Fitch Affirms Banco Bradesco and Itau Unibanco Group's Ratings

  Fitch Affirms Banco Bradesco and Itau Unibanco Group's Ratings

Business Wire

NEW YORK & SAO PAULO -- July 22, 2013

Fitch Ratings has affirmed the ratings of Banco Bradesco S.A. (Bradesco), Itau
Unibanco Holding S.A. (IUH), Itau Unibanco S.A., and Banco Itau BBA S.A. A
full list of rating actions follows at the end of this release.

The aforementioned groups of banks are the largest financial groups in Brazil,
which have been able to operate in the midst of a relative volatile operating
environment and sudden changes of the economic cycle, preserving their
profitability in levels that rank above the median of similarly rated banks
and the group of largest bank around the world. Such performance is tested
again since 2012, when the conjunction of lower economic activity levels, a
significant drop on the average interest rates, and the seasoning of the
credit expansion of the last 10 years have resulted in higher credit costs and
narrower margins. Fitch does not expect profitability to remain at past
levels, does believes it will still be comparable to its global peers.

Bradesco and IUH are present in a wide range of lending segments from
commercial lending to SMEs and corporates, to lending to individuals for
personal loans, credit cards, vehicles, mortgages, consumer finance, payroll
deductible loans. In most of these segments, they each are first or second in
terms of market share. The equity securities of both banks are listed in
Brazil and USA.

In mid-2011 and early 2012,Bradesco's and IUH's asset quality had seen some
deterioration especially in the loan to individuals - vehicle finance segments
of both banks due in part to the weakening of the economy. While both banks
had to significantly raise the level of loan loss provisions, IUH was more
significantly impacted. Recent quarters have shown clear improvement trends
for both banks and at the end of 1Q'13 the levels of past due loans (PDLs)over
90 days to total loans for Bradesco and IUH was 4% and 4.5% respectively.

Providing further comfort, both banks maintain high levels of loan loss
reserves beyond the required Central Bank minimum levels, thus the coverage
level of these 90 day PDLs were at a comfortable level of 179% for Bradesco
and 161% for IUH. Bradesco currently has excess provisions of approximately
BRL4 billion and IUH has approximately BRL5billion.

Both Bradesco and IUH have had satisfactory Fitch core capital ratios when
considering their excess reserve position in both the banks and in the
sustained strong performance of their insurance business which brings income
diversification, but also results in significant adjustments on reported
equity under Fitch's Global Financial Institutions Rating Criteria in order to
arrive at their FCC Ratios. Both banks are not expected to have difficulties
in meeting upcoming BIS III minimum capital levels. These levels will be
phased in over the next six years in view of their earning capacities, current
capital levels and significant excess loan loss reserves that could be
redirected, if needed, and available for that purpose. Today, both banks face
the challenge of enhancing their capital base in order to align their position
with other large banks around the world. Their ability to preserve current
loss absorption capacity, measured by their capital base, loan loss reserves
and above average profitability, would be tested in an environment of lower
expected profits for the global banking industry.

KEY RATING DRIVERS: BRADESCO

Bradesco's Issuer Default Ratings (IDRs) are driven by its Viability Rating
(VR). Its foreign currency IDR is constrained by Brazil's Country Ceiling
(rated 'BBB+' by Fitch); while its local currency IDR is two notches above the
sovereign currency rating of Brazil, thanks to its very strong credit profile,
funding franchise and its deposit stability. Under Fitch's rating criteria,
this is the maximum uplift an exceptionally strong entity can have compared to
the rating of the sovereign where it is incorporated.

The affirmation of both ratings was based on the proved resilience of
Bradesco's results during a challenging operating environment. The bank has
maintained asset quality ratios well aligned with banks of similar ratings and
ample loan loss reserves that cover almost 2 times its past due portfolio. In
addition, the bank has posted strong profits as shown by an ROAA above 1.5%
for the last 10 years, and is expected to maintain a similar level in the
medium term, through the good diversification of its income sources. Also
considered was the bank's conservative risk culture, stable and diversified
funding, and proven management skills in an environment of constant change.
The ratings also consider Bradesco's current capital base, which is trending
slightly below that of similarly rated banks (Fitch Core Capital average of
6.9% over the last 3 years), but compensated by ample loan loss reserves that
are nearly 180% of its 90-day past due loans) and a proven history of adequate
results along the economic cycle. It is also important to note that Bradesco
maintains its capital ratios well-above the conservative local requirements.

Bradesco is the third largest bank in Brazil with a deposit market share of
14% in 2013. Fitch believes that given Bradesco's size and its nationwide
presence, the Brazilian government would provide Support the support required,
which explains its current Support Rating (SR) of '2', while its Support
Rating Floor is 'BBB-'.

The rating of its subordinated notes, two notches below its VR, reflects the
regular notching applied by Fitch to hybrid securities with coupon deferral
mechanisms. More specifically, the securities are notched once due the higher
loss severity derived from its subordinated nature and another notch due to
incremental non-performance risk imposed by the ability to defer coupon
payments when the minimum regulatory capital ratios is breached.

Bradesco's national scale rating reflects the same financial strength of its
VR's and remains at the highest national scale rating in Brazil.

KEY RATING DRIVERS: IUH, ITAU UNIBANCO AND ITAU BBA

IUH, Itau Unibanco and Banco Itau BBA IDR's are driven by their (VR). Their
foreign currency IDR's are constrained by Brazil's Country Ceiling ('BBB+');
while their local currency IDR are two notches above the sovereign currency
rating of Brazil, thanks to their very strong credit profile, funding
franchise and deposit stability. Under Fitch's rating criteria, this is the
maximum uplift an exceptionally strong entity can have compared to the rating
of the sovereign where it is incorporated.

IUH, Itau Unibanco and Banco Itau BBA have 'Common' VR's and hence IDR's as
IUH, as explained in Fitch's criteria for Rating FI Subsidiaries (quoted at
the end of this Rating Action Commentary). Both subsidiaries are very large
compared to the overall size of IUH, while both subsidiaries are highly
integrated in terms of management, balance sheet and systems, meaning that the
subsidiaries and parent credit profile are highly correlated. The entities are
clearly managed on a consolidated manner.

The affirmation of IUH's VR's is driven by the group's ability to maintain
performance, asset quality and capital levels in healthy levels along the
economic cycle; which is all enhanced by a very stable and diversified funding
base and conservative risk management techniques. Despite the volatility of
the operating environment, and the current lower than average economic
activity levels, IUH has been able to preserve its profitability ratio (ROAA
minimum of 1.5%); based on controlled credit costs, good efficiency levels and
strong margins, despite the average lower interest rate environment in Brazil
since late 2010.

Despite some temporary increases on past due loans, particularly in the
vehicle finance and SME portfolio, IUH has been able to preserve its ratio of
past due loans (more than 90 days) around 4.5% in the last two years, while
loan charge offs remain within its historic median and loan loss reserves
cover 161% such past due portfolio; well above similarly rated banks around
the world. The above average growth of IUH in the last five years has limited
the expansion of its Fitch Core Capital Ratio (8.1% as of March 2013); and
range below the average of other similarly rated banks; although, its above
average profitability, conservative loan loss coverage and a history of strong
results despite the changes in the economic cycle compensate such difference.
It is also important to note that IUH maintains its capital ratios well-above
the conservative local requirements.

IUH is the second largest banking group in Brazil with a deposit market share
of approximately 15% in 2013. Fitch believes that given IUH's size and its
nationwide presence, the Brazilian government would provide the bank the
support it requires, which explains its current Support Rating (SR) of '2';
while its Support Rating Floor is 'BBB-'.

IUH, Itau Unibanco and Banco Itau BBA national scale rating reflects the same
financial strength of its VR's and remains at the highest national scale
rating in Brazil.

The rating of IUH's subordinated notes, two notches below its VR, reflects the
regular notching applied by Fitch to hybrid securities with coupon deferral
mechanism. More specifically, the securities are notched once due to the
higher loss severity derived of its subordinated nature and another notch due
to incremental non-performance risk imposed by the ability to defer coupon
payments when the minimum regulatory capital ratios is breached.

RATING SENSITIVITIES: BRADESCO

Bradesco IDRs could be affected by changes in the sovereign ratings of Brazil
although an upgrade in the sovereign rating may not necessary lead to an
upgrade in the ratings of this bank as Fitch views the upside as limited in
the near-term horizon. Its VR could be negatively affected, if Bradesco's loss
absorption capacity is diminished as evidenced by a decrease in their FCC and
Loan Loss Reserve ratios from current levels which result in an unfavorable
comparison to the ratios of its global peers. Also, sustained periods of ROAA
below 1.5% and PDL's ratios above 6% may trigger a downgrade on its ratings.
Currently, the upside potential for the Long Term Foreign Currency IDR is
limited by the country ceiling. The sensitivity of the ratings of the
subordinated debt is subject to any change in the VR rating of Bradesco.

RATING SENSITIVITIES: IUH, Itau Unibanco and Banco Itau BBA

IUH IDRs could be affected by changes in the sovereign ratings of Brazil
although an upgrade in the sovereign rating may not necessary lead to an
upgrade in the ratings of this bank as Fitch views the upside as limited in
the near-term horizon. Its VR could be negatively affected, if IUH's loss
absorption capacity is diminished as evidenced by a decrease in their FCC and
Loan Loss Reserve ratios from current levels which result in an unfavorable
comparison to the ratios of its global peers. Also, sustained periods of ROAA
below 1.25% and 90 day PDL ratios above 6% may trigger a downgrade on its
ratings. Currently, the upside potential for the Long Term Foreign Currency
IDR is limited by the country ceiling. The ratings of the subordinated debt
are subject to any change in the VR rating of IUH.

As the ratings of Itau Unibanco S.A. and Banco Itau BBA S.A. are currently
equalized to those of its parent, any change to the rating of IUH is likely to
affect the rating of these subsidiaries.

Fitch affirms Banco Bradesco S.A. as follows:

--Long-term Foreign Currency Issuer Default Rating (IDR) at 'BBB+'; Outlook
Stable;
--Short-term Foreign Currency IDR 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)';
--Subordinated notes due September 2019 at 'BBB';
--Subordinated notes due January 2021 at 'BBB';
--Subordinated notes due March 2022 at 'BBB'.

Fitch affirms Itau Unibanco Holding S.A. as follows:

--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';
--Subordinated notes due August 2022 at 'BBB';
--Subordinated notes due May 2023 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)'.

Banco 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.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10 2012)
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 15,
2012)
--'Rating Financial Institutions above the Sovereign' (Dec. 11 2012)

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Rating Financial Institutions Above the Sovereign
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696373

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