Unibanco Holdings S.A.

Avenida Eusebio Matoso 891
São Paulo 05423-901
Brazil
Telephone: 55 (11) 3097-1980
Fax: 55 (11) 3813-6182
Web site: http://www.unibanco.com.br

Public Company
Incorporated: 1967
Employees: 27,408
Total Assets: $29.32 billion (2004)
Stock Exchanges: São Paulo New York
Ticker Symbols: UBBR; UBB (ADR)
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522291 Consumer Lending; 522293 International Trade Financing; 522310 Mortgage and Other Loan Brokers; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523920 Portfolio Management; 523930 Investment Advice; 523991 Trust, Fiduciary and Custody Activities; 524210 Insurance Agencies and Brokerages; 525110 Pension Funds

Unibanco Holdings S.A. is the holding company for Unibanco - Uniao de Bancos Brasileiros S.A., one of Brazil's leading financial institutions and among the five largest banks in the country. A full-service institution, it provides a wide range of financial products and services to a diverse individual and corporate customer base throughout Brazil, including deposit banking, consumer and mortgage loans for individuals, corporate loans and other financial services, brokerage and underwriting, investment banking, leasing, factoring, trade finance, foreign exchange trading, private banking, asset management, and credit cards.

The Making of a Major Financial Institution: 1924–95

Unibanco's roots go back to 1909, when Joao Moreira Salles opened a general store in a small village in the state of Minas Gerais. He also acted as a correspondent for banks in distant cities.

In 1924 he founded Seçao Bancária da Moreira Salles e Cia. in Poços de Caldas. This became Casa Bancária Moreira Salles in 1931, a wholesale bank financing government agencies and grand hotels. Two years later Joao and his son Walter became the only shareholders, Walter succeeding Joao Afonso Jonqueira. This bank, now under Walter's operating control, began an expansion program in 1940 by merging its $1.6 million in assets with two others under the name Banco Moreira Salles. It established branches in Rio de Janeiro and São Paulo in 1941 and 1942 and had 34 offices in 1945.

During the next decade Walter Moreira Salles developed a personal empire that included the world's largest coffee plantation and 1.1 million acres of cattle-ranching land, and he was Brazil's ambassador to the United States for two years. Professionals managed the bank on a day-to-day basis, allowing him to serve a later term as ambassador to Washington and to hold the position of finance minister twice. Banco Moreira Salles grew to 167 branches and $130 million in assets by 1959. In 1964 it opened a 33-story office building in São Paulo. An investment bank was added in 1966.

Banco Moreira Salles merged with Banco Agrícola Mercantil do Rio Grande do Sul in 1967 to form Uniao de Bancos Brasileiros S.A. (Union of Brazilian Banks). UBB, as it was popularly termed, was the result of a series of recent mergers of smaller institutions and became Brazil's fourth largest private-sector bank, with over a million depositors and more than 26,000 shareholders. Its offerings included such services as credit cards, mutual funds, and insurance. It became publicly traded on the São Paulo exchange in 1968. By 1972, with the establishment of branches in Brazil's north and northeast, UBB was truly a national bank. There were 15 companies in the Grupo Uniao de Bancos in 1975, when Unibanco was added to the corporate name. Walter Moreira Salles yielded the presidency in 1976 and became chairman of the board.

The 20 Unibanco subsidiaries in 1980 included a brokerage; insurance, real estate, credit card, and import-export agencies; custody and asset management units; a publishing, printing, and advertising subsidiary; and three tourist agencies, two of them associated with Club Mediterranée. Unibanco opened a New York office in 1980 and initiated a campaign to attract wealthy clients and to serve businesses with annual revenues of over $100 million a year. In 1981 it acquired majority control of Banco Mineiro and opened new quarters in Rio de Janeiro. Round-the-clock automated teller machines (ATMs) were introduced in 1983.

The Brazilian government, in 1986, put into effect a program to wean the nation from its traditional dependence on high inflation. Up to that time the banks had greatly benefited from the overnight "float" between the time they received deposits to the time they paid out money. Unibanco, like its great rivals, Banco Bradesco and Banco Itaú, realized Brazilian banking would never be the same. Over the next few years it cut more than half of its staff, turned away many customers, and devoted itself to what proved to be the lucrative area of trade financing.

By the end of 1991 Unibanco had $4.5 billion in assets and three important foreign shareholders: the Bank of America, Japan's Kangyo Bank Ltd., and Germany's Commerzbank A.G. It was also the local advisor and administrator of a Morgan Stanley & Co. Inc. Brazilian investment fund and provided management, advisory, and brokerage services to a number of other major international institutional investors. Unibanco accounted for over 20 percent of the Brazilian market in debt and equity issues in 1991.

Unibanco, in 1993, reversed course and began seeking ordinary depositors as part of a new policy of expansion through economy of scale. An incentive program encouraged the executives of its 438 branches to compete aggressively for business, targeting consumers with minimum income of $1,000 a month. By mid-1994 the bank had more than doubled its assets since the end of 1991, to $9.6 billion. The Moreira Salles family formed a new holding company—Unibanco Holdings S.A.—that was structured in a way to allow the family to raise more equity capital for Unibanco's continued growth without losing control of the enterprise.

Staying in the Game: 1995–2004

Unibanco's next big move was to purchase Banco Nacional S.A. in 1995. This bank, only slightly smaller than Unibanco, offered the same products and services and placed the same emphasis on automated banking, but Nacional had many depositors below Unibanco's level of interest, earning as little as $500 a month, and it was teetering on the edge of bankruptcy. Nevertheless, Unibanco felt it had to grow larger to compete with Banco Brandesco and Banco Itaú. The transaction closed on a weekend, and staffers worked around the clock to meld Nacional's computer operations into Unibanco's by the next Monday morning. The acquisition (valued at about $1 billion) increased Unibanco's scope to 2.1 million customers, 764 branches, and BRL 23.8 billion ($21.9 billion) in assets. Latin-Finance named it the bank of the year in 1996.

In making the Nacional purchase, Unibanco entered negotiations not with the bank owners but with Brazil's central bank, which held it in receivership. "Now to do the acquisition and get the liabilities," Israel Vainbolm, chief executive officer of Unibanco Holdings told LatinFinance in 1998, "since in this structure we didn't get the bad loans, we got cash to back up these liabilities—we needed the capital base to be able to face those liabilities. So we said to the central bank, 'The only way that we can do this is if we choose assets that we want to buy out of this group.' We never bought Banco Nacional itself, we bought assets and liabilities, branches and selected assets. We said, 'For those assets, we will issue stock, and you keep the stock.' "

At least 90 percent of Nacional's customers retained their accounts with Unibanco, which further solidified its courtship of the lower middle class by purchasing a half-interest in Fininvest, Brazil's largest consumer-finance company, in 1996. This acquisition offered Unibanco the opportunity to increase its share of the nation's still small but growing credit card market. The bank also responded adroitly to a government directive requiring 85 percent of deposits to be in low-interest government bonds; it reclassified accounts as money-market funds rather than demand deposits, not only to deal with the new rule but also to charge added fees. Moreover, the acquisition of Nacional's large insurance operation put Unibanco in fourth place in this sector. Also in 1996, the bank purchased Interbanco, one of the largest banks in Paraguay, and took a stake in Surinvest, a Uruguayan bank.

Unibanco had paid for the Nacional acquisition by issuing to the central bank one-third of the shares of both the holding company and bank. This stake was converted to cash in 1997, after the holding company raised $1.23 billion by offering stock worldwide in Latin America's fourth largest equity sale. The offering also made Unibanco the first Brazilian banking company to trade on the New York Stock Exchange by selling American depositary receipts. Also in 1997, Unibanco established a partnership with American Insurance Group, Inc. (AIG), acquiring about half of the equity of AIG Brasil Companhia de Seguros, while AIG acquired almost half of Unibanco's insurance subsidiary. During the next two years Unibanco, like Brazil's other banks, struggled to overcome the effects of a financial crisis that resulted in the devaluation of the national currency, the real.

Company Perspectives:

Our Mission (Why we exist): To contribute actively, as a financial institution, for the economic development of the country, attending, in balanced form, to the expectations, necessities, and interests of customers, functionaries, and shareholders.

Unibanco resumed its expansion in 2000 by purchasing three smaller banks, Banco Creditbanco S.A., Banco Bandeirantes S.A., and Portugal's Caixa Geral de Depósitos. It now had 1,623 points of sale and four million account holders. The bank's wholesale operations, especially its corporate credit business, was considered among the best in Brazil, but analysts judged its retail customer base (five million account holders in late 2001) too small to compete with Bradasco (11.8 million account holders) or Itaú (11.4 million). In order to increase its customer base, it initiated a program to enroll 1.8 million retail clients over three years by spending BRL 190 million ($68.5 million) on advertising, direct marketing, and hiring additional staff.

One way Unibanco was enhancing its customer base was by relaxing its monthly earnings standard for an account providing that a prospective client deposited a guaranteed minimum of BRL 100 each month. Another method was to increase the number of minibranches in supermarkets and other heavily frequented outlets. A third was to exploit Fininvest's base of 3.3 million active customers, typically buying just one or two products, whereas Unibanco's account holders bought, on average, five products each—generally including checking and savings accounts, a credit card, and insurance. New depositors could also be lured from the ranks of rival banks by a larger credit line and an extra credit or debit card, especially since it was quite common to bank at more than one institution. The danger, as a Unibanco official told Jonathan Wheatley for an article published by the Banker, was that "We have a population of 170 million, most of them in the low-income sector. That means they have a limited capacity to generate income and an unlimited capacity to generate costs, depending on how you proceed."

Unibanco unified its credit card operations under the Unicard label in 2003 and acquired HiperCard, principal credit card of Brazil's northeast, the following year. It raised $218 million in a 2003 equity offering, part of a series of bond, equity, asset-backed, and subordinated-debt issues that raised $1.42 billion in that year. In some cases, broker/dealers expressed a reluctance to proceed, whereupon the company successfully followed through itself. For these reasons Latin-Finance named Unibanco its Bank Issuer of the Year. In 2004 Unibanco enhanced its position by purchasing Banco BNL de Brasil S.A. and formed a credit partnership with the Sonae supermarket group. It also acquired Creditec-Credito Financiamento e Investimento S.A., a company with a significant presence in personal loans and consumer finance.

Walter Moreira Salles retired in 1991 and died in 2001. Pedro Moreira Salles, the third of his four sons, became chairman of the board of Unibanco Holdings in 1997, despite suffering from muscular dystrophy, which increasingly confined him to a wheelchair. He became chief executive officer of the bank in 2004. Although many observers wondered how long Unibanco could resist a takeover from a bigger financial group—probably a foreign one—management was not under pressure since the Moreira Salles family had firm control of the holding company's voting stock. Unibanco Holdings owned 96.6 percent of Unibanco's outstanding common stock at the end of 2004. The Moreira Salles family had 78.6 percent of the holding company's shares.

Unibanco in 2004

At the end of 2004 Unibanco had 895 full-service branches. There were also 253 Fininvest stores. Counting Fininvest's more than 11,000 points of sale, Unibanco had over 15,000 points of distribution throughout Brazil. A separate network of 380 branches located on the premises of corporate customers offered retail banking services both to corporate customers and their employees. Unibanco was operating about 7,500 ATMs for the use of its customers. A variety of retail banking services were also being offered on the Internet, with 1.7 million registered users. Unibanco had 4.8 million credit cards issued, while Fininvest had 7.6 million private-label accounts.

Unibanco's wholesale business included corporate lending, trade finance, capital markets and investment banking services, investment and brokerage services, project finance, and mergers and acquisitions advice to approximately 400 institutional investors and 2,028 economic groups. The wholesale network had five regional offices and 11 regional branches within Brazil, plus branches in Nassau, The Bahamas, and the Cayman Islands. Unibanco had banking subsidiaries in Luxembourg and the Cayman Islands and representative offices and a brokerage firm in New York.

Principal Subsidiaries

Unibanco - Uniao de Bancos Brasileiros S.A.; Banco Fininvest S.A.; Interbanco S.A.; Unibanco Asset Management - Banco de Investimiento S.A.; Unibanco Corretora de Valores Mobilarios S.A.; Unibanco Leasing S.A. - Arrendamiento Mercantil; Unibanco Representaçao e Participaçoes Ltda.; Unicard Banco Multiplo S.A.; Unipart Participaçoes Internacionais Ltda.

Principal Operating Units

Retail; Insurance and Pension Plans; Wealth Management; Wholesale.

Principal Competitors

Banco Bradasco S.A.; Banco do Brasil S.A.; Banco Itaú S.A.

Key Dates:

1924:

Joáo Moreira Salles founds a banking institution in the state of Minais Gerais.

1941–42:

Banco Moreira Salles establishes branches in Rio de Janeiro and São Paulo.

1967:

The bank merges with another to form Uniao de Banco Brasileiros S.A. (UBB).

1975:

UBB, Brazil's fourth largest bank, adds Unibanco to its corporate name.

1980:

Unibanco's 20 subsidiaries include a brokerage and an insurance firm.

1991:

Unibanco has $4.5 billion in assets.

1995:

Purchase of Banco Nacional S.A. increases Unibanco's number of branches to 764.

1996:

Unibanco takes a half-share in Finivest, Brazil's largest consumer finance company.

1997:

The bank raises $1.23 billion in its first worldwide equity offering.

2000:

Unibanco resumes its expansion by purchasing three smaller banks.

2003:

Unibanco acquires the leading credit card in Brazil's northeast; bank raises $1.42 billion from a variety of sources.

Further Reading

Fucs, José, "E Agora?," Exame, February 6, 1995, pp. 19–23.

Griffith, Victoria, "Positive Aggression," LatinFinance, October 1996, pp. 20–22, 24.

"Israel Vainboim, Unibanco Holdings," LatinFinance, July 1998, pp. 192–93.

Karp, Jonathan, "Dollars and Conscience," Wall Street Journal, February 22, 2001, p. A18.

O'Brien, Maria, "Aiming for a Local Following," LatinFinance, November 2003, p. 64.

Tangeman, Michael, "Bonanza for a Brazilian Bank," Institutional Investor (National Edition), January 1998, p. 85.

"Unibanco," Institutional Investor (International Edition), February 1994, Brazil supplement, pp. 12–13.

"Walter Moreira Salles," Fortune, May 1959, p. 80.

Wheatley, Jonathan, "Unibanco Turns Takeover Tables," Banker, November 2001, pp. 61–63.

Zappa, Sergio, "Co-Piloting Capital Raising," LatinFinance, February 2004, p. 56.

—Robert Halasz