Itau to take over Unibanco, forming biggest Latam bank

SAO PAULO (Reuters) - Brazilian bank Itau (ITAU4.SA) will take over smaller rival Unibanco UBBR11.SA UBB.N in an all-stock deal that will create the largest financial group in Latin America, the companies said on Monday.

The tie-up comes as banks around the world are under pressure from the global financial crisis, which has reduced the availability of credit and forced a consolidation of the banking industry from the United States to Europe.

The deal also caps weeks of frenzied activity in Brazil's financial sector, with big banks like Itau ITU.N, Unibanco and Bradesco (BBDC4.SA) (BBD.N) taking advantage of looser central bank regulations to snap up loan portfolios from smaller firms squeezed by the credit crunch.

With the global crisis battering banks around the globe, Itau and Unibanco rushed out their third-quarter results ahead of schedule in recent weeks to reassure investors that they were not overexposed to foreign currency derivatives. Both reported strong profits, sparking a rebound in their shares.

"We shouldn't let the current situation contaminate our analysis into thinking that one bank bought the other because it was in trouble," said Luiz Miguel Santacreu, a bank analyst at Austin Rating in Sao Paulo. "This is about the consolidation of the banking sector globally and in Brazil."

The transaction -- which Itau and Unibanco said they had been negotiating for the last 15 months -- cast a spotlight on the Brazilian financial sector, with some analysts speculating that some smaller banks may need to be bought to rescue them from trouble.

The deal also could put pressure on Bradesco, which has long been the largest private-sector bank in Brazil, to pursue acquisitions in a bid to hold on to the No. 1 ranking among non-government banks, analysts said.

Itau and Unibanco, which described the deal as a chance to bulk up for future growth, said more consolidation was likely.

"Obviously, the Brazilian market has changed," Itau Chief Executive Roberto Setubal said at a news conference. "This can trigger some other acquisitions by other banks, which is something that will happen naturally."

GLOBAL PLAYER

The new company, to be called Itau Unibanco Holding, will have assets of 575.1 billion reais ($265 billion), thrusting it ahead of state-run Banco do Brasil (BBAS3.SA), currently the biggest bank in Latin America in terms of assets.

Holders of common shares in Unibanco will get one common share in the new bank for every 1.1797 common shares of Unibanco. Holders of Unibanco preferred shares will get one preferred share in the new company for every 1.7391 preferred shares of Unibanco.

The new bank will start off with 4,800 branches, about 18 percent of Brazil's banking network, and 14.5 million clients. It also will have a credit portfolio of 225 billion reais, accounting for about 19 percent of all lending in Brazil.

Besides becoming the dominant player in Brazil, the group also hopes to compete with big global banks on the international stage. One region it plans to target is Latin America, focusing on countries like Colombia, Mexico, Peru and Chile, where Itau already has a presence.

"More mature markets probably aren't where we have a competitive advantage," said Unibanco Chief Executive Pedro Moreira Salles, adding that the group expects to become a "global player" in five years.

The banks' shares rose, with Itau up 16.4 percent to 27.09 reais and Unibanco jumping 8.9 percent to 14.97 reais. Shares in Itau's holding company, Investimentos Itau SA (ITSA4.SA), shot up 14.3 percent to 8.23 reais.

Unibanco, which this year lost the No. 3 ranking among non-government banks in Brazil to Spain's Santander (SAN.MC), has long been rumored to be a takeover target. But until now, Unibanco has insisted on remaining independent.

Unibanco's Moreira Salles said he had a change of heart after Santander acquired ABN Amro's Brazilian unit.

"The whole Santander thing showed that, at least in the case of Unibanco, growing branch by branch would be very difficult," he said. "We're taking a shortcut with this deal."

Under the terms of the deal, Investimentos Itau SA will hold 66 percent of Itau Unibanco Participacoes, which will control Itau Unibanco Holding. Itau also will hold a direct 18 percent stake in Itau Unibanco Holding.

Unibanco will have a 33 percent stake in Itau Unibanco Participacoes. Bank of America (BAC.N), which holds 7.3 percent of Itau, will own 5.4 percent of the new combined firm.

Moreira Salles, whose father founded Unibanco more than 80 years ago, will be chairman of the new group; Itau's Setubal will be CEO. The group's board will have 14 members, eight of them independent and six named by Itau and Unibanco.

The deal still must be approved by Brazil's central bank and antitrust regulators.

($1 = 2.17 reais)

(Additional reporting by Alexandre Caverni, Aluisio Alves and Daniela Machado, editing by Matthew Lewis and Carol Bishopric)