VZCZCXRO1998
RR RUEHRG
DE RUEHSO #0593 3081528
ZNR UUUUU ZZH
R 031528Z NOV 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 8676
INFO RUEHBR/AMEMBASSY BRASILIA 9837
RUEHRG/AMCONSUL RECIFE 4236
RUEHRI/AMCONSUL RIO DE JANEIRO 8910
RUEHBU/AMEMBASSY BUENOS AIRES 3309
RUEHAC/AMEMBASSY ASUNCION 3556
RUEHMN/AMEMBASSY MONTEVIDEO 2800
RUEHSG/AMEMBASSY SANTIAGO 2556
RUEHLP/AMEMBASSY LA PAZ 3964
RUCPDOC/USDOC WASHDC 3195
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC

UNCLAS SAO PAULO 000593 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
DEPT OF TREASURY FOR JHOEK, BONEILL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN BR
SUBJECT: BRAZILIAN BANK MERGER CREATES LARGEST IN SOUTHERN 
HEMISPHERE 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
¶1.  (U) Unibanco and Itau announced the merger of their two 
Brazilian banking institutions on November 3.  The combined bank, 
Itau Unibanco Holding SA, will become the largest private financial 
institution in the Southern Hemisphere and among the top 20 banks 
worldwide.  Itau was previously the third largest Brazilian bank, 
while Unibanco was the fifth largest.  Itau's news release noted 
that the negotiations had been ongoing for 15 months; however, the 
financial crisis likely precipitated the merger.  Though the merger 
still requires the approval from the Brazilian Central Bank (BCB) 
and the two companies' boards of directors, it is the first within 
the Brazilian financial sector in the wake of the global financial 
crisis.  Initial investor reaction on Brazil's stock exchange was 
positive with both companies' stock climbing double digits, and 
analysts said the deal shows a return of confidence to the sector. 
Finance Minister Guido Mantega said the merger should help improve 
liquidity within the Brazilian banking system. 
 
¶2.  (U) According to Economatica, the new institution will be the 
sixth largest in market value globally among all U.S. and Latin 
American banks, ahead of Merrill Lynch and Goldman Sachs.  The total 
market value of the two institutions is approximately USD 274 
billion.  Together, they will have 14.5 million clients with 
checking accounts and 4,800 banks, both representing approximately 
18 percent of the market.  They will jointly manage 19 percent of 
the credit volume and 21 percent of deposits. 
 
¶3.  (SBU) For Unibanco, the merger offers an opportunity to recover 
from the impact that AIG's U.S. losses had on the company.  AIG had 
been an integral part of Unibanco's insurance arm.  (Note: In 1997, 
AIG bought 50 percent of equity in Unibanco's insurance division. 
End Note.)  Unibanco had been the biggest player by far for large 
corporate insurance policies and had about 30 percent market share 
in the Brazilian insurance business.  Unibanco also held shares in 
several other companies, including the Brazilian Reinsurance 
Institute (IRB), which was a recently privatized bank that had held 
a monopoly on reinsurance in Brazil.  The BCB's Director for 
Economic Policy Mario Mesquita told the U.S. Treasury Attache that 
Unibanco wanted the merger because of an internal concern about who 
would take over the company after Pedro Moreira Salles retired. 
 
¶4.  (U) Itau had in turn been connected to derivatives contracts 
that have hit many Brazilian firms.  As the larger bank, many view 
the merger as more of a take-over by Itau than a traditional merger. 
 Indeed, Itau's CEO, Roberto Setubal will become the new head of 
Itau Unibanco Holding SA. 
 
¶5.  (SBU) Comment: The merger represents the first major corporate 
banking fusion since the financial crisis hit the Brazilian 
financial sector.  The Brazilian banking sector was already 
extremely concentrated and further concentration, especially among 
Brazil's small and medium banks, is expected.  Under normal 
circumstances, investors might have rejected the merger; however, in 
today's uncertain global financial climate they are likely to 
welcome any action that strengthens institutions.  That being said, 
the merger could mean significant layoffs and unions are likely to 
be unhappy.  End Comment. 
 
¶6.  (U) This cable was coordinated/cleared by Embassy Brasilia and 
the U.S. Treasury Attache in Sao Paulo. 
 
WHITE