Market Value
Itau tumbles on Bank of America plan to sell stake
Itau Unibanco Holding SA, Latin America's biggest bank by market value, fell the most in a year after Bank of America Corp. agreed to sell its entire stake in the lender in a transaction worth as much as $4.4 billion.
Bank of America will sell 188.4 million Itau preferred shares through a secondary offering to boost capital, the Brazilian bank said yesterday in a regulatory filing. Itausa - Investimentos Itau SA, the Sao Paulo-based lender's parent, also agreed to buy from Bank of America 56.5 million Itau common shares.
"We determined it was a noncore asset," Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America said in a telephone interview. "With the acquisition of Merrill Lynch we have a significant presence in Latin America and Brazil and this doesn’t change that."
Itau Unibanco fell 6 percent to 32.88 reais at 12:19 p.m. New York time in Sao Paulo trading. Earlier, the stock fell as much as 6.8 percent, the most since May 2009. The stock is down 15 percent this year as banks worldwide tumbled on concern widening deficits in Europe could trigger another financial crisis.
"The market understood the Bank of America would probably raise cash by selling Itau, but nobody was expecting it to happen during a period of risk aversion," said Eduardo Favrin, who oversees about $2.5 billion in stocks as head of equities for HSBC Global Asset Management's Brazil unit in Sao Paulo. "It's a big stake, so it has to affect the price. It’s not the best moment to sell, but Bank of America must have opted for it now for other reasons."
The sale will give Bank of America, the largest U.S. lender by assets, funds as it adds employees and services at existing overseas operations including Merrill Lynch, acquired in January 2009. The bank is also selling assets as part of its commitment to the U.S. Treasury to repay aid received under the Troubled Asset Relief Program.
The preferred shares would be valued at 6.59 billion reais ($3.62 billion) based on Itau’s closing price yesterday of 34.99 reais. Itausa said it will sell 1.4 billion reais in local bonds to pay for the common stock.
Bank of America acquired 7.4 percent of Banco Itau Holding Financeira SA in 2006 after agreeing to sell to the Brazilian bank its units in Brazil, Chile and Uruguay. The secondary offering of the Itau preferred shares may be concluded in the week of May 31, Itau and Itausa said in the statement.
'Short Run'
Itau's preferred shares will see a "negative overhang impact" in the "short-run," Banco BTG Pactual SA said today in a note to clients. "Nevertheless, if the stock substantially underperforms peers, we would be buyers."
BTG Pactual has a "buy" recommendation on the stock, according to data compiled by Bloomberg.
Bank of America's announcement of a secondary offering spurred a decline for Brazilian banks. Banco Bradesco SA, Brazil's second-biggest by market value, sank 2.8 percent, while Banco Santander Brasil SA slipped 1.4 percent. Banco do Brasil SA, the federally controlled lender that plans filed a request this month to sell shares in Brazil and the U.S., dropped 4.2 percent.
"Given the size of the secondary offer, and considering it is hitting the market almost at the same time as Banco do Brasil’s publicly disclosed equity offering, we would expect the sector reshuffling and overhang risk to weigh somehow on ITUB’s shares and other liquid names in the industry," wrote Barclays Capital Plc analysts Roberto Attuch and Fabio Zagatti in a note to clients.
(Published by Bloomberg – May 19, 2010)