The choice of Itaú’s next chief executive, Milton Maluhy, shows that the bank now grasps that its new challenge – and its new challengers – will come from emerging forces in the digital banking and investment world.
Maluhy has been chosen to replace Candido Bracher, who was appointed in May 2017. Bracher, who replaced Roberto Setubal, was just 58 at the time, limiting his tenure to four years, since the bank’s retirement age for its chief executive is 62.
Maluhy, on the other hand, is just 44. His youth has precedent – Setubal was only 40 in 1994 when he became CEO – but he was, of course, a member of the controlling family.
Bracher’s appointment represented a kind of lifetime achievement award, some insiders argued. He joined the bank in 2002 as employee and shareholder when the then chief executive Setubal bought Bracher’s father’s investment bank to create Itaú BBA, a deal that Setubal cites as one of his most important.
But that characterization of Bracher’s hiring is simplistic and, in many ways, unfair. There was no easy choice. There were rumours that highly regarded Jean-Marc Etlin, then president of Itaú BBA, walked away from the bank upon learning that he wouldn’t replace Setubal.
Bracher was certainly well qualified to take the position. The suggestion that the board would have let anyone take the reins of such an institution if they didn’t have high regard for his abilities is implausible, even though Setubal remains in close, day-to-day contact with the management of the bank as co-chairman.
Erosion
Nevertheless, the last few years have seen an erosion of Itaú’s market leadership. If it wasn’t for Setubal’s inspired acquisition of XP Inc (Itaú now owns 46% of the rapidly growing digital platform and a very in-the-money call to buy 12.5% more), the digital banks and fintechs would have taken an even bigger bite out of Itaú’s share performance.
For example, on November 3, Itaú’s shares (ex-XP) traded at six times 2019 earnings, which is more than 25% cheaper than Bradesco (7.1x) and Santander Brasil (8.7x).
It is hard to know, therefore, whether the decision to spin off that XP ownership into a newco represents a view that XP is overvalued or that Itaú’s shares are undervalued.
Maluhy is planning to prioritize fintech issues over project net present values
Itaú has also said that it might sell five percentage points of XP stock to reinforce capital ratios that have dipped to 12.1% with a recent spike of provisions, below its 13.5% target.
Maluhy will become chief executive in February 2021.
His arrival has been largely welcomed by analysts who note his on-the-record views that the bank’s challenge is to evolve into a digital entity that will thrive in the radically changing banking market.
He has eschewed the strategy of buying a digital bank or developing a standalone bank and instead faces the challenge of making Brazil’s largest bank – with 97,000 employees and a 95-year history – competitive with a fintech’s cost base.
To do it, Maluhy is planning to prioritize fintech issues, such as user experience and net promoter score, over project net present values that have dictated the agenda in recent years.
Core changes
As well as signalling that the bank will give Maluhy time to implement the necessary sweeping changes, the board is also giving the incoming chief executive space for change in core areas.
In November, it was announced that Marcio Schettini, director of retail banking, and Caio Ibrahim David, director of wholesale banking, are to leave the bank; their replacements will be key to Maluhy’s plans – in the retail operations in particular.
In the past, Euromoney has pointed to the performance of Rede, Itaú’s corporate payments business, as where the bank first began to feel the pain of new digital competition. This is an area where it initially failed to grasp the scale of the market transformation. Its business in Chile, CorpBanca, has also been a perennial underperformer. Maluhy has led both these businesses during his time at the bank.
Maluhy, then, has been given a mandate to transform Itaú. But what challenges he faces: unlike the most recent chief executives, he must deliver amid much fiercer competition; and again, unlike the previous two chief executives, Maluhy is not a member of a large shareholding family – something that provides some stability when, inevitably, questions arise.
