Itau Unibanco To Buy 82% BTG Stake In Debt Collection Firm

Itau Unibanco Holding S.A. ITUB, one of the largest banks by assets in Brazil has inked a deal to acquire the struggling investment bank, Banco BTG Pactual S.A.’s entire stake in debt collection company – Recovery do Brasil Consultoria S.A.

According to a statement released on Thursday, after obtaining regulatory approvals Itau Unibanco will pay R$ 640 million ($162 million) for BTG Pactual’s 81.94% stake in Recovery.  Further, Itau Unibanco will acquire about 70% of BTG Pactual’s R$ 38 billion portfolio of non-performing loans for R$ 570 million ($144 million).

Recovery, which was founded in Argentina in 2000 and has presence in Brazil since 2006, is a major player in delinquent credit portfolio management and administration. The World Bank’s private investment wing – The International Finance Corporation – and the company's senior management will retain their minority stakes in Recovery.

BTG capital is offloading assets to boost liquidity and gain client confidence after it went into trouble following the arrest of its founder and former chief executive officer André Esteves on Nov 25. Esteves, who was charged with obstruction of justice and interference in the investigation in a corruption case involving the Brazilian state-run energy giant Petrobras, denied any wrongdoing and is currently under house arrest.

Notably, in December BTG received a line of credit of upto R$ 6billion ($1.6 billion) from Brazil’s deposit insurance fund – Fundo Garantidor de Créditos. The credit line would provide BTG time to sell assets to fortify its cash position as Esteves’ arrest led to client fund withdrawals and restricted access to capital markets financing. The latest sale by BTG Pactual represents around 0.2% of its total assets.

For Itau Unibanco, the acquisition will aid in gaining a strong foothold in Brazil's booming non-performing debt collection industry. Marcelo Kopel, Itaú's head of investor relations, stated, “Recovery's expertise in debt collection services will help Itaú Unibanco optimize operations, which, coupled with services rendered to third-parties, should result in great prospects for growth." Itau Unibanco stated that the operation is not expected to have material accounting effects for its 2016 bottom line.

Despite macroeconomic challenges in Brazil, Itau Unibanco reported strong third-quarter 2015 results. The company’s recurring earnings of R$6.1 billion was up 10.9% year over year. Including non-recurring items, net income came in at R$5.9 billion, up 9.3% year over year. Results reflected elevated operating revenues, increased managerial financial margin along with higher banking service fees and income from banking charges. However, increase in non-interest expenses was the headwind.

Itau Unibanco carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign banks space include Grupo Financiero Galicia S.A. GGAL, Erste Group Bank AG EBKDY and Barclays PLC BCS, each sporting a Zacks Rank #2 (Buy).

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