S&P Puts Unibanco on Upgrade Watch

S&P has affirmed its counterparty credit rating on Banco Itau, with a stable outlook and put its BBB minus long-term counterparty credit rating on Unibanco on Credit Watch with positive implications. “The benefits of the bank’s clear leadership in the Brazilian banking industry after the merger more than compensate Unibanco’s somewhat weaker credit profile than that of Itau,” says S&P analyst Ricardo Brito. “We expect to equalize our rating with that on Itau as soon as the merger is approved by regulators and the migration of current shareholders of Unibanco Holdings S.A. to Itau Unibanco Holdings is concluded,” he adds. The rating could come under negative pressure if the business environment in 2009 is more challenging than S&P expects, with an increase in nonperforming loans (closer to 7% of total loans) and ROAA affected by higher funding and consolidation costs. “We do not expect to see ROAA lower than 2% at this rating level,” says the agency.