trade zone, the company created a subsidiary in neighboring Argentina in 1994 and announced plans to open 35 branches there. The bank also launched subsidiaries in Europe and Grand Cayman as well as a branch outlet in New York City by mid-decade. Affiliations with some of the world’s largest and most influential banks helped raise Banco Itaú’s presence on the world stage and diversify its activities from the core retail banking. The institution forged a joint venture investment bank in Brazil with U.S.-based Bankers Trust New York Corp. in 1995 and purchased Banco Frances y Brasiliero from France’s Credit Lyonnais for US $335 million that same year. In 1997, Itaúsa merged its insurance company Itaú Seguros (Itaiiseg) with Banco Itaú, thereby giving the banking subsidiary an eight percent share of the Brazilian insurance industry.
In mid-1995, Brazilian President Fernando Henrique Cardoso launched a new strategy to restrain inflation. Known as the Real Plan, this program tied the value of the Brazilian dollar to that of the U.S. dollar. The plan succeeded in cutting annual inflation rates from nearly 1,800 percent in 1989 to about ten percent by the end of 1996. The news was not so good for some Brazilian banks dependent on “the float”—described by Institutional Investor’s Bill Hinchberger as “the high interest earned by investing non-interest-paying deposits and other low-cost money in high-yielding government bonds—for profits.” Bank failures and reorganizations cost the government an estimated R $30 billion (US $30 billion) in 1994 and 1995.
Banco Itaú’s corporate objectives are “to be the leading bank in performance, recognized as being sound and reliable, standing out because of its aggressive use of marketing, its advanced technology and its highly capable staff, committed to total quality and to customer satisfaction.”
Itaú had indeed relied on the float. According to analysis by Baring Securities quoted in Hinchberger’s 1994 article, more than two-fifths of Itaú’s 1993 revenues were generated via the strategy—more than the bank’s credit revenues. But with US $20.5 billion in assets in 1995, Banco Itaú remained one of the nation’s most well-capitalized institutions. Furthermore, Moody’s rating service has called Itaú “the most efficient of the large banks,” and Thomson BankWatch Inc. praised it as “among the best capitalized in the [Brazilian] banking system.” In 1996, it was ranked among The Banker’s Top 500 Banks worldwide and Top 100 Latin institutions.
Banco Francês e Brasileiro S.A.; Itaú Bank, Ltd. (Cayman); Itaú Corretora S.A.; Itaúleasing S.A.; Banco Itaú Argentina S.A.; Itaú Capitalização S.A.; Itaú Bankers Trust S.A. (54%); Banco Itaú Europa S.A. (35%); Credicard S.A. (33%); Itaúprevidência S.A.
“Banco Itaú Takes Over Control of Itaúseg,” South American Business Information, April 18, 1997, n.p.
Brandao, Ignacio de Loyola, Itaú, 50 Anos, Sao Paulo, SP, Brasil: DBA - Dorea Books and Art, 1995.
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Kraus, James R.,“BT Forming Alliance with Credit Lyonnais,” American Banker, July 6, 1995, pp. 1–2.
——, “BT Teams Up with Brazil’s Banco Itaú To Launch Investment Bank in Sao Paulo,” American Banker, May 22, 1995, p. 6.
Lake, David, “Banco Itaú Creates Hardware and Software To Handle Complex Transactions in Brazil,” American Banker, December 19, 1988, pp. 10–11.
Moffett, Matt, “Brazil’s Banks Return from Near Collapse,” The Wall Street Journal, March 7, 1997, p. A8.
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Taylor, Robert, “Cardoso’s Next Battle,” The Banker, January 1997, pp. 59–60.
—April Dougal Gasbarre