Profiting from one of the largest acquisitions in Latin America, Itaú Private Bank International is reaping the rewards from the fast-growing Brazilian market. As competition with international players heats up, the bank is reviving its strategy to cope with the ever-demanding ultra-wealthy clients. Flávio Souza, head of private banking for Itaú, talks to PBI’s Valentina Romeo in his first profile interview.
Itaú Private Bank, the private unit of Itaú Unibanco, knows the cultural nuance of wealthy Brazilians and the rules behind the Latin American market.
Go deeper with GlobalData
Itaú is the largest private bank in Brazil, having snapped up competition with its numerous set of acquisitions. Earlier this year the bank, which holds more than 25% of the Brazilian private banking market (by AuM), took part in one of the largest mergers in Latin America since 2008 acquiring a majority stake in Chilean CorpBanca.
With over 23 years experience in financial markets, 17 of which dedicated to the private banking industry, Flávio Souza is the force behind the Latin American giant.
When meeting Souza, I was surprised to see how young he was. Focused and determined, the 43-year old guiding Itaú Private Bank International, was a delight to talk to.
Souza, who started his new role in March 2013 after heading Itaú’s operations in Miami for three years, took the reins of ‘the Private Bank arm of largest financial conglomerate on the Southern hemisphere’.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe head of the private bank has ambitious targets. "Our aim is to be the leading private bank in Latin America." Souza plans to use the European market through the bank’s Swiss unit as a channel to expand its client base.
In the last few years, the bank has established itself as a prominent domestic and international player ramping up its presence in the market with the acquisitions of new client segments.
Souza continues: "Our goal is to maintain our leadership position in Brazil whilst growing our market share in other major markets such as Chile, Peru, Colombia and Mexico."
Although Itaú has beefed up its capabilities in the region, the economic slowdown coupled with increased regulation has made the Brazilian wealth management market one of the toughest and most competitive.
The challenge for Souza now is to cater client demands for international investment opportunities whilst maintaining the bank’s stronghold in Brazil.
Strategy
Latest figures from consultancy firm McKinsey show Brazil is not only the largest private banking market in Latin America, it is also the fastest-growing one in the region with 577.2 billion reais ($257.7 billion) of assets managed locally as of the end of 2013. Furthermore, Brazil remains one of the countries with the highest concentration in the top segment- ultra-high net worth (UHNW) clients, with more than 31% of the total Latin American market.
"Although Brazil has seen pressure on margins in the last few years, especially due to regulation, it is still a very attractive market," Souza says.
Even if aware of volatile market prospects, Souza shows a contagious optimism. "Brazil will be consistent, even if under pressure. A lot of new wealth is being created every day. In 2013 only, we have experienced a 10% wealth growth."
The future looks bright for Souza. "It’s difficult to predict, but in our view more important than the exact number is the trend. Brazil is already one of the largest markets worldwide for wealth management and we believe this will continue to be the case in the coming years. We will continue to leverage our broad presence in all segments leveraging on our synergies arising from the retail and corporate banking areas of Itaú to capture new clients."
"In addition to this, we have also been investing to expand our regional presence in other cities like Campinas and Ribeirão Preto to be closer to both our existing and potential future clients."
Itaú’s Private Bank can count more than 600 professionals from 20 different nationalities, operating across the US, Latin America, Europe.
For the moment, the private banking strategy is fully aligned with the bank’s overall strategy, which is to become a top player in all major markets in Latin America, Souza reiterates.
Unsurprisingly, Souza says regulatory changes have increased the complexity of the business and impacted the margins of most private bank players.
"The changes range across capital requirements, product development, investment strategies, marketing and distribution. It has also impacted the level of required transparency. At the same time, in the new wealth management landscape it is the quality of services, products and people that we offer to our clients that will make the difference in the sector. Secrecy has consistently lost importance in this business."
‘Consolidated’ expansion
With the acquisition of a considerable stake in Chilean CorpBanca ($2.2 billion worth deal), including its assets in Colombia, Itaú bank has extended its presence into the most profitable areas. Indeed, this was one of the largest financial mergers in Latin America in years.
The CorpBanca deal comes at a time when other major banks have been seeking to expand in the region.
In March 2014, Swiss giant Julius Baer increased its stake in São Paolo-based independent wealth manager, GPS Investimientos Financeiros e Participações, from 30% in 2011 to 80%. Moreover, local BTG Pactual, has recently made acquisitions in Chile, Peru and Colombia. Bradesco BBI, which is another direct competitor to Itaú, is also increasingly focused on regional transactions.
Back in 2011, Itaú Private Bank had already signed a joint venture agreement with Chile-based asset manager Munita Cruzat & Claro (MCC) acquiring the groups’ $2 billion AuM.
Souza says the bank will pursue organic and inorganic initiatives to expand its presence in key Hispanic markets in Latin America.
"Expansion to other regions is not a priority at the moment. The joint venture with MCC has positioned Itaú as leading player in the Chilean private bank market. This was a transaction 100% focused on a key Hispanic market and confirms our ambition to expand in the entire region."
In addition, the group started operations in Switzerland to provide services to private banking clients, both Brazilian and Latin American, who seek global investment guidance.
However, the private bank’s expansion into Latin America was kick-started by two other important purchases. In November 2006, Itaú acquired BankBoston International in Miami and BankBoston Trust Company in Nassau, Bahamas, from Bank of America. In April 2007, the bank bought the Latin American private banking business from ABN Amro.
Client base
The private bank, which has a solid international network, is well focused on attracting the wealthiest families in Latin America with at least $1m in assets available for investments, specifically from countries like Chile, Colombia and Peru.
"Our strategy is keeping the focus on Latin America clients and families, but not only locally. We are planning to focus on Europe too, using our international platforms in Switzerland," reveals the group head.
Souza, who made his career at Citibank and then UBS, worked for three years in Switzerland and another four year in the US.
"The US and Europe are well developed markets that offer Latin American clients asset classes, products and structures that they do not have in their local markets. Even for major domestic markets like Brazil and Mexico, where we see a strong home bias of our clients, we believe that a global diversification in the US and Europe can strengthen the capacity to build a better portfolio."
Souza explains that, despite the recent growth of major local markets, like Brazil and Mexico, the wealth management sector is increasing globally, and so the focus on diversification is a must.
"Countries like Chile, Colombia and Peru, that are doing well in macro-economic terms offer financial markets that are limited in terms of size and liquidity, and as such it is almost mandatory for wealthy families from those countries to diversify on a global scale their liquid assets. Factors of political and economic instability also encourage clients to look at the US and Europe," he says.
He adds: "Global diversification of a portfolio is a prudent and healthy measure for a HNW family as it allows for access to different products and asset classes, but also to markets with more liquidity and to build a portfolio with a better risk-return potential."
As of December 2013, Itaú Private Bank had assets under management totalling more than R$194,836bn ($88bn). Although the notable achievements of the last two years have expanded the bank’s size, Souza says it neither lost its personal touch or proximity to clients.
He explains: "There is a growing demand from UHNW for exclusive products as this group is becoming more and more sophisticated and diversified." Specifically, Souza refers to the group of clients with assets from $5 to $20m, the wealth band that is set to see more growth in Brazil.
"It is positive for clients who can maintain their historical banking relationships and at same time invest locally and globally. Local banks can offer a broader platform while the Brazilian market can retain assets that would be invested abroad anyway," says Souza, stressing again on the ‘local effect’.
Even with the move towards alternative investments and offshore assets, client allocations have remained moderately conservative.
According to McKinsey, private banking clients in Brazil still have roughly a 30% weighting to fixed income and a 50% weighting to multi-market funds, most of which have a large allocation to fixed income products.
But new data suggests that investors are beginning to shy away from fixed income products and ‘allocate to hedge funds, private equity and real estate’, according to Souza.
Furthermore, taking care of wealthy families is something Souza is also addressing. Wealth planning, for example, is one of the key priorities for wealthy Latin Americans.
Souza says: "We believe educating our clients and promoting effective succession planning are key ingredients in theirs and our institution’s success in the long-term. With this in mind Itaú created the international training program ‘Family Wealth Across Generations’ focused on all issues related to family succession for Latin American clients."
Competition
Although it is key for a private bank to have a strong international brand, establishing a solid local presence in the markets like Brazil is vital for foreign players.
Private wealth managers such as Itaú are responding to slowing growth and lowering benchmark interest rates by offering clients a broader mix of investment options and extending loans for luxury purchases.
Considering this scenario it is clear that foreign players and competitors, will struggle especially in the equity divisions.
"Indeed the financial crisis helped to improve the image of Itaú as a safe institution and we saw clients shifting assets to Itaú as a consequence. This is also a result of a consistent and prudent management of our liquidity and capital ratios since our foundation 90 years ago and a sound value proposition that we offer and deliver to our clients. We believe that we can continue to grow faster than the market, despite the fact that many international players are back in the game."
According to PBI’s sister company WealthInsight, during the period between 2007-2012 local private banks such as Itaú had expanded at a greater rate than their international peers. This has mainly been a product of the financial crisis, with a large number of mainstream international banks selling off non-core assets in emerging markets in order to strengthen their balance sheets.
"Clients value the fact that our DNA is of a Latin American player and that our commitment to the region is permanent and umbilical. The fact that many international banks have gone in and out of Latin America brings a level of uncertainty to many families that prefer to do business with an institution that is here and will continue to be here to support their future generations."
In terms of market presence by AuM, Itaú private bank is followed by Bank of America (Merrill Lynch) with 8% and UBS with 7%.
"Like for Mexico, you won’t see many international players coming to Brazil for other 2-3 years," Souza says. "Foreign players see many challenges ahead. They have to change strategies if they want to penetrate or remain in the market."
Itaú Private Bank International has proved itself as the leading player in Latin America, especially after boosting its customer base through strategic acquisitions.
However, it remains to be seen how the private bank will perform in Europe as well as cope with the unfortunate economic slowdown still threatening Brazil.
