Itau-Unibanco Merger Sparked by Santander Bid

Santander’s proposed acquisition of ABN AMRO’s Banco Real, initially announced last year, led Unibanco’s CEO Pedro Moreira Salles to sit down with Itau CEO Roberto Setubal to discuss the possibility of a merger. “For the first time we were faced with a foreign competitor that was bigger in scale and capital than Unibanco, and the same size as Itau,” says Salles, referring to Santander in an internal memo obtained by LatinFinance. The memo was sent yesterday to Unibanco employees. The talks began in Salles’ living room in July 2007, says the note, just as a domestic debt crisis in the US began spreading to other parts of the financial system. The CEO’s affirmation counters the notion the deal was hurriedly put together amid a global wave of bailouts, failures and mergers, though analysts tell LatinFinance they believe changing markets accelerated the talks. Unibanco shares fell 46% between October 1 and October 24. “This totally changes the banking landscape in Brazil,” Celina Vansetti, banking analyst at Moody’s, tells LatinFinance. She notes while the system was previously dominated by a five large private and state owned banks, it will now have one single institution that is by almost every metric much larger than its next competitor. Vansetti says she believes the change is positive for both institutions and fortifies Brazil’s banking system as it heads into a more challenging environment. Unibanco preferred shares closed at BRL7.09, up 21.00%, while Itausa preferred shares closed at BRL8.23, up 14.31%.