TOWARDS THE END of a long interview with Roberto Setubal, CEO of Brazil’s Banco Itaú, Euromoney attempts to move the topic of conversation from the organization’s achievements to the man’s, asking: "Do you have any ambitions outside of Brazil?" Setubal responds by looking out over the view of São Paulo from the spacious comfort of his office at the top of one of the bank’s city-centre towers. As he begins to discuss the possibility of long-term overseas acquisitions and strategic positioning, it takes a moment to realize that he has misunderstood the question and is talking about the bank rather than himself. It’s an appropriate end to the conversation: Setubal has been modest throughout where his many personal triumphs are concerned but he has nothing but pride for what Itaú has achieved in the years since he became CEO in 1994. The question now is what this bank, and this highly respected banker, aim to do as Brazil and its companies begin to assert themselves as heavyweights in the international capital markets.
Itaú’s fourth-quarter profits for 2006 showed a drop to R$1.28 billion (US$613 million) from R$1.42 billion a year earlier, thanks mainly to a R$408 million charge for the acquisition of BankBoston’s business in Chile and Uruguay. Ignoring one-off charges, profits exceeded analysts’ expectations by rising as much as 18% for the full year. The bank, like rivals Bradesco and Unibanco, is in rude health as it takes advantage of credit growth and increasing demand from ambitious corporates for financial services. All looks well. There are, however, gaps in the Itaú arsenal, and Setubal does not deny when pressed that it is at the cutting edge of international investment banking that his group lacks sharpness.
When Brazilian steel maker CSN launched an (ultimately unsuccessful) bid for European rival Corus earlier this year, it came as no surprise that the former was advised by bulge-bracket investment banks rather than an Itaú or a Unibanco. These large-scale, cross-border M&A transactions will probably become increasingly common as Brazil’s largest commodities firms reach saturation point in their respective domestic markets and begin to look abroad, and they are the kind of mandates that the Brazilian banks are simply not winning. How long can a bank like Itaú continue to grow before it starts to confront this issue?
"Yes," says Setubal, "this is a real challenge for Itaú. I agree with you that for now this market [large-scale cross-border M&A] is one that we don’t compete in. If you talk about mid-size corporates, I would say that we are number one, but we’d find it hard to be in on something for CSN, or [mining firm] CVRD."
The league tables for Brazil’s top equity and debt bookrunners show Brazilian banks occupying the top spots, thanks mainly to their dominance of the local-currency markets. As the earnings reports, the league tables and the gleaming opulence of Itaú’s silvery branded towers in the heart of São Paulo all attest, the bank is making enough money not to worry about this international business for now. Does Setubal think, however, that the trend for corporates to look overseas will develop to the point where Itaú will be forced to adapt?
"Banks follow their clients," he says, laughing. "The Brazilian economy has been rather closed: the barriers are being lifted, and more and more capital is starting to flow overseas. Brazilian companies in general are locally focused because the domestic market here is so large, but the trend we have seen for the market leaders to become multinationals will increase over time. I think Itaú is at the moment the most international of Brazilian banks – we started our securities house in the US over three years ago, we have capital markets activities in London – and I believe that, yes, there will be a place for a Brazilian bank in the international capital markets."
The developing market for perpetual bonds is another that has been dominated by the foreign houses, whose distribution capabilities allow them to sell the high-risk, high-reward paper to the international investors that are willing and able to buy it.
"We’ve not been in that market either," says Setubal. "It’s a very specific market with a complex product, and we don’t have the conditions to be competitive since we lack access to the investors. Overall it’s fair to say that we have challenges in the international markets, we have to look in the longer term at how we can go cross-border."
There have been plenty of rumours about how this might happen. Market sources at the start of the year suggested that Bank of America might bid for ABN Amro’s Banco Real and then sell it to Itaú, with BoA then seeking to increase its shares in Itaú in return. Last year BoA sold its Brazilian unit to Itaú in return for $2.2 billion-worth of Itaú shares.
Setubal obviously won’t comment on specific rumours but has this to say: "There are lots of options for us to explore. The fact is that Itaú is very well positioned, but we lack some capabilities in the international markets so we either have to develop them ourselves or look for a partner with whom we can combine our strengths."
It was around the time of Setubal’s appointment in 1994 that Itaú began to look seriously at hiring external talent, and the question of the depth of the pool of international talent is one that vexes him even now.
"It’s a good point: it is challenging to hire the right people for the international markets, partly because it is difficult to persuade people here to leave Brazil." He gestures outside, where brilliant sunshine has been steadily replacing smog as the interview has worn on, and his point is taken.