Fitch Affirms Itau Unibanco Group's Ratings; Outlook Stable

  Fitch Affirms Itau Unibanco Group's Ratings; Outlook Stable

Business Wire

SAO PAULO & RIO DE JANEIRO -- July 27, 2012

Fitch Ratings has affirmed the ratings of Itau Unibanco Holding S.A. (IUH),
Itau Unibanco S.A. and Itau BBA S.A. Complete details of the rating actions
for IUH and each individual subsidiary is included at the end of this release.

The affirmation of the group's Viability Ratings (VR) is based on IUH's stable
performance through various economic cycles, aided by its conservative credit
culture which continues to produce satisfactory asset quality and
profitability metrics despite a slight deterioration in both areas over the
past several quarters driven by systemic factors. IUH has solid Tier I capital
of 12.4% and a Fitch Core Capital Ratio of 9.6% at quarter-end June 2012,
which compare well to its local and global peers. Deterioration in asset
quality ratios was driven primarily by weaknesses in its retail portfolio and
has required higher provisions and charge-offs. However, management has been
addressing these concerns and the outlook appears to be favorable in the near
term. If there is a material deterioration in asset quality that would affect
the bank's ability to generate the capital needed to support business growth,
a negative rating action or change in Outlook could occur. The current level
of the VR at 'a-' is unlikely to improve in the near term given the current
challenges of the Brazilian banking environment with regard to asset quality
and pricing.

Itau Unibanco and Itau BBA have the same Viability Ratings as IUH as this
reflects the agency's view of their integral roles to the consolidated
operation, and the fact that broad risk management and strategic direction are
coordinated as a consolidated entity. The group's IDRs and National Ratings
reflect Fitch's belief in the continued good performance of IUH in the
multiple and diversified segments in which it maintains a leadership in
position. It also reflects the agency's view of the importance of this
financial institution to the banking system, which is incorporated in Fitch's
Support Rating of '2' and Support Rating Floor of 'BBB-'. IUH's Foreign
Currency IDR is currently constrained by the Country Ceiling. An upgrade in
Brazil's sovereign rating would translate to an upgrade in the bank's
long-term Foreign Currency IDR; conversely, a downgrade in the sovereign
rating would likely result in a downgrade in the bank's long-term Foreign
Currency IDR. However, despite an improvement in the sovereign rating, an
improvement in the Local Currency IDR is unlikely in the near term.

The bank has a strong franchise and market share in many banking segments in
Brazil, supported by its wide branch network, diversified client and earnings
base that is expected to continue to contribute to the bank's growth, and good
overall performance, despite an expected scenario of high credit costs, low
domestic economy activity, and tighter margins which will also affect its main
competitors. To address the challenge of operating in a scenario of tighter
margins, IUH expects to, among other tactics, continue to improve its cost
controls including origination commissions, grow its non-interest income from
services, and focus on lower risk products which will result in lower credit
costs. Thus, the effect of tighter margins on near-term profitability is not
expected to be that significant especially given the size of the existing
portfolios that were built with transactions that carried higher spreads.

Fitch expects that IUH's profitability will continue to compare well with
local and international peers despite IUH's recent announcement of a reduction
in its guidance for credit portfolio growth from a range of 14%-17% to
approximately 10% (or 13%-15% if the vehicle finance segment is excluded, as
the vehicle finance segment is to be strategically reduced).

IUH's credit quality ratios are expected to stabilize during 2013, especially
as management has tightened lending policies in the retail and SME segments,
and taken significant charge-offs. Impaired loans were worse than the peer
average at end June 2012 and the loan loss reserve coverage of non-performing
loans (NPL) over 90 days is currently the lowest it has been in the last three
years. Despite this, it continues to be satisfactory at nearly 1.5X. Fitch
does not expect further significant deterioration in IUH's credit portfolio in
the near term despite the continuation of challenging economic conditions.

Given expected performance in the coming years, gradual implementation of the
local rules of Basel III is not expected to severely impact IUH's Tier 1
Common ratio, as per management's forecast. Even with full implementation of
the imposed deductions the forecasted level would be comfortably above the
minimum requirement of 5.5%.

IUH is the largest private sector financial conglomerate in Brazil, and Latin
America, where it is a market leader in assets, deposits, credit, and asset
management. With a substantial branch network focusing on a solid and
diversified base of depositors and customers, IUH is considered locally as a
safe haven in times of crisis.

Fitch has affirmed the following ratings:

Itau Unibanco Holding S.A.

- Long-term Foreign Currency IDR at 'BBB+'; Outlook Stable;

- Short-Term Foreign Currency IDRs at 'F2';

- Local Currency long-term IDR at A-; Outlook Stable;

- Local Currency short-term IDR at 'F1';

- Viability Rating at 'a-';

- Support Rating at '2';

- Support Rating Floor at 'BBB-';

- Long-term National Rating at 'AAA(bra)'; Outlook Stable;

- Short-term National Rating at 'F1+(bra)';

- Market-linked notes due November 2015 at 'BBB+emr';

- Subordinated notes due April 2020 at 'BBB';

- Subordinated notes due January 2021 at 'BBB';

- Subordinated notes due December 2021 at 'BBB';

- Subordinated notes due March 2022 at 'BBB'.

Itau Unibanco S.A.

- Long-term Foreign currency IDR at 'BBB+'; Stable Outlook;

- Foreign currency short-term IDR at 'F2';

- Local currency long-term IDR at 'A-'; Stable Outlook;

- Local currency short-term IDR at 'F1';

- Viability rating at 'a-';

- Support rating at '2';

- Support rating floor 'BBB-';

- National long-term rating at 'AAA(bra)'; Stable Outlook;

- National short-term rating at 'F1+(bra)'.

Itau BBA S.A.

- Long-term Foreign long-term IDR at 'BBB+'; Stable Outlook;

- Foreign currency short-term IDR at 'F2';

- Local currency long-term IDR at 'A-'; Stable Outlook;

- Local currency short-term IDR at 'F1';

- Viability rating at 'a-'

- Support rating at '2';

--Support rating floor 'BBB-';

--National long-term rating at 'AAA(bra)'; Stable Outlook;

--National short-term rating at 'F1+(bra)'.

Additional information is available at 'www.fitchratings.com' or
'www.fitchratings.com.br'. The ratings above were solicited by, or on behalf
of, the issuer, and therefore, Fitch has been compensated for the provision of
the ratings.

Applicable Criteria and Related Research:

-- 'National Ratings Criteria' (Jan. 19, 2011);

-- 'Global Financial Institutions Rating Criteria' (Aug. 16, 2011).

-- 'Treatment of Hybrids in Bank Capital Analysis' (Jul. 9, 2012).

-- 'Itau Unibanco Holding S.A. Full Rating Report' (Jan. 19, 2012.

Applicable Criteria and Related Research:

Treatment of Hybrids in Bank Capital Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682453

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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Contact:

Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Principal Analyst:
Robert Stoll, +1-212-908-9155
Director
Fitch Ratings
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Pedro Gomes, +55-11-4504-2600
Director
or
Committee Chairperson:
Ed Thompson, +1-212-908-0364
Senior Director
 
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