Download Itaú Europa

Economic Decoupling?
BNCC
February, 26th 2008
Table of Contents
SECTION 1
Macroeconomic Framework
SECTION 2
Is Economic Decoupling a Credible Possibility?
SECTION 3
Outlook
SECTION 4
Itaú Group
SECTION 5
Itaú Europa
2
SECTION 1
Macroeconomic Framework
Consistent Growth
►
Historical growth volatility as been replaced by consistency.
►
We expect 2007 GDP growth to stand at 5.4%.
►
Driven by domestic demand.
GDP Growth by Component
8
7
6
5
4
3
2
1
0
-1
-2
25.0%
20.0%
15.0%
10.0%
5.0%
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
0.0%
Mar-00
(%)
GDP Growth
GDP Weight:
Source: IBGE, Banco Itaú Europa.
Consumption
61%
Investment
Public
expenditure
19%
18%
Exports
14%
Imports
-12%
4
Independent Monetary Policy
►
Prudent monetary policy despite lack of formal independence of the Central Bank.
►
Loosening cycle since 2005.
►
Economic growth and high commodity prices (and food) raising inflation concerns: BCB on hold.
Inflation and Central Bank Rate
30
25
(%)
20
15
Real rates in
Brazil are
among the
highest in the
world
10
5
Inflation (IPCA)
Source: BCB, Banco Itaú Europa.
Central Bank rate (Selic)
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
0
5
Responsible Fiscal Policy
►
Prudent and responsible fiscal policy.
►
Commitment to the target of primary surplus/GDP of 3.8%.
►
Decreasing nominal deficit reflecting strong tax revenue.
►
Consistent improvement of the debt profile.
Budget Balance and Net Debt/GDP
6
60
4
55
50
0
45
-2
40
-4
Primary Surplus/GDP
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
30
Jan-02
-8
Jan-01
35
Jan-00
-6
Nom. Deficit/GDP
Source: BCB, Banco Itaú Europa.
(%)
(%)
2
Net Debt/GDP (RHS)
6
Sound External Position
►
Consistent improvement of the debt profile.
►
Strong reserve build-up.
►
Maturity extension and risk management.
►
Brazil is a net external creditor.
International Reserves and External Debt
300
200
180
250
(bn USD)
200
120
150
100
80
100
60
40
50
20
-
2003
Total external debt
Source: BCB, Banco Itaú Europa.
(bn USD)
160
140
2004
2005
2006
Total external public debt
2007
International reserves
7
SECTION 2
Is Economic Decoupling a Credible Possibility?
Is Economic Decoupling a Credible Possibility?
►
No country is insulated from a weaker US economy .
►
Tighter credit conditions in US will have multiple impacts worldwide and in Brazil.
►
We believe that Brazil is more protected from the turmoil than most of the countries.
Lower
imports
Tighter
credit
Confidence?
Risk
aversion
Wealth
effect
9
Diversified Export Profile
►
Low degree of openness when measured by adding imports and exports to GDP.
►
Diversified export profile with important weight of other emerging economies.
►
US represents 16% of total exports and Euro zone 21%.
Export Breakdown in 2007
17.6%
5.6%
19.8%
US: 16%
Euro Zone: 21%
Argentina:9%
China: 7%
0.5%
26.5%
30.0%
Africa
Asia
Source: BCB, Banco Itaú Europa.
Australia
Europe
LatAm
North America
10
Low Exposure to International Credit Conditions
►
Tighter credit conditions worldwide postpone investment decisions.
►
The more dependent a country is on international financing the larger the impact.
►
The reliance of the Brazilian economy on credit is low.
►
The reliance of the Brazilian economy on external debt is the lowest among peers.
Source: Moody’s, IMF, Banco Itaú Europa.
Turkey
Developing countries rated
(Aaa-A3)
Argentina
Developing countries rated
(Baa1-Baa3)
Developing countries rated
(Ba1-Ba3)
Russia
Chile
Colombia
Mexico
Brazil
0%
Developing countries rated
(Aaa-A3)
0%
Chile
20%
Turkey
20%
Developing countries rated
(Baa1-Baa3)
40%
Developing countries rated
(Ba1-Ba3)
40%
Mexico
60%
Brazil
60%
Colombia
80%
Argentina
80%
Russia
100%
Peru
100%
Peru
External Debt/GDP
Domestic Credit/GDP
11
Low Investment Dependence
►
Falling equity and bond markets worldwide erode the value of savings.
►
High risk aversion prevent foreign direct and portfolio investment abroad.
►
Similarly to what happens to credit, Brazil has low saving rates when compared to peers.
►
Foreign direct investment, in net terms in not consistently positive nor meaningful.
►
Foreign exchange flows are of quality: trade over financial flows.
35
30
25
20
15
10
5
0
-5
-10
-15
Foreign Currency Flows
2.1% GDP
(Mn USD)
( Bn USD)
Net Foreign Direct Investment/GDP
100 000
80 000
60 000
40 000
20 000
- 20 000
- 40 000
2000
2000
2001 2002
Source: BCB, Banco Itaú Europa.
2003
2004
2005 2006
2007
2001
2002
2003
Commercial
2004
2005
2006
2007
Financial
12
Agents Remain Confident
►
Confidence is an important determinant of consumption and investment decisions.
►
Consumer and business confidence has been eroding in US and EU.
►
Brazilian confidence is rising, which bodes well for the future.
Confidence Index Evolution
140
120
100
80
60
40
20
0
-20
-40
2
1.5
1
0.5
0
-0.5
US consumer
US business
BZ consumer
BZ business
EU zone consumer
EU zone business
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
Nov-05
Sep-05
Jul-05
May-05
Mar-05
Jan-05
-1
Source: Banco Itaú Europa, U. Michigan, Conference Board, European Commission – Directorate General for Economic and Financial Affairs, FGV, CNI.
13
The Most Important Channel of International Contagion
is Currency Depreciation
►
The major risk we see is if an international crisis leads to a sharp deterioration of the value of the
currency.
►
Ceasing the interest rate convergence process for a substantial period would affect directly
consumption and investment.
►
Consumption and investment stand for nearly 80% of GDP .
►
A weak currency feeds through directly to inflation expectations and could lead the BCB to even
hike rates in the current environment of strong domestic demand.
►
Didn’t happen so far. Uncertainty is likely to diminish in 2008.
►
In an extreme scenario, a strong slump in exports, i.e. deep double digit, would have an important
impact on growth.
►
Nevertheless, in such an environment all the remaining arguments stand for an outperformance of
Brazil over peers.
►
These situations aren´t our base case scenario.
14
SECTION 3
Outlook
Supportive Domestic Environment
►
We expect economic growth to remain supported by domestic demand.
►
Lower trade surplus.
►
Deficit in the current account.
►
Monetary policy and trade could decelerate growth in the 2H08.
►
Strong BRL at all times on the back of exports, financial inflows and rising interest rate differentials.
Estimates
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
50
40
20
10
0
-10
-20
2007F
Source: Itaú Corretora, Banco Itaú Europa.
(Bn USD)
30
2008F
2009F
2010F
2011F
GDP Growth (LHS)
Unemployment (LHS)
Current Account (RHS)
Trade Balance (RHS)
16
Inflation is our Main Concern
►
Our top concern is inflation.
►
What could push inflation up: oil, food, service (non-tradable), capacity restrictions, BRL
depreciation.
►
What could push inflation down: a strong BRL, Monetary Policy Committee (Copom).
Inflation Components in 2007
12
10
(%)
8
6
4
2
IPCA YTD
Source: BCB, Banco Itaú Europa.
Food
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Jan-07
0
Serv ices
17
Copom on Hold in 2008
►
We expect the Copom to be on hold most of the year.
►
Arguments for rising rates: Potential BRL depreciation if international environment deteriorates
further, strong domestic demand, commodity, food and non-tradable prices.
►
Arguments to be on hold: Strong BRL, high weigh of consumption and investment in the economy,
lower trade surplus, FED policy.
Estimates
11.50%
1.80
11.00%
1.75
10.50%
10.00%
1.70
9.50%
1.65
9.00%
8.50%
1.60
8.00%
7.50%
1.55
2007F
2008F
Selic rate, eop (LHS)
Source: Itaú Corretora, Banco Itaú Europa.
2009F
2010F
2011F
BRL/USD, end of the period (RHS)
18
Path to Investment Grade
►
We expect Brazil to continue the path to investment grade.
►
By many credit metrics Brazil already compares favourably with investment grade countries.
►
Current account deficit in 2008 could raise concerns about the country’s external vulnerability.
►
Debt levels remain high for investment grade standards.
►
Fiscal discipline – Will the government be successful in implementing a replacement for CPMF tax?
►
Rating agencies are more prudent given high international uncertainty.
►
Financial markets decoupling hasn’t been clear at all times. Buy opportunity?
Equities since June 2007
Equities since June 2007
160
150
140
130
120
110
100
90
Bovespa
S&P
01/02/2008
01/01/2008
01/12/2007
01/11/2007
01/10/2007
01/09/2007
01/08/2007
01/07/2007
01/06/2007
01/05/2007
01/04/2007
01/03/2007
01/02/2007
01/01/2007
80
19
Economic Forecasts
Brazil Annual Macroeconomic Forecasts
2007F 2008F 2009F 2010F 2011F
Real GDP growth
5.4%
5.0%
4.7%
4.5%
5.0%
Unemployment
9.3%
8.0%
6.7%
5.8%
5.0%
Investment/GDP
18.0% 19.1% 20.8% 21.8% 22.8%
IPCA
4.5%
4.7%
4.4%
4.2%
4.5%
Selic rate, end of the period
11.25% 11.25% 10.25% 8.25% 8.00%
Primary fiscal surplus - % GDP
4.0%
3.8%
3.5%
3.5%
3.5%
Public sector net debt - % GDP
42.8% 42.0% 38.8% 37.0% 35.0%
BRL/USD, end of the period
1.78
1.65
1.69
1.73
1.77
Current account balance - bn USD
3.6
-5.0
-10.0
-12.0
-15.0
Trade balance - bn USD
40.0
28.7
20.8
15.3
10.1
Foreign direct investment - bn USD
34.6
30.0
30.0
30.0
30.0
Source: Itaú Corretora, Banco Itaú Europa.
20
SECTION 4
Itaú Group
Itaú Group – A Global Brazilian Financial Institution
►
Itaú Group has an important presence in key financial centers, a strong
recognition and a broad range of products.
(London)
(Tokyo)
(NY)
(Lisbon)
(Shanghai)
(Miami)
(Hong Kong)
Itaú Bank Ltd (Cayman)
(Dubai)
(Nassau)
(Brazil)
(Chile)
(Uruguay)
(Argentina)
Sarbanes-Oxley: Itaú Holding is the first foreign bank listed on the NYSE to attain all
Section 404 requirements of Sarbanes-Oxley Act, one year prior to the compliance deadline
set by the U.S. authorities.
22
Itaú Holding Financeira – Highlights1, 2
►
Performance leadership is reflected on the high market capitalization and
outstanding results.
► Stockholders’
► Total
Assets
► Market
►#
Equity
Captalization
US$ 16.4 billion
US$ 166 billion
US$ 62.6 billion
of Employees
► Total
clients
► Branches
+ CSB
► ATMs
Moody’s (Long Term)
 B- Financial Strenght
(international)
 Aaa.br (domestic)
Baa3 Foreign Currency Bonds
1
2
As of December 31st, 2007.
Considering the Real / US$ = 1,7713.
65,089
24 million
3,528
23,739
Fitch Ratings (Long Term)
 AAA(bra) (domestic)
 BBB (international, local
currency)
BBB- (international, foreign
currency)
Standard & Poor’s (Long Term)
 brAAA (domestic)
 BBB- (international, local
currency)
BBB- (international, foreign
currency)
23
SECTION 5
Itaú Europa
Itaú Europa – Strategic Overseas Presence
►
Focus on cross-border businesses between Europe and South America.
►
Local relationships in Europe through commercial teams in Lisbon, Madrid,
London, Frankfurt and Paris (new representative office in 2008).
►
Private Banking activities conducted through Banco Itaú Europa Luxembourg
and Banco Itaú Europa International (Miami).
Syndicate
d Loans
Loans &
Guarantee
s
Trade
Finance
Structured
Finance
Treasury
Products
&
Derivative
s
Investmen
t Banking
Domestic
Lending
South
America
Cash
Managemen
t South
America
Moody’s (Long Term)
Investment Grade Ratings
 Baa1 (international)
Fitch Ratings (Long Term)
 BBB+ (international)
25
Itaú Europa – Financial Highlights1
Consistent Growth of Assets
ROA & ROE
€ Million
8798
12,4%
5742
5602
8,5%
4382
3761
4494
103
99
116
1437
1777
1931
2295
2435
2000
2001
2002
2003
2004
On the Balance Sheet
1,0%
1,1%
1,1%
1,2%
1,2%
1,3%
1,6%
1,8% 1,4%
2005
2006
2007
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Off the Balance Sheet (including AUM)
Revenues Diversification – Operating
Income (Year 2.007)
€ Million
54%
25%
18
26
21
82
71
31
31,6; 28%
32,9; 29%
113
36%
34%
32%
30%
48
21
7,7%
ROA
€ Million
15
0,9%
3235
2915
Material results in face of wholesale nature of
business and strong capital base
27%
7,4%
1947
1466
2034
1876
1553
9,6%
9,0%
ROE
2507
2687
10,4%
9,9%
4304
12,3%
13,9%
53
42
53
30
48,6; 43%
2000
2001
Net Income
1
2002
2004
Operating Income
2005
2006
Efficiency Rate
Financial Highlights for 2007 are preliminar and unaudited.
2007
Corporate, Treasury and Capital Markets
Private Banking
BPI
26
Disclaimer
The information herein is believed to be reliable but Itau Europa does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Banco
Itau Europa may have a position in these financial instruments from time to time. This report is prepared by Banco Itau Europa and this material is for our European Clients ONLY. This information is NOT
intended or distributed to U.S. clients by Banco Itau Europa. However, if a U.S. investor receives this information via a third party it must be understood that any U.S. persons interested in any securities
mentioned herein must call a representative of Itau Securities, Inc. ("Itau Securities") in New York, MEMBER: NASD/SIPC, not any of the non-U.S. affiliates. Any Financial Products related to this
report may or may not be provided by Itau Securities to U.S. investors. Banco Itau Europa is wholly owned by Itausa Portugal which has become the European Platform of the Itausa Group, a conglomerate in
Brazil. Banco Itau Europa is credit rated by S&P and Moodys as a separate bank from Banco Itau SA. Portuguese banking regulation prohibits BIE from lending to its Brazilian parent group of companies for over
10% of its own equity. Banco Itau Europa structure has been designed to create regulatory and geographic barriers to Brazilian transfer risk. Banco Itau Europa Lisbon is regulated by Bank of Portugal. Banco Itau
Europa London is authorised by the Banco de Portugal and regulated by the Financial Services Authority for designated investment business in the UK. Banco Itau Europa, capital markets area has a strong
relationship with Banco Itau of Brazil. Itau Securities is a wholly owned subsidiary of Itau Corretora de Valores S.A, subsidiary of Banco Itau S.A.
This document/site has been prepared by Banco Itaú Europa, S.A. and/or by one of its branches or subsidiaries (together referred to as “Banco Itaú Europa”).
This message contains information that may be privileged or confidential and is the property of BANCO ITAÚ EUROPA, S.A. It is intended only for the person to whom it is addressed. If you are not the intended
recipient, you are not authorized to read, print, retain, copy, disseminate, distribute or use this message or any part thereof. If you receive this message in error please notify the sender immediately and delete all
copies of this message.
This document/site contains information obtained from sources considered by Banco Itaú Europa to be reliable and this information has been reproduced, whether totally or partially, originally or treated by our
analysts. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except where such information relates to
Banco Itaú Europa.
Banco Itaú Europa reserves the right to change, amend, or delete any part of the information contained herein without prior notice. Banco Itaú Europa is under no obligation to update or keep current the
information.
The information contained herein merely aims to be a supportive instrument towards the formation of conscientious decisions related to the purchase and sale of securities or investment finance products and
should not, in any circumstance, constitute a ground for any investment decision. Options and estimates are made on the basis of our analysts’ judgment and are subject to change without notice. Banco Itau
Europa may have a position in the securities referred to herein from time to time. The information should not exclude or replace the investigation or exercise of judgment that is undertaken before an investment
decision is made. The information should not be construed as a solicitation or offer to buy or sell any securities or investment finance products. Past performance is not indicative of future results.
United Kingdom and the rest of Europe: Except where stated, the information contained herein is communicated by Banco Itaú Europa to persons who are a Market Counterparty (as defined in the UK Financial
Services and Markets Act 2000) and is only intended to be made available to such persons. If you do not, or cease to, fall within the definition of Market Counterparty & Intermediate Customer, you should not
rely upon the information contained herein and should notify Banco Itaú Europa in order that its records may be updated.
27