“In times of crisis investors around the world seek the safe refuge of government bonds, but in Brazil they rush to put their assets in Itaú.”
It’s an old line from bankers at the country’s largest private financial institution, but it seems – as the economy enters its second year of sharp recession – to be true. Brazil’s biggest private bank – it enjoys a market share of onshore wealth management of around 27% – is getting bigger.
While much of the rest of the industry struggles to retain assets under management, Luiz Ribeiro, head of private banking at Itaú, reported 16% growth in 2015, and many of the bank’s internal records were broken.
“We had our best month of new inflows to the private bank in December 2015,” says Ribeiro. “In 2015 we had more than 50% higher growth in AuM [in nominal terms] than in 2010 – our previous record year.”
The nature of that growth is also shifting: spectacular growth rates in the past often came from one or two mega-liquidity events: M&A or IPO transactions could funnel more than R$1 billion ($244 million) into the bank. This year the growth is more diverse: 70% of Ribeiro’s relationship managers hit their personal targets. It is between 30% and 35% in a typical year. And the strength of Itaú is evident in the results of this year’s Euromoney private banking survey: Itaú is the winner not just of the overall best private bank category in Brazil, but also the best for the country’s wealthiest clients.
Buoyed by this success, the bank is targeting further growth. Ribeiro concedes that Itaú is benefiting from the fallout of the corruption charges against BTG Pactual’s former CEO, Andre Estéves. BTG Pactual’s share price plummeted and many clients swiftly took funds to other banks – notably Itaú.
Although Ribeiro refuses to discuss BTG’s situation directly, he denies reports that his bank has been aggressively wooing BTG clients. Banco Safra, for example, offered to pay redemption penalties to lure BTG Pactual clients to migrate their business. Client inflows Nonetheless, Itaú has still seen large new client inflows. Ribeiro reports that about 20% of December’s record-breaking month came from “competitors”.
Itaú is also benefiting from a tax amnesty law that was approved in January. Put simply, if clients register previously undeclared assets to the authorities, these assets will be subject to 15% taxation, and with a one-off fine the total take would be equal to around 23%. However, the assets will not need to be repatriated – declaration is sufficient.
Ribeiro thinks this will be an important, once-in-a-lifetime event for the industry. The government has forecast that revenues of between R$20 billion and R$30 billion will be generated this year. But the figure could be much higher; the government’s calculations use an old FX rate (of R$2.30 to the dollar), probably low-balling the total being declared. Ribeiro estimates that $100 billion (ie. about R$400 billion) could be declared, which would generate around R$90 billion for the government – a fiscal boost that could even provide a buy-trigger to the Bovespa and spark a recovery in business confidence.
More important for Ribeiro is the business opportunity for the bank: “We expect an important asset repatriation with the Brazilian amnesty law. As our market share in Brazil is very significant, we believe once clients’ assets are declared that should bring a larger share to Itaú.”
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