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Itau XP Holding Deal Gets Central Bank of Brazil's Approval

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Itau Unibanco Holding S.A. (ITUB - Free Report) recently announced that it has received consent from the Central Bank of Brazil to execute investment in XP Investimentos S.A. (XP Holding), which was announced in May 2017. In March 2018, the Administrative Council for Economic Defense had given its approval to the acquisition.

Itau Unibanco signed a share purchase agreement with XP Controle Participações S.A., G.A. Brasil IV Fundo de Investimento em Participações and Dyna III Fundo de Investimento em Participações. Per the agreement, Itau Unibanco will gain the rights of a minority shareholder and will be eligible to appoint two out of seven members of the XP Holding's board of directors.

Also, Itau Unibanco signed a concentration control agreement promising the Central Bank of Brazil that it will make no move to acquire the control of XP Holding for a period of eight years.

Itau Unibanco would be acquiring 49.9% of the total share capital of XP Holdings through a capital increase of R$600 million and the acquisition of shares issued by XP Holding that were held by the above-mentioned parties for a total of about R$5.7 billion. The deal is expected to be completed by August 2018.

Itau Unibanco does not expect any material effect on its earnings in this fiscal from the deal. However, its CET1 fully loaded ratio with Basel III rules is likely to impacted by 90 basis points.

The company’s focus on expanding business in Brazil is reflected through this acquisition and keeps us encouraged of its strong financial position. Further, the merger with CorpBanca has fortified its footprint in Latin America, while the buyout of Citibank’s operations has aided growth. However, elevated expenses and stressed conditions in Brazil keep us apprehensive.

Shares of Itau Unibanco have lost 11.2% so far this year compared with 10.5% decline of the industry.

Currently, the stock carries a Zacks Rank #4 (Sell). 

Some better-ranked stocks in the same space are Bank of N.T. Butterfield & Son (NTB - Free Report) and DNB ASA (DNHBY - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) and Hang Seng Bank Ltd. (HSNGY - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Bank of N.T. Butterfield & Son’s earnings estimates were revised upward by nearly 1% for the current year, in the last 30 days. Also, its share price has jumped 58.7% over the past year.

DNB ASA’s Zacks Consensus Estimate for current-year earnings was revised 16.9% upward, over the last 30 days. Further, its shares have rallied 9.1% over the past 12 months.

Hang Seng Bank witnessed 6.1% upward earnings estimates revision for the current year in the last 60 days. Moreover, its shares have gained 21% over the past year.

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