Itaú : Bank on Latin America

07/24/2014 10:00 am EST

Focus: GLOBAL

Richard Stavros

Analyst, Global Income Edge, Utility Forecaster and Personal Finance

Our latest recommendation is a Brazilian bank with headquarters in San Paulo; it is a strong play on consumer purchasing power growth in various regions in Latin America such as Colombia, Chile, Brazil, and Mexico, explains Richard Stavros, editor of Global Investment Strategist.

Itaú (ITUB) is the result of the merger of Banco Itaú and Unibacno, which occurred in 2008 to form the largest financial conglomerate in the Southern Hemisphere and the tenth largest bank in the world by market value.

Itaú currently is the second biggest Brazilian bank by assets. Despite recent economic headwinds, Itaú is now planning to expand into high growth countries in Latin America.

Itaú has shunned many high-risk loans in Brazil at the expense of growth, but its conservatism has paid off in positive earnings.

The bank has shown itself to be very shrewd in managing the risks in its home market, which gives support to its potential success as it expands in other parts of Latin America.   

The bank has been pursuing diversification by expanding throughout the region. Rogerio Calderon, the bank’s comptroller, said Itaú was interested in expanding in Argentina, Chile, Paraguay, and Uruguay.

The bank is also growing through acquisitions. In June 2013, it agreed to buy Citibank’s retail banking operations in Uruguay.

Itaú also took over Citigroup’s Credicard unit, an R$8 billion asset business that includes the Credicard brand and credit cards as well as 96 consumer finance outlets. The bank also bought 51% of the credit card operations of Cencosud in Chile and Argentina.

The bank reported first-quarter 2014 recurring earnings of R$4.5 billion ($1.90 billion), up 29% year over year. Including non-recurring items, net income came in at R$4.4 billion ($1.86 billion), up 25.7% year over year.  Itaú is a Buy up to $17.

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