As filed with the Securities and Exchange Commission on April 02, 201529, 2016
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20142015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-15276
ITAÚ UNIBANCO HOLDING S.A.
(Exact name of Registrant as specified in its charter)
Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil
(Address of principal executive offices)
Marcelo Kopel
Investor Relations Officer
Itaú Unibanco Holding S.A.
Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil
+55 11 2794 3547
drinvest@itau-unibanco.com.br
(Name, Telephone, E-mail and/or Facsimilie number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Preferred Shares, no par value | New York Stock | |
American Depositary Shares (as evidenced by American Depositary | ||
Receipts), each representing 1 (one) Preferred Share | New York Stock Exchange |
(*) Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
2,770,034,0033,047,037,403 Common Shares, no par value
2,706,967,5862,874,313,101 Preferred Shares, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
xYes ¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
¨Yes xNo
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
xYes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
x Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer
x Large accelerated filer | ¨ Accelerated filer | ¨ Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
¨ U.S. GAAP | x International Financial Reporting Standards | |
as issued by the International Accounting | ||
Standards Board | ¨ Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
¨Item 17¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨Yes x No
INTRODUCTION
The information presented in this annual report on Form 20-F is accurate only as of the date of this annual report on Form 20-F and information incorporated by reference in this annual report on Form 20-F is accurate only as of the date of the document in which such incorporated information is contained. Our activities, thebusiness, our financial condition of our finances and assets, the results of transactionsoperations, our assets and our prospects may have changed since that date.those dates.
Information contained in or accessible through the websites mentionedreferred to in this annual report on Form 20-F is not part of this annual report unless we specifically state that it is incorporated by reference and is part of this report. All references in this annual report on Form 20-F to websites are inactive textual references and are for information only.
FORM 20-F CROSS-REFERENCE INDEX
(for the purpose of fillingfiling with the United States Securities and Exchange Commission)
20-F item number and description | Page |
Part I | |
Item 1. Identity of Directors, Senior Management and Advisers | Not applicable |
Item 2. Offer Statistics and Expected Timetable | Not applicable |
Item 3. Key Information | |
3A. Selected financial data | |
3B. Capitalization and indebtedness | Not applicable |
3C. Reasons for the offer and use of proceeds | Not applicable |
3D. Risk factors | |
Item 4. Information on the Company | |
4A. History, highlights and | |
4B. Business overview | |
4C. Organizational structure | |
4D. Property, plant and equipment | |
Item 4A. Unresolved Staff Comments | None |
Item 5. Operating and Financial Review and Prospects | |
5A. Operating results | |
A-141 to A-157, | |
5B. Liquidity and capital resources | |
5C. Research and development, patents and licenses, | |
5D. Trend information | |
5E. Off-balance sheet arrangements | |
5F. Tabular disclosure of contractual obligations | |
Item 6. Directors, Senior Management and Employees | |
6A. Directors and senior management | |
6B. Compensation | |
6C. Board practices | |
6D. Employees |
6E. Share ownership | |
Item 7. Major Shareholders and Related Party Transactions | |
7A. Major shareholders | |
7B. Related party transactions | |
7C. Interests of experts and counsel | Not applicable |
Item 8. Financial Information | |
8A. Consolidated Statements and Other Financial Information | |
F-1 to | |
8B. Significant Changes | None |
Item 9. The Offer and Listing | |
9A. Offer and listing details | |
9B. Plan of distribution | Not applicable |
9C. Markets | |
9D. Selling shareholders | Not applicable |
9E. Dilution | Not applicable |
9F. Expenses of the issue | Not applicable |
Item 10. Additional Information | |
10A. Share capital | Not applicable |
10B. Memorandum and articles of association | |
A-65 to A-68. | |
10C. Material contracts | None |
10D. Exchange controls | |
10E. Taxation | |
10F. Dividends and paying agents | Not applicable |
10G. Statement by experts | Not applicable |
10H. Documents on display | |
10I. Subsidiary information | |
Not required | |
Item 11. Quantitative and Qualitative Disclosures About Market Risk | |
A-138 | |
Item 12. Description of Securities Other Than Equity Securities | |
12A. Debt Securities | Not applicable |
12B. Warrants and Rights | Not applicable |
12C. Other Securities | Not applicable |
12D. American Depositary Shares | |
Part II | |
Item 13. Defaults, Dividend Arrearages and Delinquencies | None |
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | None |
Item 15. Controls and Procedures | |
Item 16. [Reserved] | |
16A. Audit committee financial expert |
16B. Code of Ethics | |
16C. Principal Accountant Fees and Services | |
16D. Exemptions from the Listing Standards for Audit Committees | |
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |
16F. Change in Registrant’s Certifying Acountant | None |
16G. Corporate Governance | |
16H. Mine Safety Disclosure | Not applicable |
Part III | |
Item 17. Financial Statements | F-1 to |
Item 18. Financial Statements | Not applicable |
Item 19. Exhibits | B-1 |
GUIDE 3 CROSS-REFERENCE INDEX
(for the purpose of fillingfiling with the United States Securities and Exchange Commission)
GUIDE 3 item number and description | Page |
Part I Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates andInterest Differential | |
Average balance sheets | |
Analysis of net interest earnings | |
Volume and rate movement | |
Part II Investment Portfolio | |
Book value of investments | |
Maturity profile | |
Book value and market value exceeding 10% of stockholders’ equity | |
Part III Loan Portfolio | |
Types of Loans | |
Maturities and Sensitivities of Loans to Changes in Interest Rates | |
Risk Elements | |
Nonaccrual, Past Due and Restructured Loans | |
Potential Problem Loans | |
Foreign Outstandings | |
Loan Concentrations | |
Other Interest Bearing Assets | |
Part IV Summary of Loan Loss Experience | |
Analysis of the Allowance for Loan Losses | |
Allocation of the Allowance for Loan Losses | |
Part V Deposits | |
Part VI Return on Equity and Assets | |
Part VII Short-Term Borrowings |
Annex A – Annual Report
Index
Context | ||
A-04 | Macroeconomic context | |
A-08 | Context of Itaú Unibanco Holding | |
A-11 | Context of this report | |
Our profile | ||
In numbers | ||
Our history | ||
Our business | ||
Competitive strengths | ||
Our shares | ||
Our governance | ||
Our practices | ||
Management structure | ||
Main differences between Brazilian and U.S. corporate governance practices | ||
Our risk management | ||
Risk factors | ||
Risk and capital management | ||
Regulatory environment | ||
Performance | ||
Financial performance | ||
Consolidated Financial Statements (IFRS) | ||
Attachments | ||
Selected statistical information | ||
Exchange rates | ||
Considerations for ADS holders | ||
Controls and procedures | ||
Sustainability | ||
Glossary |
Annual Report |
Global context
The 2008 crisis in the global financial markets significantly affected the world economy. The crisis led to: (i) recession and increasedhigher unemployment in the world’s leading economies; (ii) a reductiondecrease in investment on a global scale; (iii) a decline in credit availability and liquidity; and (iv) a general reductiondecrease in the levelnumber of transactions in capital markets worldwide. The world economy, as well as the credit and capital markets, havehas recovered substantially since 2008, but2008. However, the overall condition of the global financial markets is still relatively fragile.
The world economy is currently characterized by divergentrecovering from the 2008 crisis, but global GDP growth prospects. While theis still below potential. As noted below, U.S. economyreal GDP grew 2.4% in 2015 and is expected to expand at ratesa rate of 3.2% in 2015 and 2.9%2.6% in 2016 (according to the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters), the. The Eurozone and Japan will likely struggleare still struggling to improve their modest economic growth.growth rates. Meanwhile, growth in China is decelerating, and growth in other emerging markets has been slow.
Growth inIn the Eurozone, growth resumed in the second halfquarter of 2013 and continued at a moderate pace through 2014.2014 and 2015. More fundamentally, fiscal reforms have been implemented in European countries, and both confidence and financial conditions have improved when compared with 2013,recent years, creating conditions to sustain that support moderate growth. Modest growth,In January 2015, the still-large output gap and lower commodity prices pushed inflation down in the Eurozone to a negative level: -0.2% year over year as of December 2014. The European Central Bank (ECB) responded to falling inflation and subdued growth overinflation expectations by announcing a quantitative easing program (in addition to the courseinterest rate cuts and other measures introduced in the second half of 2014) that included the year by cutting interest rates in June and September 2014, announcing targeted longer-term refinancing operations, adopting measures to increase liquidity and establishingpurchasing of a program for the purchasetarget amount of certain types of privately issued assets. The ECB has also announced it will purchase €60 billion per month in assets, including government bonds, from Marchbonds. In December 2015, untilthe minimum length of the quantitative easing program was extended by an additional 6 months, meaning that it will run through at least September 2016.March 2017. In March 2016, the European Central Bank increased the purchasing of assets in an additional amount of €20 billion per month.
TheGiven the unprecedented monetary policy measures implemented by developed countries since 2008, have created a period of significantly increased liquidity has been available for investment in emerging markets, which has in turn boosted asset prices.prices in those markets. As the U.S. economiceconomy has continued its recovery progresses and its outlook improves,remains positive, the U.S. Federal Reserve is expectedhas begun to begin anraise interest rate hiking cycle. According to the minutes from the December meeting ofrates, as announced at the Federal Open Market Committee (FOMC), most committee members indicated thatDecember 2015 meeting. The U.S. Federal Reserve currently anticipates it wouldmay well be appropriate to start raisingcontinue gradually increasing the target range for interest rates in 2015.rates.
EngineeringSignificant amounts of financial resources have been withdrawn from investments in the emerging markets and other high-yield investments in anticipation of the gradual monetary tightening that is likely to occur in years ahead. However, engineering a smooth exitwithdrawal of funds from investments in emerging markets from a period of extraordinary liquidity remains a challenge for the years ahead. We believe that this transition is likely to be gradual, but may still result in more volatile asset prices in emerging markets and could affect our operational results.
U.S. economic activity strengthened in 2014, with real GDP growinggrew 2.4% in 2015, according to U.S. Bureau of Economic Analysis advanced estimates, the same growth rate as in 2014. The economic expansion is expected to continue at a moderate pace in 2016 (according to the Survey of Professional Forecasters issued by 2.4%the Federal Reserve Bank of Philadelphia), an improvement comparedsustained by a solid domestic demand. Domestic demand should be supported by: (i) accommodative monetary and financial conditions; (ii) optimism among consumers and businesses, according to January 2016 survey data published by The Conference Board and the Institute for Supply Management, respectively; and (iii) a healthy labor market, with the 2.2%net job growth in 2013. After a sharp slowdown in the first quarter, when U.S. GDP declined by 2.1% on an annualized basis, GDP grew at annualized rates of 4.6%, 5.0% and 2.2% in the second, third and fourth quarters of 2014, respectively. Job creation averaged 260,000 positionsaveraging 229,000 per month in 2015 and a decline in the 12-month period ended December 31, 2014. The U.S. unemployment rate declined to 5.6%5.0% in December 2014, the lowest level since June 2008. Survey data has indicated that business and consumer confidence remained at high levels.2015.
United States Job Creation – Nonfarm Payroll
(seasonally adjusted , thousands)
Source: Itaú Unibanco Holding and U.S. Bureau of Labor Statistics
Context | A-04 |
Annual Report2015 |
China’s GDP grew by 7.3%increased 6.8% year over year in the fourth quarter of 2014,2015, continuing its slowing trend. Chinese policymakers are showing signs of a renewed signs that they are committedcommitment to medium-term reforms to improve overall productivity, and are acceptingappear willing to accept slower but more balanced GDP growth. This is expected to help the ongoing rebalance the economyfrom investment led growth towards consumption and sustainservices growth, in the medium term, although some implementation risks remain. More balanced growth means that growth in demand for industrial metals may continue to decelerate more than overall economic growth.
Latin America context
In Latin America, the commodity-exporting economies continue to grow at a slower rate than they did over the previous decade, as lower commodity prices weigh down investment, confidence and national income. Mexico has not fully benefited from the recovery of the U.S. economy, and the drop in oil prices has been an obstacle to the implementation of energy reform in the country. Low oil prices have generally shown lower growth ratesalso hurt Colombia’s GDP growth. After growing by 4.6% in 2014, thanColombia’s GDP grew by only 3.1% in 2015. A potential peace agreement with FARC leaders may improve the business environment in Colombia in the previous year.coming years. Low copper prices have had a negative effect on the Chilean economy. In 2015 Chile’s GDP grew by only 2.1%.
Due to weaker currencies, inflation has been high in most of the region, with a number of central banks raising policy rates despite slow economic growth. Furthermore, the economic slowdown and lower commodity-linked fiscal revenues have led some governments to cut expenditures.
Solid fundamentals built over the past decade have helped Chile, Colombia, Peru and Mexico is an exception. While domestic policies and higher global growth will likely lead to recovery in many Latin American countries, we now anticipate a weaker rebound than we were previously expecting, due to lower commodity prices.avoid recession.
The table below shows the real GDP growth rates in seven Latin American countries as of and for the years (ending onended December 31)31, 2015, 2014, (except2013, 2012 and 2011, except as otherwise indicated), 2013, 2012, 2011 and 2010.indicated.
AS OF AND FOR THE YEAR ENDED | ||||||||||||||||||||
REAL GDP | DECEMBER 31, | |||||||||||||||||||
GROWTH (%) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Argentina(1)(%) | (2.5 | ) | 3.3 | (0.4 | ) | 5.2 | 8.2 | |||||||||||||
Chile(2)(%) | 1.9 | 4.2 | 5.5 | 5.8 | 5.8 | |||||||||||||||
Colombia(3)(%) | 4.6 | 4.9 | 4.0 | 6.6 | 4.0 | |||||||||||||||
Mexico(4)(%) | 2.1 | 1.4 | 4.0 | 4.0 | 5.1 | |||||||||||||||
Paraguay(5)(%) | 4.4 | 14.2 | (1.2 | ) | 4.3 | 13.1 | ||||||||||||||
Peru(6)(%) | 2.4 | 5.8 | 6.0 | 6.5 | 8.5 | |||||||||||||||
Uruguay(7)(%) | 3.5 | 5.1 | 3.3 | 5.2 | 7.8 |
(%) | ||||||||||||||||||||
As of and for the Year Ended December 31, | ||||||||||||||||||||
Real GDP Growth | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Argentina(1) | 1.8 | (2.6 | ) | 3.6 | (0.4 | ) | 5.0 | |||||||||||||
Chile(2) | 2.1 | 1.9 | 4.2 | 5.5 | 5.8 | |||||||||||||||
Colombia(3) | 3.1 | 4.6 | 4.9 | 4.0 | 6.6 | |||||||||||||||
Mexico(4) | 2.5 | 2.1 | 1.4 | 4.0 | 4.0 | |||||||||||||||
Paraguay(5) | 3.0 | 4.4 | 14.2 | (1.2 | ) | 4.3 | ||||||||||||||
Peru(6) | 3.3 | 2.4 | 5.8 | 6.0 | 6.5 | |||||||||||||||
Uruguay(7) | 1.0 | 3.5 | 5.1 | 3.3 | 5.2 |
(1) IGA (Indice General de Actividad), a GDP proxy. Source: OJF (Orlando J. Ferreres & Asociados S.A.).
(2) Source:Banco Central de Chile.
(3) Source:Banco de la República.
(4) Source:Instituto Nacional de Estadística y Geografía.
(5) Source:Banco Central del Paraguay.
(6) Source:Banco Central de Reserva del Perú.
(7) Source:Banco Central delde Uruguay.
Fiscal problems in advanced economies, sluggishnessSluggish economic growth in developed countries and inflation and other issues in developing economies and in particular– particularly in Latin America – may have an impact on our future growth in Brazil and other places where we operate, and therefore, also on the results from our operations.
Brazilian context
As a Brazilian bank with most of our operations in Brazil, we are significantly affected by the economic, political and social conditions in the country. In recent years,From 2004 to 2011, we have benefited from Brazil’s generally stable economic environment, with average annual GDP growth of approximately 4.4% from 2004 to 2011,, which led to increased bank lending and deposits. However, Brazil’s GDP growth rates were 1.8%rate declined to 1.9% in 2012, 2.7%3.0% in 2013 and 0.1% in 2014, with last year’s economic slowdown partly reflecting a deceleration in potential growth. In 2015, GDP decreased by 3.8%.
GDP growth
(%)
Source: Itaú Unibanco Holding and IBGE.
Context | A-05 |
Annual Report2015 |
In April 2013, the Central Bank initiated a monetary tightening cycle, increasingcycle. The Central Bank gradually increased the benchmark interest rate payable to holders of securities issued by the Brazilian government and traded through the Special Clearing and Settlement System (Sistema Especial de Liquidação e Custódia, or Selic) from a low of 7.25% in March 2013 to a high of 11.00%14.25% in April 2014. In October 2014, the Central Bank resumed the monetary tightening cycle. In December 2014, the Selic rate reached 11.75%.July 2015, with no further increases since then. The recent increase in interest rates has also triggered an increase in the reference interest rate (Taxa Referencial, or TR), which rosehas risen from approximately 0.05% per month in December 2013 to approximately 0.11% per month inat the end of July 2014 to approximately 0.23% per month at the end of December 2014.2015. Bank lending as a proportion of GDP increased to 58.9%54.2% in December 20142015 from 56.1%53.1% in December 2013.2014.
Selic
(nominal interest rate)
Consumer price inflation remained at high levelsSource: Itaú Unibanco Holding and Central Bank
Bank Lending
(as % of GDP)
Source: Itaú Unibanco Holding and Central Bank
Inflation reached 10.7% in 2015, up from 6.4% in 2014. The 12-month IPCA (Índice de Preços ao Consumidor Amplo) inflation rate reached 6.41%Government-regulated prices (such as electric power prices, water and sewage tariffs and fuel prices) increased by 18.1% in 2015 due to a decrease in government subsidies and higher taxes on December 31, 2014, above the target of 4.5%.some key regulated prices.
12-month IPCA inflation rate
Source: Itaú Unibanco Holding and IBGE
The monetary tightening cycle implemented by the Central Bank since April 2013 is expected to keep inflation under control but also to affecthas affected domestic economic activity. If inflation persists or economic activity declines, family incomescontinues to decline, families income may decreasekeep decreasing in real terms,terms. In 2015, real wages decreased by 3.7% compared with 2014, which could eventually lead toresult in higher delinquency rates for loans in the Brazilian banking system. The non-performing rate for household loans has increased recently, rising from 3.7% in June 2015 to 4.2% in December 2015.
ForThe Brazilian primary public budget result continued on a downward trend in 2015. Cuts in discretionary spending and tax hikes were insufficient to offset the past three years,drop in tax revenues and growth in mandatory expenditures. The Brazilian primary public budget balance ended the Brazilian government adopted an expansionary fiscal stance, with the result that the primary surplus in the public sector fell from 3.1%year at -1.9% of GDP (-0.9% excluding payment of delayed expenses), after a deficit of 0.6% of GDP in 2011 to -0.6% of GDP for the 12-month period ended December 2014. The reductiondecrease in the primary surplus, combined with the recent increase in the Brazilian government’s debt-financing costs, has contributedadded to the relative pressure on public debt. ConsideringThe outlook for 2016 remains challenging, given the need fortrend of falling revenues and rising mandatory expenses will likely continue, since the fiscal adjustment as well asprogram faces political challenges at the National Congress. Standard & Poor’s cited these challenges associated with implementing it, we believe that a fiscal consolidation trend is likelyin explaining its decision to emerge overlower the next few years, which we expectrating of the Brazilian sovereign debt to have positive effectsbelow investment grade on confidence and growth.September 9, 2015. Fitch also downgraded Brazil’s sovereign rating to non-investment grade on December 16, 2015. On February 25, 2016, Moody’s downgraded Brazil’s sovereign debt rating to non-investment grade.
In addition, Brazil has in recent years implemented a large number of regulatory changes, such as changes in banks’ reserve and capital requirements for financial institutions, as well as other macro-prudential policies, (suchsuch as capital controls). In September 2012, the additional reserve requirement for demand deposits was reduced from 6.0%controls. Please refer to zero,section Our Risk Management, item Regulatory Environment, Implementation of Basel III in Brazil and in March 2013, the additional reserve requirement for time deposits was reduced from 12.0% to 11.0%. In March 2014,section Performance, item Required Reserve Deposits with the Central Bank, revoked rules that reduced the interest applicable to required reserves for time deposits. The reduction of interest applicable to required reserves for time deposits was intended to stimulate the transfer of liquidity from larger to smallerfurther information.
Outstanding loans provided by Brazilian financial institutions and resulteddecreased in more than R$46 billion being2015 adjusted for inflation. Year-to-year total bank loans fell by 3.7% as of December 2015 in real terms, compared with an expansion of 4.6% as of December 2014. New loans decreased, in all sectors, by 11.1%, as of December 2015 compared with a decline of 1.1% in December 2014, both on an annualized basis. Non-performing household loans increased 0.5 p.p. to 4.2% as of December 2015 when compared with the same month in 2014. Non-performing loans to non-financial corporations have increased since January 2015, reaching 2.6% in December 2015, compared with 1.9% in December 2014.
injected into smaller financial institutions. In June 2014, the reserve requirement for demand deposits was increased from 44% to 45%.
More recently, in August 2014, the Central Bank made certain changes to capital requirements in another step toward Basel III standards. The risk weight of 150% and 300% applicable to consumer loans with maturities longer than 36 and 60 months, respectively, were reduced to 75%. In addition, the Central Bank changed certain classification criteria whereby a larger number of companies now fall under the retail segment, which has a lower required risk weight.
The Central Bank also changed the rules for required reserves for time deposits. For the 12-month period starting in August 2014, 60% of required reserves for time deposits will not be remunerated (previously, 100% of these reserves were remunerated at the Selic rate). Banks can use these deposits to provide vehicle loans and, since October, working capital financing. The use of these deposits is allowed only when the amount exceeds the average of loans granted in the first six months of 2014. These deposits can also be used for motorcycle financing or to acquire loan portfolios from eligible financial institutions. Furthermore, the eligibility rules for these institutions are now less restrictive.
Annual Report2015 |
The Brazilianreal has depreciated against the U.S. dollar, with the exchange rate reaching R$3.96 per US$1.00 as of December 31, 2015, compared with R$2.66 per US$1.00 as of December 31, 2014, compared with R$2.39 per US$1.00 as of January 2, 2014. The strengthening of the U.S. dollar across theagainst major currencies wasand the main driver behinddrop in commodity prices have been important drivers of the depreciation of the Brazilianreal in dollar terms. On March 24, 2015,Economic and political uncertainties, as well as the downgrading of Brazil’s sovereign rating to speculative grade by Standard & Poor’s and Fitch, have affected the country’s foreign exchange market. In an attempt to contain excess volatility, the Central Bank announced that will discontinueintervened in the foreign exchange swap program (which started on August 22, 2013). The Central Bank also indicated that it will seek to fully rollovermarket through the sale of foreign exchange swaps maturingderivatives from May 1,January to March 2015 onwards.and in September 2015.
Following the Central Bank’s revision of its methodology for calculating Brazil’s external accounts in March 2015, Brazil’s current account deficit (the net balance from the trade of goods and services and international transfers) was 4.2%4.3% of GDP asfor December 2014. By December 2015 the deficit decreased to 3.3% of December 2014, up from 3.6% as of December 2013. However,GDP. Brazil has maintained its external solvency, with US$374369 billion in international reserves and US$348.5335 billion in external debt as of December 2014.
The credit market continued to slow down in 2014. Real year over year total loan growth in Brazil slowed to 4.6% as of December 2014 from 8.1% as of December 2013. Total new loan growth declined to a real annual average of -0.9% in December 2014 from 5.1% in December 2013. The growth rate of non-earmarked credit transactions has continued to decline. Non-performing household loans in Brazil have decreased as a share of total household loans, falling to 3.7% in December 2014 from 4.1% in December 2013. The non-performing share of loans to non-financial corporations has remained at around 2.0% for the past year.2015.
General elections were held in Brazil in October 2014 to elect the president, senators and representatives for the presidency, the national congress,National Congress, state governorshipsgovernors and state legislatures. A run-off election for the Brazilian presidency occurred on October 26, 2014, pursuantAfter failing to whichwin a majority in a first round of voting, Dilma Rousseff was re-elected as president of Brazil.Brazil in a runoff. The government has since initiated a fiscal adjustment process, announcing austerity measures aimed at improving fiscal conditions and reducing lagsnext general elections will be in regulated prices.October 2018.
The table below shows real GDP growth, the inflation rate, exchange rate variation and interest rates in Brazil as of and for the years ending onended December 31, 2015, 2014, 2013, 2012 2011 and 2010.2011.
AS OF AND FOR THE YEAR ENDED | ||||||||||||||||||||
DECEMBER 31, | ||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Real GDP growth %(1) | 0.1 | 2.7 | 1.8 | 3.9 | 7.6 | |||||||||||||||
Inflation rate – IGP-DI %(2) | 3.8 | 5.5 | 8.1 | 5.0 | 11.3 | |||||||||||||||
Inflation rate – IPCA %(3) | 6.4 | 5.9 | 5.8 | 6.5 | 5.9 | |||||||||||||||
Exchange rate variation % (R$/US$)(4) | 13.4 | 14.6 | 8.9 | 12.6 | (4.3 | ) | ||||||||||||||
TR % (reference interest rate)(5) | 1.01 | 0.53 | 0.00 | 1.07 | 0.66 | |||||||||||||||
CDI % (interbank interest rate)(6) | 11.51 | 9.78 | 6.94 | 10.87 | 10.64 | |||||||||||||||
Selic % (overnight interest rate)(6) | 11.58 | 9.90 | 7.16 | 10.90 | 10.66 | |||||||||||||||
Sovereign 5-year CDS(7) | 200.8 | 193.8 | 108.4 | 161.6 | 111.3 |
Nominal exchange rate
(R$/US$)
Source: Itaú Unibanco Holding and Central Bank.
Central Bank exchange rate swaps
(total outstanding, US$ billions)
Source: Itaú Unibanco Holding and Central Bank.
(%) | ||||||||||||||||||||
As of and for the Year Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Real GDP growth(1) | (3.8 | ) | 0.1 | 3.0 | 1.9 | 3.9 | ||||||||||||||
Inflation rate - IGP-DI(2) | 10.7 | 3.8 | 5.5 | 8.1 | 5.0 | |||||||||||||||
Inflation rate - IPCA(3) | 10.7 | 6.4 | 5.9 | 5.8 | 6.5 | |||||||||||||||
Exchange rate variation (R$/US$)(4) | 49.0 | 13.4 | 14.6 | 8.9 | 12.6 | |||||||||||||||
TR (reference interest rate)(5)(6) | 2.19 | 1.01 | 0.53 | 0.00 | 1.07 | |||||||||||||||
CDI (interbank interest rate)(6) | 14.14 | 11.51 | 9.78 | 6.94 | 10.87 | |||||||||||||||
Selic (overnight interest rate)(6) | 14.15 | 11.58 | 9.90 | 7.16 | 10.90 | |||||||||||||||
Sovereign 5-year CDS(7) | 505.0 | 203.0 | 192.0 | 107.5 | 160.5 |
(1) | Source:Instituto Brasileiro de Geografia e Estatística, or IBGE. |
(2) | Source: General Price Index – Internal Supply (Índice Geral de Preços –Disponibilidade Interna, or IGP-DI) |
(3) | Source: Extended National Consumer Price Index (Índice de Preços ao Consumidor Amplo, or IPCA) |
(4) | Source: Central Bank (cumulative rates for the period); positive numbers mean depreciation of the Brazilianreal. |
(5) | Source: Mortgage reference rate (Taxa Referencial, or TR) |
(6) | Source: Central |
(7) | Source: Bloomberg (period-end). |
Annual Report2015 |
Context of Itaú Unibanco Holding
Message from the Chairman of the Board of Directors
Dear Stakeholder,Stockholders,
In 2014, we celebrated nine decades since the foundinglast years, our institution was able to generate consistent results at levels that increasingly outdid the performance of Casa Moreira Salles, our first financial company that later became Itaú Unibanco. History shows how tied we areprevious records. In addition to Brazil’s development and how our desire to grow together with the country has made us an institution that has gone far beyond the dreamsquality of our founders. Sinceteams, working in an environment driven by a unique corporate culture and based on meritocracy, this development may be explained by strategic decisions proven right to the point, such as strong technology investments, our inceptionadequate appetite for risk in increasingly challenging scenarios, diversified sources of income, focus on service provision and a strong-willed search for higher management efficiency. Accordingly, Itaú Unibanco’s net income reached R$12.6 billion in 2012, R$16.4 billion in 2013, R$21.6 billion in 2014, and R$25.7 billion in 2015, thus showing that the strategies adopted were adequate, even under rather volatile macro-economic circumstances.
In spite of a substantial reduction in Brazil’s GDP in 2015 and a new massive fall expected for this year, we continue to invest and carry out changes in our bank to make it increasingly simpler, easier to understand and able to serve clients with quality and whenever they need it most. Accordingly, we expanded the number of digital branches and developed new channels for our millions of clients, such as a correspondent bank inapplications and communications tools for the city of Poços de Caldas, which counted on a few more than 200 clients inmost diverse interfaces. Noteworthy is the early 1920’s, steady investments in the organic growthopening of our operations and the dozens of mergers and acquisitions have created the formidable organization we are today. In 2014,new Data Center in 2015, a more energy efficient center able to increase our assets exceeded R$1.1 trillion.processing capacity 25-fold.
We are currently the largest private bank in Brazil and in Latin America, we have established a presence in over 18 countries around the world and we continue to expand our operations outside of Brazil. The merger of our business in Chile with CorpBanca, which is pending relevant approvals, will elevate us from the seventh to the fourth largest bank in Chile, creating a platform for growth and seeking new business opportunities in the financial sectors in Chile, Colombia, and Central America.
In order to support our business, in early March we opened our new data center, one of the largest and most modern in the world.
The strategy we have adopted since 2011 of expanding our loan portfolio with lower risk operations, focusing on insurance and services, and seeking the ongoing improvement of our efficiency indexes, has proved to be successful. We have recorded sound results and embraced principles that ensure our sustainability. In 2014, our net income reached R$21.9 billion, with a 24.3% return on equity(1).
Our expenses for allowance for loan losses decreased in 2014, despite the 9.9% growth of our loan portfolio. Payroll and real estate loans, which provide for less defaults and for a more secure portfolio, were the products with the greatest growth over the year, increasing 79.5% and 18.8%, respectively over the previous year. In December, our 90-day non-performing loan ratio reached 3.1%, the lowest since the Itaú and Unibanco merger.
Our income from insurance and service fees also experienced growth. These products have become increasingly important to our institution, contributing to less volatility in our results since they are less impacted by economic cycles when compared to credit activities. Our insurance operation is based on the bancassurance model, which prioritizes products that may be offered through a number of our banking channels. In line with this strategy, in October 2014 we consummated the sale of our large risk insurance operation, whose clients are middle-market and large companies with high-insured amounts. The impact of this sale was recorded in the fourth quarter results of 2014.
The increase in our income from insurance and service fees and the controlled increase of our expenses caused our efficiency ratio to improve by 190 basis points in 2014. We are constantly reviewing our processes and seeking opportunities to do more with less.
Even after 90 years, we are extremely proud of being a modern, agile company, that possesses a strong culture, an engaging purpose and continuing care with respect to our reputation. We had the most valuable brand in Brazil for the past 11 years, and our shares are included in the portfolios of the world’s major sustainability indexes. And what do we want today? We want to continue growing, as a result of a very clear vision: to satisfy our clients and achieve high sustainable performance in our business.
In line with this vision, in February 2015 we implemented a new organizational structure for our management. These changes are aimed at ensuring preparation for a seamless and secure transitioncarried out significant advancements in connection with our institution’s corporate culture by revisiting our Way of Making it Happen, with the succession processpurpose of Mr. Roberto Setubal,reinforcing attitudes that will be defining in the present moment of our CEO, who will reachhistory and ought to guide the age limit for holding his current positionactions of all of us in 2017, as well as addressing more pressing challengesface of new arising challenges. Among other things, the attitudes of our Way of Making it Happen seek to establish high standards we must adopt in view ofour relationships with clients, employees, stockholders, competitors, suppliers, governments and society in general. These attitudes reflect the current economic climate. Accordingly,way we intend to proceed towards our vision: being the leading bank in addition to the position of CEO, our executive committee is now made up of three General Managers and two Vice Presidents: General Manager of Retail, General Manager of Wholesale, General Manager of Technology and Operations, Vice President of the Finance and Risk areas, and Vice President of the Legal and Human Resources areas. It is a more streamlined and agile structure, which will focus on the bank’s priorities of efficiency, simplificationsustainable performance and client satisfaction.
Yours faithfully.Early 2015 we announced a significant change in our management structure, which is now composed of three general directors and two vice-presidents. In addition to making the organization ready for the succession process of our CEO, Mr. Roberto Setubal, with this new governance, our decision making became more standardized and expeditious, and we could create more synergy among teams, as well as improve the internal dialogue.
(1) AttributedIn the international front, noteworthy is the merger of Itaú Chile with Corpbanca on April 1st, 2016, creating one of the most important financial institutions in Latin America. Itaú Corpbanca strengthens our credit portfolio in Chile from the 7th to the owners4th position, and places us in the 5th position in Colombia.
In 2015, we expanded our repurchases of preferred shares in the capital markets – and, in line with this, we canceled 100 million treasury shares, assuring stockholders an increased stake in the institution’s earnings per share. These repurchases are also important to optimize the bank’s use of capital and make shares available for our executive’s long-term compensation programs.
I invite everyone to know more about Itaú Unibanco by reading this report. Here we talk about our history, we present details of operations, strategies, results and corporate governance practices, sustainability and risk management, among other matters.
I wish you all a good reading.
Cordially,
Pedro Moreira Salles
Chairman of the parent company.Board of Directors
Annual Report2015 |
Message from the Chief Executive Officer
Dear Reader,reader,
The year 2015 was characterized by major challenges in the political and economic scenario. While we observed recovery movements in the economies of the United States and Euro Zone, the Brazilian GDP posted a reduction for the second consecutive year.
A few years ago we began to prepare for a less favorable scenario, adopting a strategy based on investments in technology, appetite for credit with lower risk profile, expansion of our capabilities as a provider of insurance, pension plan and premium bonds products and services, as well as discipline in the control over operating costs, and international expansion in Latin America.
These medium and long- term decisions enabled us to be a more efficient institution and less exposed to macroeconomic risks in Brazil. With discipline and focus on the implementation of this strategy, the trust of our clients and efforts of our employees, we were able to close another year with record results: our net income in 2015 reached R$25.7 billion, a 19.4% increase as compared to 2014. Our annualized recurring profitability on average stockholders’ equity was 24.8%. Earnings per share grew additionally 2.3% due to the repurchase, in 2015, of 1.9% of own shares issued.
Value added to the economy reached R$ 59.5 billion, a 7.6% increase in relation to the previous year, distributed among employees (30%), taxes (24%), reinvestment of profit (34%), stockholders (10%) and rents (2%). Our efficiency ratio, which represents the relation between the bank’s expenses and revenues, reached 44.0%, with improvement of 3 percentage points. The Basel ratio was 17.8%, above that required by the Central Bank of Brazil, showing soundness and capital availability. Our expanded total credit portfolio posted a 4.2% growth in 12 months, reaching R$ 548.5 billion.
The year 2015 was also characterized by our continuous work to become an increasingly Digital Bank, expanding the number of digital branches to 94, an addition of 63 in relation to 2014, and by the development of new channels for the client, such as applications and digital communication mechanisms. Last year, 67% of the transactions carried out in the bank, equivalent to 8.9 billion operations, originated from internet and mobile phones. In addition to this initiative, noteworthy are the opening of our new Data Center, more efficient in energy consumption, and that will increase by 25 times our processing capacity, and the reorganization of our Executive Committee, which expedited our decision making process.
In 2014, our profit was R$21.9 billion, an increasethe international area, in the beginning of 32.3% from 2013, and our annualized return on average equity(1) was 24.3%, oneApril of the best results sincethis year, we carried out the merger of Itaú Chile with Corpbanca, giving rise to Itaú Corpbanca. This operation significantly increases our presence in Latin America and Unibanco, reflecting the on-going improvement of our bank’s operational quality. Our capital base increased in 2014, our BIS ratio reached 16.9% in December 2014, 30 basis points higher than in December 2013. These results are the consequence of a reduction in our risk appetite, a focus on the expansion of client services and strict controls over expenses. These initiatives, which we commenced in 2011, allowed us to reduce our allowance for loan losses, increase revenues from insurance & services and increase expenses in line with inflation, leading to the subsequent improvement of our efficiency ratio.
Our total loan portfolio was R$452.4 billion,represents an increase of 9.9% from December 31, 2013. Our lower risk portfolios, such as the payroll and real estate loan portfolios, grew and, as a consequence, the delinquency reached 3.1%, the lowest level since the merger of Itaú and Unibanco. It is worth noting that in 2014, our loan portfolio alone reached a return that is equivalent to the bank’s capital cost, a fact that was only possible due to the review of the risk appetite in 2011. In 2014, our profit(2)from loan operations was R$9.3 billion.
Banking service fees and revenues from insurance, the key componentimportant step of our strategy grew 13.2% in 2014 over 2013. Our acquisition of REDE in 2012,to regionalize the integration of Credicard’s operation and the salebank. Currently, approximately 13.1% of our large risk insurance operationloans are strategic initiatives focusedmade to clients in Latin America (excluding Brazil). During the next 2 to 3 years, we will be integrating these operations. The organization resulting from the merger will be one of the most robust financial institutions in Latin American, and it will be benefited by synergy gains, lower funding costs and a larger customer service network.
We expect once again a challenging scenario in 2016; thus, we will maintain our strategy of managing risks very carefully, keeping the high capitalization level of the bank, focusing on operations efficiency and services quality.
Good reading to you all.
Cordially,
Roberto Setubal
Executive President & CEO
Context | A-09 |
Annual Report2015 |
A bank made for people and, above all, by people
We have 91 years of history, we are the growthlargest private bank in Latin America in terms of total assets, and we are present in 19 countries. In spite of becoming increasingly international, our non-interest incomeroots are yellow and mass-market insurance activities, typically relatedgreen. We were started by five people who dared to retail banking. The significant return of financial services and insurance are relateddream big. Five visionaries who were committed to the strong market presence of our retail bankbusiness, the country and, our abilityabove all, to offer servicespeople. From the very beginning, we have always sought to think ahead and insurance to the bank’s clients. In 2014, our profit(2) from insurance & services activities amounted to R$11.4 billion.
During 2014, our expenses grew only 6.6% over 2013 and we reached a morepromote positive risk-adjusted efficiency ratio of 64.3%, the best such ratiochanges in our history. Our investments and efforts are focused on the development of platforms and services that use state-of-the-art technology focusing on mobility and convenience, with a view to simplifying and making easier the lives of people. Therefore, we place our clients. The construction workstructure and our intellectual and technology skills at their service.
Back in 1960, when no one could imagine that technology would one day be an integral part of our lives, we were guided by the vision that technology would be the only way to keep us going on in an ever-changing world. We started up from the principle that technology would not only make the banking activity easier, but also that it would be at its core. Therefore, in 1970, Itaú built up one of the four largest data processing centers in Brazil. Still back in the 1970s, Unibanco was the first bank to adopt the IBM 3600 processing system. And so, with this emphasis on innovation we have proceeded, to go along with the world as it progressed.
Over the years, we have thought about and revised our newsolutions, our branches, our customer service model, and the way we work. We progressed by bringing the client into the core of our operation, working to strengthen the bank’s availability and the client’s experience. For instance, in 1983, we implemented the first ATM in Brazil, and, in 1991 we created the “Banco 30 Horas”, pioneering a service that made the bank available to clients around the clock, for 30 hours, six hours at the branches and the other 24 hours on the phone.
This is the way we have carried on until now, by looking ahead and focused on people. In 2015, we opened the most state-of-the-art data center in the interior of the State of São Paulo, which required investments ofbanking sector. This infrastructure provides for our ongoing growth towards the next decade, by expanding our capacity to serve clients with more than R$3 billion, was completed as plannedquality, speed and security. This is the basis we successfully implementedhave built upon for the facility’s environment infrastructure. We started the process of migrating our systems and services to the new data center and expect to complete the process during the second half of 2016. As a result, our processing capacity for data allocation will be multiplied 25 times.future.
In Latin America, we obtained someToday over 67% of the regulatory approvals necessary for the merger of Banco Itaú Chileour operations are conducted via digital channels (internet and CorpBanca and wemobile banking). We expect it to complete the merger beforegrow even more by the end of 2015.2016. This is a reflection of people’s behaviors. We are also increasingly getting ready to serve this new customer profile with excellence – the same excellence that has characterized us over our whole history.
In 2015, weThe world is increasingly changing, faster and faster. Continuing to be alert to changes is an assumption of ours; nevertheless, thinking ahead of our time is what will maintainensure our relevance to people. We have the strategy commencedongoing challenge to be the driving force to change society, to be agile and to prize excellence in 2011 which has been bringing us positive results asour services and experience wherever people are and want to be. It is an integral part of our culture. We believe that it is less cyclical givengood for us only if it is good for the levels of revenues derived from insurance & services.client. We are well placed to facepeople serving people. We are over 90 thousand people building up this bank every day, people who go beyond, who build up an increasingly relevant and changing bank for all those who have a challenging environment in 2015.
I invite you to read our Consolidated Annual Report which, for the second consecutive year, integrates our Form 20-F and the prospectus for the issue of debt securities, which this year includes more objective language, thus reducing the size of the report while maintaining a comprehensive level of content.
We thank all our shareholders and clients for the trust they have placed in us.
Enjoy your reading!
(1) Attributed to the owners of the parent company.
(2) Net income attributable to owners of the parent company.
relationship with Itaú Unibanco.
Business Strategy
Our boardBoard of directorsDirectors is the body responsible for definingestablishing the general guidelines of our strategy.business. Strategic decisions taken by our board of directors are supported by the Strategy Committee, which provides data and information about critical strategic business issues.matters. The Strategy Committee’s activities and responsibilities range from evaluating investment opportunities and budget guidelines to providing adviceissuing opinions and recommendations in order to support the decisions of the Board of Directors. The Economic Scenarios Sub-Committee supplies macroeconomic data to our chief executive officer for the monitoring of our consolidated strategy. The Strategy Committee, is supported by the economic scenarios sub-committee, which provides macroeconomic data for discussions on strategies, investments and budgets.supporting its discussions. Please refer to section Our Governance, item Our Management Structure, Committees of the Board of Directors, Strategy Committee for further information.
Expand our operations in Brazil and abroad
We intendcontinue to expandexamine potential business operations which would create additional value to our operationsstockholders, in Brazil and abroad. In January 2014,line with our Latin America expansion strategy, and with a vision to create value and sustainable performance in 2015, the merger between Itaú Chile and CorpBanca was approved by the respective stockholders' meetings as well as by the regulatory authorities in Chile, Brazil, Colombia and Panama. As provided in the amendment to the Transaction Agreement dated of June 2, 2015, the merger of Itaú Chile with and into CorpBanca occurred on April 1, 2016.
In March 2015, we entered into an agreement with CorpBancaMasterCard Brasil Soluções de Pagamento Ltda. to establish an alliance for a 20-year term, in the payment solutions market in Brazil. This alliance will operate a new electronic payments network through a company controlled by MasterCard, in which we will have certain veto and its controlling stockholders for the merger of Banco Itaú Chile and CorpBanca. Some of theapproval rights. This alliance is subject to approval by regulatory approvals required for the conclusion of this operation have already been obtained. authorities in Brazil.
In August 2014, reaffirming our commitment to the Chilean market and the vision of being the largest private bank in the Latin American market, we expandedin furtherance of the joint venture agreement entered into in 2011 with Munita, Cruzat & Claro S.A. Corredores de Bolsa, a brokerage house, andwe obtained 100% of the ownership interest in MCC Securities Inc. (MCC), obtaining 100% interestan investment advisory financial services firm based in MCC.Chile.
Context | A-10 |
Annual Report2015 |
In 2013, we carried out a series of transactions aimed at expanding our operations in Brazil. In December 2013, we concluded the acquisition of 100% of the shares of Banco Citicard S.A. and Citifinancial Promotora de Negócios S.A., for approximately R$2.8 billion in cash, including the “Credicard” brand. In Latin America, we acquired Citibank Uruguay on June 28, 2013, including both retail banking and credit card operations. In addition, in order to consolidate and expand our operations in Europe, in 2013 we completed the transfer of the central administration and registered offices of our corporate banking unit in Europe by means of a cross-border merger of Banco Itaú BBA International S.A., a bank headquartered in Portugal into Itau BBA International plc (formerly Itau BBA International Limited). Please refer to section Our Profile, item Our Business, Our International Business, ItaúItau BBA International for further details about ItaúItau BBA International’s business.
In 2012, we successfully acquired the remaining 49.9% interest of REDE from minority shareholders for R$11.8 billion by means of a tender offer. On July 9, 2012, we entered into an association agreement with Banco BMG S.A., focusing on the offering, distribution and commercialization of payroll loans. We were also authorized by the Colombian regulatory authorities to structure our wholesale and investment banking operations in Colombia through Itaú BBA S.A. Colombia.
Focus on Non-Interest Income
We constantly seek, implement andhave continued to focus on the saleoffer of new products and services which, we believe add value to our customers and, at the same time, allow us to increase our fee-based income. This increase is mainly due to an increased volume of account service packages and services. New subscriptions to current account service packages and the adjustment of services provided to our higher-income Uniclass clients and by our Itaú Empresas business unit also contributed to this growth.
In addition, we continue to focus on our insurance services by operating under the bancassurance model, with a focus on the sale of massive personal and property insurance services, largely provided through our retail banking. As part of this strategy, in October 2014 we announced the sale of our large risks operations to the ACE group and the early termination of operating agreements between Via Varejo S.A. and our subsidiary Itaú Seguros S.A. for the offer of extended warranty insurance in “Ponto Frio” and “Casas Bahia” stores.
Please refer to section Our Profile, item 2014 highlights, for further details about Large Corporate P&C Insurance Business and Via Varejo S.A.
Continue to improve efficiency
In 2010, we established an Efficiency Program aimed at identifying, implementing, and monitoring costs and revenues, in addition to promoting a strong culture of operational efficiency. In 2012, 2013 and 2014,the years thereafter, we focused on increasing cost savings by reducing unnecessary costs, promoting the simplification and centralization of processes and job descriptions, promoting synergy gains and combining the management of certain business units.
We alsoIn February 2015, we created the Technology and Operations executive area with the aim at simplifyingof optimizing our structure in order to sustain growth. This executive structure, will enable us to organize our operations in a simpler and more efficient manner. We are committed to improve processes, to streamline operations and to be more efficient in everything we do with the clear purpose of client satisfaction. As
Throughout 2015, we increased the number of our digital branches in response to the profile of our customers, which includes an exampleincreasing demand for services through digital channels. The clients of how we proposeour digital branches can be in contact with their relationship managers from 7:00 am to meet these expectations, in the beginningmidnight, from Monday to Friday through a variety of 2013 we announced changes to our executive structure, which have enableddigital channels. This allows us to organizestrengthen our operations in a simplerrelationship with clients and more efficient manner. These changes helped us improve the efficiency and profitability of our efficiency ratio and risk-adjusted efficiency ratio in 2014.operations.
GrowMaintain asset quality in our loan portfolio while maintaining asset quality
The growth of our loan portfolio and the maintenance of asset quality are central aspects of our strategy. We are constantly seeking to improve our models for risk management and our economic forecasts and scenario modeling. We intend to increase the average volume of loan operations to maintain and even grow our market share, depending on product, market and client type, including through the development of new products for specific client demographics.
In the last three years, we focused on the improvement of our asset quality by increasing credit selectivity, by changing our loan portfolio mix, and prioritizing the saleoffer of less risky products, such as real estate and payroll loans, reducing the origination of higher risk portfolios, such as vehicle loans.
Develop strong relationships with our clients based on client segmentation
We will continue to work on our client segmentation strategy in order to identify our clients’ needs and enhance our relationship with our client base, as well as to increase market penetration. We believe that our client segmentation tools and strategies provide us with an important competitive advantage developed over the course of more than 25 years. We aim to fulfill clients’ financial needs through a wide product portfolio by cross-selling banking and insurance products and making sales through a variety of channels. We are focused on delivering “best-in-class” client service, in order to maintain and increase client satisfaction and increase portfolio profitability.
In 2013,an effort to continuously improve our segmentation strategy, in 2015 we moved our middle-market banking business (companies with an annual revenue between R$30 million and R$300 million) frommerged our Commercial Bank – Retail segment with our Consumer Credit – Retail segment and created the Retail Banking segment. We also migrated our Private Banking, Asset Management and Latin America Activities to our Wholesale segment. Starting in the first quarter of 2013, we began to transition and service these clients through Itaú BBA. Commencing in 2014, we started developing a differentiated business model, which enables us to provide higher quality services and sustainable growth in order to achieve a prominent market position. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 34 – Segment Information, for further details.
This edition of our annual report reflects structural and conceptual changes from thesince our 2013 annual report, for 2013. We undertook such changes in 2014 in a search for innovation, transparency, and efficiency in obtaining information and in the communication with the public of interest. This report unifies the content of our major annually released reports, such as the annual report on Form 20-F, the Annual Report, and the Offering Memorandum for the Medium-Term Note Program, or MTN Program. The annual report on Form 20-F, filed with the U.S. Securities and Exchange Commission, or SEC, has served as the reference for the content of this report.
Context | A-11 |
Annual Report2015 |
The annual report describes our strategy, structure, activities and operations, using plain and straightforward language to be clear to all audiences who may consult this annual report.
The information presented is aligned with Pronouncement 13 of the Market Information Disclosure Steering Committee (Comitê deOrientação para Divulgação de Informações ao Mercado, or CODIM),a Brazilian joint initiative of entitiesofentities representing the capital markets, focused on improving transparency and information reporting in the Brazilian capital markets.
This annual report contains data from January 1 to December 31, 2014,2015, presenting our corporate and business structure, governance and financial performance, among other matters. The description of our challenges for 2015 in the medium and long term results from interviews carried out with our executives and are aligned with our quarterly conference calls on results. It also includes information on all entities subject to the significant influence or control of Itaú Unibanco Holding S.A.Holding. Any potential changes or impacts on the data collected as a result of certain transactions, the acquisition or sale of assets, or any important change for the business is indicated throughout this report. The annual report is divided into the following sections: (i) Context, (ii) Our Profile,profile, (iii) Our Governance,governance, (iv) Our Risk Management,risk management, (v) Performance, and (vi) Attachments.
The audit of our financial statements in IFRSInternational Financial Reporting Standards as adopted by the International Accounting Standards Board, or IASB, is carried out by PricewaterhouseCoopers Auditores Independentes, or PwC.
Documents on display
We are subject to the informational requirements under the U.S. Securities Exchange Act of 1934, as amended, for foreign private issuers of the Exchange Act.issuers. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.W., Washington D.C. 20549 and at the SEC’s regional offices at 500 West Madison Street, Suite 1400, Chicago Illinois 60661, and 233 Broadway, New York, New York 10279.20549. Copies of the materials may be obtained by mail from the Public Reference Room of the SEC at 100 F Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website atwww.sec.gov,, from which you can electronically access those materials, including this annual report and the accompanying exhibits. We also file financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20050-901, Brazil. The CVM maintains an Internet website atwww.cvm.gov.br. www.cvm.gov.br.
Copies of our annual report on Form 20-F will be available for inspection upon request to the Investor Relations department at our office at Praça Alfredo Egydio de Souza Aranha 100, Torre Conceição, 9º andar – São Paulo – SP – 04344-902 – Brazil.
Investors may receive a hard copy of this annual report, including our complete audited financial statements offor the last fiscal year, free of charges, by requesting a copy from our Investor Relations department, by e-mail, at investor.relations@itau-unibanco.com. br,investor.relations@itau-unibanco.com.br, indicating their contact information and their complete mailing address. Comments and suggestions regarding this report may be sent to the same e-mail.
Reading this Report
In this report, the terms:
• | “R$”, “ |
Additionally, acronyms used repeatedly, technical terms and specific market expressions in this annual report will be explained or detailed in the section Attachments, item Glossary, as well as the full name of our main subsidiaries and other entities referenced in this annual report.
The reference date for the quantitative information for balances found in this annual report is as of December 31, 20142015 and for results is for the year ended December 31, 2014,2015, except where otherwise stated. Without prejudice to the foregoing, information contained in or accessible through the websites mentioned in this annual report is not part of this document or incorporated by reference herein.
Our fiscal year ends on December 31 and, in this annual report, any mention to any specific fiscal year refers to the 12-month period ended on December 31 of that year.
The information found in this annual report is accurate only as of the date of such information or as of the date of this annual report, according to the situation. Our activities, the situation of our finances and assets, the results of transactions and prospects may have changed since that date.
Context | A-12 |
Annual Report2015 |
This document contains information, including statistical data, about certain markets and our competitive position. Except as otherwise indicated, this information is taken or derived from external sources. We indicate the name of the external source in each case where industry data is presented in this annual report. We cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as us.we have.
Information contained in or accessible through the websites mentioned in this annual report does not form part of this report unless we specifically state that it is incorporated by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.
Forward-Looking Information
This annual report contains statements that are or may constitute forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other risks:
The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in such forward-looking statements.
About our financial information
Our consolidated financial statements, included elsewhere in this annual report, are prepared in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. We first adopted IFRS on January 1, 2010, and our consolidated financial statements for the periods ended December 31, 2011 and 2010 were our first consolidated financial statements presented in accordance with IFRS. All consolidated financial information related to 2015, 2014, 2013, 2012 2011 and 20102011 included in this report were prepared in accordance with IFRS.
We use accounting practices adopted in Brazil and applicable to institutions authorized to operate by the Central Bank for our reports to Brazilian shareholders,stockholders, filings with the CVM, and calculation of payments of dividends and tax liabilities.
The CMN establishes that financial institutions meeting certain criteria, such as Itaú Unibanco Holding, are required to present consolidated financial statements in accordance with IFRS.
The segment-related data have been derived from our management reporting systems and are not based on IFRS, nor were they prepared in accordance with these accounting standards.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 34 – Segment Information for further details about a discussion on the main differences between our management reporting systems and the consolidated financial statements according to IFRS.
Our consolidated financial statements as of December 31, 20142015 and 20132014 and for the twelve-month periods ended December 31, 2015, 2014 2013 and 20122013 were audited by PricewaterhouseCoopers Auditores Independentes, an independent audit firm, as stated in its report in section Performance, item Financial Performance in this report.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2 – Significant Accounting Policies for further details about the significant accounting policies applied in the preparation of our consolidated financial statements according to IFRS.
Annual Report2015 |
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Selected Financial Data – IFRS
The following selected financial data must be read in conjunction with the section Performance, item Results and Consolidated Financial Statements (IFRS) included in this annual report.
The data presented in the tables below have been derived from our audited consolidated financial statements for the years presented, which have been prepared in accordance with IFRS as issued by IASB, unless otherwise indicated.
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | VARIATION | |||||||||||||||||||||||||||||||||||||||||||||||||||
ASSETS | 2014 | 2013 | 2012 | 2011 | 2010 | 2014- 2013 | % | 2013- 2012 | % | 2012- 2011 | % | 2011- 2010 | % | |||||||||||||||||||||||||||||||||||||||
Cash and deposits on demand | 17,527 | 16,576 | 13,967 | 10,668 | 10,172 | 951 | 5.7 | 2,609 | 18.7 | 3,299 | 30.9 | 496 | 4.9 | |||||||||||||||||||||||||||||||||||||||
Central Bank compulsory deposits | 63,106 | 77,010 | 63,701 | 98,053 | 85,776 | (13,904 | ) | (18.1 | ) | 13,309 | 20.9 | (34,352 | ) | (35.0 | ) | 12,277 | 14.3 | |||||||||||||||||||||||||||||||||||
Interbank deposits | 23,081 | 25,660 | 23,826 | 27,821 | 14,835 | (2,579 | ) | (10.1 | ) | 1,834 | 7.7 | (3,995 | ) | (14.4 | ) | 12,986 | 87.5 | |||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 208,918 | 138,455 | 162,737 | 92,248 | 88,682 | 70,463 | 50.9 | (24,282 | ) | (14.9 | ) | 70,489 | 76.4 | 3,566 | 4.0 | |||||||||||||||||||||||||||||||||||||
Financial assets held for trading | 132,944 | 148,860 | 145,516 | 121,889 | 115,497 | (15,916 | ) | (10.7 | ) | 3,344 | 2.3 | 23,627 | 19.4 | 6,392 | 5.5 | |||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value through profit or loss | 733 | 371 | 220 | 186 | 306 | 362 | 97.6 | 151 | 68.6 | 34 | 18.3 | (120 | ) | (39.2 | ) | |||||||||||||||||||||||||||||||||||||
Derivatives | 14,156 | 11,366 | 11,597 | 8,754 | 7,777 | 2,790 | 24.5 | (231 | ) | (2.0 | ) | 2,843 | 32.5 | 977 | 12.6 | |||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 78,360 | 96,626 | 90,869 | 47,510 | 44,539 | (18,266 | ) | (18.9 | ) | 5,757 | 6.3 | 43,359 | 91.3 | 2,971 | 6.7 | |||||||||||||||||||||||||||||||||||||
Held-to-maturity financial assets | 34,434 | 10,116 | 3,202 | 3,105 | 3,170 | 24,318 | 240.4 | 6,914 | 215.9 | 97 | 3.1 | (65 | ) | (2.1 | ) | |||||||||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio, net | 430,039 | 389,467 | 341,271 | 322,391 | 274,843 | 40,572 | 10.4 | 48,196 | 14.1 | 18,880 | 5.9 | 47,548 | 17.3 | |||||||||||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio | 452,431 | 411,702 | 366,984 | 346,264 | 294,837 | 40,729 | 9.9 | 44,718 | 12.2 | 20,720 | 6.0 | 51,427 | 17.4 | |||||||||||||||||||||||||||||||||||||||
(-) Allowance for loan and lease losses | (22,392 | ) | (22,235 | ) | (25,713 | ) | (23,873 | ) | (19,994 | ) | (157 | ) | 0.7 | 3,478 | (13.5 | ) | (1,840 | ) | 7.7 | (3,879 | ) | 19.4 | ||||||||||||||||||||||||||||||
Other financial assets | 53,649 | 47,592 | 44,492 | 40,254 | 40,945 | 6,057 | 12.7 | 3,100 | 7.0 | 4,238 | 10.5 | (691 | ) | (1.7 | ) | |||||||||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 4,090 | 3,931 | 3,005 | 2,544 | 2,948 | 159 | 4.0 | 926 | 30.8 | 461 | 18.1 | (404 | ) | (13.7 | ) | |||||||||||||||||||||||||||||||||||||
Goodwill | 1,961 | 1,905 | - | - | - | 56 | 2.9 | 1,905 | 100.0 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Fixed assets, net | 8,711 | 6,564 | 5,628 | 5,358 | 4,801 | 2,147 | 32.7 | 936 | 16.6 | 270 | 5.0 | 557 | 11.6 | |||||||||||||||||||||||||||||||||||||||
Intangible assets, net | 6,134 | 5,797 | 4,671 | 3,825 | 2,934 | 337 | 5.8 | 1,126 | 24.1 | 846 | 22.1 | 891 | 30.4 | |||||||||||||||||||||||||||||||||||||||
Tax assets | 35,243 | 34,742 | 32,412 | 26,088 | 24,142 | 501 | 1.4 | 2,330 | 7.2 | 6,324 | 24.2 | 1,946 | 8.1 | |||||||||||||||||||||||||||||||||||||||
Assets held for sale | 196 | 117 | 117 | 85 | 78 | 79,00 | 67.5 | - | 0.0 | 32 | 37.6 | 7 | 9.0 | |||||||||||||||||||||||||||||||||||||||
Other assets | 13,921 | 12,142 | 9,923 | 7,357 | 5,637 | 1,779 | 14.7 | 2,219 | 22.4 | 2,566 | 34.9 | 1,720 | 30.5 | |||||||||||||||||||||||||||||||||||||||
Total assets | 1,127,203 | 1,027,297 | 957,154 | 818,136 | 727,082 | 99,906 | 9.7 | 70,143 | 7.3 | 139,018 | 17.0 | 91,054 | 12.5 | |||||||||||||||||||||||||||||||||||||||
Average interest-earning assets(1) | 955,416 | 882,472 | 784,686 | 721,686 | 585,125 | 72,944 | 8.3 | 97,786 | 12.5 | 63,000 | 8.7 | 136,561 | 23.3 | |||||||||||||||||||||||||||||||||||||||
Average non-interest-earning assets(1) | 97,526 | 83,025 | 70,758 | 69,134 | 65,044 | 14,501 | 17.5 | 12,267 | 17.3 | 1,624 | 2.3 | 4,090 | 6.3 | |||||||||||||||||||||||||||||||||||||||
Average total assets(1) | 1,052,942 | 965,497 | 855,444 | 790,820 | 650,169 | 87,445 | 9.1 | 110,053 | 12.9 | 64,624 | 8.2 | 140,651 | 21.6 |
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | Variation | |||||||||||||||||||||||||||||||||||||||||||||||||||
2015- | 2014- | 2013- | 2012- | |||||||||||||||||||||||||||||||||||||||||||||||||
Assets | 2015 | 2014 | 2013 | 2012 | 2011 | 2014 | % | 2013 | % | 2012 | % | 2011 | % | |||||||||||||||||||||||||||||||||||||||
Cash and deposits on demand | 18,544 | 17,527 | 16,576 | 13,967 | 10,668 | 1,017 | 5.8 | 951 | 5.7 | 2,609 | 18.7 | 3,299 | 30.9 | |||||||||||||||||||||||||||||||||||||||
Central Bank compulsory deposits | 66,556 | 63,106 | 77,010 | 63,701 | 98,053 | 3,450 | 5.5 | (13,904 | ) | (18.1 | ) | 13,309 | 20.9 | (34,352 | ) | (35.0 | ) | |||||||||||||||||||||||||||||||||||
Interbank deposits | 30,525 | 23,081 | 25,660 | 23,826 | 27,821 | 7,444 | 32.3 | (2,579 | ) | (10.1 | ) | 1,834 | 7.7 | (3,995 | ) | (14.4 | ) | |||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 254,404 | 208,918 | 138,455 | 162,737 | 92,248 | 45,486 | 21.8 | 70,463 | 50.9 | (24,282 | ) | (14.9 | ) | 70,489 | 76.4 | |||||||||||||||||||||||||||||||||||||
Financial assets held for trading | 164,311 | 132,944 | 148,860 | 145,516 | 121,889 | 31,367 | 23.6 | (15,916 | ) | (10.7 | ) | 3,344 | 2.3 | 23,627 | 19.4 | |||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value through profit or loss | 642 | 733 | 371 | 220 | 186 | (91 | ) | (12.4 | ) | 362 | 97.6 | 151 | 68.6 | 34 | 18.3 | |||||||||||||||||||||||||||||||||||||
Derivatives | 26,755 | 14,156 | 11,366 | 11,597 | 8,754 | 12,599 | 89.0 | 2,790 | 24.5 | (231 | ) | (2.0 | ) | 2,843 | 32.5 | |||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 86,045 | 78,360 | 96,626 | 90,869 | 47,510 | 7,685 | 9.8 | (18,266 | ) | (18.9 | ) | 5,757 | 6.3 | 43,359 | 91.3 | |||||||||||||||||||||||||||||||||||||
Held-to-maturity financial assets | 42,185 | 34,434 | 10,116 | 3,202 | 3,105 | 7,751 | 22.5 | 24,318 | 240.4 | 6,914 | 215.9 | 97 | 3.1 | |||||||||||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio, net | 447,404 | 430,039 | 389,467 | 341,271 | 322,391 | 17,365 | 4.0 | 40,572 | 10.4 | 48,196 | 14.1 | 18,880 | 5.9 | |||||||||||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio | 474,248 | 452,431 | 411,702 | 366,984 | 346,264 | 21,817 | 4.8 | 40,729 | 9.9 | 44,718 | 12.2 | 20,720 | 6.0 | |||||||||||||||||||||||||||||||||||||||
(-) Allowance for loan and lease losses | (26,844 | ) | (22,392 | ) | (22,235 | ) | (25,713 | ) | (23,873 | ) | (4,452 | ) | 19.9 | (157 | ) | 0.7 | 3,478 | (13.5 | ) | (1,840 | ) | 7.7 | ||||||||||||||||||||||||||||||
Other financial assets | 53,506 | 53,649 | 47,592 | 44,492 | 40,254 | (143 | ) | (0.3 | ) | 6,057 | 12.7 | 3,100 | 7.0 | 4,238 | 10.5 | |||||||||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 4,399 | 4,090 | 3,931 | 3,005 | 2,544 | 309 | 7.6 | 159 | 4.0 | 926 | 30.8 | 461 | 18.1 | |||||||||||||||||||||||||||||||||||||||
Goodwill | 2,057 | 1,961 | 1,905 | - | - | 96 | 4.9 | 56 | 2.9 | 1,905 | 100.0 | - | 0,0 | |||||||||||||||||||||||||||||||||||||||
Fixed assets, net | 8,541 | 8,711 | 6,564 | 5,628 | 5,358 | (170 | ) | (2.0 | ) | 2,147 | 32.7 | 936 | 16.6 | 270 | 5.0 | |||||||||||||||||||||||||||||||||||||
Intangible assets, net | 6,295 | 6,134 | 5,797 | 4,671 | 3,825 | 161 | 2.6 | 337 | 5.8 | 1,126 | 24.1 | 846 | 22.1 | |||||||||||||||||||||||||||||||||||||||
Tax assets | 52,149 | 35,243 | 34,742 | 32,412 | 26,088 | 16,906 | 48.0 | 501 | 1.4 | 2,330 | 7.2 | 6,324 | 24.2 | |||||||||||||||||||||||||||||||||||||||
Assets held for sale | 486 | 196 | 117 | 117 | 85 | 290 | 148.0 | 79 | 67.5 | - | 0.0 | 32 | 37.6 | |||||||||||||||||||||||||||||||||||||||
Other assets | 11,611 | 13,921 | 12,142 | 9,923 | 7,357 | (2,310 | ) | (16.6 | ) | 1,779 | 14.7 | 2,219 | 22.4 | 2,566 | 34.9 | |||||||||||||||||||||||||||||||||||||
Total assets | 1,276,415 | 1,127,203 | 1,027,297 | 957,154 | 818,136 | 149,212 | 13.2 | 99,906 | 9.7 | 70,143 | 7.3 | 139,018 | 17.0 | |||||||||||||||||||||||||||||||||||||||
Average interest-earning assets(1) | 1,070,450 | 955,416 | 882,472 | 784,686 | 721,686 | 115,034 | 12.0 | 72,944 | 8.3 | 97,786 | 12.5 | 63,000 | 8.7 | |||||||||||||||||||||||||||||||||||||||
Average non-interest-earning assets(1) | 115,596 | 97,526 | 83,025 | 70,758 | 69,134 | 18,070 | 18.5 | 14,501 | 17.5 | 12,267 | 17.3 | 1,624 | 2.3 | |||||||||||||||||||||||||||||||||||||||
Average total assets(1) | 1,186,046 | 1,052,942 | 965,497 | 855,444 | 790,820 | 133,104 | 12.6 | 87,445 | 9.1 | 110,053 | 12.9 | 64,624 | 8.2 |
(1) The average balances are calculated on a monthly basis. Please refer to section Attachments – Selected Statistical Information, item Average Balance Sheet for further details.
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | VARIATION | |||||||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES | 2014 | 2013 | 2012 | 2011 | 2010 | 2014- 2013 | % | 2013- 2012 | % | 2012- 2011 | % | 2011- 2010 | % | |||||||||||||||||||||||||||||||||||||||
Deposits | 294,773 | 274,383 | 243,200 | 242,636 | 202,688 | 20,390 | 7.4 | 31,183 | 12.8 | 564 | 0.2 | 39,948 | 19.7 | |||||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 288,683 | 266,682 | 267,405 | 185,413 | 199,657 | 22,001 | 8.2 | (723 | ) | (0.3 | ) | 81,992 | 44.2 | (14,244 | ) | (7.1 | ) | |||||||||||||||||||||||||||||||||||
Financial liabilities held for trading | 520 | 371 | 642 | 2,815 | 1,335 | 149 | 40.2 | (271 | ) | (42.2 | ) | (2,173 | ) | (77.2 | ) | 1,480 | 110.9 | |||||||||||||||||||||||||||||||||||
Derivatives | 17,350 | 11,405 | 11,069 | 6,747 | 5,671 | 5,945 | 52.1 | 336 | 3.0 | 4,322 | 64.1 | 1,076 | 19.0 | |||||||||||||||||||||||||||||||||||||||
Interbank market debt | 122,586 | 111,376 | 97,073 | 90,498 | 62,599 | 11,210 | 10.1 | 14,303 | 14.7 | 6,575 | 7.3 | 27,899 | 44.6 | |||||||||||||||||||||||||||||||||||||||
Institutional market debt | 73,242 | 72,055 | 72,028 | 54,807 | 44,513 | 1,187 | 1.6 | 27 | 0.0 | 17,221 | 31.4 | 10,294 | 23.1 | |||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 71,492 | 61,274 | 50,255 | 44,119 | 41,012 | 10,218 | 16.7 | 11,019 | 21.9 | 6,136 | 13.9 | 3,107 | 7.6 | |||||||||||||||||||||||||||||||||||||||
Reserves for insurance and private pension | 109,778 | 99,023 | 90,318 | 70,904 | 56,864 | 10,755 | 10.9 | 8,705 | 9.6 | 19,414 | 27.4 | 14,040 | 24.7 | |||||||||||||||||||||||||||||||||||||||
Liabilities for capitalization plans | 3,010 | 3,032 | 2,892 | 2,838 | 2,603 | (22 | ) | (0.7 | ) | 140 | 4.8 | 54 | 1.9 | 235 | 9.0 | |||||||||||||||||||||||||||||||||||||
Provisions | 17,027 | 18,862 | 19,209 | 15,990 | 14,457 | (1,835 | ) | (9.7 | ) | (347 | ) | (1.8 | ) | 3,219 | 20.1 | 1,533 | 10.6 | |||||||||||||||||||||||||||||||||||
Tax liabilities | 4,465 | 3,794 | 7,109 | 7,408 | 12,110 | 671 | 17.7 | (3,315 | ) | (46.6 | ) | (299 | ) | (4.0 | ) | (4,702 | ) | (38.8 | ) | |||||||||||||||||||||||||||||||||
Other liabilities | 23,660 | 20,848 | 19,956 | 18,625 | 16,021 | 2,812 | 13.5 | 892 | 4.5 | 1,331 | 7.1 | 2,604 | 16.3 | |||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,026,586 | 943,105 | 881,156 | 742,800 | 659,530 | 83,481 | 8.9 | 61,949 | 7.0 | 138,356 | 18.6 | 83,270 | 12.6 | |||||||||||||||||||||||||||||||||||||||
Capital | 75,000 | 60,000 | 45,000 | 45,000 | 45,000 | 15,000 | 25.0 | 15,000 | 33.3 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Treasury shares | (1,328 | ) | (1,854 | ) | (1,523 | ) | (1,663 | ) | (628 | ) | 526 | (28.4 | ) | (331 | ) | 21.7 | 140 | (8.4 | ) | (1,035 | ) | 164.8 | ||||||||||||||||||||||||||||||
Additional paid-in capital | 1,508 | 984 | 888 | 738 | 490 | 524 | 53.3 | 96 | 10.8 | 150 | 20.3 | 248 | 50.6 | |||||||||||||||||||||||||||||||||||||||
Appropriated reserves | 8,210 | 13,468 | 22,423 | 24,279 | 16,904 | (5,258 | ) | (39.0 | ) | (8,955 | ) | (39.9 | ) | (1,856 | ) | (7.6 | ) | 7,375 | 43.6 | |||||||||||||||||||||||||||||||||
Unappropriated reserves | 16,301 | 12,138 | 7,379 | 5,561 | 3,615 | 4,163 | 34.3 | 4,759 | 64.5 | 1,818 | 32.7 | 1,946 | 53.8 | |||||||||||||||||||||||||||||||||||||||
Cumulative other comprehensive income | (431 | ) | (1,513 | ) | 1,735 | 26 | 494 | 1,082 | (71.5 | ) | (3,248 | ) | (187.2 | ) | 1,709 | 6,573.1 | (468 | ) | (94.7 | ) | ||||||||||||||||||||||||||||||||
Total stockholders’ equity attributed to the owners of the the parent company | 99,260 | 83,223 | 75,902 | 73,941 | 65,875 | 16,037 | 19.3 | 7,321 | 9.6 | 1,961 | 2.7 | 8,066 | 12.2 | |||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 1,357 | 969 | 96 | 1,395 | 1,677 | 388 | 40.0 | 873 | 909.4 | (1,299 | ) | (93.1 | ) | (282 | ) | (16.8 | ) | |||||||||||||||||||||||||||||||||||
Total stockholders' equity | 100,617 | 84,192 | 75,998 | 75,336 | 67,552 | 16,425 | 19.5 | 8,194 | 10.8 | 662 | 0.9 | 7,784 | 11.5 | |||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | 1,127,203 | 1,027,297 | 957,154 | 818,136 | 727,082 | 99,906 | 9.7 | 70,143 | 7.3 | 139,018 | 17.0 | 91,054 | 12.5 | |||||||||||||||||||||||||||||||||||||||
Average interest-bearing liabilities(1) | 793,069 | 738,535 | 649,026 | 572,622 | 464,214 | 54,534 | 7.4 | 89,509 | 13.8 | 76,404 | 13.3 | 108,408 | 23.4 | |||||||||||||||||||||||||||||||||||||||
Average non-interest-bearing liabilities(1) | 169,247 | 148,215 | 130,293 | 150,813 | 128,220 | 21,032 | 14.2 | 17,922 | 13.8 | (20,520 | ) | (13.6 | ) | 22,593 | 17.6 | |||||||||||||||||||||||||||||||||||||
Total average stockholders’ equity(1) | 90,626 | 78,747 | 76,125 | 67,385 | 57,736 | 11,879 | 15.1 | 2,622 | 3.4 | 8,740 | 13.0 | 9,649 | 16.7 | |||||||||||||||||||||||||||||||||||||||
Total average liabilities and stockholders’ equity(1) | 1,052,942 | 965,497 | 855,444 | 790,820 | 650,169 | 87,445 | 9.1 | 110,053 | 12.9 | 64,624 | 8.2 | 140,651 | 21.6 |
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | Variation | |||||||||||||||||||||||||||||||||||||||||||||||||||
2015- | 2014- | 2013- | 2012- | |||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | 2015 | 2014 | 2013 | 2012 | 2011 | 2014 | % | 2013 | % | 2012 | % | 2011 | % | |||||||||||||||||||||||||||||||||||||||
Deposits | 292,610 | 294,773 | 274,383 | 243,200 | 242,636 | (2,163 | ) | (0.7 | ) | 20,390 | 7.4 | 31,183 | 12.8 | 564 | 0.2 | |||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 336,643 | 288,683 | 266,682 | 267,405 | 185,413 | 47,960 | 16.6 | 22,001 | 8.2 | (723 | ) | (0.3 | ) | 81,992 | 44.2 | |||||||||||||||||||||||||||||||||||||
Financial liabilities held for trading | 412 | 520 | 371 | 642 | 2,815 | (108 | ) | (20.8 | ) | 149 | 40.2 | (271 | ) | (42.2 | ) | (2,173 | ) | (77.2 | ) | |||||||||||||||||||||||||||||||||
Derivatives | 31,071 | 17,350 | 11,405 | 11,069 | 6,747 | 13,721 | 79.1 | 5,945 | 52.1 | 336 | 3.0 | 4,322 | 64.1 | |||||||||||||||||||||||||||||||||||||||
Interbank market debt | 156,886 | 122,586 | 111,376 | 97,073 | 90,498 | 34,300 | 28.0 | 11,210 | 10.1 | 14,303 | 14.7 | 6,575 | 7.3 | |||||||||||||||||||||||||||||||||||||||
Institutional market debt | 93,918 | 73,242 | 72,055 | 72,028 | 54,807 | 20,676 | 28.2 | 1,187 | 1.6 | 27 | 0.0 | 17,221 | 31.4 | |||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 68,715 | 71,492 | 61,274 | 50,255 | 44,119 | (2,777 | ) | (3.9 | ) | 10,218 | 16.7 | 11,019 | 21.9 | 6,136 | 13.9 | |||||||||||||||||||||||||||||||||||||
Reserves for insurance and private pension | 129,305 | 109,778 | 99,023 | 90,318 | 70,904 | 19,527 | 17.8 | 10,755 | 10.9 | 8,705 | 9.6 | 19,414 | 27.4 | |||||||||||||||||||||||||||||||||||||||
Liabilities for capitalization plans | 3,044 | 3,010 | 3,032 | 2,892 | 2,838 | 34 | 1.1 | (22 | ) | (0.7 | ) | 140 | 4.8 | 54 | 1.9 | |||||||||||||||||||||||||||||||||||||
Provisions | 18,994 | 17,027 | 18,862 | 19,209 | 15,990 | 1,967 | 11.6 | (1,835 | ) | (9.7 | ) | (347 | ) | (1.8 | ) | 3,219 | 20.1 | |||||||||||||||||||||||||||||||||||
Tax liabilities | 4,971 | 4,465 | 3,794 | 7,109 | 7,408 | 506 | 11.3 | 671 | 17.7 | (3,315 | ) | (46.6 | ) | (299 | ) | (4.0 | ) | |||||||||||||||||||||||||||||||||||
Other liabilities | 25,787 | 23,660 | 20,848 | 19,956 | 18,625 | 2,127 | 9.0 | 2,812 | 13.5 | 892 | 4.5 | 1,331 | 7.1 | |||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,162,356 | 1,026,586 | 943,105 | 881,156 | 742,800 | 135,770 | 13.2 | 83,481 | 8.9 | 61,949 | 7.0 | 138,356 | 18.6 | |||||||||||||||||||||||||||||||||||||||
Capital | 85,148 | 75,000 | 60,000 | 45,000 | 45,000 | 10,148 | 13.5 | 15,000 | 25.0 | 15,000 | 33.3 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||
Treasury shares | (4,353 | ) | (1,328 | ) | (1,854 | ) | (1,523 | ) | (1,663 | ) | (3,025 | ) | 227.8 | 526 | (28.4 | ) | (331 | ) | 21.7 | 140 | (8.4 | ) | ||||||||||||||||||||||||||||||
Additional paid-in capital | 1,733 | 1,508 | 984 | 888 | 738 | 225 | 14.9 | 524 | 53.3 | 96 | 10.8 | 150 | 20.3 | |||||||||||||||||||||||||||||||||||||||
Appropriated reserves | 10,067 | 8,210 | 13,468 | 22,423 | 24,279 | 1,857 | 22.6 | (5,258 | ) | (39.0 | ) | (8,955 | ) | (39.9 | ) | (1,856 | ) | (7.6 | ) | |||||||||||||||||||||||||||||||||
Unappropriated reserves | 20,947 | 16,301 | 12,138 | 7,379 | 5,561 | 4,646 | 28.5 | 4,163 | 34.3 | 4,759 | 64.5 | 1,818 | 32.7 | |||||||||||||||||||||||||||||||||||||||
Cumulative other comprehensive income | (1,290 | ) | (431 | ) | (1,513 | ) | 1,735 | 26 | (859 | ) | 199.3 | 1,082 | (71.5 | ) | (3,248 | ) | (187.2 | ) | 1,709 | 6,573.1 | ||||||||||||||||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 112,252 | 99,260 | 83,223 | 75,902 | 73,941 | 12,992 | 13.1 | 16,037 | 19.3 | 7,321 | 9.6 | 1,961 | 2.7 | |||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 1,807 | 1,357 | 969 | 96 | 1,395 | 450 | 33.2 | 388 | 40.0 | 873 | 909.4 | (1,299 | ) | (93.1 | ) | |||||||||||||||||||||||||||||||||||||
Total stockholders' equity | 114,059 | 100,617 | 84,192 | 75,998 | 75,336 | 13,442 | 13.4 | 16,425 | 19.5 | 8,194 | 10.8 | 662 | 0.9 | |||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | 1,276,415 | 1,127,203 | 1,027,297 | 957,154 | 818,136 | 149,212 | 13.2 | 99,906 | 9.7 | 70,143 | 7.3 | 139,018 | 17.0 | |||||||||||||||||||||||||||||||||||||||
Average interest-bearing liabilities(1) | 875,904 | 793,069 | 738,535 | 649,026 | 572,622 | 82,835 | 10.4 | 54,534 | 7.4 | 89,509 | 13.8 | 76,404 | 13.3 | |||||||||||||||||||||||||||||||||||||||
Average non-interest-bearing liabilities(1) | 203,376 | 169,247 | 148,215 | 130,293 | 150,813 | 34,129 | 20.2 | 21,032 | 14.2 | 17,922 | 13.8 | (20,520 | ) | (13.6 | ) | |||||||||||||||||||||||||||||||||||||
Total average stockholders’ equity(1) | 106,766 | 90,626 | 78,747 | 76,125 | 67,385 | 16,140 | 17.8 | 11,879 | 15.1 | 2,622 | 3.4 | 8,740 | 13.0 | |||||||||||||||||||||||||||||||||||||||
Total average liabilities and stockholders’ equity(1) | 1,186,046 | 1,052,942 | 965,497 | 855,444 | 790,820 | 133,104 | 12.6 | 87,445 | 9.1 | 110,053 | 12.9 | 64,624 | 8.2 |
(1) The average balances are calculated on a monthly basis. Please refer to section Attachments – Selected Statistical Information, item Average Balance Sheet for further details.
Annual Report2015 |
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, | VARIATION | For the Ended December 31, | Variation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STATEMENT OF INCOME | 2014 | 2013 | 2012 | 2011 | 2010 | 2014- 2013 | % | 2013- 2012 | % | 2012- 2011 | % | 2011- 2010 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015- | 2014- | 2013- | 2012- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statement of Income | 2015 | 2014 | 2013 | 2012 | 2011 | 2014 | % | 2013 | % | 2012 | % | 2011 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking Product | 91,657 | 79,387 | 81,172 | 74,276 | 69,415 | 12,270 | 15.5 | (1,785 | ) | (2.2 | ) | 6,896 | 9.3 | 4,861 | 7.0 | 92,011 | 91,657 | 79,387 | 81,172 | 74,276 | 354 | 0.4 | 12,270 | 15.5 | (1,785 | ) | (2.2 | ) | 6,896 | 9.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Losses on Loans Claims | (15,801 | ) | (14,870 | ) | (21,354 | ) | (16,072 | ) | (12,938 | ) | (931 | ) | 6.3 | 6,484 | (30.4 | ) | (5,282 | ) | 32.9 | (3,134 | ) | 24.2 | (21,335 | ) | (15,801 | ) | (14,870 | ) | (21,354 | ) | (16,072 | ) | (5,534 | ) | 35.0 | (931 | ) | 6.3 | 6,484 | (30.4 | ) | (5,282 | ) | 32.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking Product Net of Losses on Loans and Claims | 75,856 | 64,517 | 59,818 | 58,204 | 56,477 | 11,339 | 17.6 | 4,699 | 7.9 | 1,614 | 2.8 | 1,727 | 3.1 | 70,676 | 75,856 | 64,517 | 59,818 | 58,204 | (5,180 | ) | (6.8 | ) | 11,339 | 17.6 | 4,699 | 7.9 | 1,614 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General and Administrative Expenses | (42,550 | ) | (39,914 | ) | (38,080 | ) | (35,674 | ) | (34,632 | ) | (2,636 | ) | 6.6 | (1,834 | ) | 4.8 | (2,406 | ) | 6.7 | (1,042 | ) | 3.0 | (47,626 | ) | (42,550 | ) | (39,914 | ) | (38,080 | ) | (35,674 | ) | (5,076 | ) | 11.9 | (2,636 | ) | 6.6 | (1,834 | ) | 4.8 | (2,406 | ) | 6.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax Expenses | (5,063 | ) | (4,341 | ) | (4,497 | ) | (4,166 | ) | (4,164 | ) | (722 | ) | 16.6 | 156 | (3.5 | ) | (331 | ) | 7.9 | (2 | ) | 0.0 | (5,405 | ) | (5,063 | ) | (4,341 | ) | (4,497 | ) | (4,166 | ) | (342 | ) | 6.8 | (722 | ) | 16.6 | 156 | (3.5 | ) | (331 | ) | 7.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of Profit or (Loss) of unconsolidated Companies | 565 | 603 | 175 | (113 | ) | 349 | (38 | ) | (6.3 | ) | 428 | 244.6 | 288 | (254.9 | ) | (462 | ) | (132.4 | ) | 620 | 565 | 603 | 175 | (113 | ) | 55 | 9.7 | (38 | ) | (6.3 | ) | 428 | 244.6 | 288 | (254.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Income Tax and Social Contribution | (7,209 | ) | (7,503 | ) | (7,716 | ) | (6,956 | ) | (4,042 | ) | 294 | (3.9 | ) | 213 | (2.8 | ) | (760 | ) | 10.9 | (2,914 | ) | 72.1 | (8,965 | ) | (7,209 | ) | (7,503 | ) | (7,716 | ) | (6,956 | ) | (1,756 | ) | 24.4 | 294 | (3.9 | ) | 213 | (2.8 | ) | (760 | ) | 10.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Income Tax and Social Contribution | 262 | 3,160 | 3,491 | 3,315 | (1,494 | ) | (2,898 | ) | (91.7 | ) | (331 | ) | (9.5 | ) | 176 | 5.3 | 4,809 | (321.9 | ) | 16,856 | 262 | 3,160 | 3,491 | 3,315 | 16,594 | 6,333.6 | (2,898 | ) | (91.7 | ) | (331 | ) | (9.5 | ) | 176 | 5.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | 21,861 | 16,522 | 13,191 | 14,610 | 12,494 | 5,339 | 32.3 | 3,331 | 25.3 | (1,419 | ) | (9.7 | ) | 2,116 | 16.9 | 26,156 | 21,861 | 16,522 | 13,191 | 14,610 | 4,295 | 19.6 | 5,339 | 32.3 | 3,331 | 25.3 | (1,419 | ) | (9.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Attributable to Owners of the Parent Company | 21,555 | 16,424 | 12,634 | 13,837 | 11,708 | 5,131 | 31.2 | 3,790 | 30.0 | (1,203 | ) | (8.7 | ) | 2,129 | 18.2 | 25,740 | 21,555 | 16,424 | 12,634 | 13,837 | 4,185 | 19.4 | 5,131 | 31.2 | 3,790 | 30.0 | (1,203 | ) | (8.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Attributable to Non-Controlling Interests | 306 | 98 | 557 | 773 | 786 | 208 | 212.2 | (459 | ) | (82.4 | ) | (216 | ) | (27.9 | ) | (13 | ) | (1.7 | ) | 416 | 306 | 98 | 557 | 773 | 110 | 35.9 | 208 | 212.2 | (459 | ) | (82.4 | ) | (216 | ) | (27.9 | ) |
(In R$, except number of shares) | ||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
EARNINGS AND DIVIDENDS PER SHARE | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Basic earnings per share(1)(2) | ||||||||||||||||||||
Common | 3.94 | 3.01 | 2.31 | 2.52 | 2.13 | |||||||||||||||
Preferred | 3.94 | 3.01 | 2.31 | 2.52 | 2.13 | |||||||||||||||
Diluted earnings per share(1)(2) | ||||||||||||||||||||
Common | 3.92 | 3.00 | 2.30 | 2.52 | 2.12 | |||||||||||||||
Preferred | 3.92 | 3.00 | 2.30 | 2.52 | 2.12 | |||||||||||||||
Dividends and interest on stockholders’ equity per share(3) | ||||||||||||||||||||
Common | 1.22 | 1.03 | 1.00 | 0.97 | 0.86 | |||||||||||||||
Preferred | 1.22 | 1.03 | 1.00 | 0.97 | 0.86 | |||||||||||||||
Weighted average number of shares outstanding – basic(1) | ||||||||||||||||||||
Common | 2,770,034,003 | 2,770,034,003 | 2,770,034,003 | 2,770,033,973 | 2,770,033,970 | |||||||||||||||
Preferred | 2,699,460,382 | 2,692,213,780 | 2,696,697,363 | 2,710,432,134 | 2,718,609,630 | |||||||||||||||
Weighted average number of shares outstanding – diluted(1) | ||||||||||||||||||||
Common | 2,770,034,003 | 2,770,034,003 | 2,770,034,003 | 2,770,033,973 | 2,770,033,970 | |||||||||||||||
Preferred | 2,724,080,698 | 2,713,733,080 | 2,715,295,033 | 2,730,583,350 | 2,743,229,665 |
(In R$, except number of shares) | ||||||||||||||||||||
For the Year Ended December 31, | ||||||||||||||||||||
Earnings and Dividends per Share | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Basic earnings per share(1)(2) | ||||||||||||||||||||
Common | 4.30 | 3.58 | 2.73 | 2.10 | 2.30 | |||||||||||||||
Preferred | 4.30 | 3.58 | 2.73 | 2.10 | 2.30 | |||||||||||||||
Diluted earnings per share(1)(2) | ||||||||||||||||||||
Common | 4.28 | 3.56 | 2.72 | 2.09 | 2.29 | |||||||||||||||
Preferred | 4.28 | 3.56 | 2.72 | 2.09 | 2.29 | |||||||||||||||
Dividends and interest on stockholders’ equity per share(3) | ||||||||||||||||||||
Common | 1.24 | 1.22 | 1.03 | 1.00 | 0.97 | |||||||||||||||
Preferred | 1.24 | 1.22 | 1.03 | 1.00 | 0.97 | |||||||||||||||
Weighted average number of shares outstanding – basic(1) | ||||||||||||||||||||
Common | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | |||||||||||||||
Preferred | 2,935,346,437 | 2,969,406,420 | 2,961,435,158 | 2,966,367,100 | 2,981,475,348 | |||||||||||||||
Weighted average number of shares outstanding – dilute(1) | ||||||||||||||||||||
Common | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | 3,047,037,403 | |||||||||||||||
Preferred | 2,969,647,577 | 3,001,704,485 | 2,986,498,093 | 2,990,932,862 | 3,009,859,433 |
(1) | Per share information relating to 2014, 2013, 2012 |
(2) | Earnings per share have been computed following the “two class method” set forth by IAS 33 Earnings Per Share. Please refer to section Our Profile, item Our shares, Information for the Investor, |
(3) | Please refer to section Our Profile, item Our shares, Information for the Investor, |
(In US$) | ||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2014 | 2013(1) | 2012(1) | 2011(1) | 2010(1) | ||||||||||||||||
Dividends and interest on stockholders’ equity per share(2)(3) | ||||||||||||||||||||
Common | 0.46 | 0.44 | 0.49 | 0.52 | 0.52 | |||||||||||||||
Preferred | 0.46 | 0.44 | 0.49 | 0.52 | 0.52 |
(In US$) | ||||||||||||||||||||
For the Year Ended December 31, | ||||||||||||||||||||
Earnings and Dividends per Share | 2015 | 2014(1) | 2013(1) | 2012(1) | 2011(1) | |||||||||||||||
Dividends and interest on stockholders’ equity per share(2)(3) | ||||||||||||||||||||
Common | 0.32 | 0.46 | 0.44 | 0.49 | 0.52 | |||||||||||||||
Preferred | 0.32 | 0.46 | 0.44 | 0.49 | 0.52 |
(1) | Per share information relating to 2014, 2013, 2012 |
(2) | Under Brazilian Corporate Law, we are allowed to pay interest on stockholders’ equity as an alternative to paying dividends to our stockholders. Please refer to section Our Profile, item Our shares, Information for the Investor, |
(3) | Converted into US$ fromreais at the selling rate established by the Central Bank at the end of the year in which dividends or interest on stockholders’ equity were paid or declared, as the case may be. |
Selected consolidated ratios
FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
PROFITABILITY AND PERFORMANCE | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Net interest margin(1)(4) | 4.9 | 5.4 | 6.2 | 5.8 | 7.0 | |||||||||||||||
Return on average assets(2)(4) | 2.0 | 1.7 | 1.5 | 1.7 | 1.8 | |||||||||||||||
Return on average equity(3)(4) | 24.1 | 20.9 | 16.6 | 20.5 | 20.3 |
AS OF THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
LIQUIDITY AND CAPITAL | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Loans and leases as a percentage of total deposits(5) | 153.5 | 150.0 | 150.9 | 142.7 | 145.5 | |||||||||||||||
Total stockholders' equity as a percentage of total assets(6) | 8.9 | 8.2 | 7.9 | 9.2 | 9.3 |
(%) | ||||||||||||||||||||
As of the Year Ended December 31, | ||||||||||||||||||||
Liquidity and Capital | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Loans and leases as a percentage of total deposits(1) | 162.1 | 153.5 | 150.0 | 150.9 | 142.7 | |||||||||||||||
Total stockholders’ equity as a percentage of total assets(2) | 8.9 | 8.9 | 8.2 | 7.9 | 9.2 |
(1) |
Loans and leases operations as of year-end divided by total deposits as of year-end. |
Total |
Our profile | A-16 |
Annual Report2015 |
Corporate events and partnerships
Alliance with MasterCard in the payment solutions market in Brazil
On March 13, 2015, through our subsidiary Itaú Unibanco, we executed an agreement with MasterCard Brasil Soluções de Pagamento Ltda., or MasterCard, to create an alliance in the payment solutions market in Brazil (the Strategic Alliance).
During the 20-year term of this Strategic Alliance, Itaú Unibanco and MasterCard will operate a new electronic payments network through a company controlled by MasterCard, in which Itaú Unibanco will have certain approval and veto rights. Such new electronic payments network will operate under a brand that will have domestic and international acceptance.
Our objectives with respect to the Strategic Alliance are (a) to access new payment solutions technologies, (b) to realize important gains of scale and efficiency, and (c) to capitalize on MasterCard’s expertise in the management of payment solutions brands.
The effectiveness of the Strategic Alliance is subject to the satisfaction of certain precedent conditions, including approvals by Brazilian regulators, such as the Administrative Council for Economic Defense (Conselho Administrativode Defesa Econômica, or CADE). On January 26,2016, the General Superintendency of CADE determined that the transaction includes market competition aspects that require a final decision by CADE’s Tribunal.
Itaú CorpBanca
On June 2, 2015, Itaú Unibanco Holding and its subsidiary, Banco Itaú Chile, executed an amendment to the Transaction Agreement dated January 29, 2014, we entered intounder which they agreed, among other things, (i) to allow CorpBanca to distribute to its stockholders additional dividends corresponding to (a) CLP$239,860 million during the fiscal year of 2015 (equivalent to approximately US$395 million) and (b) an agreementamount equivalent to UF 124,105 (unidades de fomento– a Chilean indexed unit of valueadjusted daily to reflect the previous month’s inflation in Chile) (equivalent to approximately US$5 million), at the same time that it distributes the profits generated during the fiscal year of 2015, and (ii) to reduce the amount of dividends to be paid to stockholders of Banco Itaú Chile with respect to distributable earnings for the year ended December 31, 2014 by CLP$ 16,399 million (equivalent to approximately US$27 million).
In the last week of June 2015, Banco Itaú Chile and CorpBanca and its parent companies forheld their stockholders meetings whereby stockholders representing more than two-thirds of each of the banks approved the merger of Banco Itaú Chile with and into CorpBanca. SomeCorpBanca, as well as the new dividend provisions agreed in the amendment to the Transaction Agreement. On September 4, 2015, the last pending regulatory approval, from the Chilean Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras), was obtained and the merger was consummated on April 1, 2016, with the surviving entity – Itaú CorpBanca – succeeding Banco Itaú Chile with respect to all of its assets, liabilities, rights, obligations and licenses.
Acquisition of ConectCar shares
On October 21, 2015, our subsidiary Redecard S.A., or REDE entered into an agreement for the purchase and sale of shares, by which it agreed to acquire 50% of the regulatory approvalscapital stock of ConectCar Soluções de Mobilidade Eletrônica S.A., or ConectCar, by paying R$170 million to Odebrecht Transport S.A. The remaining 50% of ConectCar’s capital stock is held by Ipiranga Produtos de Petróleo S.A., a company controlled by Ultrapar Participações S.A.
ConectCar is a company that are requiredprovides intermediation services for the automatic payment of tolls, gas and parking fees. As of October 2015, it was ranked second among the largest companies in the sector.
On November 9, 2015, CADE approved the transaction without restrictions, as published in theOfficial Gazette and on December 23, 2015 the transaction was approved by the Central Bank.
The closing of thisthe transaction have already been secured.occurred on January 29, 2016, after the fulfillment of certain precedent conditions usual in similar transactions. As a result, REDE and Ipiranga Produtos de Petróleo S.A. assumed joint control over ConectCar.
Recovery
On December 31, 2015, through our subsidiary Itaú Unibanco, we entered into a Sale and Purchase Agreement and Other Covenants with Banco BTG Pactual S.A., or BTG, pursuant to which Itaú Unibanco agreed to acquire, directly or indirectly, BTG’s entire stake in Recovery do Brasil Consultoria S.A., or Recovery, equivalent to 81.94% of the company’s equity stock. Itaú Unibanco will pay BTG the amount of R$640 million for its equity stake in Recovery.
The agreement also contemplated the acquisition by Itaú Unibanco, directly or indirectly, of approximately 70% of a portfolio of R$38 billion in credit rights associated with recovery activities held by BTG. Itaú Unibanco will pay BTG the amount of R$570 million for such share of the portfolio.
Founded in Argentina in 2000 and present in Brazil since 2006, Recovery is a market leader in the management and administration of non-performing credit portfolio. Recovery’s activities consist in prospecting and evaluating portfolios, structuring operations, and conducting operational management, with presence in every segment, from individuals to corporate credit, with financial and non-financial institutions, offering a distinctive competitive edge to its customers.
Recovery’s and its management team’s expertise in the provision of non-performing credit recovery services will optimize our operations, which, together with the continued provision of services to third parties, will result in increased growth potential for Recovery’s activities.
Annual Report2015 |
Corporate reorganization
On JanuaryMarch 31, 2014, we reorganized our corporate structure to transfer Itaú BBA’s institutional treasury and corporate banking activities, including part of its securities and loan portfolios and all other assets and liabilities related to such activities, to Itaú Unibanco. Itaú BBA has retained its investment banking and cash management activities. There are no pending regulatory approvals.
BMG Association
On April 29, 2014, through our controlled company,2016, Itaú Unibanco S.A., we entered into a business unification agreement with Banco BMG S.A., or Banco BMG, which sets forthconcluded the terms and conditions for the unificationacquisition of the payroll loan businesses of both Banco BMG and Banco Itaú BMG Consignado S.A., or Itaú BMG Consignado. The transaction closed on July 25, 2014, after all applicable regulatory approvals were obtained. As a result of the unification of the businesses, Banco BMG’san 89.08% stake in the total capital and voting stock of Itaú BMG Consignado was increasedRecovery, being 81.94% from 30% to 40%, throughBTG and 7.14% from other shareholders, and the acquisition of approximately 70% of a capital increase which was entirely subscribed and paidportfolio of R$38 billion (face value) in credit rights owned by Banco BMG.BTG.
Large Corporate P&C Insurance Business
On July 4, 2014, we entered into an agreement with ACE INA International Holdings, Ltd., or ACE, for the sale of all the shares held in Itaú Seguros Soluções Corporativas S.A., or ISSC, to ACE Seguradora S.A., an affiliate of ACE. ISSC conducted the large risk insurance operations for the Itaú Unibanco Group. Its clients were middle and large companies with policies representing high insured values. The transaction closed on October 31, 2014, after all applicable regulatory approvals were obtained.
TecBan
On July 17, 2014, we executed a new TecBan shareholders’ agreement, through which the signatories agreed to replace part of their external network of Automatic Teller Machines, or ATMs, for Banco24Horas Network ATMs, managed by TecBan, within the next four years. For purposes of this agreement, an external ATM network consists of ATMs located (i) outside of the branch banking system of the relevant financial institution or (ii) where access is not restricted, exclusive or controlled, such as equipment installed in shopping centers, gasoline service stations, supermarkets, etc. The shareholders’ agreement became effective on November 14, 2014.
Via Varejo S.A.
On October 1, 2014, the operational agreements between Itaú Seguros S.A. and Via Varejo S.A. related to the offer of extended warranty products in “Ponto Frio” and “Casas Bahia” stores were terminated prior to the expiration of the terms of such agreements. As a result of such early termination by Via Varejo S.A., Via Varejo S.A. paid to Itaú Seguros S.A. R$584 million, on October 8, 2014, the majority of which corresponded to the restitution of amounts previously disbursed by Itaú Seguros S.A under such agreements, subject to certain adjustments.
Please refer to the section Performance, item Consolidated Financial Statements (IFRS), Note 3 – Business Development, for further information.
Technology
Volume of transactions
In line with our strategy of improving efficiency in our businesses and services, continuing the efforts of 2013, in 2014 we announced several innovations, offering greater convenience for our clients. New features have been made available through our digital channels (internet and mobile banking), and investments have been made to improve and create new tools to meet the expansion of these channels (see the chart above), providing quality in transactions in an agile, modern and safe environment. These new features and improvements include:
Personnalité Digital –we expanded our client relationship model,in which services are provided exclusively online. In this new platform, the relationship managers offer customer services from 7 a.m. until midnight, Monday through Friday. Consultants specialized in investments, foreign exchange and mortgage loans are also available during those times. Services may be provided by telephone, SMS, videoconference, online chat or email.
Uniclass Digital –through this new platform, relationship managersremotely meet the needs of clients and are available at different times of the physical agencies. The manager and the client communicate in different ways, such as, telephone, SMS and online chat, thus enabling rapid, remote interaction with much convenience.
New ATM –completely redesigned, navigation in the new ATM iseasy, fast and intuitive for the customer, with smaller and more simplified screens. Thus, this channel gains an added incentive for use in alignment with our strategy of operations.
Virtual Insurance Store –aiming at increasing the offer to non-accountholders and the presence of our products in electronic channels, we expanded the virtual insurance store (www.lojadesegurositau.com.br), a pioneering undertaking in the insurance market. In addition to accident and residence products, in the last quarter of 2014 we also made travel insurance available through a virtual insurance store and we intensified the dissemination of these services in digital media.
iTempo –is the platform (www.itau.com.br/itempo) whichcomprises our innovation and convenience services, providing more free time and convenience to our clients. The highlights of this platform in 2014 were:
“With an ever-increasing involvement in the routine operations of the business during 2014, our technology department developed solutions for our clients with a focus on mobility and convenience, intensifying the offer of and service in digital channels and mobile applications”.
Alexandre de Barros
Itaú Unibanco’s Executive Vice President – Technology in 2014
All IT projects are jointly executed with the business, legal and marketing units, taking into consideration sustainability aspects. It is noteworthy that all projects have valuation analysis in order to be approved and prioritized.
We have workplace contingency and disaster recovery processes for our main businesses. Our back up site is also located in the state of São Paulo. Both our primary and secondary data centers have dedicated power systems and generators that are designed to start automatically whenever a power outage occurs.
DataCenterDynamics Brazil Awards–We won the awardin the ‘Innovation in a Mega-Data Center’ category. The DatacenterDynamics Award recognizes innovation, leadership and original thinking in the Brazilian data center industry.
First Annual Brill Award for Efficient IT–The Waste TreatmentPlant, implemented in the São Paulo Technology Center, was awarded recognition in 2014, in the Operational Data Center Upgrade (Latin America) category. This award was granted by the Uptime Institute.
Top of Mind Internet 2014–In a survey conducted by DatafolhaResearch Institute, we were the most remembered bank in the question to the respondents: “Which is the first brand that comes to your mind when you think about internet?”. We have been acknowledged in the Banks category since the survey was created, in 2007.
Efinance 2014–We received awards in the categories Microcreditand Software Engineering. Sponsored byExecutivos Financeiros magazine, the award acknowledges the most innovative solutions, implementation and applications in the IT and Telecom areas of financial institutions.
Prêmio Relatório Bancário(banking report award) – We wereawarded the “Solutions to The Payment Method” award with respect to the Itaú Tokpag application. TheRelatório Bancário (Banking Report) is promoted byCantarino Brasileiro, publication dedicated to covering the Brazilian banking sector.
Awards and Recognition
In 20142015, we received a series of awards and acknowledgements helping to strengthen our reputation. A few of our most significant awards and acknowledgements are listed below:
IR MagazineLatin American 9th Excellence in Best Practices Awards Brazil 2014(Frost & Sullivan) –Given by IR magazine, inpartnership with In January 2015, Frost &Sullivan, an international market intelligence consulting company, elect us as the Brazilian Institutewinners in the “Brazilian Competitive Strategy Innovation and Leadership Award The Future of Investor Relations (IBRI),Mobility” category. In its ninth edition, this award reflectsacknowledges the result of a surveymost outstanding companies in the Latin American market for their performance and excellence in areas such as leadership, technology innovation, client service and products development.
Brill Awards for Efficient IT(Uptime Institute) – InFebruary 2015, our Transforming Data Center – Virtualization project was elected as the winner in the “IT Efficiency – Latin America” category in the second edition of the Brazilian companies with the best “investor relations” practices, conductedBrill Awards for Efficient IT. This award is granted by the Getulio Vargas Foundation (FGV), with approximately 400 portfolio managersUptime Institute, a pool of companies focused on the fields of education, advisory, conferences, seminars and investment analysts.issue of certificates related to the data center industry.
BeyondBanking Awards (Inter-American Investment Corporation – IIC)– In March 2015, our 2013 IntegratedReport was one of the winners in the fifth edition of the beyondBanking Awards, organized by the Inter-American Investment Bank (IDB). We were acknowledged in 7 categories in 2014: Grand Prix for the best Investor Relations program (large cap), Best use of technology (large cap), Best teleconference, Best meeting with investors (large cap), Best annual report, Best performance in investor relations“clearBanking” category, which envisages successful practices adopted by Latin American and Caribbean financial institutions in the 2005-2014 period (large cap),risk management, transparency and Best Investor Relationscorporate governance areas.
Brazilian Consumer Satisfaction Index(ACSI –American Customer Satisfaction Index) – In April 2015, the Communications and Arts Faculty of the University of São Paulo (USP) disclosed the outcome of the 2014 Brazilian Consumer Satisfaction Index (BCSI) survey. In the consumers’ opinion, we were the most reputable bank Among retail banks. This assessment was conducted based on the ACSI (American Customer Satisfaction Index) method, used in the Financial Sector.U.S. for over 21 years, which is applied in over 15 countries.
Efinance(Executivos Financeiros Magazine) – In June 2015, we received the Efinance award in the “Mainframe” category, with the “Credit Quality” case. This award highlights the most innovative solutions, implementations and applications in the IT and Telecom area of financial institutions.
ABEMD Award(ABEMD, the Brazilian Direct MarketingAssociation) – In June 2015 we won the gold trophy in the “BtoE – Program” category, with the “Campeonato Craques Itaú Unibanco” (Itaú Unibanco talent championship) case. In its 21st edition, the ABEMD award acknowledges the Best direct marketing initiatives in terms of Creation, Strategy and Results.
“Conciliar é Legal” award(Brazilian Justice Council – CNJ) – In May 2015, we won the “Conciliar é Legal” (conciliation is legally cool) from the Brazilian Justice Council, in the Civil Society category. This initiative is in its 5th year, acknowledging the good practices of companies, government bodies and universities to adopt alternative methods to settle judicial conflicts throughout Brazil. Our project consisted of a new litigation management model, designed by our Legal department, focused on reducing the number of lawsuits and strengthening the dialogue with consumers.
Global 2000(Forbes Magazine)– In May 2015, the Global2000 ranking, which convenes the 2,000 most valuable companies in the world, according to theForbes magazine, listed us as the largest company in Brazil and the 42nd largest in the world. Among regional banks, we are mentioned as the 5th largest one. In its 13th edition, this survey assesses revenue, profit, assets and market value to list the most valuable stock exchange listed companies.
Prêmio ApimecInovação Brasil 2015(2015 Brazil InnovationAward – Valor Econômico Newspaper)– In July 2015, wewere elected the most innovative company in Brazil in the “Financial Services” segment. We received forwere also in the sixth time,9th position in theCompanhiaAberta - Categoria A(publicly held company – A category) offeredby Apimec, related to 2013. This is an award for general study, which had the participation of 130 Brazilian companies with outstanding performancerevenues exceeding R$750 million and interest of private capital of at least 5%. This ranking was prepared together with Strategy & consulting firm, which has published surveys on the topic for over ten years.
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Melhores e Maiores da Exame (Exame Best and Largest–Exame Magazine) – In July 2015, we were ranked first among the 200 largest corporate groups in relationships withBrazil. This survey also ranks us as the market, considering transparency, timinglargest bank in terms of equity in Brazil and quality.Latin America. With over 40 years of tradition, this is considered one of the most comprehensive and respected rankings on business environment.
Latin American Executive Team 2014Época Negócios 360º(Época Business 360º –Organized by theInstitutional Investor magazine, this rankingÉpocaNegóciosMagazine ) – In August 2015, we were thegreatest winner of the 4th edition of theÉpoca Negócios360ºyearbook. We were elected company of the yearand also granted the top award in the Banking sector category. This guide is based oncarried out in partnershipwithFundação Dom Cabral, which conducted a survey conducted with managerscomplete assessment of investmentthe largest companies in Brazil, considering financial performance, corporate governance, human resources practices, innovation, vision of future and pension funds (buy-side analysts), brokerssocial, environmental and investment banks (sell-side analysts) operating in Latin America. We won six out of eight categories: “Best Investor Relations” by sell-side and buy-side analysts, “Best CEO” by sell-side and buy-side analysts, “Best Bank CFO” by buy-side analysts and “Best Investor Relations Professional” by buy-side analysts.responsibility dimensions.
World’s Best Banks 2014Prêmio CONAREC(CONAREC Award –Organized by Global Finance National Congressmagazine,of Company-Client Relationships) – In August 2015, we were the winners in the Banks category of thisthe CONAREC (National Congress of Company Client Relationship) award, are chosen in a survey with analysts, executiveswhich acknowledges the best customer service operation centers, technology vendors and consultants from financial institutions, and sector’s professionals.
The Most Sustainable Company– In September 2015,we were acknowledgedrecognized as the Most Sustainable Company of the Year at the Época 360° Awards, organized byÉpoca Negócios magazine, which assesses the sustainable performance management of companies in Brazil. Also in September 2015, we were one of the highlights among the companies recognized at Euromoney Awards, one of the most important awards in Europe, organized by Euromoney magazine, as a role model for corporate and social responsibility (CSR) in Latin America.
Marcas Mais(More Brands –O Estado de S. PauloNewspaper and Troiano Branding) – In September 2015, we were ranked 1st among banks in theMarcas Mais study, a new publication of theEstado de São Paulo newspaper in partnership with Troiano Branding. The survey, which was responded by 2,500 interviewees, conducts an in-depth assessment of consumers’ engagement with brands.
Valor 1000(Valor EconômicoNewspaper) – We assumedthe leadership in the following categories:
As Empresas Mais Admiradas do Brasil(most admiredcompanies of Brazil) – PromotedIn October 2015, we ranked first in the “Retail Bank” segment in the 18th edition of the survey conducted byCarta Capital Magazine,Magazine. In the overall ranking (irrespective of industry sectors) we ranked first in “Retail Bank” segment and Itaú BBA won in the “Corporate Bank” segment.fifth.
BankCaboré 2015– In November 2015, we were awarded theCaboré Award for Advertiser of Thethe Year 2014–We were electedfor the fifth time, maintaining our position as the bankmost awarded company in this category. Created in 1980 byMeio & Mensagem newspaper, the Caboré Award is regarded as the most important award in the Brazilian advertising segment, acknowledging the professionals and companies who contributed to the development of the yearcommunications sector in Brazil.
Prêmio Aberje 2015– In November 2015, we wona number of prizes at the 2015 edition of the Aberje Award, both at the regional and national levels. The winning projects were “90 years of Itaú Unibanco” in the Americas by British Magazine, The Banker. We also were acknowledged as“Historical responsibility and corporate heritage” category and "Urban mobility in Itaú: a cause beyond our little orange bikes” in the bank“Communication and relationship with government organizations” category. At the regional level, the highlight was the case named "The comics of memories – the yearhistory of 90 years of Itaú Unibanco told in comics”.
DataCenterDynamics Awards Brazil 2015– InNovember 2015, we won the “Best Transformation Project in Data Center” award with “Itaú Unibanco: Transforming a data center into a power density environment”. In its 5th edition in Brazil, Paraguaythe DatacenterDynamics Awards recognizes innovation, leadership and Uruguay.original thinking in the Brazilian data center industry.
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Cash Management Survey 2015– In November 2015,we were selected byEuromoney magazine as the winner of the “Best cash manager in Brazil” award. The survey includes large, middle and small financial institutions in over 60 countries.
Empresas Notáveis Consumidor ModernoCompany Reporting IFRS Annual Report Benchmarking(outstanding– In 2015, we received the top rankingin the study “Company Reporting IFRS Annual Report Benchmarking”, for the third consecutive year. The study analyzes, on an independent, technical and detailed basis, the financial information disclosed by companies modern consumer) – We stood outand their competitors. The report highlighted the fact that our financial information is consistently presented in line with regulatory requirements, and considered the banking sector in a survey byConsumidor Moderno (modern consumer) magazine, conducted in partnership with survey institutesquality of our financial information superior to that of our domestic and specialized advisory companies, based on surveys conducted over 2013 with customers’ and consumers’ perceptions.international peers.
15º Prêmio Consumidor Moderno de Excelência em Serviços ao ClienteIR Magazine Awards Brazil 2015(15thmodern consumer award for customer service excellence) – Promoted by Padrão Group,IRMagazineand the award annually recognizesBrazilian Institute of Investor Relations(IBRI), the awards select the Brazilian companies with the best practices in customer service,Investor Relations, by means of an independent survey of portfolio managers and investment analysts, organized by the Getulio Vargas Foundation (FGV). This year, we have been acknowledged in three categories:
2ndFinancial Sector;
Global Counsel Awards 2014–Itaú BBA received the award asbest legal team in the Regulatory (Financial Services) category. This was the first time a Brazilian bank received this award, which places us in an outstanding position in comparison to the other financial institutions with global operations. The award is sponsored by the International Law Office, which chooses the winners by analyzing over 4,000 nominations from corporate lawyers and partners of law firms worldwide, in several categories.
Melhores e Maiores(best and largest) – In the 41stedition of thisExamemagazine survey, we were recognized by our results for 2013.The ranking assesses data from the largest groups in Brazil, such as stockholders’ equity and net revenue. We were ranked first among:
Prêmio de Ouvidorias Brasil 20142015 Latin America Executive Team Rankings(2014 Brazil ombudsmanoffices award) – In July 2014,Organized byInstitutional Investor magazine, we were recognized for having oneacknowledged in 9 out of the ten best ombudsman offices in Brazil. The award is an initiative of theConsumidor Moderno magazine, and assesses the best ombudsman office cases, with a focus on innovation, meeting the criteria of performance, governance, alliances, integration and social responsibility.11 categories:
Valor 1000(Value 1000) – In August 2014, we ranked first inthe financial area ranking in the following categories: (i) Highest stockholders’ equity and (ii)
• | Best Investor Relations Professional: 1st place for one of our Investor Relations professionals by the buy-side and sell-side and 2nd place for one of our Investor Relations professionals by the buy-side; and |
Prêmio Aberje 2014 (São Paulo)–In October 2014 we wereranked first in the “Special Publication” category due to our Integrated Report 2013. The winning topics were “Connecting information about our strategy and capacity to generate value over time”, and “Communication for programs and projects related to Sports”, due to the internal campaign to “Engage Itaú’s employees, as the national sponsor of the 2014 FIFA World Cup™ and official sponsor of the Brazilian National team”.
Cash Management Survey 2014–We were recognized for theseventh consecutive year as the “Best Cash Management Bank in Brazil” by Euromoney magazine, one of the most important financial market publications. We were also chosen as the “Best Cash Management Bank in Latin America” by Euromoney magazine.
Communication Award–We were elected Advertiser of the Year2014 by theAssociação Brasileira de Propaganda – ABP (Brazilian Advertising Association).
Top 1000 World Banks–In June 2014 we ranked as the leadersamong the banks in Central America and South America by Tier 1 capital.
Latin Finance’s Banks of the Year 2014–Considered as theprincipal source of financial market intelligence in Latin America and the Caribbean, LatinFinance magazine named us the bank of the year in Paraguay and Uruguay. The publication also named Itaú BBA the best investment bank of the year in Brazil.
Latin America Syndicated Loan of the Year–We wereacknowledged by LatinFinance magazine for the largest and most comprehensive syndicated loan carried out by a financial institution in Latin America for the US$1.5 billion transaction which included three lead arrangers and 35 participant banks from 147 countries.
3rd Annual North American Structured Products Conference–We won three categories in the Structured Retail Products Awards. We were recognized in the “Best Sales, Brazil”, “Best COE Wrapped Sales, Brazil” and “Best Private Banking Product, Brazil” categories.
Dow Jones Sustainability World Index 2014/2015–We wereselected to be included in this index for the fifteenth consecutive year. We are the only Latin American bank that has been included in the index since its launch in 1999.
BM&FBovespa’s Corporate Sustainability Index (ISE) 2014/2015–We were selected to be included in this index in 2014 for thetenth consecutive year. The companies that comprise the index meet standards in socially responsible investment and act as business benchmarks in Brazil.
Carbon Disclosure Project Latin America–We wereacknowledged among ten companies named as Leaders in Transparency, in the 2014 Edition of the “Climate Changes” questionnaire. The Leaders in Transparency are those companies recording scores in the top 10%, based on survey results.
Guia Exame de Sustentabilidade(Exame Sustainability Guide) –Examemagazine named us the most sustainable company of theyear in the ‘Financial Institutions, Banks and Insurers’ category. This recognition is one of the most important for the sector in Brazil.
Recent Developments
Itaú Unibanco announces a new management struc-ture for the Holding Company
In line with the process of transition already notified to the market, on February 23, 2015, structural changes were announced in the management of Itaú Unibanco Holding S.A., presided by Roberto
Setubal, and involving an executive committee made up of 3 General Managers and 2 Vice Presidents.
Marco Bonomi was appointed General Manager for Retail (DGV), leading the business of Branches, Cards and Rede, Real Estate, Insurance, Vehicles and Credit. The Marketing area will also come under his leadership.
Candido Bracher will now lead as General Manager of Wholesale (DGA) for business involving large and medium corporates, Asset Management, Private Bank and Custody as well as Latin American business. The latter will remain under the leadership of Ricardo Marino, who until now was on the executive committee of the Itaú Unibanco Holding.
Marcio Schettini takes over as General Manager of Technology, Operations and Efficiency. Consequently, he will lead all the operations necessary for execution of business developed by DGV and DGA, in addition to the activities of Procurement, Property Administration and one of the largest data centers in the world, which the bank inaugurated in March, 2015.
Claudia Politanski continues as Vice President for the Legal and Internal Ombudsman areas and now accumulates the areas of Human Resources, Corporate Communication and Institutional and Governmental Relations.
Eduardo Vassimon remains as Vice President for Risks and will also assume the area of Finance and Financial Control, now reporting as CFO of the Itaú Unibanco Holding. Within this structure, Marcelo Kopel will be nominated as the organization’s Investor Relations Officer. Caio David, hitherto Vice President for Finance and CFO of the Itaú Unibanco Holding, will now lead the Institutional Treasury area, which will be under DGA.
“Our objective is to make the transition to the future in a seamless and secure manner and address the more immediate challenges facing the bank. The priorities remain efficiency and simplification. Technology is also a major challenge for us given that it is essential not only to implement our agenda of efficiency and simplification but also in the light of the current scenario with innumerable innovations that are transforming the world and the banking industry. Hence the importance of these changes which we are announcing today”, declares Roberto Setubal.
With these changes, three vice presidents of Itaú Unibanco and one from Itaú BBA will be leaving the Itaú Unibanco Holding’s Executive Committee:
“These changes are testimony to our enormous dynamism and will further strengthen Itaú Unibanco Holding. The objective remains that of constant renewal so that we can continue creating value for our employees, shareholders, offering more modern and better products and services to our clients and contributing to the transformation and development of society”, Roberto Setubal concludes.
Alliance with MasterCard in the payment solutions’ market in BrazilCredit Intelligence Bureau
On March 13, 2015, throughJanuary 21, 2016, we announced that our subsidiary Itaú Unibanco entered into a non-binding memorandum of understanding (MoU) with Banco Bradesco S.A., we executed an agreement with MasterCardBanco do Brasil Soluções de Pagamento Ltda.S.A., or MasterCard,Banco Santander (Brasil) S.A. and Caixa Econômica Federal in order to create an alliance ina credit intelligence bureau, or CIB. The CIB will be structured as a Brazilian corporation (sociedade por ações) and the payment solutions market in Brazil (Strategic Alliance).
Duringparties to the 20-year termMoU will share its control, each of this Strategic Alliance, Itaú Unibancothem holding a 20% equity ownership. The board of directors will be comprised of members appointed by the parties to the MoU and MasterCardits executives will operate a new electronic payments networkbe exclusively dedicated to the business, preserving the independent nature of CIB’s management. The technical implementation of the CIB will be performed together with LexisNexis® Risk Solutions FL Inc., the technical partner selected to develop and implement the technical and analytical platform of the CIB, through a company controlled by MasterCard, in which Itaú Unibanco will have certain approval and veto rights. Such new electronic payments network will operate under a brand with domestic and international acceptance.
Our objectives with respectservice rendering agreement. CIB’s incorporation is subject to the Strategic Alliance are (a) to focus on the growthexecution of its issuing and acquiring businesses, mostly related to such new payment solutions network, (b) to access new payment solutions technologies, (c) to realize important gains of scale and efficiency, and (d) to capitalize on MasterCard’s expertise in the management of payment solutions’ brands.
The effectiveness of the Strategic Alliance is subject todefinitive agreements, as well as the satisfaction of certain conditions precedent, including the approval by the appropriateapplicable regulatory authorities. The Strategic Alliance is not expected to have a material impact on our financial results for this fiscal year.authorities in Brazil.
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Timeline
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90 Years of Itaú Unibanco Holding
The trajectories of the formerOur history begins back in 1924, when Casa Moreira Salles, founded by João Moreira Salles in 1924, andPoços de Caldas, Minas Gerais, received the old office building of Banco Central de Crédito inletter patent issued by the city of São Paulo are inseparable from the history of Brazilian development. Casa Moreira Sales’ activities were centered on the interiornational Government, which allowed it to operate as a banking section, i.e., as a correspondent of the state of Minas Gerais, more specifically in the region of Poços de Caldas, its objective to provide customers with credit and other minor services – up to that time largely absent from upcountry regions. With the development of this potential, Casa Moreira Salles rose in importance, increasingly focusing operations on its credit business to the detriment of merchandize retailing.mainstream banks. This entity eventually became Unibanco.
WithOn the expansion of its financial business, the business achieved the status of Banco Moreira Salles following its first merger on May 4, 1940 with the former Banco Machadense. On July 15, 1940, Casa de Comércio Moreira Salles closed its retail activities to concentrate on the family’s entrepreneurial activities involving only the Banco Moreira Salles.
While Banco Moreira Sallesother hand, Itaú was growingestablished about two decades later, in upcountry Minas Gerais and expanding into Mato Grosso as far as the frontier with Bolivia, in São Paulo, Banco Central de Crédito was founded by1945, when Alfredo Egydio de Souza Aranha, a businessman in 1945. During the second half of this decade,textile industry, and his partner Aloysio Ramalho Foz founded Banco Central de Crédito saw rapid appreciationS.A., which was located in its shares, offering its stockholders dividends of about 10% and 12%, levels equivalent to São Paulo’s leading banks. The institution also expanded with the opening of branches both in the capital as well as in the interior of the state ofdowntown São Paulo.
Gradually João Moreira Salles passed the management of Casa Moreira Salles to his son Walther Moreira Salles, who took over in 1933 while he was still a law student. In this context, it was during this period that1959, Alfredo Egydio transferred the youngmanagement to his nephew Olavo Setubal, founded Artefatos Deca Ltda. in partnership with Renato Refinetti, his colleague from their days at Escola Politécnica. The seed capital forwho counted on the new company was to come from the then chairman of Banco Central de Crédito, Alfredo Egydio de Souza Aranha. The pathsupport of the two banks began to crossfounder's son-in-law, Eudoro Villela, in this new venture.
During their separate histories, Itaú and become similar oneUnibanco exhibited a number of common attributes such as their concern for ethics and transparency in doing business, adherence to the other withlaw and appreciation of their employees. The two organizations also shared the growthsame proximity to their clients by understanding their needs and developmenttheir economic setting, thereby allowing the institutions to support businesses expansion by means of innovative services.
Pioneering in the dissemination of the use of technology to process banking transactions and services offered to clients, they made heavy investments in automation and support of modern operational centers. Moreover, the expansion on the basis of mergers, acquisitions and incorporations is another constant characteristic seen in the evolution of both the city as well as the state of São Paulo. During the 1940s, the importance of Banco Moreira Salles in the national context grew, decentralizing its activities away from the south of the state of Minas Gerais, even establishing a presence in the city of Santos where it would experience major growth in its operations.banks.
The following years wereAnother element common to see a processthe two institutions was the support of adaptationarts and consolidation at both Bancoculture and the social and environmental responsibility that are manifested in Institute Moreira Salles and Banco Central de Crédito in tandem with the ever greater complexity of the banking systemInstituto Itaú Cultural and, the economy. As time elapsed, the banking structure began to become leaner, triggering a major trend towards mergers and incorporations and resulting in the formation of Banco Federalsocial realm, in Fundação Itaú Social and Unibanco – União de Bancos Brasileiros.Instituto Unibanco.
From the establishment of the first branch in the state of Minas Gerais, where the oldest institution that is part of the Itaú Unibanco Group were established, to the association between Itaú Holding Financeira and Unibanco – União de Bancos Brasileiros in 2008,After nine decades of growthhistory, we continue to follow the principles and development have producedvalues of those who laid the foundations of what we are and, like them, we remain focused on the future to build a better world for future generations. For this reason, sustainability is a concept that permeates our organization and is widespread in our culture.
Today we are one of the largest financial institutions in Latin America in terms of market capitalization as well as the most valuable brand in Brazil.
The association has given rise to the largest Brazilian private sector bank and one of the 30 largest banks in the world by market valuewith international operations and strong bases in Latin America. Our commitment to Brazil leads us to serve as an agent of January 31, 2015. Itaú and Unibanco have developed similar and supplementary characteristics over time with mergers, acquisitions and takeovers characterizing their growth trajectories. As of December 31, 2014, our total assets exceeded R$1.1 trillion and we had a market capitalization of R$190.2 billion.
Our history is characterized by entrepreneurial ideals and a visionary spirit which the founding fatherstransformation of the original institutions demonstrated fromsociety by working for great causes, such as culture, education, sports and urban mobility, continuously seeking the earliest days. The pugnacitycommon good and courage also shown by those that came later in developingcontributing to the respective operations was also instrumental in developing levels of excellence even before the merger which created the largest private sector bank in the country and one of the largest in Latin America.
country's development.
Our Vision
Our objective is to be the leading bank in sustainable performance and clientcustomer satisfaction. For us, sustainable performance means creating shared values for employees, clients, shareholderscustomers, stockholders and society so as to ensure the longevity of our business.
Our Culture
OurOne of the greatest challenges of the merger of Itaú and Unibanco was to disseminate a new corporate culture, is expressed byboth distinctive and unique, which respected the history of the two institutions.
Since the merger, we have succeeded in developing a set of ten principles that guide the way we do business and outline the approach we expect our teams to take to turn our vision into reality. This set of principles is calledsolid corporate culture,Nosso Jeito de Fazer (“Our(Our Way of Making it Happen”)Happen), which having been put into practice, has been instrumental in the achievement of significant results and has established our distinctiveness in the market. Today, after five years, we have moved on to another level where it is important to emphasize certain attitudes.Nosso Jeito(Our Way), made up of seven attitudes, encapsulates ourculture and their practice is what we believe will make us a leading bank in sustainable performance and customer satisfaction.
OUR WAY_
1_it’s only good for us if it’s good for the client_
2_we’re passionate about performance_
3_people mean everything to us_
4_the best argument is the one that matters_
5_simple. always_
6_we think and act like owners_
7_ethics are non-negotiable_
Several initiatives reinforce such values withthe practice of these attitudes by our employees through a number of initiatives, such asemployees. These include (i) events including ourrelated to corporate culture, which include the annual meeting with managersEncontro entre Líderes (“Meeting(Meeting among Leaders”) orLeaders) and our awardsPrêmio Walther Moreira Salles, Award; (ii) the behavioral attitudes incorporated into our employee performance assessment processes that measure employees alignment with expected behaviors derived from such principles,evaluation, which are direct derivatives and the palpable result ofNosso Jeito attitudes; and (iii) campaigns inconducted through our communication channels.
Our Waychannels of Making It Happen
communication.
In 2014, we celebrated five years2015, the Meeting among Leaders was held with an onsite audience of the business combination that created themore than 5,700 of Itaú Unibanco Group. In those five years,Holding’s leaders in addition to another 3,700 via telepresence, where Pedro Moreira Salles and Roberto Setubal presented information regarding our results, the current economic context and our businesses, in addition to covering how we are preparing to meet new challenges. Our culture served as a backdrop to the entire presentation, embodying all that we have fosteredalready achieved
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and where we want to go. After the Meeting among Leaders, leaders who participated were delegated the task of disseminating the key messages in alignment with our vision and our corporate culture.
The meeting has taken place annually since 2010, representing a common culture which we have disseminated across the entire organization by means of several initiatives.
We now celebrate yet another step inmaintaining the direction of consolidating our culture. Through Our Way of Making it Happen alignment survey, conducted bi-annually, we identified an increase of 9% in perceived culture alignment from our employees compared to 2012. Reaching this threshold enables us to believe that we are increasinglyorganization’s leadership aligned with how we would like to do businessour strategy in what is an increasingly demanding market, and relate withensuring the continued commitment and engagement of all our clients. For the fifth consecutive year, we held the “Meeting among Leaders” in April. The opportunity, during which all Itaú Unibanco leaders met in order to become acquainted with and share the Organization’s present and future challenges, was crucial for the delivery of messages concerning:
It is by means of the “Meeting among Leaders” and other initiatives that we intend to develop our culture over the coming years, with a constant focus on sustainable performance and client satisfaction.employees.
Employees
The number of employees within the Itaú Unibanco Group decreased from 95,696 in 2013 to 93,175 in 2014.2014 to 90,320 in 2015. The decrease in the number of employees is mainly explained as a resultreflection of our natural turn-over. Furthermore, there was a decrease of 322 employees due to the sale of our large risk operations, in our insurance business, in October 2014.
turnover. The tables below show the total number of employees for the years ended December 31, 2015, 2014 2013 and 2012,2013, segmented by region (Brazil and abroad) and operating unit:
DECEMBER 31, | VARIATION (%) | |||||||||||||||||||
EMPLOYEES (BRAZIL AND ABROAD) | 2014 | 2013 | 2012 | 2014- 2013 | 2013- 2012 | |||||||||||||||
In Brazil | 86,192 | 88,783 | 90,323 | (2.9) | (1.7) | |||||||||||||||
Abroad | 6,983 | 6,913 | 6,654 | 1.0 | 3.9 | |||||||||||||||
Argentina | 1,679 | 1,696 | 1,650 | (1.0 | ) | 2.8 | ||||||||||||||
Chile | 2,563 | 2,542 | 2,451 | 0.8 | 3.7 | |||||||||||||||
Uruguay | 1,176 | 1,180 | 1,127 | (0.3 | ) | 4.7 | ||||||||||||||
Paraguay | 789 | 731 | 701 | 7.9 | 4.3 | |||||||||||||||
Europe | 233 | 256 | 261 | (9.0 | ) | (1.9 | ) | |||||||||||||
Other | 543 | 508 | 464 | 6.9 | 9.5 | |||||||||||||||
Total | 93,175 | 95,696 | 96,977 | (2.6 | ) | (1.3 | ) |
DECEMBER 31, | VARIATION (%) | |||||||||||||||||||
EMPLOYEES (BY OPERATING UNIT) | 2014 | 2013 | 2012 | 2014- 2013 | 2013- 2012 | |||||||||||||||
Commercial Bank – Retail | 92,457 | 90,427 | 91,304 | 2.2 | (1.0 | ) | ||||||||||||||
Wholesale Bank | 395 | 2,532 | 2,848 | (84.4 | ) | (11.1 | ) | |||||||||||||
Consumer Credit – Retail | 303 | 2,718 | 2,781 | (88.9 | ) | (2.3 | ) | |||||||||||||
Activities with the market and corporation | 20 | 19 | 44 | 5.3 | (56.8 | ) | ||||||||||||||
Total | 93,175 | 95,696 | 96,977 | (2.6 | ) | (1.3 | ) |
Employees | As of December 31, | Variation | ||||||||||||||||||||||||||
(Brazil and abroad) | 2015 | 2014 | 2013 | 2015-2014 | 2014-2013 | |||||||||||||||||||||||
In Brazil | 83,481 | 86,192 | 88,783 | (2,711 | ) | (3.1 | )% | (2,591 | ) | (2.9 | )% | |||||||||||||||||
Abroad | 6,839 | 6,983 | 6,913 | (144 | ) | (2.1 | )% | 70 | 1.0 | % | ||||||||||||||||||
Argentina | 1,607 | 1,679 | 1,696 | (72 | ) | (4.3 | )% | (17 | ) | (1.0 | )% | |||||||||||||||||
Chile | 2,539 | 2,563 | 2,542 | (24 | ) | (0.9 | )% | 21 | 0.8 | % | ||||||||||||||||||
Uruguay | 1,170 | 1,176 | 1,180 | (6 | ) | (0.5 | )% | (4 | ) | (0.3 | )% | |||||||||||||||||
Paraguay | 799 | 789 | 731 | 10 | 1.3 | % | 58 | 7.9 | % | |||||||||||||||||||
Europe | 216 | 233 | 256 | (17 | ) | (7.3 | )% | (23 | ) | (9.0 | )% | |||||||||||||||||
Other | 508 | 543 | 508 | (35 | ) | (6.4 | )% | 35 | 6.9 | % | ||||||||||||||||||
Total | 90,320 | 93,175 | 95,696 | (2,855 | ) | (3.1 | )% | (2,521 | ) | (2.6 | )% | |||||||||||||||||
Employees | As of December 31, | Variation | ||||||||||||||||||||||||||
(by operating unit) | 2015 | 2014 | 2013 | 2015-2014 | 2014-2013 | |||||||||||||||||||||||
Retail banking | 72,815 | 75,143 | 77,881 | (2,328 | ) | (3.1 | )% | (2,738 | ) | (3.5 | )% | |||||||||||||||||
Wholesale banking | 16,468 | 16,940 | 16,705 | (472 | ) | (2.8 | )% | 235 | 1.4 | % | ||||||||||||||||||
Activities with the market and corporation | 1,037 | 1,092 | 1,110 | (55 | ) | (5.0 | )% | (18 | ) | (1.6 | )% | |||||||||||||||||
Total | 90,320 | 93,175 | 95,696 | (2,855 | ) | (3.1 | )% | (2,521 | ) | (2.6 | )% |
As Melhores da Dinheiro 2014(The Turnover Rate is the bestratio of Dinheiro 2014) –employees hired to employees terminated (either voluntarily or not) in a given period. We monitor this rate on a monthly basis and submit it to the Executive Committee (the criteria used do not include employees outside of Brazil and those of Rede, or apprentices, expatriates, disability retirees, officers and interns).
Turnover Rate = | Total terminations |
(Total employees at the beginning of the period + Total employees at the end of the period)/2 |
Our Turnover Rate for the year ended on December 31, 2015 was 10.6%. We invested in an employee redeployment program, which is intended to create in-house opportunities taking into account the availability of open positions and the professional profile of internal candidates.
The Relocation Center receives employees in times of career transition and those coming from areas undergoing restructuring, among others. The process consists in monitoring the employees that were indicated, accomplishing dynamic group or individual interviews, and connecting the winnersemployees with the opportunities available in the Human Resources category. Promoted byIsto É Dinheiro magazine, this award acknowledges the bestall companies of the Group. As a result of this work, 309 employees at various levels of position were appointed to the Relocation Center in 2015, of whom 185 won new opportunities internally.
In 2015, most of the employee terminations occurred in the age group between 30 and 50 years old and the hiring of employees in the age group below 30 years old.
Compensation and Benefits
We have adopted market parameters and compensation strategies, which vary according to the business area of each employee. We periodically verify these parameters through the commissioning of salary surveys conducted by specialized consultants, participation in surveys conducted by other banks, as well as participation in specialized forums on compensation matters.
Fixed compensation under our compensation strategy takes into account the complexity of an individual’s work duties and such individual’s performance with respect to such duties. Employees' fixed compensation changes according to the policy on promotion and merit, which takes into consideration the seniority of the employees and their performance when carrying out their duties.
The variable compensation, in turn, acknowledges the level of dedication, the results achieved and the short-term, medium-term and long-term sustainability of such results.
Our profile | A-23 |
Annual Report2015 |
In addition, employees are entitled to receive salary adjustments and are entitled to profit sharing, pursuant to the collective bargaining agreements applicable in the relevant jurisdictions.
Our share-based profit sharing plan, specifically designed for managers and senior managers, acknowledges those who stood out during the relevant year. The profit sharing plan includes grants of preferred shares (ITUB4) – or equivalent instruments, subject to the limits established by the Compensation Committee. Of such instruments, one third are delivered each year over a period of three years. The number of preferred shares or share based instruments granted is determined by the financial results of the organization/area as well as individual performance. The preferred shares or share based instruments are delivered on the same date as the final portion of the profit sharing payment, as determined in the relevant collective bargaining agreements. Compensation based on shares is not proportional to working time. The preferred share price is calculated using the average price of ITUB4 on BM&FBovespa in the preceding thirty days.
We also have an institutional program called the Partners Program (Programa de Sócios), comprised of members of management criteria.and employees, in each case approved by our Personnel Committee, having outstanding contributions and performance. Eligible employees are entitled to use part or their total annual variable compensation to purchase our preferred shares, or Own Shares. If they hold the ownership of these Own Shares for 3- and 5-year terms as from the initial investment, free of any liens or encumbrances and of other suspension conditions set forth in the program regulation, the return on investment will be made through the receipt of our preferred shares, or Partners Shares, also for 3- and 5-year terms. These Partners Shares will subsequently remain unavailable for 5- and 8-year terms as from the initial investment in Own Shares. The Partners Program may also consider other instruments derived from shares as opposed to actual shares.
We provide several benefits established in the relevant collective bargaining agreements with unions, which represent many categories of employees. The conditions of such benefits are set forth in the relevant collective bargaining agreements (allowances for meals, nursery/nanny care for children, transportation, etc.). There are also additional benefits, such as: (i) medical and dental care plans, (ii) private pension plans, (iii) group life insurance, (iv) psychosocial services, and (v) personalized treatment in the use of banking products and services. The granting of these benefits may vary according to the category of employees and/or market or regulatory considerations with respect to the relevant jurisdictions applicable to a particular employee.
Empresa dos Sonhos dos Jovens– We were ranked fourth asthe most sought after company for career aspirations by young Brazilians in 2014. It is organized byCompanhia de Talentos.
Labor Relations
We maintain an ongoing dialoguedialog with the labor unions representing all our employees in different professional categories. Respect,Among our principles utilized in our relations with labor unions are respect, transparency and direct interaction with these unions are among our principles.interaction. Our priority is to find creative and negotiated solutions to minimize possible differences and to engage with issuespoints of conflict involving our employees.
We guarantee freedom of association to our employees the right to free association and recognize the rights and privileges of those elected to executive positions in the unions in compliance with Brazilian law and the current collective labor conventionsagreements of each professional category, to which we are a part.party. In addition, we allow labor unions to run unionization campaigns and when requested, we hold meeting with themeetings between unions, itsour managers and/or employees.
We maintain our commitment to prioritize collective negotiations and discuss an ongoinga permanent agenda of issues to be discussed with the unions. This agenda enablesallows us to resolve conflicts more efficiently and
reinforces our commitment to maintainmaintaining an ongoing relationship with the labor unions.entities.
All our employees are supported byin Brazil enjoy the support of collective labor conventionsagreements that guarantee rights in addition to those granted byprovided under applicable labor law, in addition tolaws as well as other benefits that we may grantbe granted to our employees on a non-recurring basis accordingin accordance with our policies.
During the collective negotiations involving bank employees in 2015, the financial sector was subject to our policies. We make consistent efforts to follow the guidelines established with unions in order to increase the health conditionsa 14 business day strike, affecting an average of 37.7% of our employees and provide thembranches. As with previous years, these stoppages did not result in losses for Itaú Unibanco, given that the movement was widespread, affecting the entire Brazilian financial system. Further, since a productive work environment.growing volume of operations are conducted through electronic channels, the impact of shutdowns on our operations was minimal, allowing our customers to use alternative channels to execute their operations with the bank.
During the collective negotiations of bank employees in 2014, which usually occurs by September, our branches were subject to strikes for 5 business days, resulting in approximately an average of 25.4% of our branches being closed during thatthe period.
During the collective negotiations ofwith bank employees in 2013, our branches were subject to strikes for 18 business days, resulting in approximately 31.6% of our branches being closed during thatthis period.
During a strike of bank employees in 2012,All such protests and strikes, which affect our branches, were subjecthave only had a partial impact since some of the branches are able to strikes for 09 business days, resultingreopen during the course of the day and there has never been a total shutdown in approximately 30.0% of our branches being closed during that period.branch network.
In spite of the disruptions to our retail banking operations and, to a lesser extent, our corporate banking operations, we have not historically suffered any significant losses due to these strikes.
Our profile | A-24 |
Annual Report2015 |
Brand
Our brand increasingly stands foraims to promote positive changes in the positive transformation we seeklives of people and in our own lives as individuals, for our society and for our country. Oursociety. We deliver products and services all– focused on our client’s needs – that reflect our pursuit of enhancedcontinuous efforts to provide the best experience for all of the peopleeveryone who interacts with whom we interact.us, every day. Our efforts to foster financial education initiatives permeate all aspectsour entire organization and encourage people to have a more balanced relationship with their money by choosing the best type of our business in order to promote financial responsibility for individuals.credit and by planning their investments more efficiently. Our responsibility for the country's development of the nation is partat the very heart of our brand's essence, accordingly,brand, which is why, in addition to the positive transformation that is inherent to our core business, we are also investinginvest in projects related to education, culture, sports and urban mobility related projects.mobility.
In 2014, our brand was2015, we were once again ranked Brazil’sat the top of the Interbrand ranking of most valuable brand for the 11th consecutive year atBrazilian brands with an estimated value of R$21.7 billion, according to consulting firm Interbrand. Interbrand’s24.5 billion. This is the twelfth consecutive year in which we have been at the top of this ranking. The analysis is based on the brand'sour brand’s ability to delivergenerate financial results, influence clients'the client selection processesprocess and ensure long-term demand.
The #issomudaomundo (#thischangestheworld) platform, (#issomudaomundo) launched in 2013 to build links between our aim of making people’s world better,which guides our causes and the several projects that benefit from our investments was againin various projects, continues to illustrate our theme forinstitutional campaigns. This year, with the 2014 institutional campaign.
A survey conducted by the research institute Officina SophiaLeia para uma criança(Read to a child) campaign, we reached an impressive milestone: over 45 million books were donated. This shows that we continue to mobilize clients and non-clients to make a difference in 2014 turned in important findings for the brand: the platform users' initiatives help leverage our indicators. For example, among people impacted by any of our outreach campaigns for the platform, we detected 27% better perception in terms of consideration and 50% higher for prestige (better bank).children’s lives.
Our scalecapacity to inspire and depth isengage people can also reflected in ourbe seen on social media numbers. Our Facebook community is the world's largest for a bank, with over 7.4 million fans making it one of the top 10 fan bases for all Brazilian brands according to Socialbakers monitoring platform. Our Twitter profile is now number one in Brazil's financial sector in terms of followers with over 435,000.
Our social network content strategy carriesmedia. We publish a series of films statingarticles and videos that express our point of view using formats specifically devised for the internet on our YouTube brandchannel. We want to inspire people to believe in transformative attitudes by tellingand tell stories that encourage thempeople to initiateimplement positive changes. Withchanges in their lives. In 2015, we reached 192 million views, which means we remain the largest Brazilian brand channel on YouTube and the largest in the world from the financial sector.
Social media is increasingly important to our strategy. This year, we reached 7.6 million fans on Facebook. We have the largest Facebook community of any bank in the world and one of the 15 largest fan bases of any Brazilian brand, according to Socialbakers. Our Twitter profile has over 158 million of views, our brandchannel has had more views than any other Brazilian594 thousand followers, making us number one in any segment, and more any otherthe country’s financial brandchannel worldwide.sector. We also have 64.7 thousand followers on Instagram.
We are continuingcontinue to run a special structure monitoringmonitor all of our social media profiles and interacting24 hours a day, 7 days a week. We have a specific structure to interact with the general public and our clients on everything relatingall matters related to Itaú,: questions, suggestions, complimentscomments and complaints. According to Gauge monitoring agency platform, we had over 1.2 million ofWe have received more than 549 thousand mentions on social networks,media, 74% of which 68% were positive orand neutral comments. We continuecomments, according to provide 24/7 customer service viaGauge, a consulting agency that assists us in the analysis of social media and average time to first contact with clients was 6 minutes.data.
In 2014 we had an unprecedented brand opportunity2015 was a special year for Itaú. We reinforced our positioning as local sponsors fora digital bank by combining innovative technology with our vision of making people’s daily lives easier through increasingly simpler financial transactions. We have started using emoticons in our communications to make the 2014 FIFA World Cup Brazil™. Our challenge wasbank more relatable to stand out amongst the global brands that have sponsored the event for decades and have more adherence with this theme. Nevertheless, by the end of the event we were able to show outstanding results for our brand: highest peak engagementpeople in Twitter's history in Brazil with 23.91%, the most Google-searched brand in relation to the 2014 FIFA World Cup Brazil™, the one most associated with Brazil's soccer team and second most associated with the event, according to a survey conducted by Ibope.their daily lives.
Patents
We are the owners of patents and patent applications in Brazil and abroad for a method for generating a virtual keyboard for entry of a security code or user PIN number. Applications related to this patent are still pending analysis in Brazil, Uruguay and Venezuela. We are the owners of a patent for such method in Germany, Argentina, Austria, Belgium, Chile, Denmark, Spain, Finland, France, Greece, the Netherlands, Ireland, Italy, Luxembourg, Peru, Portugal, United Kingdom, Sweden and Switzerland. Additionally, we are the owners of patent applications for a method for identifying a financial institution’s access PIN and for a method, user device and system to submit financial transaction information, which are still pending analysis in Brazil.
In Brazil, the effective term for protection of invention patents is 20 years from the date when the patent application is made. The effective terms and requirements for extension of patents outside of Brazil depend on the laws of each country or region where a patent is registered.
Main Shareholders Stockholders
We are controlled by IUPAR, which is jointly controlled by Itaúsa and Cia. E. Johnston. Itaúsa is controlled by members of the Egydio de Souza Aranha family, and Cia. E. Johnston is controlled by members of the Moreira Salles family.
Except for the shares indirectly owned by our controlling shareholdersstockholders (through their participation in IUPAR and Itaúsa), the members of our Board of Directors and our Board of Officers, on an individual basis and as a group, beneficially own less than 1% of our common shares and less than 1% of our preferred shares.
According to Brazilian regulation and as approved by the Central Bank, foreign investors may have a maximum of 30% of our common shares.
Our profile | A-25 |
Annual Report2015 |
The table below presents information on the persons that, to our knowledge, held over 5% of our common or preferred shares at Januaryas of March 31, 2015:2016:
COMMON SHARES | PREFERRED SHARES | TOTAL | Common Shares | Preferred Shares | Total | |||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS | TOTAL NUMBER OF SHARES | % OF TOTAL | TOTAL NUMBER OF SHARES | % OF TOTAL | TOTAL NUMBER OF SHARES | % OF TOTAL | ||||||||||||||||||||||||||||||||||||||||||
IUPAR – Itaú Unibanco Participacões | 1,412,718,681 | 51.0 | - | - | 1,412,718,681 | 25.5 | ||||||||||||||||||||||||||||||||||||||||||
Total Number | Total Number | Total Number | ||||||||||||||||||||||||||||||||||||||||||||||
Stockholders | of Shares | % of Total | of Shares | % of Total | of Shares | % of Total | ||||||||||||||||||||||||||||||||||||||||||
IUPAR – Itaú Unibanco Participacões S.A. | 1,553,990,549 | 51.0 | - | - | 1,553,990,549 | 25.5 | ||||||||||||||||||||||||||||||||||||||||||
Itaúsa – Investimentos Itaú S.A. | 1,071,022,909 | 38.7 | 93,291 | 0.0 | 1,071,116,200 | 19.4 | 1,178,125,199 | 38.7 | 102,620 | - | 1,178,227,819 | 19.4 | ||||||||||||||||||||||||||||||||||||
BlackRock(1) | - | - | 192,796,197 | 7.0 | 192,796,197 | 3.5 | - | - | 212,075,817 | 7.0 | 212,075,817 | 3.5 | ||||||||||||||||||||||||||||||||||||
Dodge & Cox(1) | - | - | 152,102,489 | 5.0 | 152,102,489 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||
Others | 286,292,413 | 10.3 | 2,503,199,305 | 90.7 | 2,789,491,718 | 50.4 | 314,921,655 | 10.3 | 2,517,366,116 | 82.4 | 2,832,287,771 | 46.3 | ||||||||||||||||||||||||||||||||||||
Subtotal | 2,770,034,003 | 100.0 | 2,696,088,793 | 97.7 | 5,466,122,796 | 98.8 | 3,047,037,403 | 100.0 | 2,881,647,042 | 94.4 | 5,928,684,445 | 97.2 | ||||||||||||||||||||||||||||||||||||
Treasury stock | 2,541 | 0.0 | 64,707,344 | 2.3 | 64,709,885 | 1.2 | 2,795 | 0.0 | 155,228,709 | 5.6 | 155,231,504 | 2.8 | ||||||||||||||||||||||||||||||||||||
Total | 2,770,036,544 | 100.0 | 2,760,796,137 | 100.0 | 5,530,832,681 | 100.0 | 3,047,040,198 | 100.0 | 3,036,875,751 | 100.0 | 6,083,915,949 | 100.0 |
(1) Share ownership information provided by shareholder.stockholder.
As of JanuaryMarch 31, 2015, 11,226,8022016, 12,647,969 common shares and 1,707,868,1771,932,291,275 preferred shares were held by non-Brazilian investors (calculated based on the investors’ addresses indicated in our records related to the shares that are in our custody), representing 0.4% and 63.3%67.1%, respectively, of the total of each class outstanding.
Ownership Structure
The following chart is an overview of the ownership structure of the Itaú Unibanco group as of JanuaryMarch 31, 2015,2016, which includes our controlling shareholdersstockholders and some of our main subsidiaries:
(*)(1) Excludes shares held in treasury and by our controlling shareholders.
stockholders.
Please refer to section Performance, item Consolidated financial statementsFinancial Statements (IFRS), Note 2.4 a I –- Summary of main accounting practices for further information about our subsidiaries.
Our profile | A-26 |
Annual Report2015 |
IUPAR shareholders’stockholders’ agreement
Itaúsa and Cia. E. Johnston have a shareholders’stockholders’ agreement that governs their relationship as controlling shareholdersstockholders of IUPAR and, indirectly, as our controlling shareholdersstockholders and as controlling shareholdersstockholders of our subsidiaries. Please refer towww.itau.com. br/ www.itau.com.br/_arquivosestaticos/RI/pdf/IUPARingles.pdf,, for further details. Its main terms and conditions are described below.
The Board of Directors and the Board of Officers of IUPAR are composed of four members each: two members are nominated by Itaúsa and two members by Cia. E. Johnston for each one of these bodies. Pursuant to the IUPAR shareholders’stockholders’ agreement, IUPAR shares held by Itaúsa and Cia. E. Johnston cannot be transferred to third parties until November 3, 2018. After this period, if any shareholderstockholder party to the IUPAR shareholders’stockholders’ agreement decides to transfer its IUPAR shares to a third party, the other shareholdersstockholders will have right of first refusal or tag-along rights. If both Itaúsa and Cia. E. Johnston decide to transfer all of their shares held in IUPAR or the total shares held by IUPAR in Itaú Unibanco Holding to third parties, Itaúsa may exercise its tag-along rights, so as to include in the sale all or part of the shares directly held by it in Itaú Unibanco Holding. All shares held directly by Itaúsa in Itaú Unibanco Holding may be freely transferred.
IUPAR shareholders’stockholders’ agreement is effective for a 20-year period from January 27, 2009, and may be automatically extended for successive 10-year periods, except if otherwise indicated.
Transfer of control and increase of interest in the share capital
Subject to the provisions of the IUPAR shareholders’stockholders’ agreement, our Bylaws do not contain any provision that is intended to delay, defer or prevent a change in our shareholding control or that would operate only with respect to a merger, acquisition or corporate restructuring of the Company or its subsidiaries. However, according to Brazilian regulation all such transactions must be carried out in accordance with procedures established by CMN and be previously approved by the Central Bank.
Brazilian legislation provides that acquisition of control of a publicly held company triggers the requirement for the acquiring party to make a tender offer for all outstanding common shares, at a price equivalent to at least 80% of the price per share paid to the controlling shareholders.stockholders. Additionally, our Bylaws establish the same price rule for the holders of our preferred shares.
Such legislation also requires our controlling shareholdersstockholders to make a tender offer for all of our shares if they increase their interest in our share capital to a level that materially and negatively affects the liquidity of our shares.
Marketing and Distribution Channels
We provide integrated financial services and products to our clients through a variety of marketing and distribution channels. In addition to our traditional portfolio of banking products, we offer products such as insurance, investments, foreign exchange and brokerage.
In the commercial banking – retail segment, we provide Itaú Uniclass clients exclusive services such as dedicated managers, investment advisory services, exclusive cashiers, telephone service through branch managers and higher credit limits. We also provide advisory services on investments and real estate loans to our high-end clients through Itaú Personnalité. Our portfolio of corporate products suited for large companies is managed by our wholesale banking segment.
Our distribution network is divided into physicalstandard channels, which include branches, Automatic Teller Machines, or ATMs, and Customer Site Branches (which are banking service centers located at certain corporate clients), or CSBs, Automatic Teller Machines, or ATMs, and telephones, and digital channels, such as internet banking and mobile banking. The volume of banking and telephones.
Banking transactions carried out through the Internetinternet and mobile channels havehas grown significantly in recent years.
Branches
Standard Channels (branches, CSBs and ATMs)
Our branch network serves as a distribution network for all of the products and services we offer to our clients.
In 2013, we opened As of December 31, our standard branch network reach 3,910 branches. We have 25 branches in Brazil, especially refurbished for shopping malls, with a new visual identity and service proposal. Located in different cities in the states of São Paulo and Rio de Janeiro, theThe spaces present a new concept of client service, with a differentiated layout inspired by the design of a retail store. Focusing on the relationship with the client as a way to strengthen contact with the public, this branch isthese branches are open from 12 p.m. to 8 p.m., with exclusive service to our clients from 5 p.m. on. The first branch with this concept was opened in 2012 in the Villa Lobos shopping mall in the city of São Paulo and, currently, there are 25 branches in Brazil. We intend to extend this concept in the next few years.
Similarly, we also implemented changes in service hours for certain branches located in commercial hubs, which now open at 8 a.m. or 9 a.m. and close at 6 p.m. or 8 p.m. This initiative was designed to adapt our services to the routine of our clients. We intend to extend this model to other malls and trade centers in Brazil in the next few years.
CSBs
The range of services provided at CSBs may be the same as those provided at a full service branch, or more limited according to the size of a particular corporate client and its needs. CSBs represent a low-cost
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Annual Report2015 |
alternative to opening full service branches. In addition, we believe CSBs provide us with an opportunity to target new retail clients while servicing corporate clients and personnel.
ATMs
ATMs are low-cost alternatives to employee-based services and give us points of service at significantly lower costs than branches. Our clients may conduct almost all account-related transactions through ATMs.
We also have arrangements with other network operators, such as the brands “Cirrus” and “Maestro”, to allow our clients to use limited services through their networks.
Since 2012, we have made differentiated services available to certain registered clients. In addition to services available to our
clients in general, these registered clients are able to withdraw funds and check current account balances and statements just by using biometric technology. Biometrics enables these registered clients to carry out transactions with fingerprint identification, without typing a password or using a card, providing more security and convenience for our clients. To be able to use biometrics, clients simply register with any Itaú Unibanco branch.
Digital Channels (internet and mobile banking)
As a result of our strategy to be a “digital bank” based on the profile of our clients, our transactions through digital channels have already reached 67% of our total client transactions in 2015, followed by new features that have been made available through this channel throughout the year.
The Internetinternet banking channel became important in recent years given the continuous growth in demand for online transactions. WeIn a traditional bank, the customer goes to the bank, while in a digital bank the bank goes to the customer. Since 1998, we have had Internet banking since 1998,been transforming the experience of our customers, offering convenience through services and products to our individual and corporate clients, such as money transfers, payments, credit, investments, insurance and others. As a result,
Mobile banking is our transactions through thisfastest growing channel represented 60%and became one of the main channels for the bank, representing 59.7% of our total client transactions.
customer base of digital channels in December 2015. One of our most important recent technological innovations has been in mobile banking applications, which allow clients to access their accounts and perform banking transactions using smartphones or tablets through applications designed with a focus on innovation, transaction effectiveness and high-level experience for the customer. In the fourth quarter of 2015, we had a significant increase of 32.2% in users in our mobile banking applications when compared to the fourth quarter of 2014. Accordingly, we are investing in our mobile banking channel across multiple applications, or apps. With the launch and updates, mobile phones have become increasingly better tools to meet the needs of our customers in a safe and practical environment. Recently, we launched the Itaú Pagcontas app, a unique application for the payment of bills, providing more convenience to our customers.
In 2014,For our operations in Latin America, we redesigned allalso implemented the mobile applicationsItaú tokpag app for ourindividual clients in Brazil: Itaú App (including a version for tablet), Itaú Empresas App, and Itaucard App. We also launched Itaú tokpag App,Paraguay, an application that allows transfers of money using the mobile phone number quickly and safely. Focused on innovation, this application also allows users to make transfers to other banks and interact via message, providing convenience to make transactions. For our operations in Latin America, we launched the Itaú Mobile app for individual clients in Chile, totally aligned with our applications.
The table below shows our branches, CSBs and ATMs network broken down by types of services provided and geographic distribution, as of December 31, 2015, 2014 2013 and 2012:2013:
BRANCHES | CSBs | ATMs | ||||||||||||||||||||||||||||||||||
IN BRAZIL AND ABROAD | 2014(1) | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||
Itaú Retail | 3,640 | 3,627 | 3,615 | 849 | 860 | 873 | 26,721 | 26,756 | 26,909 | |||||||||||||||||||||||||||
Itaú Personnalité | 318 | 277 | 240 | 3 | 3 | 3 | 588 | 557 | 500 | |||||||||||||||||||||||||||
Itaú BBA | 9 | 9 | 9 | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total in Brazil | 3,967 | 3,913 | 3,864 | 852 | 863 | 876 | 27,309 | 27,313 | 27,409 | |||||||||||||||||||||||||||
Argentina | 72 | 73 | 75 | 17 | 18 | 20 | 186 | 189 | 194 | |||||||||||||||||||||||||||
Chile | 99 | 98 | 91 | - | - | - | 70 | 72 | 70 | |||||||||||||||||||||||||||
Uruguay | 23 | 25 | 59 | 1 | 1 | 1 | 54 | 43 | 41 | |||||||||||||||||||||||||||
Paraguay | 30 | 28 | 27 | 4 | 3 | 9 | 297 | 283 | 246 | |||||||||||||||||||||||||||
Other | 5 | 5 | 5 | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total | 4,196 | 4,142 | 4,121 | 874 | 885 | 906 | 27,916 | 27,900 | 27,960 |
Standard channels | Branches(1) | CSBs | ATMs | |||||||||||||||||||||||||||||||||
2015(2) | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||
Brazil | 3,910 | 3,967 | 3,913 | 824 | 852 | 863 | 25,802 | 27,309 | 27,313 | |||||||||||||||||||||||||||
Abroad | 228 | 229 | 227 | 23 | 22 | 22 | 610 | 607 | 587 | |||||||||||||||||||||||||||
Argentina | 72 | 72 | 73 | 17 | 17 | 18 | 178 | 186 | 189 | |||||||||||||||||||||||||||
Chile | 96 | 99 | 96 | - | - | - | 70 | 70 | 72 | |||||||||||||||||||||||||||
Paraguay | 32 | 30 | 28 | 5 | 4 | 3 | 307 | 297 | 283 | |||||||||||||||||||||||||||
Uruguay | 23 | �� | 23 | 25 | 1 | 1 | 1 | 55 | 54 | 43 | ||||||||||||||||||||||||||
Other | 5 | 5 | 5 | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total in Brazil and abroad | 4,138 | 4,196 | 4,140 | 847 | 874 | 885 | 26,412 | 27,916 | 27,900 |
BY OUR DISTRIBUTION NETWORK | BRANCHES | CSBs | ATMs | |||||||||||||||||||||||||||||||||
THROUGHOUT BRAZIL (REGION) | 2014(1)(2) | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||
South | 653 | 648 | 637 | 118 | 119 | 120 | 3,870 | 3,815 | 3,790 | |||||||||||||||||||||||||||
Southeast | 2,606 | 2,557 | 2,534 | 605 | 611 | 607 | 18,912 | 18,975 | 19,132 | |||||||||||||||||||||||||||
Center-west | 297 | 295 | 294 | 42 | 45 | 63 | 1,716 | 1,707 | 1,741 | |||||||||||||||||||||||||||
Northeast | 314 | 316 | 304 | 50 | 50 | 49 | 2,159 | 2,173 | 2,113 | |||||||||||||||||||||||||||
North | 97 | 97 | 95 | 37 | 38 | 37 | 652 | 643 | 633 | |||||||||||||||||||||||||||
Total in Brazil | 3,967 | 3,913 | 3,864 | 852 | 863 | 876 | 27,309 | 27,313 | 27,409 |
(1) |
(2) |
Overview
WeIn 2015, we changed our organizational structure. The previous four segments (Commercial bank – Retail, Consumer Credit – Retail, Wholesale bank and Activities with the Market and Corporation) were reorganized and now consist of three segments: (i) Retail Banking, (ii) Wholesale Banking, and (iii) Activities with the Market and Corporation. The Retail Banking segment now covers the former segments Commercial Banking – Retail and Consumer Credit – Retail, with the transfer of operations from Private Banking and Latam to the Wholesale Banking segment.
Our profile | A-28 |
Annual Report2015 |
Through these new operational segments, we continue to provide a broad range of banking services to a diverse client base that includes individuals and corporate clients, on an integrated basis through the following operating segments:as follows:
TheCommercial bank – Retail Banking segment offers services to a diversified base of account holders and non-account holders, individuals and companies with annual revenuescompanies. The segment includes retail clients, high net worth clients (Itaú Uniclass and Personnalité) and the corporate segment (very small and small companies). This segment comprises financing and lending activities carried out in units other than the branch network, and offering of up to R$30 million. Such services include insurance, pension plan and premium bonds, credit cards, asset management, credit products and are customized and developedin addition to meet clients’ demands, through specialized units. Our marketing strategies are tailored to each client profile and implemented through the most suitable distribution channels. We aim to increase the number of products used by our clients, thus diversifying our revenue sources. Thisoperations with Itaú BMG Consignado. The Retail Banking segment represents an important funding source for our operations and generates significant financial income and banking fees.
Through theConsumer credit – Retail segment, we implement our strategy of expanding our offering of financial products and services beyond our current account holders. As such, this segment oversees the financing of vehicles outside our branch network, the offering of credit cards to individuals who are not accountholders and Itaú BMG Consignado operations.
TheWholesale bankBanking segment is responsible for our private banking clients, the activities of Latin America units, our middle-market banking business, and the activities of Itaú BBA, which is the unit in charge of corporate and investment banking activities, including our middle-market banking business.activities. Our wholesale banking management model is based on building close relationships with our clients by obtaining an in-depth understanding of clients’ needs and offering customized solutions. Corporate activities include providing banking services to large corporations and investment banking activities include offering funding resources to the corporate sector, including through fixed and variable income instruments.
TheActivities with the marketMarket and corporationCorporationsegment manages interest incomeinterestincome associated with our capital surplus, subordinated debt surplus and the net balance of tax credits and debits, as well as net interest income from the trading of financial instruments through proprietary positions, management of currency interest rate gaps and other risk factors, arbitrage opportunities in the foreign and Brazilian domestic markets, and mark-to-market of financial instruments. This segment also includes our interest in Porto Seguro.
We also havecarry out a broadwide range of operations outside of Brazil and have built our international presence based onwith units strategically positioned unitslocated in the Americas, Europe and Asia. ThisOur international presence creates significant synergies in foreign trade finance, in the placement of Eurobonds and in the offering of more sophisticated financial transactions and private banking operations. These operations are presented both in the commercial banking – retail and in the wholesale banking segments.to our clients.
Please refer to section Performance, item Financial Performance, Results, and section Performance, item Consolidated Financial Statements (IFRS), Note 34 – Segment Information, for further information about our segments.
OverviewThe diversification of Productsour business is reflected in the changing composition of our loan portfolio over the last few years, focusing on origination in lower risk segments with increased guarantees. We are constantly seeking to implement and focus on the offer of new products and services that add value to our clients and diversify our sources of income, allowing for growth of our non-financial income arising mainly from banking service fees, income from bank charges and from insurance, pension plan and capitalization operations. Some details of our loan portfolio and services are presented as follows:
Credit Cards and Commercial Agreements
Through proprietary and partnership operations with major retailers, telephone carriers, automakers and airline companies established in Brazil, we offer a wide range of credit and debit cards to more than 60.3 million current and non-current account holders (in number of accounts as of December 31, 2015).
Our main goals in the credit card business are to continually grow our portfolio, improve its profitability, manage the quality of our assets and pursue the total satisfaction of our clients. To this end, our credit card division focuses on the development of new products, assessment of our partnerships, control of the credit quality of our portfolio and on more efficient cost management.
The Itaucard 2.0 is the only credit card in Brazil consistent with the standard international interest model, which charges the revolving interest rates from the date of purchase instead of the invoice due date, allowing lower interest rates. A total of 6.7 million cards have been issued since its launch in August 2012.
In September 2014, we launched theTudoAzul Itaucard co-branded card in partnership with Azul Linhas Aéreas, one of the main airlines in Brazil. This action is aligned with our goal of offering a diversified portfolio, providing the best suited product to our clients. In February 2015, theTudoAzul Itaucard received an award from Flightglobal Magazine, one of the world’s leading commercial aviation publications, with respect to its loyalty awards. In selecting the winner of the award, Flightglobal took into consideration various aspects for this recognition, such as airplane tickets purchase and travel convenience, plus the traditional benefits already present in the Itaucard platform.
In November 2015, Itaucard and Netshoes, Brazil’s largest online provider of sports apparel, reached an agreement to launch a co-branded credit card that will offer benefits and exclusive discounts, in addition to a complete digital experience.
Itaucard has made innovations in the way it interacts with its Facebook followers by using more informal language, even using references to classic "memes". A new campaign uses "emoticons" to recreate popular videos from the Internet, aimed at disseminating the Digital Statement and the Itaucard chat application. The videos have been watched by over 4 million people, between June 2015 (launch of the campaign) and December 2015.
The Itaucard app has made strides in transforming the user experience with respect to its credit card. With new functionalities, it now has the Virtual Card, which generates a unique credit card number to be
Our profile | A-29 |
Annual Report2015 |
used in an online transaction, bringing more security and practicality in the internet. Another new feature of the app is the Timeline, in which the purchases and transactions can be seen in real time. Live representatives are available to communicate by app chat 24 hours per day and are available for clients to ask questions and get the answers any time and anywhere they may be. The app was broadly marketed through a number of media platforms, between the end of October and beginning of November 2015, after which there was a 33% increase in the app downloads until December 2015.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Credit Cards | We are theleaders in terms of transaction purchase volume of cards in Brazil, with a 37.1% market share in the period from January to December 2015. | The Brazilian credit card market is highly competitive, growing 13.2% from January to December 2015 over the last four years, according to the Brazilian Association of Credit Card Companies and Services (Associação Brasileira dasEmpresas de Cartões de Crédito e Serviços, or ABECS). Our main competitors in this business are Banco do Brasil S.A., Banco Bradesco S.A., Banco Santander Brasil S.A. and Caixa Econômica Federal. |
Source: Itaú Unibanco Holding and ABECS.
Payroll Loans
A payroll loan is a loan with fixed installments that is directly deducted from the borrower’s payroll to the bank’s account without being recorded in the debtor’s account. Our strategy is to expand our activities in businesses with historically lower risk, achieving a leading position in the offering, distribution and sale of payroll loans in Brazil.
To expand this business and complement our strategy, on July 9, 2012 we entered into an association agreement with Banco BMG S.A. to offer, distribute and market payroll loans originated by that financial institution. Itaú BMG Consignado, the entity used for purposes of this joint venture, began operations in December 2012 and is present throughout the Brazilian territory. This association was designed with the purpose of diversifying our loan portfolio, supplementing our payroll loan strategy, and improving the risk profile of our portfolio of loans to individuals. Itaú BMG Consignado also enables us to expand our business in the payroll loan sector in line with our values and transparency principles, following best management practices and policies.
Our strategy of higher growth in the National Social Security Institute (Instituto Nacional do Seguro Social, or INSS) beneficiaries sector, combined with certain credit policies we adopted, allowed our portfolio evolution to be followed by a decrease in delinquency levels.
This increase in payroll loans resulted in a higher share of payroll loans within the personal loan portfolio, from 21.8% as of December 2014 to 24.3% as of December 2015.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Payroll Loans | In December 2015, we obtained a market share of 16.6% in terms of payroll loans, positioning us as thethird largestbank in this segment in Brazil. | Our main competitors in this business are Banco do Brasil S.A., Caixa Econômica Federal, Banco Bradesco S.A. and Banco Santander Brasil S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Vehicle Financing
As of December 31, 2015, our portfolio of vehicle financing to individuals amounted to R $20.1 billion. The average loan to value ratio of our vehicle portfolio (the ratio of a loan to the value of an asset purchased) was 70.8% in December 2015, following a downward trend since the previous year, when the loan to value ratio reached 73.7% as of December 31, 2014. Since 2012, we have reduced our risk exposure in this sector and focused on clients with better risk profiles, which allowed us to improve the credit quality of our vehicle loan portfolio.
From January to December 2015, the average term of vehicle financing was 40 months, and half of the transactions were carried out with terms of up to 36 months.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Vehicles | In December 2015, we reached a market share of 11.8% in terms of loans to individuals among banks, positioning us as fourth in Brazil in this segment. | Our main bank competitors in this business are Banco Santander (Brasil) S.A, Banco do Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-30 |
Annual Report2015 |
Real Estate Financing and Mortgages
Our mortgage business is dedicated to:
· | Creating loyalty – the relationships established in this sector are typically long-term; |
· | Contributing to the social and financial development of our clients; and |
· | Being aligned with our strategy of investing in lower risk businesses. |
We have been leaders in mortgage loans to individuals among Brazilian private banks from 2008 to 2015, which reflects our focus on this business aligned with our strategy of migrating to lower risk portfolios.
We offer products through our network of branches and brokers, as well as through our partnership with RE/MAX and our joint venture with LPS Brasil Consultoria de Imóveis S.A. (Lopes), called “Credipronto”. These two long-term agreements provide us with exclusive real estate financing origination at a greater number of locations throughout Brazil.
One competitive advantage we have is the speed of our credit approval process and in the formalization of the relevant loan documentation. As of December 31, 2015 the average time between finalizing a financing and our receipt of the requisite documentation was 13 days, which we believe is a significantly shorter time period than those of our competitors.
During the third quarter of 2015, we had the first fully digital mortgage contract process in which the customer uploaded the relevant documents and was able to monitor all steps of the process via the internet. This tool is available for use by account holders, which provides more agility and overall convenience in monitoring the process.
The number of mortgages we provided directly to individuals in 2015 was 34.1 thousand, for an aggregate value of R$10.5 billion in the period. In commercial loans, we financed 20.0 thousand new real estate units during 2015, for an aggregate value of R$3.4 billion.
Since 2007, real estate and mortgage transactions in the Brazilian market have been carried out mainly through first mortgages and a system of mortgage liens (alienação fiduciária), pursuant to which the buyer becomes the owner of the property after all payments have been made, making it easier for the bank (lender) to recover the property in case of default. This system resulted in lower legal and credit risks compared to other types of guarantees.
Another positive feature of the Brazilian market is the constant amortization system pursuant to which decreasing installments provide faster amortization of a contract, reducing our loan-to-value indicator at a faster rate than other amortization systems.
As of December 31, 2015, our outstanding loans to individuals were granted in the form of first mortgages and 99.6% were guaranteed by mortgage liens. In 2015, our entire credit origination was based on the constant amortization system and this portfolio loan to value ratio was 43.7% compared to 42.4% in 2014.
Euromoney’s Real Estate Survey– In September 2015, we were rankedfirst in three categories for Latin America and three categories for Brazil. This survey acknowledges the best companies operating in the real estate sector worldwide.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Real Estate Financing and Mortgages | In the period from January to December, 2015, we were the leaders in new loans to individuals among Brazilian private banks, with 38.7% market share and, second place in terms of new loans to individuals, among all Brazilian banks, with a 19.2% market share. | The main player in the Brazilian real estate market is Caixa Econômica Federal (CEF), a government owned bank. CEF is focused on real estate financing and is the leader in this market. Other competitors include Banco do Brasil S.A., Banco Santander Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and ABECIP.
Microcredit
Our microcredit unit offers to low-income entrepreneurs who do not have the necessary attributes to participate in the traditional financial system the chance to expand and develop their businesses. Itaú Microcrédito’s loan officers reach out to new and existing clients, offering loans (coupled with free loan-protection microinsurance), and point of sale, or POS, machines. Loan officers are also responsible for disseminating information regarding financial concepts related to the responsible use of money.
A major benefit arising from this initiative is that micro-entrepreneurs start to develop a relationship with the formal financial system. Our microcredit activities are split into two levels:
· | 1stTier Lending: includes working capital loans, or loans for upgrades and fixed assets provided to formal and informal business people engaged in small business activities. Any granting of loans requires the presence of a trained microcredit loan officer; and |
· | 2ndTier Lending: loans to micro-entrepreneurs through partner civil society organizations registered with the National Productive Microcredit Program. We are committed to promoting microfinance best practices and trading experiences with partner organizations. |
Our investment in microcredit is part of our strategy to act as agents of transformation in society. Microcredit is also important as it reinforces our vision of sustainability and increases our ability to spread our knowledge
Our profile | A-31 |
Annual Report2015 |
in financial education. The end goal is to create a virtuous cycle in which our bank stimulates the social and economic development of Brazil’s low-income population.
Consortia
A consortium is a self-financing system created in Brazil with a view to foster savings for the purchase of vehicles and other assets, such as real estate. Pursuant to consortium agreements, participants are pooled according to the specific asset they elect to purchase (e.g., a vehicle of a particular manufacturer and model), which will be paid for in installments. Payments made by the participants of a given consortium are used to create a “pool” of funds, which are used by one or more members of the consortium at a time to acquire the assets elected by the participants, e.g., once a month, and such members continue to make payments as scheduled. Generally, participants may receive the asset, (i) during the course of the consortium agreement (before all installments are paid), if the participant pays an amount (in addition to the regularly scheduled installment due) that is higher than such an additional amount offered by any other consortium member for that period, or (ii) during the course of the consortium agreement (before all installments are paid), if the participant is selected by random drawing, organized by the bank, to receive the asset, while continuing to pay for the remaining installments as scheduled.
As consortia are regarded as a provision of services under Brazilian law, the management of consortia does not give rise to default risk or regulatory capital requirements for us.
Since consortia do not charge interest rates, our revenues come mainly from the administration fee charged to clients.
Given these characteristics, this business is strategic to us, contributing to revenue diversification and to a more complete product portfolio offering to our clients. In December 2015, we reached the following results:
· | 415.0 thousand in active contracts, with a growth of 3.3% when compared to December 2014; |
· | R$11.8 billion in balance of installments receivables, with a growth of 8.0% when compared to December 2014; and |
· | R$683.7 million in administration fees from January to December 2015, with a growth of 12.0% when compared to the same period of 2014. |
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Consortia Services Fees | In the period from January to September, 2015, we had a market share of 10.1% in total consortia services fees. Considering only banks, we are thesecond largest provider of such services in terms of fees in Brazil. | Considering only banks, our main competitors in the Brazilian consortia market are Bradesco Adm. Consortia and BB Consortia. |
Source: Central Bank.
Merchant Acquirer
REDE (formerly Redecard) is one of the two largest multi-brand acquirers of credit, debit and benefit card transactions in Brazil. REDE’s activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants (resulting from sales made with credit cards), rental of point-of-sale terminals, or POS, check verification through POS terminals, and the capture and transmission of transactions using coupons, and loyalty programs.
Our goal is to be the main partner for merchants that are seeking higher business potential with a focus on IT investments, infrastructure and POS modernization. For those partners, REDE offers a series of products that follow the market’s latest trends. Among these products we highlight Mobile REDE, which captures the transaction using a device attached to the smartphone or tablet. It allows card reading and input of purchase data for client’s signature, reinforcing our position in new payments solutions for freelancers and micro entrepreneurs. Through e-REDE we intensified and improved the quality of our electronic payments platform, offering not only the acquisition service, but also an antifraud gateway. We offer a single platform for efficient, fast and complete solutions for online payments using a robust antifraud system.
We have experienced significant growth in the e-commerce facets of our merchant acquiring business. In September 2014, we acquired maxiPago!, a Brazilian electronic payment means company focused on e-commerce, for purposes of improving account safety and convenience to our customers, as well as otherwise maintaining our strong digital platform.
In October 2015, we acquired 50% of the capital stock of ConectCar, a company which operates in the payment services business that provides intermediation services for the automatic payment of tolls, gas and parking fees. The acquisition is in line with REDE’s strategy of developing innovative electronic payment channels with high growth potential in the Brazilian market, underscoring our commitment to quality in the services provided to our clients.
Our profile | A-32 |
Annual Report2015 |
The following table sets forth the financial volume of transactions and the amount of transactions of credit and debit cards processed by us in 2015, 2014 and 2013:
(In billions of R$) | (In billions) | |||||||||||||||||||||||
Financial Volume | Transactions | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
Credit cards | 249.7 | 231.6 | 208.8 | 2.0 | 1.9 | 1.8 | ||||||||||||||||||
Debit cards | 133.4 | 125.9 | 113.8 | 2.0 | 2.0 | 1.9 | ||||||||||||||||||
Total | 383.1 | 357.5 | 322.6 | 4.0 | 3.9 | 3.7 |
Prêmio Época ReclameAQUI 2015(2015 Época ReclameAQUI Award) – In 2015, we were elected the company of the yearin the “Electronic Means of Payment” organized byÉpoca magazine and the Reclame Aqui consumer website. Also in 2015, REDE was selected as one of the 25 most valued brands in Brazil at the 2015 Brazilian Most Valued Brands survey conducted by Interbrand.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Merchant Acquirer | In the period from January to September, 2015, we reached a market share of 36.5% in terms of total transaction volume (credit and debit) generated by the acquiring services, positioning us as thesecond largest player in this segment in Brazil. | Our main competitors in this business are Cielo S.A., Getnet Tecnologia em Captura e Processamento de Transações H.U.A.H. S.A. (GetNet) and Banco Bankpar S.A. (American Express). |
Source: Itaú Unibanco Holding and ABECS.
Other products and services portfolio
Insurance
Our insurance business provides a wide range of life and personal accident products, automobile and property insurance, credit insurance and travel insurance. Our insurance core activities, which include our 30% stake in Porto Seguro, consist of mass-market insurance products related to life, property and credit. These products are offered in synergy with retail channels – our branch network, partnership with retailers, credit card clients, real estate and vehicle financing, personal and payroll loans – and the wholesale channel. These products have characteristics such as a low loss ratio, low volatility in results and less use of capital, making them strategic and increasingly relevant in the diversification of the conglomerate’s revenues. Other insurance activities correspond to extended warranty, health insurance, our stake in IRB – Brasil Resseguros S.A. and other activities.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Insurance | Giving effect to our 30% ownership interest in Porto Seguro S.A., we reached 11.1% of share in total insurance market based on earned premiums, excluding VGBL (Redeemable Life Insurance), from January to December, 2015, positioning us as thethird largest insurance provider in this segment in Brazil. Considering only our insurance core activities, our market share reached 14.3% of this market in the same period. | The Brazilian insurance market is highly competitive. Our main competitors in this sector, excluding health insurance providers, are affiliated with large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S. A. Although there is a great concentration of Brazilian banks, this market is still dispersed, especially with players acting in specific niches. As of November 2015, this industry consisted of approximately 154 insurance companies of various sizes, including 41 conglomerates and 48 independent companies. We believe that our alliance with Porto Seguro S.A. resulted in gains in scale and efficiency for us. |
Source: SUSEP. Insurance core activities include: Personal Insurance (Life, Personal Accidents, Credit Insurance, Educational, Travel, Unemployment, Funeral Allowance, Serious Diseases, Random Events), Housing, Multiple Peril and Domestic Credit – Individuals.
Private Pension Plans
We offer private pension plans to our clients as an option for wealth and inheritance planning and income tax purposes (these products are tax-deferred). We provide our clients with a solution to ensure the maintenance of their quality of life, as a supplement to government plans, through long-term investments.
The contributions reached R$17.3 billion from January to December 2015, mainly due to the increase in our VGBL product, and technical provisions, which increased 19.9% in the same period, totaling R$124.6 billion on December 31, 2015.
Our profile | A-33 |
Annual Report2015 |
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Pension plans | In December 2015, our balance of provisions represented 23.4% of the market share for pension plans, positioning us as thethird largest pension provider in Brazil. | Our main competitors in private retirement plan products are controlled by large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S.A., which, like us, take advantage of their branch network to gain access to the retail market. |
Source: FENAPREVI (Balance of provisions - Pension Plans for Individuals and Companies).
Premium Bonds (títulos de capitalização, or capitalization plans)
Premium bonds are fixed deposits products pursuant to which a client makes a one-time deposit or monthly deposits of a fixed sum that will be returned at the end of a designated term. Ownership in premium bonds automatically qualifies a customer to participate in periodic raffles, each time with the opportunity to win a significant cash prize. In 2015, we distributed R$61.2 million in raffle prizes for 3,128 clients.
We currently market our premium bonds portfolio of products through our branch network, electronic channels and ATMs, and we are currently developing new technologies for channel diversification. Revenues from capitalization plans increased 5.2% in 2015 when compared to 2014.
Focusing in corporate responsibility principles, since August 2014 we maintain a partnership withInstituto Ayrton Senna, a non-profit organization which focuses on promoting quality of public education in Brazil. A portion of the revenues upon purchase of PIC, our bank's premium bonds, is provided to theInstituto Ayrton Senna’s education projects.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Premium Bonds | In the period from January to December, 2015, we had a market share of 12.9% in terms of revenues from sales of premium bonds, positioning us as thethird largest provider of such products in this segment in Brazil. | Our main competitors in premium bonds are controlled by large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S.A., which, like us, take advantage of their branch network to gain access to the retail market. Our profitability (measured by net profits over revenues from sales) is the highest among our main competitors. |
Source: SUSEP.
Retail Banking
We have a large and diverse portfolio of products, such as credit and investments, and services to address our clients’clients' needs. Our commercialretail banking business segment is segregated according to customer profiles. Thisprofiles, which allows us to be closer and understand our customer's needs, enabling us to our clients, understand their needs andbetter offer the most suitable products to meet their demands.
“In 2014 we strengthened our activities towards the offering of the the right products, to the right clients, in the right channels. We also expanded our distribution channels with the creation of the new Personnalité and Uniclass digital branches, a new way of addressing our clients’ needs, with a focus on convenience and mobility”.
Marco Bonomi
Itaú Unibanco’s Executive Vice President –
Retail Bank in 2014 and General Manager– Retail starting in 2015
Itaú Retail Banking (individuals)
Our core business is retail banking and through our retail operation we offer a dedicated service structure to consumer clients throughout Brazil. Our client service structure is targeted to offer the best solutions for each client profile. We classify our retail clients as individuals with a monthly income belowup to R$10,000.4,000.
Our Itaú Uniclass services are available at every branch for clients who earn more than R$4,000 orand below R$5,00010,000 per month, depending on the region, an innovation for Brazil’sBrazil's banking sector. We offer exclusive services to our Itaú Uniclass clients, including investment advisory services, exclusive cashiers, special telephone service and higher credit limits and a large team of dedicated relationship managers.
Our retail network is focused on building lasting, transparent relationships with our clients.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Retail Banking (Including Itaú Personnalité) | In December 2015, we reached a market share of 12.4% based on total outstanding loan balance inreais, positioning us as thethird largest bank in this segment in Brazil. | Itaú Unibanco Holding has a leading position in many sectors of the Brazilian domestic financial market. Based on Central Bank data and publicly available financial information, our main competitors are Caixa Econômica Federal, Banco do Brasil S.A., Banco Bradesco S.A. and Banco Santander Brasil S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-34 |
Annual Report2015 |
Itaú Personnalité (banking for high-income individuals)
We began providing customized services to high-income individuals in 1996 with the creation of Itaú Personnalité, thatwhich currently serves individuals who earn more than R$10,000 per month or have investments in excess of R$100,000.
Itaú Personnalité’s is focused on providing (i) financial advisory services by managers who understand the specific needs of our higher-income clients, (ii) a large portfolio of exclusive products and services and (iii) special benefits based on the type and length of relationship with the client, including discounts on various products and services. Itaú Personnalité services its clients through a dedicated network comprised of 289288 branches, located in the main Brazilian cities. Itaú Personnalité clients also have access to our retail banking network of branches and ATMs throughout the country, as well as through services by internet, telephone and mobile banking.
The table below shows our market position For clients who prefer remote services, Itaú Personnalité provides a "digital bank platform" where relationship managers service clients through telephone, email, SMS and information about competitors for thevideoconference from 7 a.m. to midnight on business listed below:
Source: Itaú Unibanco Holding and the Central Bank.days.
Itaú Empresas (very small and small companies)
To meet the needs of our corporate clients we offer through a dedicated structure, customized solutions and provide detailed advice on all products and services to:
All our managers are certified by the Brazilian Financial and Capital Markets Association (Associação Brasileira das Entidades dosMercados Financeiro e de Capitais, or ANBIMA)(ANBIMA), and throughout theyearthe year they receive training to offer the best solutions for each client profile. Our clients rely on our ability to provide products, terms and rates customized to their needs.
Our strategy is to capture market opportunities by meeting the needs of these companies and their owners, particularly with respect to the management of cash flow, credit facilities, investment needs and services.
As was the case in 2013,2014, improving our credit portfolio and reducing our overdue loan portfolioloans volume remained our goal in 2014:2015; credit processes, policies and tools were enhanced and we intensified our revenue collection. Our focus on this segment is aligned with our strategy to improve the quality of our loan portfolio.
Focused on meeting our clients’clients' needs, we developedContaexpanded "Conta Certa,," for more than 90% of our customers. "Conta Certa" provides an account plan with customizable service bundles, and weextendedwe extended our offerings in electronic channels enabling clients to borrow and purchase a wide range of services without having to go to one of our branches.
In 2015, more customers joined the "Flex" plan. With respectthis plan, our customers have a different commercial regime, which allows them to cards and merchant services, we saw an increase in the number of accredited merchants, as well as an increase in the level of card transactions and our revenue derived therefrom when compared to previous years. We launched a number of new products in 2014 such as the “Flex” plan, allowing our merchant clients to anticipate revenues fromreceive their credit card sales and the “Combo” plan, a service plan providing reducedConta Certa fees and REDE equipment rental.proceeds within 48 hours after sale. In addition, we developedimproved our integrated pricing features with respect to loans, cash services and merchant acquiring services.
Improving and simplifying our operational and commercial processes were also in our agenda as we worked on simplifying time-consuming processes such as current account opening and organized our operational and commercial units to workfunction and report in a more standardized manner, similar to franchises.resembling a franchise model.
Public Sector
Our publicInstituto Nacional do Seguro Social, or INSS) beneficiaries sector, business operatescombined with certain credit policies we adopted, allowed our portfolio evolution to be followed by a decrease in all divisions of the public sector, including the federal, state and municipal governments (in the Executive, Legislative and Judicial branches).delinquency levels.
To service public sector clients, we use platforms that are separate from our retail banking branches, with teams of specially trained managers who offer customized solutionsThis increase in tax collection, foreign exchange services, administration of public assets, payments to suppliers, payroll for civil and military servants and retirement. Based on these platforms, we have a significant amount of business with public sector clients, particularly in those Brazilian states where we acquired previously state-owned financial institutions.
In December 2014, we had 2,707 public sector clients and 15 offices in Brazil.
“We play a leading role in the wealth management business, by providing a broad offering of solutions and services in this segment, which allows us to serve our clientsloans resulted in a thorough and efficient manner”.
Alfredo Setubal
Itaú Unibanco Holding’s Boardhigher share of Directors Member and Executive VicePresident – Wealth Management & Services in 2014
Itaú Private Bank
Headquartered in São Paulo, Itaú Private Bank is a leading wealth management player in Latin America with a market share in Brazil exceeding 25%. Besides our seven offices in Brazil, we also serve our clientspayroll loans within the personal loan portfolio, from our offices in Chile, Uruguay, Paraguay, Miami, New York, Switzerland, Cayman and Bahamas. Our dedicated team of more than 700 professionals provided comprehensive financial services to several families from most countries in Latin America. In 2014 we reaffirmed our commitment to the Chilean market and the strategic goal of being the largest private bank in the Latin American market, extending our joint venture agreement signed in 2011 with Munita, Cruzat & Claro (MCC) obtaining a 100% ownership interest in the company.
Our clients have access to a complete portfolio of products and services, ranging from investment management to wealth planning, credit and banking solutions. In addition to our in-house customized products and services, we offer our clients access to an open architecture of alternatives from third-party providers. Our team of more than 120 private bankers21.8% as of December 31, 2014 supported by a teamto 24.3% as of investment advisors and product specialists, are dedicated to understanding and addressing the needs of our clients.
Aligned with our mission to be the leading company in client satisfaction and sustainable performance, we decided to focus our strategic priorities, and we intend to continue to do so during the next year, on the following initiatives:
Global Private Banking Awards 2014–Sponsored by theProfessional Wealth Management and The Banker magazines in October 2014, Itaú Private Bank was acknowledged as the “Best Private Bank for Innovation”, and for the third time as the “Best Private Bank in Brazil” categories.
24th Global Wealth Summit & Awards–In October 2014,we were chosen for the fifth time as the “Outstanding Global Private Bank in Latin America”, in the award promoted by Private Banker International.
Private Banking Survey 2014–Promoted by Euromoneymagazine, we were recognized for the fifth time in the “Best Private Banking Services Overall in Brazil” category and also as “Best Private Banking Services Overall in Paraguay”.December 2015.
The table below shows the market position and information about competitors for the business listed below:
Market Position | Additional Information and Main Competitors | |||
In December |
Source: Itaú Unibanco Holding and the Central Bank.
Vehicle Financing
As of December 31, 2015, our portfolio of vehicle financing to individuals amounted to R $20.1 billion. The average loan to value ratio of our vehicle portfolio (the ratio of a loan to the value of an asset purchased) was 70.8% in December 2015, following a downward trend since the previous year, when the loan to value ratio reached 73.7% as of December 31, 2014. Since 2012, we have reduced our risk exposure in this sector and focused on clients with better risk profiles, which allowed us to improve the credit quality of our vehicle loan portfolio.
From January to December 2015, the average term of vehicle financing was 40 months, and half of the transactions were carried out with terms of up to 36 months.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Vehicles | In December 2015, we reached a market share of 11.8% in terms of loans to individuals among banks, positioning us as fourth in Brazil in this segment. | Our main bank competitors in this business are Banco Santander (Brasil) S.A, Banco do Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-30 |
Annual Report2015 |
Real Estate Financing and Mortgages
Our mortgage business is dedicated to:
· | Creating loyalty – the relationships established in this sector are typically long-term; |
· | Contributing to the social and financial development of our clients; and |
· | Being aligned with our strategy of investing in lower risk businesses. |
We have been leaders in mortgage loans to individuals among Brazilian private banks from 2008 to 2015, which reflects our focus on this business aligned with our strategy of migrating to lower risk portfolios.
We offer products through our network of branches and brokers, as well as through our partnership with RE/MAX and our joint venture with LPS Brasil Consultoria de Imóveis S.A. (Lopes), called “Credipronto”. These two long-term agreements provide us with exclusive real estate financing origination at a greater number of locations throughout Brazil.
One competitive advantage we have is the speed of our credit approval process and in the formalization of the relevant loan documentation. As of December 31, 2015 the average time between finalizing a financing and our receipt of the requisite documentation was 13 days, which we believe is a significantly shorter time period than those of our competitors.
During the third quarter of 2015, we had the first fully digital mortgage contract process in which the customer uploaded the relevant documents and was able to monitor all steps of the process via the internet. This tool is available for use by account holders, which provides more agility and overall convenience in monitoring the process.
The number of mortgages we provided directly to individuals in 2015 was 34.1 thousand, for an aggregate value of R$10.5 billion in the period. In commercial loans, we financed 20.0 thousand new real estate units during 2015, for an aggregate value of R$3.4 billion.
Since 2007, real estate and mortgage transactions in the Brazilian market have been carried out mainly through first mortgages and a system of mortgage liens (alienação fiduciária), pursuant to which the buyer becomes the owner of the property after all payments have been made, making it easier for the bank (lender) to recover the property in case of default. This system resulted in lower legal and credit risks compared to other types of guarantees.
Another positive feature of the Brazilian market is the constant amortization system pursuant to which decreasing installments provide faster amortization of a contract, reducing our loan-to-value indicator at a faster rate than other amortization systems.
As of December 31, 2015, our outstanding loans to individuals were granted in the form of first mortgages and 99.6% were guaranteed by mortgage liens. In 2015, our entire credit origination was based on the constant amortization system and this portfolio loan to value ratio was 43.7% compared to 42.4% in 2014.
Euromoney’s Real Estate Survey– In September 2015, we were rankedfirst in three categories for Latin America and three categories for Brazil. This survey acknowledges the best companies operating in the real estate sector worldwide.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Real Estate Financing and Mortgages | In the period from January to December, 2015, we were the leaders in new loans to individuals among Brazilian private | The main player in the Brazilian real estate market is Caixa Econômica Federal (CEF), a government owned bank. CEF is focused on real estate financing and is the leader in this market. Other competitors include Banco do Brasil S.A., Banco Santander Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and ANBIMA.ABECIP.
Microcredit
Our microcredit unit offers to low-income entrepreneurs who do not have the necessary attributes to participate in the traditional financial system the chance to expand and develop their businesses. Itaú Asset Management
Itaú Asset Management isMicrocrédito’s loan officers reach out to new and existing clients, offering loans (coupled with free loan-protection microinsurance), and point of sale, or POS, machines. Loan officers are also responsible for managing clients’ assets. It has positioned itselfdisseminating information regarding financial concepts related to the responsible use of money.
A major benefit arising from this initiative is that micro-entrepreneurs start to develop a relationship with the formal financial system. Our microcredit activities are split into two levels:
· | 1stTier Lending: includes working capital loans, or loans for upgrades and fixed assets provided to formal and informal business people engaged in small business activities. Any granting of loans requires the presence of a trained microcredit loan officer; and |
· | 2ndTier Lending: loans to micro-entrepreneurs through partner civil society organizations registered with the National Productive Microcredit Program. We are committed to promoting microfinance best practices and trading experiences with partner organizations. |
Our investment in microcredit is part of our strategy to act as the largest private asset manageragents of transformation in Brazil,society. Microcredit is also important as it reinforces our vision of sustainability and one of the leading institutions of its kind in Latin America, by having over R$360 billion, accordingincreases our ability to ANBIMA, in assets underspread our knowledge
| A-31 |
Annual Report2015 |
in financial education. The end goal is to create a virtuous cycle in which our bank stimulates the social and economic development of Brazil’s low-income population.
management, around 360 professionals presentConsortia
A consortium is a self-financing system created in 8 countries,Brazil with a view to foster savings for the purchase of vehicles and over 50 yearsother assets, such as real estate. Pursuant to consortium agreements, participants are pooled according to the specific asset they elect to purchase (e.g., a vehicle of experiencea particular manufacturer and model), which will be paid for in managing resources.installments. Payments made by the participants of a given consortium are used to create a “pool” of funds, which are used by one or more members of the consortium at a time to acquire the assets elected by the participants, e.g., once a month, and such members continue to make payments as scheduled. Generally, participants may receive the asset, (i) during the course of the consortium agreement (before all installments are paid), if the participant pays an amount (in addition to the regularly scheduled installment due) that is higher than such an additional amount offered by any other consortium member for that period, or (ii) during the course of the consortium agreement (before all installments are paid), if the participant is selected by random drawing, organized by the bank, to receive the asset, while continuing to pay for the remaining installments as scheduled.
Furthermore, it hasAs consortia are regarded as a provision of services under Brazilian law, the management of consortia does not give rise to default risk or regulatory capital requirements for us.
Since consortia do not charge interest rates, our revenues come mainly from the administration fee charged to clients.
Given these characteristics, this business is strategic to us, contributing to revenue diversification and to a more complete product portfolio offering to our clients. In December 2015, we reached the following results:
· | 415.0 thousand in active contracts, with a growth of 3.3% when compared to December 2014; |
· | R$11.8 billion in balance of installments receivables, with a growth of 8.0% when compared to December 2014; and |
· | R$683.7 million in administration fees from January to December 2015, with a growth of 12.0% when compared to the same period of 2014. |
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Consortia Services Fees | In the period from January to September, 2015, we had a market share of 10.1% in total consortia services fees. Considering only banks, we are thesecond largest provider of such services in terms of fees in Brazil. | Considering only banks, our main competitors in the Brazilian consortia market are Bradesco Adm. Consortia and BB Consortia. |
Source: Central Bank.
Merchant Acquirer
REDE (formerly Redecard) is one of the biggest research teamstwo largest multi-brand acquirers of credit, debit and benefit card transactions in Latin America,Brazil. REDE’s activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants (resulting from sales made with credit cards), rental of point-of-sale terminals, or POS, check verification through POS terminals, and the capture and transmission of transactions using coupons, and loyalty programs.
Our goal is to be the main partner for merchants that are seeking higher business potential with a focus on IT investments, infrastructure and POS modernization. For those partners, REDE offers a series of products that follow the market’s latest trends. Among these products we highlight Mobile REDE, which is composedcaptures the transaction using a device attached to the smartphone or tablet. It allows card reading and input of professionals focusedpurchase data for client’s signature, reinforcing our position in specific industriesnew payments solutions for freelancers and investment strategies. The consistent investment in market research allows us to analyze investment opportunities in detail, under multiple perspectives.micro entrepreneurs. Through flagship strategies,e-REDE we intensified and improved the quality of our electronic payments platform, offering not only the acquisition service, but also an antifraud gateway. We offer a rangesingle platform for efficient, fast and complete solutions for online payments using a robust antifraud system.
We have experienced significant growth in the e-commerce facets of customized productsour merchant acquiring business. In September 2014, we acquired maxiPago!, a Brazilian electronic payment means company focused on e-commerce, for purposes of improving account safety and solutions, tailoredconvenience to our customers, as well as otherwise maintaining our strong digital platform.
In October 2015, we acquired 50% of the uniquenesscapital stock of each client segment, considering different investment objectives and risk profiles. Besides, we haveConectCar, a committed risk management team, responsiblecompany which operates in the payment services business that provides intermediation services for the supportautomatic payment of tolls, gas and parking fees. The acquisition is in line with REDE’s strategy of developing innovative electronic payment channels with high growth potential in the Brazilian market, underscoring our commitment to quality in the operation.services provided to our clients.
Our profile | A-32 |
Kinea, an alternative investments management company, held R$5.9 billion
Annual Report2015 |
The following table sets forth the financial volume of transactions and the amount of transactions of credit and debit cards processed by us in managed assets at the end of 2014.2015, 2014 and 2013:
(In billions of R$) | (In billions) | |||||||||||||||||||||||
Financial Volume | Transactions | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
Credit cards | 249.7 | 231.6 | 208.8 | 2.0 | 1.9 | 1.8 | ||||||||||||||||||
Debit cards | 133.4 | 125.9 | 113.8 | 2.0 | 2.0 | 1.9 | ||||||||||||||||||
Total | 383.1 | 357.5 | 322.6 | 4.0 | 3.9 | 3.7 |
Top Gestão 2014Prêmio Época ReclameAQUI 2015(top management)2015 Época ReclameAQUI Award) – Itaú Asset ManagementIn 2015, we were elected the company of the yearwas recognized in the category “Maiores – alocação mistaflexível” (biggest – flexible mixed allocation),“Electronic Means of Payment” organized byÉpoca magazine and theValor Econômico newspaper and Standard & Poor’s, which assesses fixed-income funds, multimarket and variable income funds, and recognizes the best fund managers Reclame Aqui consumer website. Also in Brazil. The publication also gave five stars to 13 funds managed by Itaú Asset Management, based on profitability and regularity2015, REDE was selected as one of the results achieved.
The 1000 Best Investment Funds for 2014–For the secondconsecutive year, Itaú Asset Management was named the best investment fund manager25 most valued brands in Brazil byGuia Exame InvestimentosPessoais(Exame Personal Investments Guide). This recognitionis presented byExame magazine in partnership withat the Getulio Vargas Center for Financial Studies (GVCef-FGV), which is responsible for the survey.
Fitch Ratings 2014–This rating agency, responsible for evaluatingthe quality of financial products or assets of companies worldwide, assigned an International Scale Asset Manager Rating ‘Highest Standards’ to Itaú Asset Management.2015 Brazilian Most Valued Brands survey conducted by Interbrand.
The table below shows the market position and information about competitors for the business listed below:
In |
Source: Itaú Unibanco Holding and ANBIMA.
Securities Services
Itaú Securities Services business units provide: local custody and fiduciary acquiring services, international custody, and corporate solutions that acts as transfer agent and shareholder servicer for Brazilian companies issuing equity, debentures, promissory and bank credit notes. We also work as guarantor in transactions of project finance, escrow accounts and loan and financing contracts.
Our focus is to be a full service provider for institutional clients by offering integrated solutions and an exclusive channel with specialized professionals. To be efficient, these businesses have the technology as a foundation.
Pension funds, insurance companies, asset managers, international institutional investors and equity and debt issuers are our primary clients in these businesses, representing approximately 2,611 clients in 21 countries that reached R$3.4 trillion of assets under service as of December 31, 2014, which includes investment funds, underwriting, pension funds, trustee and brokerage services.
Global Custodian 2014 Awards for Excellence–We were named,by this acknowledged publication in the securities services sector, as “Single Market Sub-Custody in the Americas: Emerging Markets” in Brazil, which reflects the customers’ opinions regarding the quality of services provided.
The table below shows the market position and information about competitors for the business listed below:
Our main competitors in |
Source: Itaú Unibanco Holding ANBIMA and BM&FBovespa.ABECS.
Other products and services portfolio
“In 2014, we consolidated the organizational structure of our Consumer Credit, Real State, Vehicles and Insurance businesses defined in 2013, thereby simplifying the management thereof. In our business, we have prioritized core activities, which benefit from scale, effectively generate value and are intrinsically related to the businesses which the bank operates”.
Marcio Schettini
Itaú Unibanco’s Executive Vice President – Consumer Credit,
Real State, Vehicles and Insurance in 2014 and General Manager –
Technology & Operations starting in 2015
Insurance
Our insurance business provides a wide range of life and personal accident products, automobile and property insurance, credit insurance and travel insurance. Focused on streamliningOur insurance core activities, which include our portfolio, making30% stake in Porto Seguro, consist of mass-market insurance products related to life, property and credit. These products are offered in synergy with retail channels – our branch network, partnership with retailers, credit card clients, real estate and vehicle financing, personal and payroll loans – and the wholesale channel. These products more complete and distributing our products, our sales channels are branches, the internet, self-service terminals, telemarketing and mobile applications, besides association with retailers. In 2014, we intensified our focus on bancassurance, exploring the synergy among bank channels,have characteristics such as branches, ATMsa low loss ratio, low volatility in results and tellers,less use of capital, making them strategic and among other financial products, approaching card holders and credit takers. This operation offers a higher margin and is less volatile, generating profitability without a credit risk implication, increasing its importance for our revenue diversification.
Focusing on raising our profitability and on reaching more customers more assertively, we expanded our product offerings via digital channels. We have developedincreasingly relevant in the Insurance Online Store, which has an increasing participation in insurance sales. Offering our products to banking and non-banking clients, the Online Store also allowed an expansion in our communication and awareness. Besides travel and personal accidents insurance products, we offer auto insurance and property & casualty insurance, for individuals and small and medium companies. Insurance sold on the Internet in 2014 had an increase of 123.3% in items sold compared to the same perioddiversification of the previous year.
We work constantly towards offering more efficient processesconglomerate’s revenues. Other insurance activities correspond to extended warranty, health insurance, our stake in IRB – Brasil Resseguros S.A. and a high-quality service to our clients. This resulted in an increase of our sales in 31.1%, in comparison to 2013.
Our strategy to increase our level of penetration in the Brazilian insurance market varies according to the sectors we choose to compete in. For individuals and small and medium company markets, we focus beyond our banking client and credit card base, increasing client penetration. We are working on improving client penetration in property and casualty insurance for small and medium companies. For this purpose, innovation has been a very important factor for our growth in corporate clients. For those customers we offer a specialized advisory service and develop tailor made solutions. Our focus is on developing long term partnerships and maintaining a close relationship with our clients’ Human Resources departments.
In October 2014, we completed the sale of our large risk insurance operation and the migration of BMG Seguradora, acquired on June, 2013. Please refer to section Our Profile, item 2014 highlights for further information.
The launch of Proteja, a website for insurance education, had a relevant impact on our brand, reinforced our brand positioning and fostered the understanding of the importance of insurance products. Please refer towww.itau.com.br/proteja for further information about the Proteja website.other activities.
The table below shows the market position and information about competitors for the business listed below:
Insurance | Giving effect to our 30% ownership interest in Porto Seguro S.A., we reached | The Brazilian insurance market is highly competitive. Our main competitors in this sector, excluding health insurance providers, are affiliated with large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S. A. Although there is a great concentration of Brazilian banks, this market is still dispersed, especially with players acting in specific niches. As of |
Source: SUSEP. Insurance core activities include: Personal Insurance (Life, Personal Accidents, Credit Insurance, Educational, Travel, Unemployment, Funeral Allowance, Serious Diseases, Random Events), Housing, Multiple Peril and Domestic Credit – Individuals.
Private Pension Plans
We offer private pension plans to our clients as an option for wealth and inheritance planning and income tax purposes (these products are tax-deferred). We provide our clients with a solution to ensure the maintenance of their quality of life, as a supplement to government plans, through long-term investments.
The total funding for private pension plans amounted tocontributions reached R$17.517.3 billion from January to December 2014. Income from management fees reached R$1.16 billion,2015, mainly due to the increase in our VGBL product, and technical provisions, which increased 16.8%19.9% in the same period, totaling R$103.7124.6 billion aton December 31, 2014.2015.
Our profile | A-33 |
Annual Report2015 |
The table below shows the market position and information about competitors for the business listed below:
Pension plans | In December | Our main competitors in private retirement plan products are controlled by large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S.A., which, like us, take advantage of their branch network to gain access to the retail market. |
Source: SUSEPFENAPREVI (Balance of provisions –- Pension Plans for Individuals and Companies).
Premium Bonds (títulos de capitalização, or capitalization plans)
Premium bonds are fixed deposits products pursuant to which a client makes a one-time deposit or monthly deposits of a fixed sum that will be returned with accrued interest at the end of a designated term. Ownership in premium bonds automatically qualifies a customer to participate in periodic raffles, each time with the opportunity to win a significant cash prize. During the term of the product, the client can withdraw the balance deposited, less fees for early withdrawal. In 2014,2015, we distributed more than R$64.961.2 million in raffle prizes for more than 3.1 thousand3,128 clients.
We currently distributemarket our premium bonds portfolio of products through our branch network, electronic channels and ATMs, and we are currently developing new technologies for channel diversification. As a result of our focus on distribution, the number of products sold through our priority channelsRevenues from capitalization plans increased 71.6%5.2% in 2014, in comparison2015 when compared to 2013.2014.
Focusing in corporate responsibility principles, insince August 2014 we entered intomaintain a partnership withInstituto Ayrton Senna,, a non-profit organization which focuses on promoting quality of public education in Brazil. A portion of the revenues upon purchase of PIC, our bank's premium bonds, is provided to theInstituto AyrtonSenna’seducation projects.
The table below shows the market position and information about competitors for the business listed below:
Premium Bonds | In the period from January to December, | Our main competitors in premium bonds are controlled by large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S.A., which, like us, take advantage of their branch network to gain access to the retail market. Our profitability (measured by net profits over revenues from sales) is the highest among our main competitors. |
Source: SUSEP.
Payroll LoansRetail Banking
A payroll loanWe have a large and diverse portfolio of products, such as credit and investments, and services to address our clients' needs. Our retail banking business is segregated according to customer profiles, which allows us to be closer and understand our customer's needs, enabling us to better offer the most suitable products to meet their demands.
Itaú Retail Banking (individuals)
Our core business is retail banking and through our retail operation we offer a loandedicated service structure to consumer clients throughout Brazil. Our client service structure is targeted to offer the best solutions for each client profile. We classify our retail clients as individuals with fixed installments thata monthly income up to R$4,000.
Our Itaú Uniclass services are available at every branch for clients who earn more than R$4,000 and below R$10,000 per month, depending on the region, an innovation for Brazil's banking sector. We offer exclusive services to our Itaú Uniclass clients, including investment advisory services, exclusive cashiers, special telephone service and higher credit limits and a large team of dedicated relationship managers.
Our retail network is directly deducted fromfocused on building lasting, transparent relationships with our clients.
The table below shows our market position and information about competitors for the borrower’s payrollbusiness listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Retail Banking (Including Itaú Personnalité) | In December 2015, we reached a market share of 12.4% based on total outstanding loan balance inreais, positioning us as thethird largest bank in this segment in Brazil. | Itaú Unibanco Holding has a leading position in many sectors of the Brazilian domestic financial market. Based on Central Bank data and publicly available financial information, our main competitors are Caixa Econômica Federal, Banco do Brasil S.A., Banco Bradesco S.A. and Banco Santander Brasil S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-34 |
Annual Report2015 |
Itaú Personnalité (banking for high-income individuals)
We began providing customized services to high-income individuals in 1996 with the bank’s account without being recordedcreation of Itaú Personnalité, which currently serves individuals who earn more than R$10,000 per month or have investments in excess of R$100,000.
Itaú Personnalité is focused on providing (i) financial advisory services by managers who understand the specific needs of our higher-income clients, (ii) a large portfolio of exclusive products and services and (iii) special benefits based on the type and length of relationship with the client, including discounts on various products and services. Itaú Personnalité services its clients through a dedicated network comprised of 288 branches, located in the debtor’s account. Our strategy ismain Brazilian cities. Itaú Personnalité clients also have access to expand our activities in businesses with historically lower spreadsretail banking network of branches and losses, achievingATMs throughout the country, as well as through services by internet, telephone and mobile banking. For clients who prefer remote services, Itaú Personnalité provides a leading position in the offering, distribution"digital bank platform" where relationship managers service clients through telephone, email, SMS and sale of payroll loans in Brazil.videoconference from 7 a.m. to midnight on business days.
Itaú Empresas (very small and small companies)
To expand thismeet the needs of our corporate clients we offer customized solutions and provide detailed advice on all products and services to:
All our managers are certified by the Brazilian Financial and complement our strategy, on July 9, 2012 we signed an association agreement with Banco BMG S.A.Capital Markets Association (ANBIMA), and throughout the year they receive training to offer distributethe best solutions for each client profile. Our clients rely on our ability to provide products, terms and market payroll loans originated by that financial institution. Itaú BMG Consignado, the entity used for purposes of this joint venture, began operations in December 2012 and is present throughout the Brazilian territory. This association was designed with the purpose of diversifying our loan portfolio, supplementing our payroll loan strategy, and improving the risk profile of our portfolio of loansrates customized to individuals. Itaú BMG Consignado also enables us to expand our business in the payroll loan sector in line with our values and transparency principles, following best management practices and policies.their needs.
Our strategy is to capture market opportunities by meeting the needs of higher growththese companies and their owners, particularly with respect to the management of cash flow, credit facilities, investment needs and services.
As was the case in 2014, improving our credit portfolio and reducing our overdue loans volume remained our goal in 2015; credit processes, policies and tools were enhanced and we intensified our revenue collection.
Focused on meeting our clients' needs, we expanded "Conta Certa," for more than 90% of our customers. "Conta Certa" provides an account plan with customizable service bundles, and we extended our offerings in electronic channels enabling clients to borrow and purchase a wide range of services without having to go to one of our branches. In 2015, more customers joined the National Social Security Institute ("Flex" plan. With this plan, our customers have a different commercial regime, which allows them to receive their credit card sales proceeds within 48 hours after sale. In addition, we improved our integrated pricing loans, cash services and acquiring services.
Improving and simplifying our operational and commercial processes were also in our agenda as we worked on simplifying time-consuming processes such as current account opening and organized our operational and commercial units to function and report in a more standardized manner, resembling a franchise model.
Instituto Nacional do Seguro Social, or INSS) beneficiaries sector, combined with certain credit policies we adopted, allowed our portfolio evolution to be followed by a decrease in delinquency levels.
This increase in payroll loans resulted in a higher share of payroll loans within the personal loan portfolio, from 13.5% as of December 2013 to 21.8% as of December 2014.2014 to 24.3% as of December 2015.
The table below shows the market position and information about competitors for the business listed below:
Market Position | Additional Information and Main Competitors | |||
Payroll Loans | In December | Our main competitors in this business are Banco do Brasil S.A., Caixa Econômica Federal, Banco Bradesco S.A. and Banco Santander Brasil S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Vehicle Financing
As of December 31, 2015, our portfolio of vehicle financing to individuals amounted to R $20.1 billion. The average loan to value ratio of our vehicle portfolio (the ratio of a loan to the value of an asset purchased) was 70.8% in December 2015, following a downward trend since the previous year, when the loan to value ratio reached 73.7% as of December 31, 2014. Since 2012, we have reduced our risk exposure in this sector and focused on clients with better risk profiles, which allowed us to improve the credit quality of our vehicle loan portfolio.
From January to December 2015, the average term of vehicle financing was 40 months, and half of the transactions were carried out with terms of up to 36 months.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Vehicles | In December 2015, we reached a market share of 11.8% in terms of loans to individuals among banks, positioning us as fourth in Brazil in this segment. | Our main bank competitors in this business are Banco Santander (Brasil) S.A, Banco do Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-30 |
Annual Report2015 |
Real Estate Financing and Mortgages
Our mortgage business is dedicated to:
· | Creating loyalty – the relationships established in this sector are typically long-term; |
· | Contributing to the social and financial development of our clients; and |
· | Being aligned with our strategy of investing in lower risk businesses. |
We believe we have been leaders in mortgage loans to individuals among Brazilian private banks from 2008 to 2014,2015, which reflects our focus on this business aligned towith our strategy of migrating to lower risk portfolios.
We offer products through our network of branches development companies, and real estate agencies, includingbrokers, as well as through our partnership with Coelho da Fonseca Empreendimentos Imobiliários Ltda.RE/MAX and our joint venture with LPS Brasil Consultoria de Imóveis S.A. (Lopes), called “Credipronto”. These two long-term agreements provide us with exclusive real estate financing origination at a largegreater number of locations throughout Brazil.
Over the course of 2014,One competitive advantage we have added new products tois the speed of our portfolio withcredit approval process and in the goalformalization of bringing added-value tothe relevant loan documentation. As of December 31, 2015 the average time between finalizing a financing and our real estate business:receipt of the requisite documentation was 13 days, which we believe is a significantly shorter time period than those of our competitors.
During the borrowerthird quarter of 2015, we had the first fully digital mortgage contract process in which the customer uploaded the relevant documents and was able to monitor all steps of the process via the internet. This tool is available for use their property as security for personal loans with lower interest rates when compared withby account holders, which provides more agility and overall convenience in monitoring the traditional lines of credit. In this case, the client must pay his loan in full in order to use his property as collateral for other loans.
process.
As the result of our new initiatives, theThe number of mortgages we provided directly to individuals in 20142015 was 32.234.1 thousand, for an aggregate value of R$9.510.5 billion in the period. In commercial loans, we financed 28.020.0 thousand new real estate units during 2014,2015, for an aggregate value of R$5.43.4 billion.
Since 2007, real estate and mortgage transactions in the Brazilian market have been carried out mainly through first mortgages and a system of mortgage lienliens (alienação fiduciária), pursuant to which the buyer becomes the owner of the property after all payments have been made, making it easier for the bank (lender) to recover the property in case of default. This system resulted in lower legal and credit risks compared to other types of guarantees.
Another positive feature of the Brazilian market is the constant amortization system (CPM) pursuant to which decreasing installments provide faster amortization of a contract, reducing our loan-to-value indicator at a faster rate than other amortization systems.
As of December 31, 2014,2015, our outstanding loans to individuals were granted in the form of first mortgages and 98.8%99.6% were guaranteed by mortgage liens. In 2014,2015, our entire credit origination was based on the CPMconstant amortization system and ourthis portfolio loan to value ratio was 42%43.7% compared to 40%42.4% in 2013.2014.
Euromoney’s Real Estate Awards 2014Survey–In September 2014,2015, we were ranked firstrankedfirst in the Banks category,“Overall” and“EquityFinance”subcategories both inthree categories for Latin America and in Brazil, andalso in the“Loan Finance” subcategory inthree categories for Brazil. The 10th edition of theThis survey recognizesacknowledges the best companies that operateoperating in the global real estate market, according to the opinion of real estate consultants, development companies, investment managers, corporate end users and banks.sector worldwide.
The table below shows the market position and information about competitors for the business listed below:
Real Estate Financing and Mortgages | In the period from January to December, | The main player in the Brazilian real estate market is Caixa Econômica Federal (CEF), a government owned bank. CEF is focused on real estate financing and is the leader in this market. Other competitors include Banco do Brasil S.A., Banco Santander Brasil S.A. and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and ABECIP.
Microcredit
Our microcredit unit offers to low-income entrepreneurs who do not have the necessary attributes to participate in the traditional financial system the chance to expand and develop their businesses. Itaú Microcrédito’s loan officers reach out to new and existing clients, offering loans (coupled with a free loan-protection microinsurance), and point of sale, or POS, machines andmachines. Loan officers are also responsible for disseminating information regarding financial concepts related to the responsible use of money.
A major benefit arising from this initiative is that micro-entrepreneurs start to develop a relationship with the formal market.financial system. Our microcredit activities are split into two levels:
1stTier Lending: includes working capital loans, or loans for upgrades and fixed assets provided to formal and informal business people engaged in small business activities. Any granting of loans requires the presence of a trained microcredit loan officer; and |
2ndTier Lending: loans to |
Our investment in microcredit consolidatesis part of our strategy to act as agents of transformation in society. Microcredit is also important as it reinforces our vision of sustainability and increases our ability to spread our knowledge
Our profile | A-31 |
Annual Report2015 |
in financial education. The end goal is to create a virtuous cycle in which our bank stimulates the social and economic development of Brazil’s low-income population.
Credit Cards and Commercial AgreementsConsortia
Through proprietary and partnership operations with major retailers, telephone carriers, automakers and airline companies establishedA consortium is a self-financing system created in Brazil we offerwith a wide rangeview to foster savings for the purchase of creditvehicles and debit cardsother assets, such as real estate. Pursuant to consortium agreements, participants are pooled according to the specific asset they elect to purchase (e.g., a vehicle of a particular manufacturer and model), which will be paid for in installments. Payments made by the participants of a given consortium are used to create a “pool” of funds, which are used by one or more members of the consortium at a time to acquire the assets elected by the participants, e.g., once a month, and such members continue to make payments as scheduled. Generally, participants may receive the asset, (i) during the course of the consortium agreement (before all installments are paid), if the participant pays an amount (in addition to the regularly scheduled installment due) that is higher than 62.5 million current and non-current account holders (in numbersuch an additional amount offered by any other consortium member for that period, or (ii) during the course of accountsthe consortium agreement (before all installments are paid), if the participant is selected by random drawing, organized by the bank, to receive the asset, while continuing to pay for the remaining installments as of December 31, 2014).scheduled.
Our main goals inAs consortia are regarded as a provision of services under Brazilian law, the credit card business aremanagement of consortia does not give rise to continually grow our portfolio, improve its profitability, manage the quality of our assets and pursue the total satisfaction of our clients. To this end, our credit card division focuses on the development of new products, assessment of our partnerships, control of the credit quality of our portfolio and on more efficient cost management.default risk or regulatory capital requirements for us.
In 2014, we concludedSince consortia do not charge interest rates, our revenues come mainly from the migration of the Credicard portfolio acquired in May 2013 by means of our acquisition of Banco Citicard S.A. and Citifinancial Promotora de Negócios e Cobrança Ltda.
In August 2014 we launched theAcelerador de Pontos (Points Accelerator) in our reward program calledSempre Presente (Always Present). With it the client can double their invoice’s points by paying a percentage of their monthly expenses, anticipating the award and travel redemptions.
In September 2014 we launched theTudoAzul Itaucard co-branded card in partnership withAzul Linhas Aéreas, one of the main airlines in Brazil. This action is aligned with our goal of offering a diversified portfolio, providing the best suited productadministration fee charged to our clients.
Since its launch on August 2012,Given these characteristics, this business is strategic to us, contributing to revenue diversification and to a more complete product portfolio offering to our clients. In December 2015, we reached the Itaucard 2.0 has issued 5.3 million cards. This credit card is the only in Brazil consistent with the standard international interest model, which charges the revolving interest rates from the date of purchase instead of the invoice due date, allowing lower interest rates.following results:
Our card brand “Hiper” currently issued by Banco Itaucard S.A., was launched in October 2013 initially with credit card functions and, beginning in September 2014, with debit card features. The Hiper branded cards have the benefit of conversion of 120% of the card’s annual fee into a bonus for mobile cellphones (currently available for 3 of the 4 largest Brazilian carriers) and can be issued under the 2.0 Itaucard platform as well as other Itaucard credit cards.
ÉPOCA ReclameAQUI Award–Épocamagazine andReclame Aquinamed us company of the year in the “Banks and Financial Services – Cards” category. The award is deemed the sector’s principal source of recognition based on direct consumer evaluation.
415.0 thousand in active contracts, with a growth of 3.3% when compared to December 2014; |
· | R$11.8 billion in balance of installments receivables, with a growth of 8.0% when compared to December 2014; and |
· | R$683.7 million in administration fees from January to December 2015, with a growth of 12.0% when compared to the same period of 2014. |
The table below shows the market position and information about competitors for the business listed below:
Source: Itaú Unibanco Holding and ABECS.Central Bank.
Merchant Acquirer
REDE (formerly Redecard) is one of the two largest multi-brand acquirers of credit, debit and benefit card transactions in Brazil. REDE’s activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants (resulting from sales made with credit cards), rental of point-of-sale terminals, or POS, check verification through POS terminals, and the capture and transmission of transactions using coupons, and loyalty programs.
Our goal is to be the main partner for merchants that are seeking higher business potential with a focus on IT investments, infrastructure and POS modernization. For those partners, REDE offers a series of products that follow the market’s latest trends. Among these products we highlight Mobile REDE, which captures the transaction using a device attached to the smartphone or tablet. It allows card reading and input of purchase data for client’s signature, reinforcing our position in new payments solutions for freelancers and micro entrepreneurs. Through e-REDE we intensified and improved the quality of our electronic payments platform, offering not only the acquisition service, but also an antifraud gateway. We offer a single platform for efficient, fast and complete solutions for online payments using a robust antifraud system.
We have experienced significant growth in the e-commerce facets of our merchant acquiring business. In September 2014, we acquired maxiPago!, a Brazilian electronic payment means company focused on e-commerce, for purposes of improving account safety and convenience to our customers, as well as otherwise maintaining our strong digital platform.
In 2014,October 2015, we acquired 50% of the Itaú Unibanco acquiringcapital stock of ConectCar, a company which operates in the payment services business captured R$358 billionthat provides intermediation services for the automatic payment of tolls, gas and parking fees. The acquisition is in transactionsline with credit cards and debit cards, an increaseREDE’s strategy of 10.9% from 2013. The number of transactions captured and processed reached 3.9 billion, representing an increase of 4.7% from 2013. In December 2014, we had 1.8 million installed POS terminals throughout Brazil, representing an increase of 17.1% from 2013. As of December 31, 2014, REDE was presentdeveloping innovative electronic payment channels with high growth potential in almost all municipalitiesthe Brazilian market, underscoring our commitment to quality in Brazil with electric power and telecommunications network. We generally consider each POSthe services provided to represent one client.our clients.
Our profile | A-32 |
Annual Report2015 |
The following table sets forth the financial volume of transactions and the amount of transactions of credit and debit cards processed by us in 2015, 2014 2013 and 2012:2013:
(In billions of R$) | (In billions) | |||||||||||||||||||||||||||||||||||||||||||||||
(In billions of R$) | (In billions) | Financial Volume | Transactions | |||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL VOLUME | TRANSACTIONS | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
Credit cards | 232 | 209 | 183 | 1.9 | 1.8 | 1.7 | 249.7 | 231.6 | 208.8 | 2.0 | 1.9 | 1.8 | ||||||||||||||||||||||||||||||||||||
Debit cards | 126 | 114 | 94 | 2.0 | 1.8 | 1.6 | 133.4 | 125.9 | 113.8 | 2.0 | 2.0 | 1.9 | ||||||||||||||||||||||||||||||||||||
Total | 358 | 323 | 278 | 3.9 | 3.7 | 3.3 | 383.1 | 357.5 | 322.6 | 4.0 | 3.9 | 3.7 |
Prêmio Época ReclameAQUI 2015(2015 Época ReclameAQUI Award) – In 2015, we were elected the company of the yearin the “Electronic Means of Payment” organized byÉpoca magazine and the Reclame Aqui consumer website. Also in 2015, REDE was selected as one of the 25 most valued brands in Brazil at the 2015 Brazilian Most Valued Brands survey conducted by Interbrand.
The table below shows the market position and information about competitors for the business listed below:
Merchant Acquirer | In the period from January to | Our main competitors in this business are Cielo S.A., Getnet Tecnologia em Captura e Processamento de Transações H.U.A.H. S.A. (GetNet) and Banco Bankpar S.A. (American Express). |
Source: Itaú Unibanco Holding and ABECS.
Vehicle FinancingOther products and services portfolio
As
Insurance
Our insurance business provides a wide range of December 31, 2014,life and personal accident products, automobile and property insurance, credit insurance and travel insurance. Our insurance core activities, which include our portfolio30% stake in Porto Seguro, consist of mass-market insurance products related to life, property and credit. These products are offered in synergy with retail channels – our branch network, partnership with retailers, credit card clients, real estate and vehicle financing, to individuals amounted to R$28,927 millionpersonal and to companies reached R$5,573 million, totaling R$34,500 million with an average loan to value (ratiopayroll loans – and the wholesale channel. These products have characteristics such as a low loss ratio, low volatility in results and less use of a loan tocapital, making them strategic and increasingly relevant in the value of an asset purchased) of 73.7% in 2014, following a downward trend during the year. Since 2012, we have reduced our risk exposure in this sector and focused on clients with better risk profiles, which allowed us to improve the credit quality of our vehicle loan portfolio.
From January to December 2014, the average term of vehicle financing was 39 months, and halfdiversification of the transactions were carried out with terms of upconglomerate’s revenues. Other insurance activities correspond to 36 months.
In addition to the branches, dealerships, car retailersextended warranty, health insurance, our stake in IRB – Brasil Resseguros S.A. and partners, we also focus on efficient sales channels that offer full services to our clients. We receive, on average, 13 million website sessions a month through iCarros, a classified ads website that facilitates the purchase and sale of new and used vehicles. Focused on innovative solutions, the website is also available for mobile applications and offers tools for comparing new vehicles and a pioneering service for receiving financing leads for our partners. Additionally, iCarros offers credit cards, insurances and consortia.other activities.
The table below shows the market position and information about competitors for the business listed below:
The Brazilian insurance market is highly competitive. Our main |
Source: Itaú Unibanco HoldingSUSEP. Insurance core activities include: Personal Insurance (Life, Personal Accidents, Credit Insurance, Educational, Travel, Unemployment, Funeral Allowance, Serious Diseases, Random Events), Housing, Multiple Peril and the Central Bank.
Domestic Credit – Individuals.
ConsortiaPrivate Pension Plans
A consortium is a self-financing system created in BrazilWe offer private pension plans to our clients as an option for wealth and inheritance planning and income tax purposes (these products are tax-deferred). We provide our clients with a viewsolution to foster savings forensure the purchasemaintenance of vehicles and other assets, suchtheir quality of life, as real estate. Pursuanta supplement to consortium agreements, participants are pooled according to the specific asset they elect to purchase (e.g., a vehicle of a particular manufacturer and model), which will be paid for in installments. Payments made by the participants of a given consortium are used to create a “pool” of funds, which are used by one or more members of the consortium at a time to acquire the assets elected by the participants, e.g., once a month, and such members continue to make payments as scheduled. Generally, participants may receive the asset, (i) during the course of the consortium agreement (before all installments are paid), if the participant pays an amount (in addition to the regularly scheduled installment due) that is higher than such an additional amount offered by any other consortium member for that period, or (ii) during the course of the consortium agreement (before all installments are paid), if the participant is selected by random drawing, organized by the bank, to receive the asset, while continuing to pay for the remaining installments as scheduled.government plans, through long-term investments.
As consortia are regarded as a provision of services under Brazilian law, the management of consortia does not give rise to default risk or regulatory capital requirements for us.
Since consortia do not charge interest rates, our revenues come mainly from the administration fee charged from clients.
Given these characteristics, this business is strategic to us, contributing to revenue diversification and to a more complete product portfolio offering to our clients. In 2014, weThe contributions reached the following results:
Our profile | A-33 |
Annual Report2015 |
The table below shows the market position and information about competitors for the business listed below:
In December 2015, our balance of provisions represented 23.4% of the market share for pension plans, positioning us as thethird largest pension provider in Brazil. | Our main competitors in private retirement plan products are controlled by large commercial banks, such as Banco Bradesco S.A. and Banco do Brasil S.A., which, like us, take advantage of their branch network to gain access to the retail market. |
Source: FENAPREVI (Balance of provisions - Pension Plans for Individuals and Companies).
Premium Bonds (títulos de capitalização, or capitalization plans)
Premium bonds are fixed deposits products pursuant to which a client makes a one-time deposit or monthly deposits of a fixed sum that will be returned at the end of a designated term. Ownership in premium bonds automatically qualifies a customer to participate in periodic raffles, each time with the opportunity to win a significant cash prize. In 2015, we distributed R$61.2 million in raffle prizes for 3,128 clients.
We currently market our premium bonds portfolio of products through our branch network, electronic channels and ATMs, and we are currently developing new technologies for channel diversification. Revenues from capitalization plans increased 5.2% in 2015 when compared to 2014.
Focusing in corporate responsibility principles, since August 2014 we maintain a partnership withInstituto Ayrton Senna, a non-profit organization which focuses on promoting quality of public education in Brazil. A portion of the revenues upon purchase of PIC, our bank's premium bonds, is provided to theInstituto Ayrton Senna’s education projects.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Premium Bonds | In the period from January to |
Source: SUSEP.
Retail Banking
We have a large and diverse portfolio of products, such as credit and investments, and services to address our clients' needs. Our retail banking business is segregated according to customer profiles, which allows us to be closer and understand our customer's needs, enabling us to better offer the most suitable products to meet their demands.
Itaú Retail Banking (individuals)
Our core business is retail banking and through our retail operation we offer a dedicated service structure to consumer clients throughout Brazil. Our client service structure is targeted to offer the best solutions for each client profile. We classify our retail clients as individuals with a monthly income up to R$4,000.
Our Itaú Uniclass services are available at every branch for clients who earn more than R$4,000 and below R$10,000 per month, depending on the region, an innovation for Brazil's banking sector. We offer exclusive services to our Itaú Uniclass clients, including investment advisory services, exclusive cashiers, special telephone service and higher credit limits and a large team of dedicated relationship managers.
Our retail network is focused on building lasting, transparent relationships with our clients.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Retail Banking (Including Itaú Personnalité) | In December 2015, we reached a market share of 12.4% based on total outstanding loan balance inreais, positioning us as thethird largest bank in this segment in Brazil. | Itaú Unibanco Holding has a leading position in many sectors of the Brazilian domestic financial market. Based on Central Bank data and publicly available financial information, our main competitors |
Source: Itaú Unibanco Holding and the Central Bank.
Our profile | A-34 |
Annual Report2015 |
Itaú Personnalité (banking for high-income individuals)
We began providing customized services to high-income individuals in 1996 with the creation of Itaú Personnalité, which currently serves individuals who earn more than R$10,000 per month or have investments in excess of R$100,000.
Itaú Personnalité is focused on providing (i) financial advisory services by managers who understand the specific needs of our higher-income clients, (ii) a large portfolio of exclusive products and services and (iii) special benefits based on the type and length of relationship with the client, including discounts on various products and services. Itaú Personnalité services its clients through a dedicated network comprised of 288 branches, located in the main Brazilian cities. Itaú Personnalité clients also have access to our retail banking network of branches and ATMs throughout the country, as well as through services by internet, telephone and mobile banking. For clients who prefer remote services, Itaú Personnalité provides a "digital bank platform" where relationship managers service clients through telephone, email, SMS and videoconference from 7 a.m. to midnight on business days.
Itaú Empresas (very small and small companies)
To meet the needs of our corporate clients we offer customized solutions and provide detailed advice on all products and services to:
All our managers are certified by the Brazilian Financial and Capital Markets Association (ANBIMA), and throughout the year they receive training to offer the best solutions for each client profile. Our clients rely on our ability to provide products, terms and rates customized to their needs.
Our strategy is to capture market opportunities by meeting the needs of these companies and their owners, particularly with respect to the management of cash flow, credit facilities, investment needs and services.
As was the case in 2014, improving our credit portfolio and reducing our overdue loans volume remained our goal in 2015; credit processes, policies and tools were enhanced and we intensified our revenue collection.
Focused on meeting our clients' needs, we expanded "Conta Certa," for more than 90% of our customers. "Conta Certa" provides an account plan with customizable service bundles, and we extended our offerings in electronic channels enabling clients to borrow and purchase a wide range of services without having to go to one of our branches. In 2015, more customers joined the "Flex" plan. With this plan, our customers have a different commercial regime, which allows them to receive their credit card sales proceeds within 48 hours after sale. In addition, we improved our integrated pricing loans, cash services and acquiring services.
Improving and simplifying our operational and commercial processes were also in our agenda as we worked on simplifying time-consuming processes such as current account opening and organized our operational and commercial units to function and report in a more standardized manner, resembling a franchise model.
Public Sector
Our public sector business operates in all divisions of the public sector, including the federal, state and municipal governments (in the Executive, Legislative and Judicial branches).
To service public sector clients, we use platforms that are separate from our retail banking branches, with teams of specially trained managers who offer customized solutions in tax collection, foreign exchange services, administration of public assets, payments to suppliers, payroll for civil and military servants and retirement. Based on these platforms, we have a significant amount of business with public sector clients, particularly in those Brazilian states where we acquired previously state-owned financial institutions. In December 2015, we had 4,983 public sector clients and 12 offices in Brazil.
Wholesale Bank
Wholesale Bank is the segment responsible for banking operations of large (annual revenues over R$300 million) and middle-market companies (annual revenues from R$30 million to R$300 million) and investment banking services.activities. It offers a wide range of products and services to the largest economic groups of Brazil.Brazil and of other countries in Latin America.
Our activities in this business range from typical operations of a commercial bank to capital markets operationstransactions and advisory services for mergers and acquisitions. These activities are fully integrated, which enables us to achieve a performance tailored to our clients’clients' needs.
One of the most important features of our Wholesale Bank is the set of initiatives linked to improving efficiency in our operations. These continuous actions, which are expected to continue to grow in the coming years, are designed to increase revenues, improve processes and reduce costs.
“Despite the challenging macroeconomic environment, we have progressedcosts, based on a number of initiatives in 2014, including our position as a market leader in Merger & Acquisition transactions and the implementation of a new business model to serve our middle market companies, which we expect to generate additional contribution to the bottom line in the coming years”.
Candido Bracher
Itaú Unibanco Holding’s Board of Directors Member and Executive Vice President
– Wholesale Bank in 2014 and General Manager – Wholesale starting in 2015
Since October 2013, our middle-market banking business (which includes companies with annual revenues over R$30 million to R$300 million), comprised of the “middle” and “upper middle” corporate divisions, became part of the Wholesale Bank management structure.
We have been working to create and implement a new model, to serve as a market benchmark across all aspects of our Middle-Market banking business, such as credit, products and people, in order to establish differentiated and sustainable growth for our Wholesale Bank. We began implementing the new model in 2014 and expect to complete the implementation phase by the end of 2015. The main steps for this year will be: support commercial area with appropriate tools; credit model, team capacity and middle office enhancement; and new commercial centers (polos).
We offer a full range of financial products and services to middle-market clients, such as deposit accounts, investment options, insurance and credit products, including investment capital loans, working capital loans, inventory financing, trade financing, foreign currency services, equipment leasing services, letters of credit and guarantees. We also carry out financial transactions on behalf of middle-market clients, including interbank transactions, open market transactions and futures, swaps, hedging and arbitrage transactions. Moreover, we offer a broad number of cash management serviceshigh-quality service to our middle-market clients, including collection services, electronic payment services and Internet office banking.clients.
Investment Banking
Our investment banking business carried out through Itaú BBA, assists companies raising capital through fixed income and equity instruments in public and private capital markets, and provides advisory services in mergers and acquisitions. We advise companies, private equity
Our profile | A-35 |
Annual Report2015 |
funds and investors in the structuring of variable income products and in mergers and acquisitions. From research to execution, we believe we offer a wide portfolio of investment banking services with respect to Brazilian and other Latin American companies.
In investment banking, the fixed income department acts as bookrunner or manager in the issuance of debentures, promissory notes and securitization transactions.
The Banker's Investment Banking Awards 20142015–- PromotedbyThe Banker magazine, Itaú BBA was recognized as the “Most"Most Innovative Investment Bank in LatAm 2015".
World's Best Investment Banks 2015- Organized by Global Finance, we were selected as the "Best Investment Bank in Latin America”America', "Best Investment Bank in Brazil', "Best Investment Bank in Argentina', "Best M&A Bank in Latin America" and "Best Equity Bank in Latin America".
The table below shows the market position and information about competitors for the business listed below:
Investment Banking | In the period from January to December | In investment banking, Itaú BBA’s main competitors include Banco Santander, Banco de Investimentos Credit Suisse (Brasil) S.A., Banco Merrill Lynch de Investimentos S.A., Banco Morgan Stanley S.A., Banco JP Morgan S.A., Bradesco BBI and Banco BTG Pactual S.A. |
Source: (1) ANBIMA Distribution ranking in terms of volume, (2) Thomson ranking by number of deals. (2) ANBIMA ranking in terms of volume
Itaú Private Bank
With a full global wealth management platform, we are the market leaders in Brazil with a market share exceeding 26% and one of the main players in Latin America. Our multidisciplinary team of more than 650 professionals, which is comprised of 110 private bankers, as of December 31, 2015, supported by a team of investment advisers and product experts, provide comprehensive financial services to clients, understanding and addressing their needs from our eight offices in Brazil and in our offices located in Zurich, Miami, New York, Santiago, Asuncion and Nassau.
Our clients have access to a complete portfolio of products and services, ranging from investment management to wealth planning, credit and banking solutions. In addition to our in-house customized products and services, we offer our clients access to an open architecture of alternatives from third-party providers.
Aligned with our mission to be the leading company in client satisfaction and sustainable performance, we decided to focus our strategic priorities, and we intend to continue to do so during the next year, on the following Itaú Private Bank initiatives::
Global Private Banking Awards 2015- Sponsored by theProfessional Wealth Management andThe Banker magazines in October 2015, we were acknowledged for the fifth time as the "Best Private Bank in Brazil".
25th Global Wealth Summit & Awards- In October 2015, we were chosen for the fifth time as the "Outstanding Global Private Bank in Latin America', in the award promoted by Private Banker International.
The World's Best Private Banks 2015- Organized byGlobal Financemagazine, we were recognized as the "Best Private Bank in Brazil" and "Best Private Bank in Latin America".
Private Banking Survey 2015- Promoted byEuromoney magazine, we were recognized for the seventh time in the "Best Private Banking Services Overall in Brazil".
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Private Bank | In September 2015, our market share exceeded 26% in terms of assets under management, positioning us as thelargest private bank in Brazil. | According to ANBIMA, the Private Bank industry in Brazil held assets totaling R$702 billion as of September 2015, with competition concentrated among large and well-established banks. Our main competitors in the private banking funds are BTG Pactual, Credit Suisse Hedging Griffo and Banco Bradesco S.A. |
Source: Itaú Unibanco Holding and ANBIMA.
Our profile | A-36 |
Annual Report2015 |
Itaú Asset Management
Itaú Asset Management is responsible for managing clients' assets. It has positioned itself as the largest private asset manager in Brazil, and one of the leading institutions of its kind in Latin America, by having over R$473.1 billion, according to ANBIMA, in assets under management, more than 260 professionals present in 8 countries, and over 50 years of experience in managing resources.
Furthermore, it has one of the biggest research teams in Latin America, which is composed of professionals focused on specific industries and investment strategies. The consistent investment in market research allows us to analyze investment opportunities in detail, under multiple perspectives. Through flagship strategies, we offer a range of customized products and solutions, tailored to the uniqueness of each client segment, considering different investment objectives and risk profiles. Besides, we have a committed risk management team, responsible for the support of the operation.
Kinea, an alternative investments management company of Itaú Unibanco, held R$6.9 billion in managed assets at the end of 2015.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Asset Management | In December 2015, we had a market share of 15.9% in terms of assets under management, positioning us as thesecond asset management in Brazil. | According to ANBIMA, the asset management industry in Brazil held assets totaling R$2,983 billion as of December 2015, with competition concentrated among large and well-established retail banks. Our main competitors are Banco do Brasil S.A. and Banco Bradesco S.A. |
Source: ANBIMA.
Securities Services
Itaú Securities Services business units provide
(i) local custody and fiduciary services,
(ii) international custody services, and
(iii) corporate solutions that act as transfer agent and stockholder servicer for Brazilian companies issuing equity, debentures, promissory and bank credit notes. We also work as guarantor in transactions for project finance, escrow accounts and loan and financing contracts.
Our focus is to be a full service provider for institutional clients by offering integrated solutions and an exclusive channel with specialized professionals. To be efficient, these businesses have the technology as a foundation.
Pension funds, insurance companies, asset managers, international institutional investors and equity and debt issuers are our primary clients in these businesses, representing approximately 3,429 clients in 22 countries that reached R$2.3 trillion of assets under service as of December 31, 2015, which includes investment funds, underwriting, pension funds, trustee and brokerage services.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Local Custody | In December 2015, we had a market share of 26.6% based on total assets under local custody, positioning us as thesecondlargest local custodian. | According to ANBIMA, the local custody in Brazil held assets totaling R$3,405 billion as of December 2015. Our main competitors are Banco Bradesco S.A. and Banco do Brasil S.A. | ||
International Custody Services | Our market share in December 2015 was 13.0% in terms of total assets under international custody, positioning us as thethirdlargest international custodian. | Based on ANBIMA, the international custody service in Brazil totaled R$1,038 billion of assets as of December 2015. Our main competitors are Banco Citibank S.A., JP Morgan's Securities Services and Banco Bradesco S.A. | ||
Corporate Solutions | In December 2015, we had a leading position as a provider of agent and registrar services to 222 companies listed on BM&FBovespa, which represents 61.8% of companies listed on that exchange. Moreover, we wereleaderas transfer agent with 492 debentures offerings in the Brazilian market, representing 51.6% of the debentures market in Brazil. | Our main competitors in the equities market are Banco Bradesco S.A. and Banco do Brasil S.A. Our main competitor in debentures is Banco Bradesco S.A. |
Source: Itaú Unibanco Holding, ANBIMA and BM&FBovespa.
Itaú Corretora (Brokerage)
Itaú Corretora has been providing brokerage services in BM&FBovespa since 1965. We provide retail brokerage services in Brazil to over 9097 thousand clients with positions in the equity and fixed income markets, accounting for approximately R$27.129 billion in trading volume. The brokerage services are also provided to international clients viathrough our broker-dealersbroker-dealer in New York.
Our profile | A-37 |
Annual Report2015 |
The table below shows the market position and information about competitors for the business listed below:
Retail Brokerage Services(1) | Rankedthirdin Retail Brokerage Services by trading volume in December | Main competitors: XP Investimentos, Ágora Corretora de Títulos e Valores Mobiliários S.A., Rico Corretora de Títulos e Valores Mobiliários S.A. and BB Gestão de Recursos Distribuidora de Títulos e Valores Mobiliários S.A. | ||
Cash Equities(1) | Rankedsixthin Cash Equities by trading volume in the period between January and December | Main competitors: Credit Suisse | ||
Futures and Derivatives(1) | Ranked | Main competitors: UBS Brasil Corretora, BTG Pactual Corretora de Títulos e Valores Mobiliários S.A., ICAP do Brasil Corretora de Títulos e Valores Mobiliários Ltda. and Tullett Prebon Brasil S.A. Corretora de Valores e Câmbio, BGC Liquidez Distribuidora de Títulos e Valores Mobiliários Ltda. | ||
Research(2) | Ranked | Main competitors (local and global players): J.P. Morgan Corretora de Câmbio e Valores Mobiliários S.A., BTG Pactual Corretora de Títulos e Valores Mobiliários S.A., Credit Suisse Hedging-Griffo Corretora de Valores S.A. and Bank of America Merrill Lynch S.A. Corretora de Títulos e Valores Mobiliários. |
Source: (1) CBLCnet, (2) Institutional Investor Magazine.
Our International Business
Itaú Unibanco Holding’sHolding's Global Footprint
As of December 31, 2014 we were present in 18 countries outside of Brazil, seven of which are in Latin America. In Argentina, Chile, Paraguay and Uruguay, we offer commercial banking (retail) and wholesale banking with the main focus on commercial banking. In Mexico,Peru, we are opening a brokerage company. We also have an Itaú BBA representation office and in Peru, andColombia we are gradually intensifying our presence in Colombia through our corporate and investment banking and corporate operations.
Our profile | A-38 |
Annual Report2015 |
Additionally, we have operations in Europe (France, Germany, Portugal, United Kingdom, Spain, and Switzerland), in the United States (Miami and New York), in the Caribbean (Cayman Islands and the Bahamas), in the Middle East (Dubai), and in Asia (Hong Kong, Shanghai and Tokyo). These are operations that mainly serve institutional, corporate and private banking clients.
Please refer to section Our Profile, item Employees, for further details about our number of employees abroad.
Please refer to section Performance, item Financial Performance, Results, Revenues from Operations in Brazil and Abroad, for further information.
Latin America
Latin America is a priority in our international expansion strategy due to the geographic and cultural proximity to Brazil. Our purpose is to be recognized as the “Latin"Latin American Bank”,Bank" becoming a reference in the region for all financial services provided to individuals and companies. We have expanded our business in the region in a sustainable manner over the past years and our priority now is to gain economies of scale, maintain a strong presence in the local retail markets and strengthen our relationships with local companies.
In order to support our more than 1.9 million clients, as of December 31, 20142015 we had a network of 246 branches and client service branches (CSBs) in Latin America (ex-Brazil). In Paraguay, we had 4045 non-bank correspondents, which are points of service with a simplified structure, strategically located in supermarkets to provide services to our clients in that country. As of December 31, 2014,2015, we also havehad 36 points of service through OCA S.A., our credit card operator in Uruguay. Please refer to section Our Profile, item Distribution Channels, for further details about our distribution network in Latin America.
“The focus of Itaú Unibanco’s operations in Latin America is client satisfaction and the integration of the many businesses and segments in the region, thereby allowing us to have a holistic view and more simple and agile governance”.
Ricardo Marino
Itaú Unibanco Holding’s Board of Directors Member and Itaú Unibanco’s
Executive Vice President – Latam
(*) As of December 31, 2014.
Banco Itaú Argentina
We operate in Argentina since 1979, where we focus on large companies with business ties to Brazil. In 1994, we initiated our retail operations in Buenos Aires. In 1998, we increased our presence by buyingthrough the acquisition of Buen Ayre Bank, subsequently renamed Banco Itaú Argentina.
Through Banco Itaú Argentina we offer products and services in corporate banking, small – and middle-market companies and retail banking. Our corporate banking business focuses on large and institutional clients, providing lending, structured finance, investment and cash management services. Our small – and middle-market operations provide credit for working capital and investments in production capacity increases. Our retail banking business focuses on middle and upper-income clients, and our services offerings include current and savings accounts, personal loans and credit cards. As of December 31, 2014, Banco Itaú Argentina had 72 branches and 186 ATMs.
The table below shows our market position and information about competitors for the business listed below:
Total Loan Portfolio (includes privately-owned banks only) | In | Our main competitors are Banco Santander Río S.A., Banco de Galicia y Buenos Aires S.A., BBVA Banco Frances S.A. and Banco Macro S.A. |
Source: Central Bank of Argentina.
Banco Itaú Chile
Our business in Chile is mainly focused on retail and high-income clients, but we also operate with middle-market and large corporate clients. In 2014, we opened 3 new branches, totaling 99 branches in our service network in Chile as of December 31, 2014.
We started our activities in Chile in 2007, after Bank of America Corporation transferred the operations of BankBoston Chile and BankBoston Uruguay to us. In August 2014 we extended our agreement signed in 2011 obtaining a 100% interest in Munita, Cruzat & Claro, a key playerleader in wealth management in Chile. The integration, through Itaú Private Bank, will be focused on the continuity of the relationship with clients. Accordingly, we reaffirm our commitment to the Chilean market and the aim to be the largest private bank in the Latin American market.
Currently, we occupy a prominent position in wealth management and, amongItaú CorpBanca
In 2015, the major banks inmerger of Itaú Chile we havewith CorpBanca was approved by the fastest growing loan portfolio, according to Superintendency of Banks and Financial Institutions, or SBIF(Superintendencia de Bancos e Instituciones Financieras),in Chile. As a result, we have obtained all the required regulatory authorizations in Brazil, Chile, Colombia and Panama to complete the merger, which occured on April 1, 2016. This operation represents an important step in our strategy to expand our presence in Latin America, placing the bank in, what we believe to be, an outstanding position in Chile and Colombia, as of December 2014.
Morningstar Awards 2014–Itaú Chile AGF was elected byMorningstar, a leading companywell as diversifying our operations in the provision of independent investment surveys, in the following categories: Mejor Fondo de Renta Fija Latinoamérica (best fixed income fund in Latin America) with the Itaú Latam Corporate Bond Fund A fund, and Mejor Administradora de Renta Fija (best fixed income manager).region.
The table below shows the market position and information about competitors for the business listed below:
Total Loan Portfolio (includes privately-owned banks only) | In December | Our main competitors are Banco Santander-Chile S.A., Banco de Chile S.A., Banco de Crédito e Inversiones S.A. and Banco Bilbao Vizcaya Argentaria Chile S.A. |
Source: Superintendency of Banks and Financial Institutions.
Our profile | A-39 |
Itaú CorpBanca
On January 29, 2014, we entered into an agreement with CorpBanca and its controlling stockholders for the merger of Banco Itaú Chile and CorpBanca. Some of the regulatory approvals required for the conclusion of this operation have already been obtained.
The transaction creates an important platform for our expansion and search for business development in the region. In Chile, it will allow us to move up from the 7th to the 4th position in terms of loans among privately-owned banks, according to SBIF, as of December 2014.
Annual Report2015 |
Banco Itaú Paraguay
Our operations in Paraguay began in 1978 and comprise retail and wholesale banking, through Interbanco, which was acquired in 1995 by Unibanco. In 2010, the Itaú brand was introduced and our bank’sbank's name was changed to Banco Itaú Paraguay. In 2014, we opened 2 new branches, totaling 30 branches and 297 ATMs in our service network in Paraguay as of December 31, 2014.
Banco Itaú Paraguay distributes products and services to small and middle market companies, agribusiness, large companies, institutional clients and consumer clients. Banco Itaú Paraguay’sParaguay's main sources of income are consumer banking products, primarily credit cards. The retail segment also focuses on payroll clients. Under corporate banking, Banco Itaú Paraguay has a well-established presence in the agribusiness sector.
We arehold the leading player in the credit card segment and hold the first position among the banks in Paraguay regardingin terms of results return on average equity and efficiency ratio, according todeposits (data provided by the Central Bank of Paraguay, as of December 2014.2015).
The table below shows the market position and information about competitors for the business listed below:
Total Loan Portfolio (includes privately-owned banks only) | In December | Our main competitors are Banco Continental S.A.E.C.A., Banco Regional S.A.E.C.A. and Banco Bilbao Viscaya Argentaria Paraguay S.A. |
Source: Central Bank of Paraguay.
Banco Itaú Uruguay
Our banking operations in Uruguay include Banco Itaú Uruguay, OCA (the largest credit card issuer in Uruguay) and the pension fund management company Unión Capital. Our strategy in
Uruguay is to serve a broad range of clients through customized banking solutions. As of December 31, 2014, Banco Itaú Uruguay had 23 branches and 54 ATMs.
Our retail banking business is focused on individuals and small business clients. Retail products and services focus on the middle and upper-income segments, and also include current and savings accounts, payroll payment, self-service areas and ATMs in all branches, and phone and Internetinternet banking. The wholesale banking division is focused on multinational companies, financial institutions, large and middle market companies and the public sector, providing lending, cash management, treasury, trade and investment services. Additionally, our private banking business unit provides a full portfolio of local and international financial market products.
The table below shows the market position and information about competitors for the business listed below:
Total Loan Portfolio (includes privately-owned banks only) | In December | Our main competitors are Banco Santander |
Source: Central Bank of Uruguay.
Colombia
In Colombia, our wholesale and investment bank has been operating since the end of 2012. Our target market in Colombia consists of institutional investors and large Brazilian companies operating in Colombia as well as Colombian companies operating in Brazil. The product portfolio includes loan operations, foreign trade financing, foreign exchange and derivatives and investment bank activities, such as advising on mergers and acquisitions and accessing the capital markets.
Our presence in Colombia is increasing,growing and we aim tonow will be onepart of the three main investment and wholesale banks in Colombia in the next four years. The segments evaluated as the most attractive are mining, energy, oil, gas, and infrastructure-related areas. In addition,a larger operation as a result of the merger of operations with CorpBanca we will enter the financial retail market in Colombia.Corpbanca.
Please refer to section Our Profile, item 20142015 Highlights, Recent Developments, for further information about the merger of Banco Itaú Chile with CorpBanca.
Peru
In Peru, we have a representative office and we are considering expandingincreasing our activities intoin the corporate and investment banking segments, following the same strategy as in Colombia, so asin order to take advantage of the country's strong growth experienced by Peru.growth.
Mexico
In October 2014, the Central Bank of Brazil approved the opening of a brokerage company in Mexico and in November 2014 we received the approval of thewill continue with research on local regulatory authorities.companies.
Itaú BBA International
Our banking activities carried out under the corporate structure of Itaú BBA International are mainly focused on two business lines:
Our profile | A-40 |
Annual Report2015 |
Other International Operations
To support our clients in cross-border financial transactions and services, our international units are active in providing our clients with a variety of financial products, such as trade financing, loans from multilateral credit agencies, off-shore loans, international cash management services, foreign exchange, letters of credit, guarantees required in international bidding processes, derivatives for hedging or proprietary trading purposes, structured transactions and international capital markets offerings. These services are offered mainly through our branches in the Bahamas, New York and Cayman Islands, as well as through our other international operations.
We manage proprietary portfolios and raise funds through the issuance of securities in the international market. Fund raising through the issuance of securities, certificates of deposit, commercial paper and trade notes can be conducted by our branches located in the Cayman Islands, the Bahamas and New York, as well as through Itaú Bank Ltd., a banking subsidiary incorporated in the Cayman Islands. Our proprietary portfolios are mainly held by Itaú Bank and our Nassau and Cayman Islands branches. These offices also enhance our ability to manage our international liquidity.
Through our international operations, we establish and monitor trade-related lines of credit from foreign banks, maintain correspondent banking relationships with money centers and regional banks throughout the world and oversee our other foreign currency-raising activities.
Additionally, Itaú BBA participates in the international capital markets as a dealer, as it has equity and fixed income sales and trading teams in São Paulo, New York, Santiago, London and Hong Kong and Tokyo.Kong. We provide extensive research coverage of over 217206 listed companies in Brazil, Mexico, Chile, Colombia, Peru, Panama and Argentina. Our international fixed income and equity teams are active in trading and offering Brazilian and Latin American securities to institutional investors.
Competitive Strengthsstrengths
We believe the following strengths provide us with significant competitive advantages and distinguish us from our competitors.
Premier banking brand in Brazil
We believe that our brands are very strong and very well recognized in Brazil and that they have been associated with quality, reliability, and with our large portfolio of products, which help us maintain a low client turnover rate, especially among clients in the high-income segment. In 2014,2015, our brand was elected by consulting firm Interbrand as “the most valuable brand” in Brazil for the tenthtwelfth consecutive time. Please refer to section Our Profile, item Brand for further information.
Large branch network in geographic areas with high economic activities
Our Brazilian branch network, while national in scope, is strategically concentrated in the southeast region of Brazil, the country’s most developed region.Brazil. Our branch network in other countries of the Southern Cone (Argentina, Chile, Paraguay, and Uruguay) is also positioned in regions with high levels of economic activity. Having our branch network in key economic areas gives us a strong presence and a competitive advantage to offer our services to a broad range of clients and benefit from selective market opportunities. Our exclusive ATM network allows us to offer a wide range of products and services to our clients, which we see as one of our competitive strengths.
Additionally, we have refurbished branches, especially in shopping malls. These branches have a new visual identity and service proposal,proposition, offering a new concept of client service and a differentiated layout inspired by the design of a retail store. Shopping mall branches have extended hours, which offers added convenience for our clients. We have an extensive network, including branches, client site branches and ATMs in Brazil and abroad. Please refer to section Our Profile, item Marketing and Distribution Channels for further information.
Diversified line of products and services
We are a multi-service bank offering a diverse line of products and services designed to address the needs of various types of clients, including corporate clients, very small and small companies, retail clients, high-income individuals, private bank clients, non-accountholders and credit card users. We believe that this business model creates opportunities to improve our relationship with clients and thereby increases our market share. We expect to maintain our leading presence by capturing a solid and increasing number of transactions across various business segments.
Technology and electronic distribution channels as drivers for sales
Our intensive use of technology and electronic distribution channels, which has contributed significantly to an increase in sales of products and services, is one of our most important competitive advantages. We invest in technology because we believe that it is how we will be able to improve the world ofenvironment for our employees and clients. We focus our efforts on the development of platforms and services that use the best of technology, with the purpose of streamlining and making easier the lives of everybody who relate with the bank, with a focus on mobility and convenience.
Our sophisticated technology supports certain remote banking capabilities (e.g.,(such as call centers and internet banking, etc.)banking) and offers clients the ability to verify statements and perform transactions online or over the phone. In addition, our sales teams can access client credit scores with ease and credit proposals can be sent over the internet by any broker registered with our systems.
Our profile | A-41 |
Annual Report2015 |
On December 31, 2014,2015, we completed our IT investments comprised over 78% of our total investments planned for the 2012-2015 period from 2012 to 2015, financed by internal funds. We expect to invest this total amountThese investments were made in data processing systems, purchase of software, system development and in our new Data Center built in the State of São Paulo. Our Data Center, one of the largest in Latin American,America, had its construction concluded as planned and the configurations of the environmental infrastructure were successfully established. We have begunThe new data center will support our growth up to 2050, ensuring the migrationhigh performance and availability of our systems and services, which are scheduled to be concluded in the second half of 2016.operations.
Additionally, through our online platforms Uniclass and Personnalité Digital we expanded our client relationship model by allowing the relationship managers to offer personalized customer services from 7 a.m. to midnight, from Monday through Friday. We have also redesigned and are offering to our clients other digital channels such as our Itaucard and Itaú Empresas applications. Please refer to section Our Profile, item Marketing and Distribution Channels, for further information about Personnalité Digital and other digital channels.
Risk-based pricing model as a tool to manage risk while exploring opportunities
Our risk-based pricing model, as applied to our products, is an important competitive advantage as it gives us a more precise dimension of risk-return in various scenarios. This is an essential tool to explore commercial opportunities and simultaneously manage risk. Depending on the product, each contract is individually priced using risk adjusted return on capital models that give us a better assessment of the relevant market.
Competition
The last several years have been characterized by increased competition and consolidation in the financial services industry in Brazil. As of September 30, 2015, there were 132 multiple-service banks, 25 commercial banks, and numerous savings and loan, brokerage, leasing and other financial institutions in Brazil.
We, together with Banco Bradesco S.A. and Banco Santander Brasil S.A., are the leaders in the privately-owned multiple-services banking sector. As of September 30, 2015, these banks accounted for 34.5% of the Brazilian banking sector's total assets. We also face competition from state-owned banks, which has increased. As of September 30, 2015, Banco do Brasil S.A., Caixa Econômica Federal, and BNDES accounted for 42.6% of the banking system's total assets.
The following table sets forth the total assets of the 10 main banks in Brazil, classified according to their interest in the total assets of the Brazilian banking sector:
Position | Banks by total assets(1) | Control Type | (In billions of R$) 2015 | (%) As of December 31, % of Total | ||||||||
1st | Banco do Brasil S.A.(2) | state-owned | 1.439,0 | 17,4 | ||||||||
2nd | Itaú Unibanco Holding S.A. | privately-owned | 1.285,4 | 15,6 | ||||||||
3rd | Caixa Econômica Federal | state-owned | 1.203,8 | 14,6 | ||||||||
4th | Banco Nacional de Desenvolvimento Econômico e Social | state-owned | 925,9 | 11,2 | ||||||||
5th | Banco Bradesco S.A. | privately-owned | 905,1 | 11,0 | ||||||||
6th | Banco Santander Brasil S.A. | privately-owned | 681,7 | 8,3 | ||||||||
7th | Banco BTG Pactual S.A. | privately-owned | 241,7 | 2,9 | ||||||||
8th | HSBC Bank Brasil S.A. | privately-owned | 175,1 | 2,1 | ||||||||
9th | Banco Safra S.A. | privately-owned | 147,6 | 1,8 | ||||||||
10th | Banco Citibank S.A. | privately-owned | 76,0 | 0,9 | ||||||||
n.a. | Others | n.a. | 1.181,1 | 14,3 | ||||||||
Total | 8.262,3 | 100,0 |
(1) Based on banking services, except insurance and pension funds.
(2) Includes the consolidation of 50.0% do Banco Votorantim S.A. based on Banco do Brasil's shareholding stake and excludes these 50.0% of National Financial System.
Source: Central Bank (Top 50 Banks in Brazil).
Securities, Commodities and Futures | ITUB3 | ITUB4 | Level 1 | |||||
New York Stock Exchange (NYSE) | - | ITUB(1) | Level 2 | |||||
Buenos Aires Stock Exchange (BCBA) | - | ITUB4(2) | - |
(1) American Depositary Shares, or ADSs.
(2) Argentine Certificates of Deposits, or CEDEARs.
Annual Report2015 |
Common shares entitle the holder to one vote at our general shareholders’stockholders' meetings. The voting rights of our controlling shareholdersstockholders do not differ from the voting rights of other holders of common shares.
Preferred shares are nonvoting but entitle the holder to:
Brazilian Corporate Law sets forth that preferred shareholdersstockholders may vote when the company does not pay fixed or minimum dividends to which they are entitled for the period established in the company’scompany's Bylaws, which may never exceed three consecutive fiscal years. The preferred shareholdersstockholders maintain such right until the payment is made if these dividends are not cumulative or until cumulative dividends are paid.
The creation of a new class of shares with priority over preferred shares, as well as any change in preference or in rights associated with preferred shares, must be approved by at least 50% of common shares and also approved by shareholdersstockholders representing the majority of preferred shares in a special general meeting. Please refer to section Our Governance, item Management Structure, Annual General Shareholders’Stockholders' Meeting, for further information about the calling procedures for calling general and special shareholdersstockholders meetings.
The following table sets forth the high and low market closing prices for the preferred share priceshares for the periods indicated:
PER PREFERRED | PER PREFERRED | PER ADS (ITUB) | (In R$) | (In US$) | (In US$) | |||||||||||||||||||||||||||||||||||||||||||
HIGH (IN R$) | LOW (IN R$) | HIGH (IN US$) | LOW (IN US$) | HIGH (IN US$) | LOW (IN US$) | Per Preferred Share (ITUB4)(1) | Per Preferred Share (ITUB4) | Per ADS (ITUB)(1) | ||||||||||||||||||||||||||||||||||||||||
2015 (through March 31, 2015) | 36.89 | 32.75 | 13.66 | 10.21 | 13.53 | 10.39 | ||||||||||||||||||||||||||||||||||||||||||
Preferred share closing price | High | Low | High | Low | High | Low | ||||||||||||||||||||||||||||||||||||||||||
2016 (through April 27, 2016) | 31.71 | 23.07 | 9.52 | 5.56 | 9.64 | 5.49 | ||||||||||||||||||||||||||||||||||||||||||
January | 36.36 | 32.90 | 13.66 | 12.36 | 13.53 | 12.12 | 25.34 | 23.07 | 6.32 | 5.56 | 6.29 | 5.49 | ||||||||||||||||||||||||||||||||||||
February | 36.89 | 33.32 | 12.82 | 11.58 | 12.95 | 11.70 | 25.47 | 23.25 | 6.37 | 5.82 | 6.43 | 5.77 | ||||||||||||||||||||||||||||||||||||
March | 36.60 | 32.75 | 11.41 | 10.21 | 12.53 | 10.39 | 33.20 | 26.58 | 9.16 | 6.66 | 9.14 | 6.70 | ||||||||||||||||||||||||||||||||||||
2014 | 41.24 | 26.60 | 16.83 | 11.75 | 18.32 | 10.86 | ||||||||||||||||||||||||||||||||||||||||||
September | 41.24 | 33.87 | 16.83 | 13.82 | 18.32 | 13.88 | ||||||||||||||||||||||||||||||||||||||||||
April (through April 27, 2016) | 33.71 | 29.50 | 9.52 | 8.03 | 9.64 | 8.02 | ||||||||||||||||||||||||||||||||||||||||||
2015 | 35.57 | 25.81 | 15.21 | 7.23 | 12.30 | 6.32 | ||||||||||||||||||||||||||||||||||||||||||
October | 38.35 | 32.00 | 15.69 | 13.09 | 16.00 | 12.86 | 29.75 | 26.00 | 7.72 | 11.66 | 7.77 | 6.68 | ||||||||||||||||||||||||||||||||||||
November | 39.98 | 35.04 | 15.62 | 13.69 | 16.11 | 13.38 | 29.35 | 27.42 | 7.92 | 7.23 | 8.12 | 7.08 | ||||||||||||||||||||||||||||||||||||
December | 37.03 | 32.87 | 13.94 | 12.37 | 14.40 | 11.95 | 29.15 | 26.33 | 8.36 | 6.74 | 7.76 | 6.49 | ||||||||||||||||||||||||||||||||||||
First quarter | 30.82 | 26.60 | 13.62 | 11.75 | 13.51 | 10.86 | 33.54 | 29.77 | 13.33 | 9.51 | 12.30 | 9.45 | ||||||||||||||||||||||||||||||||||||
Second quarter | 34.48 | 30.95 | 15.65 | 14.05 | 15.41 | 13.63 | 35.57 | 29.82 | 15.21 | 9.62 | 12.07 | 9.51 | ||||||||||||||||||||||||||||||||||||
Third quarter | 41.24 | 31.56 | 16.83 | 12.88 | 18.32 | 13.88 | 31.84 | 25.81 | 10.20 | 7.30 | 10.18 | 6.32 | ||||||||||||||||||||||||||||||||||||
Fourth quarter | 39.98 | 32.00 | 15.05 | 12.05 | 16.11 | 11.95 | 29.75 | 26.00 | 7.72 | 11.66 | 8.12 | 6.49 | ||||||||||||||||||||||||||||||||||||
2013 | 31.46 | 24.36 | 15.14 | 10.93 | 15.74 | 10.63 | ||||||||||||||||||||||||||||||||||||||||||
2014 | 37.49 | 24.18 | 16.65 | 10.02 | 16.65 | 9.88 | ||||||||||||||||||||||||||||||||||||||||||
First quarter | 30.50 | 27.50 | 15.14 | 13.65 | 15.74 | 13.78 | 28.02 | 24.18 | 12.38 | 10.02 | 12.28 | 9.88 | ||||||||||||||||||||||||||||||||||||
Second quarter | 30.24 | 25.09 | 13.65 | 11.32 | 14.76 | 11.27 | 31.35 | 28.14 | 14.05 | 12.64 | 14.01 | 12.39 | ||||||||||||||||||||||||||||||||||||
Third quarter | 29.55 | 24.36 | 13.25 | 10.93 | 13.53 | 10.63 | 37.49 | 28.69 | 16.65 | 12.96 | 16.65 | 12.62 | ||||||||||||||||||||||||||||||||||||
Fourth quarter | 31.46 | 27.90 | 13.43 | 11.91 | 14.37 | 11.94 | 36.35 | 29.09 | 14.31 | 11.48 | 14.65 | 10.86 | ||||||||||||||||||||||||||||||||||||
2013 | 28.60 | 22.15 | 13.12 | 9.78 | 14.31 | 9.66 | ||||||||||||||||||||||||||||||||||||||||||
2012 | 31.90 | 22.36 | 15.61 | 10.94 | 17.98 | 10.82 | 29.00 | 20.32 | 16.10 | 10.18 | 16.35 | 9.84 | ||||||||||||||||||||||||||||||||||||
2011 | 33.55 | 21.12 | 17.89 | 11.26 | 20.29 | 12.14 | 30.50 | 19.20 | 18.25 | 12.00 | 18.44 | 11.04 | ||||||||||||||||||||||||||||||||||||
2010 | 35.98 | 26.54 | 21.59 | 15.93 | 21.70 | 14.13 |
Source: Economatica System.
(1) Historical prices are adjusted by corporate actions.
The graph belowon the side shows the evolution of R$100R $100 invested from December 30, 200429, 2005 to December 30, 2014,2015, comparing our preferred share (ITUB4) price, with and without reinvestimentreinvestment of dividends, to the performance of Ibovespa.Ibovespa and CDI.
We integrate several indices of BM&FBovespa where the financial institution shares may be listed. In the table below, we present our participation in each index portfolio in which we are included for valid portfolios from January to April 2015 and from September to December 2014.
INDICES | CURRENT | PREVIOUS | ||||||
Broad Indices | ||||||||
Bovespa Index – Ibovespa | 11.23 | % | 9.98 | % | ||||
Brazil 50 Index – IBrX50 | 11.17 | % | 10.34 | % | ||||
Brazil 100 Index – IBrX100 | 9.78 | % | 9.18 | % | ||||
Brazil Broad-Based Index – IBrA | 10.25 | % | 9.58 | % | ||||
Segment Indices | ||||||||
BM&FBOVESPA MidLargeCap Index – MLCX | 11.35 | % | 10.63 | % | ||||
Sector Indices | ||||||||
BM&FBOVESPA Financials Index – IFNC | 20.00 | % | 20.00 | % | ||||
Sustainability Indices | ||||||||
Corporate Sustainability Index – ISE | 6.18 | % | 5.88 | % | ||||
Carbon Efficient Index – ICO2 | 15.13 | % | 15.09 | % | ||||
Corporate Governance Indices | ||||||||
Special Corporate Governance Stock Index – IGCX | 7.76 | % | 7.70 | % | ||||
Corporate Governance Trade Index – IGCT | 12.49 | % | 12.22 | % | ||||
Special Tag-Along Stock Index – ITAG | 13.12 | % | 12.80 | % |
Information for the Investor
Adoption of Multiple Voting
Under Brazilian Corporate Law shareholdersand CVM's regulation, stockholders that represent at least 5% of share capital with voting rights may demand a multiple voting process up to 48 hours before a general shareholders’stockholders' meeting. Each share will be entitled to as many votes as the members of the board being elected, and the shareholderstockholder has the right to concentrate votes in one candidate or distribute them among several candidates. The presiding officer must inform the shareholdersstockholders in advance about the number of votes required for the election of each member of the Board of Directors.
Whenever the election of the Board of Directors is held under the multiple vote process and the common or preferred shareholdersstockholders exercise their right of electing one director, the controlling shareholderstockholder will have the
Our profile | A-43 |
Annual Report 2015 |
right to elect directors in the same number as those elected by the other shareholdersstockholders plus one, regardless of the number of directors that, according to our Bylaws, compose the board.
Additionally, as our Bylaws do not provide for staggered intervals, our directors may be reelected consecutively without interruption. Whenever the election has been conducted through a multiple voting process, the removal from office of any of our directors by our shareholders,stockholders, at a shareholders’stockholders’ meeting will result in the removal from office of all of the remaining directors and a new election shall be arranged. In order not to affect the management of the company as a result of the removal of directors, Brazilian Corporate Law provides that despite the removal, the same directors may continue to exercise their functions until the newly elected board members take office.
Preemptive right, capital increase and payment for subscribed shares
Each shareholderstockholder has the preemptive right to subscribe for shares in any capital increase, in proportion to his equity interest, except in specific cases, in compliance with Brazilian Corporate Law.
Our Bylaws authorize the Board of Directors to increase our share capital up to a limit of 7.267.986 billion shares, of which 3.633.993 billion must be common shares and 3.633.993 billion must be preferred shares (authorized capital). Up to the limit of our authorized capital, the issuance of our shares may be made without considering our shareholdersstockholders’ preemptive rights if (i) made for the sale on a stock exchange; (ii) by a public subscription; and (iii) exchange for our shares in a public offering for the acquisition of our control. Regardless of this provision, all increases in our share capital must be ratified by our shareholdersstockholders and approved by the Central Bank.
After the approval of the capital increase by the Central Bank, a shareholderstockholder must pay the value corresponding to the subscribed shares under the terms established in the subscription documentation related to that capital increase. A shareholderstockholder that fails to make payment under the terms of the subscription documentation will be deemed to be in default, in accordance with Brazilian Corporate Law.
Brazilian legislation does not provide for liability in capital calls, therefore the ownership interest of our shareholdersstockholders may be diluted if they decide not to exercise their preemptive rights to subscribe shares in cases of capital increase.
Form and Transfer
Our shares are book-entry and Itaú Corretora de Valores S.A. is our bookkeeping service provider. Therefore, the shares issued by us are to be kept in deposit accounts, under the investor’s name.
As an alternative, the investor may also deposit shares in the BM&FBovespa via a custodian institution authorized by the CVM. In such case, the BM&FBovespa, as central depositary, holds the shares under its name but controls the ownership of the securities through a structure of deposit accounts kept under the investors’ name. There is no distinction in the rights and obligations of shareholders,stockholders, regardless of whether their shares are deposited with a broker-dealer or with BM&FBovespa.
Redemption and withdrawal rights
Our common shares and our preferred shares are not redeemable, except upon delisting. Pursuant to Brazilian Corporate Law, however, the approval of certain matters entitles a dissenting shareholderstockholder to withdraw from the company, such right expiring thirty days after publication of the minutes of the applicable shareholders’stockholders’ meeting. This withdrawal may occur under certain conditions upon reimbursement of the value of such holder’s shares, calculated based on criteria set forth under Brazilian Corporate Law. Also, in accordance with Brazilian Corporate Law, we are entitled to reconsider any resolution that gives rise to a withdrawal within ten days following the expiration of the withdrawal period, if such exercise of withdrawal rights jeopardizes our financial stability.
Withdrawal rights are not available to shareholdersstockholders whose shares have liquidity and are actively traded in the stock market in cases of merger or takeover or in case the company elects to take part in a group of companies.
Common and preferred shares should be reimbursed upon cancellation of their registration at their value, calculated based on the criteria set forth by under Brazilian Corporate Law. If the resolution that gave rise to withdrawal rights was approved more than 60 days after the date when the last balance sheet was approved, the shareholderstockholder may demand that his shares are redeemed at a value based on a new balance sheet, dated up to 60 days after the date of the general meeting.
In the United States
Our preferred shares have been traded on the NYSE in the form of ADSs (one ADS represents one preferred share), since February 21, 2002, in compliance with NYSE and SEC requirements. These requirements include disclosure of financial statements in IFRS since 2011 and compliance with U.S. legislative requirements, including the Sarbanes-Oxley Act of 2002.
Our ADSs are issued by The Bank of New York Mellon, as depositary, under a Deposit Agreement, dated as of May 31, 2001, as amended and restated as of February 20, 2002 and as of March 30, 2009, effective as of April 3, 2009, among us, the depositary and the owners and beneficial owners of ADSs from time to time. The depositary’s principal executive office is located at One Wall225 Liberty Street, New York, New York 10286.10281.
Our profile | A-44 |
Annual Report |
We do not treat ADS holders as our shareholders and ADS holders have no shareholderstockholder rights, which are governed by Brazilian Corporate Law. The depositary is the holder of the preferred shares underlying the ADSs. Holders of ADSs have ADS holder rights.
An investor may hold the ADSs directly, registered under his or her name, or indirectly, through a broker or another financial institution. The holders of our ADSs do not have the same rights as our shareholdersstockholders and the depositary and holders of corresponding shares in Brazil. The deposit agreement determines the rights and obligations of the ADS holders and is governed by New York law.
In the event of a capital increase that maintains or increases the proportion of our capital represented by preferred shares, the holders of ADSs, except as described above, have preemptive rights to subscribe only to newly issued preferred shares. In the event of a capital increase that reduces the proportion of capital represented by preferred shares, the holders of ADSs, except as described above, have preemptive rights to preferred shares in proportion to their interests and to common shares only to the extent necessary to prevent dilution of their interests.
Please refer to section Attachments, item Considerations for ADS holders for further information.
Fees and Expenses
The following table summarizes the fees and expenses payable by holders of ADSs to the depositary:
Issuance(1)or cancellation for the purpose of withdrawal(2) of ADSs | US$5.00 (or less) per 100 ADSs (or portion | |
Any cash distribution | US$0.02 (or less) per ADS (or portion | |
Depositary services | US$0.02 (or less) per ADS (or portion |
(1) Including issuances resulting from a distribution of preferred shares or rights or other property, substitution of underlying shares and transferring, splitting or grouping of receipts.
(2) Including if the deposit agreement terminates.
In addition, set below are other fees and expenses payable by holders of ADSs:
· | Registration fees: registration of transfers of preferred shares on our preferred share register to or from the name of the depositary or its agent when you deposit or withdraw preferred shares. |
· | Distribution of securities by the depositary to ADS holders fee: equivalent to the fee that would be payable if securities distributed to the holder thereof had been preferred shares and the shares had been deposited for issuance of ADSs. |
· | Foreign currency conversion expenses: expenses of the depositary in converting foreign currency to U.S. dollars. |
· | Depositary expenses: cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement). |
Moreover, taxes and other governmental charges the depositary or the custodian have to pay on any ADR or preferred share underlying an ADS (for example, stock transfer taxes, stamp duty or withholding taxes), as necessary would be payable by holders of ADSs. Any other charges incurred by the depositary or its agents for servicing the deposited securities are not currently made in the Brazilian market.
Payment of Taxes
The depositary may deduct the amount of any taxes owed from any payments to investors. It may also sell deposited securities, by public or private sale, to pay any taxes owed. Investors will remain liable if the proceeds of the sale are not sufficient to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to investors any proceeds or send to investors any property remaining after it has paid the taxes.
Reimbursement
of Fees
The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses we incur that are related to establishment and maintenance of the ADS program. The depositary has agreed to reimburse us for our continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADSs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of United States federal tax information, mailing required tax forms, stationery, facsimile, and telephone calls, as well as to reimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to us based on applicable performance indicators relating to the ADS facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors.
The depositary collects its fees for delivery and surrender of ADSs directly from investors, depositing shares or surrendering ADSs in case of exercise of withdrawal rights or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deducting from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide services subject to fees until its fees for those services have been paid.
Our profile | A-45 |
Annual Report 2015 |
In 2014,2015, we received from the depositary US$15.921.4 million for promoting and encouraging the ADR program in the market, out-of-pocket maintenance costs for the ADSs (as described above), any applicable performance indicators relating to the ADS facility, underwriting fees and legal fees.
In Argentina
We also issue CEDEARs, which represent shares of foreign companies traded in Argentina. Our CEDEARs are backed by our preferred shares and they are tradedlisted at the BCBA, which is a not-for-profit self-regulatory private association. The BCBA is responsible for registering business and publishing quotations and volume of transactions. Its inspection authority permits, among other measures, the suspension of the trading session whenever it is deemed to be necessary to control or prevent unusual variations in quotations.
Shareholders'Stockholders' Payment
Our Bylaws establish the distribution to shareholdersstockholders of mandatory dividends equivalent to 25% of our net income calculated for each fiscal year, adjusted by the decrease or increase of amounts related to legal reserve, to reserve for contingencies and to its reversal related to prior years.
The mandatory dividend may be paid as dividends or interest on capital. The main difference between these forms of payment is tax-related. The payment of dividends is tax-free for shareholders. stockholders.
The payment of interest on capital is subject to withholding income tax at a 15% rate, or 25% if the shareholderstockholder is a resident of or domiciled in a tax haven jurisdiction or a privileged tax regime.
The amount paid to shareholdersstockholders as interest on capital, net of any withholding tax, may be included as part of the mandatory dividend. In such cases, we are required to distribute to shareholdersstockholders an amount sufficient to ensure that the net amount received by shareholders,stockholders, after the payment by us of applicable withholding taxes in respect of the distribution of interest on capital, is at least equal to the mandatory dividend. Please refer to section Attachments, item Considerations for ADS holders, Taxation for the ADS Holders, for further details.
Our ShareholderStockholder Remuneration Policy, approved by our Board of Directors, establishes the monthly payment of R$0.015 per share as an advance mandatory dividend. The date used in Brazil as a reference to determine which shareholdersstockholders are entitled to receive the monthly dividend is determined according to the shareholding position registered on the last day of the preceding month. With respect to our ADSs, however, the date used to determine the shareholdersstockholders that are entitled to receive the monthly dividend is three days after the Brazilian reference date. In both cases, monthly dividends for a given month are paid on the first business day of the next month.
Once our net income is calculated, we intend to pay the difference between the mandatory dividend, calculated as mentioned before, and the accumulated amount of advanced monthly dividends. Additionally, our Board of Directors may declare interim dividends, which will be submitted for ratification at our annual shareholders’stockholders’ meeting.
A shareholderstockholder may claim payment of any dividend for a period of three years counted from the dividend payment date. After this period we have no responsibility for such payment.
ShareholdersStockholders not residing in Brazil must register with the Central Bank so that dividends, interest on capital and other amounts related to their shares can be remitted abroad in a foreign currency.
Currently, we pay dividends and interest on capital equivalent to or higher than the mandatory dividends, but this may not continue to happen if our shareholdersstockholders decide that such distribution is not advisable in view of our financial condition. In this case, if our Fiscal Council is constituted, it must issue an opinion about that decision, and management must present a report to the CVM detailing the reasons for the suspension of the dividend payment. Profits not distributed due to a suspension of the dividend payment must be allocated to a special reserve and, if it is not absorbed by losses in subsequent years, it must be paid as dividends as soon as our financial position so permits.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 21, b, and section Our Risk Management, item Regulatory Environment, Implementation of Basel III in Brazil.
ADS holders’ Payment of Dividends
Preferred shares underlying ADSs are kept in Brazil by the custodian, Itaú Unibanco, which is the owner recorded in the register service of our preferred shares. The depositary of our ADS program is The Bank of New York Mellon. The payments of dividends and distributions in cash for our preferred shares underlying the ADSs are made directly to the depositary bank 7abroad,abroad, which is responsible for passing itthem on to the shareholdersstockholders within an average period of 10 days after payment is made in Brazil. The amount received by the ADS holder may be reduced if we, the custodian or the depositary are required to retain an amount related to taxes and other government charges.
The following table shows dividends and interest on capital paid or declared to the holders of our common and preferred shares since 2011:
DIVIDENDS AND INTEREST ON CAPITAL | 2014 | 2013 | 2012 | 2011 | ||||||||||||
Amount(1) (In millions of R$) | 6,635 | 5,095 | 4,518 | 4,394 | ||||||||||||
Per Share(2) (R$) | 1.22 | 1.03 | 1.00 | 0.97 | ||||||||||||
Payout(3) (%) | 30.35 | 30.8 | 34.3 | 30.1 | ||||||||||||
Dividend Yield(4) (%) | 3.5 | 3.3 | 3.3 | 3.1 |
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 21 – Stockholders’ equity, for further information about dividends and shares outstanding.
On August 4, 2014,3, 2015, our Board of Directors declared the payment of interest on capital, in the amount of R$0.325560.3460 per share (or R$0.2767260.2941 per share, net of taxes) to bewhich was paid out on August 25, 20142015 to all shareholdersstockholders of record as of the close of trading on August 13, 2014. 12, 2015.
Our profile | A-46 |
Annual Report 2015 |
On February 2,November 26, 2015, our Board of Directors declared interest on capital in the amount of R$0.53800.20900 per share (or R$0.45730.17765 per share,net of taxes) to all stockholders of record as of the close of trading on December 9, 2015. On February 1, 2016, our Board of Directors declared interest on capital in the amount of R$0.4564 per share (or R$0.38794 per share, net of taxes) to be paid out on February 26, 2015 to all shareholdersstockholders of record as of the close of trading on February 10, 2015.18, 2016. Payment of both such declared payments of interest on capital will be paid out on February 29, 2016.
10% bonus for Itaú Unibanco shares
In June 2014,July 2015, for the third consecutive year, we granted a 10% bonus for our shares and our stockholders received free of charge, a new share for every ten shares of the same type they held with the cost assigned of R$29.83 per bonus share, thus generating a fiscal benefit. We emphasize that we maintained our monthly payments of dividends of R$0.015 per share.by them.
Further information for the investor
We are organized as a publicly held corporation for an unlimited period of time under the laws of Brazil. Our head offices are located at Praça Alfredo Egydio de Souza Aranha, 100, 04344-902, São Paulo, SP, Brazil and our telephone number is +55-11-2794-3547. We are primarily governed by Brazilian Corporate Law and our Bylaws. Our Tax Payer’s Registry (CNPJ) is 60.872.504/0001-23, and we are registered with the São Paulo Commercial Registry (Junta Comercialdo Estado de São Paulo) under NIRE 35300010230. Our corporatepurpose,corporate purpose, as set forth in Article 2 of our Bylaws, is to perform banking activity in all its authorized forms, including foreign exchange
transactions. Our agent for service of process in the United States is the general manager of our New York branch, which is located at 767 Fifth Avenue, 50th50th floor, New York, NY 10153.
CONTACTS
Shares Program
CONTACTS | |
Shares Program | |
Bookkeeping service | Itaú Corretora de Valores S.A. |
3003 9285 (capitals and metropolitan areas) or | |
Phone | 0800 720 9285 (further areas) (Brazilian callers) or |
+55 11 3003 9285 (Non-Brazilian callers) | |
investfone@itau-unibanco.com.br | |
www.itaucorretora.com.br | |
Specialized branches adress | www.itaucustodia.com.br/agencia_enderecos.htm |
ADS Program | |
Depositary bank | The Bank of New York Mellon |
Phone | 1 888 BNY ADRS (1 888 269 2377) (U.S. callers) or |
+1 201 680 6825 (Non-U.S. callers) | |
Site | www.bnymellon.com/shareowner |
CEDEAR Program | |
Depositary bank | Banco Itaú |
Investor Relations | Itaú Unibanco Holding S.A. |
Phone | +55 11 2794 3547 |
investor.relations@itau-unibanco.com.br | |
www.itau.com.br/investor-relations | |
Annual General | April |
Earnings Release – First Quarter, | May |
Earnings Release – Second Quarter, | August |
Earnings Release – Third Quarter, |
Our commitment to best practices in corporate governance is directly related to our focus on stockholders and investors, transparency and accountability. We are particularly focused on platforms for communication with these groups and are continuously investing to upgrade channels and the quality of our services.
To encourage communications with and further strengthen our relationship with our stockholders, capital market investors and analysts, we disclosed the organization's results, strategies and perspectives, in public meetings that drew approximately 2.7 thousand attendees in several cities that were held in partnership with the Association of Capital Markets Investment Analysts and Investment Professionals (Associação dos Analistas eProfissionais de Investimento do Mercado de Capitais, or APIMEC). In 2015, we held 22meetings and took part in 30 conferences and 9 road shows in Brazil and abroad.
We held 4 quarterly conference calls during 2015, in each case on the day after each quarterly earnings release. All calls are transmitted in real time in Portuguese and English and may be accessed by telephone or on the Internet.
Our corporate information is posted on our Investor Relations website (www.itau.com. br/relacoes-com-investidores). In addition, our bank was the first Brazilian bank to have an IR profile on Twitter (@itauunibanco_ri) and a Facebook page (facebook.com/itauunibancori).
Our profile | A-47 |
Annual Report 2015 |
Credit ratings
We subscribe to independent credit rating agency reviews by Fitch Ratings, Moody’s and Standard & Poor’s.&Poor’s (S&P). These ratings assess our credit worthiness and are based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, liquidity, accounting and governance, besides government and/or group support.
Credit Ratings(1)
As of December 31, | Moody's | ||||||||
Itaú Unibanco Holding S.A. | |||||||||
Short Term | |||||||||
Long Term | (P) | ||||||||
Outlook | Negative | Ratings Under Review | |||||||
Itaú Unibanco S.A. | |||||||||
Short Term | |||||||||
Long Term | (P) | ||||||||
Outlook | Negative |
In view of the Brazilian sovereign rating downgrade by Standard & Poor’s, or S&P, in March 2014 S&P announced the downgrade of the ratings for 13 financial services institutions, including(1) International Scale Foreign Currency Ratings.
(2) Refers to Itaú Unibanco Holding at the international level, from “BBB”S.A. Senior Unsecured Debt Rating. Moody's does not assess Deposit Ratings to “BBB-” (long term) and from “A-2”Itaú Unibanco Holding.
(3) Refers to “A-3” (short term). This rating action reflected S&P’s view regarding the level of exposure to the sovereign in such entities credit and investment portfolio.Itaú Unibanco S.A. Senior Unsecured Debt Rating. Itau Unibanco S.A. Long Term Deposit Rating is Baa3.
FollowingIn April 2015, as a change inconsequence of Fitch Ratings’ revising the ratings outlook by Moody’sfor Brazil (sovereign) from stable to negative, on Brazil’s sovereign bond ratings in September 2014, Moody’s changed the outlook from stable to negative ofagency also revised the ratings of certain20 Brazilian financial institutions, including Itaú Unibanco Holding, S.A., Itaú Unibanco S.A. and Banco Itaú BBA, S.A.whose international scale ratings (except for the ratings with respect to: (i) long-term global local currency depositsto Long Term Foreign Currency, which were affirmed as BBB+) were downgraded by one notch and issuerhad their long term international scale ratings and (ii) long-term global foreign currency deposits, senior and/or subordinated debt ratings.outlooks revised from stable to negative.
Further,In May 2015, prompted by the publication of its new global methodology for banks that occurred in September 2014, after revising its guidelines forMarch 2015, Moody’s completed a review and announced ratings actions on nine Brazilian banks, including downgrades in the ratings of Itaú Unibanco Holding, Itaú Unibanco and Itaú BBA.
In June 2015, S&P began assigning ratings to Itaú Unibanco. The ratings and outlook are equal to those of Itaú Unibanco Holding, on national and regional scales, Standard&Poor’s upgradedaccount of Itaú Unibanco’s status as a “core” subsidiary of the short-term national scaleItaú Unibanco Group.
In August 2015, due to the Moody’s downgrade of Brazil’s sovereign credit rating in the same period, the rating agency announced the change in the ratings of eight14 Brazilian financial institutions, including Itaú Unibanco and Itaú Unibanco Holding. Brazil’s sovereign credit ratings, however, maintained an investment grade.
In September 2015, Standard & Poor’s downgraded Brazil’s ratings to below investment grade. As a result, the rating agency also announced reviews of the ratings in a global scale of 13 Brazilian financial institutions, including Itaú Unibanco and Itaú Unibanco Holding, which also were downgraded to speculative grade.
The long term foreign currency rating of both Itaú Unibanco Holding and Itaú Unibanco was lowered to BB+ with a negative outlook.
In October 2015, Fitch Ratings’ announced the downgrade of Brazil’s sovereign credit rating and, as a consequence, the rating agency also reviewed the ratings of 17 Brazilian financial institutions, including Itaú Unibanco and Itaú Unibanco Holding. However, the ratings of Brazil, Itaú Unibanco and Itaú Unibanco Holding were kept at investment grade, albeit with a negative outlook.
In December 2015, Moody’s changed the outlook on Brazil’s sovereign bond ratings from “brA-1”‘stable’ to “brA-1+”‘ratings under review for downgrade’, and also placed on review for downgrade the ratings of multiple Brazilian financial institutions, including Itaú Unibanco Holding S.A. and Banco Itaú BBA S.A.Unibanco.
Also in December 2015, Fitch Ratings’ announced the downgrade of Brazil’s sovereign rating to below investment grade and subsequently announced various rating actions with respect to a number of Brazilian financial institutions, including Itaú Unibanco and Itaú Unibanco Holding Nevertheless, the ratings of Itaú Unibanco and Itaú Unibanco Holding were kept at investment grade, albeit with a negative outlook.
These reviews are related to the sovereign ratings and are not specific to the individual conditions of the banks. The ratings of Itaú Unibanco continues to be rated investment grade by Fitch Ratings’ and Moody’s. Itaú Unibanco Holding continues to be rated investment grade by Fitch Ratings.
Subsequent eventEvents
On March 16, 2015, Moody’s published its new bankIn mid-February 2016, Standard & Poor’s downgraded Brazil’s ratings again. As a result, the rating global methodology, and due to this, on March 17agency also announced reviews of the agency placed the following ratings under review for downgrade: (i)of 44 Brazilian financial services institutions, including Itaú Unibanco S.A. and Itaú BBA: baseline credit assessment, local currency bank deposits and foreign currency senior debt; and (ii)Unibanco Holding, which were also downgraded.
Following Moody’s downgrade of Brazil’s sovereign bond rating from Baa3 to Ba2, with a negative outlook, on February 24, 2016, Moody’s announced on February 25, 2016 that it had downgraded ratings assigned to 31 Brazilian banking entities, including Itaú Unibanco Holding: local currency issuer and foreign currency senior debt.Itaú Unibanco Holding. According to Moody’s, the affected ratings were constrained by the sovereign rating because of the relevant issuers’ close economic linkages to the government.
Our profile | A-48 |
Annual Report |
The adoption of good corporate governance practices adds value to a company, facilitates its access to capital and contributes to its longevity. Therefore, we have adopted corporate governance practices aligned with best practices adopted in the Brazilian and foreign markets. Furthermore, we comply with the corporate governance rules issued by the Central Bank and the CVM. We seek constant development of our management policies and mechanisms so as to ensure excellence in our practices and sustainable growth for our company.
In line with such principles, we voluntarily comply with the Code of Self-Regulation and Good Practices for Publicly Held Companies of the Brazilian Association of Publicly Held Companies (AssociaçãoBrasileira de CompanhiasAbertas, or ABRASCA), which was basedon the bestbased on thebest corporate governance practices in effect in Brazil and abroad. Our governance practices have been recognized and as a result, we have been named to the Dow Jones Sustainability Index and to the Corporate Sustainability Index (Índice de SustentabilidadeEmpresarial daBM&FBovespa, or ISE).
In December 2015 we were, for the first time, selected as a portfolio company to be included in the Euronext Vigeo Sustainability Index: Euronext Vigeo – Emerging 70. The index is made up of 70 companies, selected from approximately 900 listed companies in developing countries. Companies selected for the index reflect those with the best corporate responsibility performance according to ratings assigned by Vigeo. The index’s constitution is reviewed twice annually, in June and December. Inclusion in Euronext Vigeo – Emerging 70 reflects our long-term commitment to ethical business behavior, compliance with the law, corporate governance, and social, cultural and environmental responsibility. Please refer to section OurProfile,Our Profile, item 20142015 Highlights for further information about our awards and recognition.
We have adopted a Code of Ethics that applies to all of our employees, directors and officers. Our Code of Ethics is based on principles that support a corporate culture focused on valuing people, on strict compliance with rules and regulations and on a permanent pursuit forof development. Please refer towww.itau.com.br/ www.itau.com.br/_arquivosestaticos/RI/pdf/Itaucode.pdffor our Code of Ethics.
Additionally, we have adopted the Policy of Material Information Disclosure, which deals with the public disclosure of material information pursuant to CVM regulation. We also have adopted a Policy on Trading of Securities, which restricts the trading of securities during certain periods and requires management to publicly announcethe disclosure of all transactions carried out by the management with our securities, as permitted by CVM regulation. Please refer towww.itau.com. br/ www.itau.com.br/_arquivosestaticos/RI/pdf/en/ENGLISHpolitica_gc.pdffor ourgovernance principles and practices we adopt.
Over the course of our history, as part of our corporate governance initiatives, we have made several decisions regarding the improvement of the disclosure of our information and the protection of minority shareholdersstockholders rights. For example, we are listed as a publicly held company on BM&FBovespa and, in 2001, we were one of the first companies to voluntarily adhere to Corporate Governance Level 1 of the BM&FBovespa. In 2002, we listed our Level 2 ADSs on the NYSE, complying with both the SEC’s criteriarules and other U.S. legal requirements, such as the Sarbanes-Oxley Act of 2002.
Since 2002, in line with our commitment to strengthen our position in the Brazilian capital markets, we have made a number of presentations in the regional offices of Association of Capital Markets Investment Analysts and Investment Professionals (Associação dos Analistas eProfissionais de Investimento do Mercadode Capitais, or APIMEC). Beginning.Beginning in 1996, we have also madepresentationsmade presentations in the United States and Europe with respect to our governance practices. In these presentations, we have the opportunity to provide the financial community with details on our performance, strategies to add value, future perspectives and other important issues.
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Our management is structured so as to ensure that matters are extensively discussed and decisions are made on a collective basis. The chart and text below presents our management bodies, their main functions and the management members that compose them.
Annual General Shareholders’Stockholders’ Meeting
and Extraordinary Shareholders’Stockholders’ Meeting
Our Annual General Shareholders’Stockholders’ Meeting is our highest decision-making body, which gathers shareholdersstockholders on a regular basis before the end of April of each year and, on a special basis, whenever corporate interests so require.
It is the responsibility of our Board of Directors to call a shareholders’stockholders’ meeting. The first notice of the shareholders’stockholders’ meeting must be published no later than fifteen days before the date of the meeting on the first call. Brazilian Corporate Law establishes that under specified circumstances, the meeting may also be convened by the fiscal council or any shareholder.stockholder.
The notice of a shareholders’stockholders’ meeting must be published three times, on different dates, in official newspapers widely circulated in São Paulo, our principal place of business, setting forth the place, date and time of the meeting, the meeting’s agenda and, in the event of an amendment to our Bylaws, a description of the proposed change.
In addition to the requirements of Brazilian Corporate Law, we also publish notices in three different languages (Portuguese, English and Spanish) on our website and email our subscribed investors and shareholders,stockholders, as well as through CVM, BM&FBovespa, the SEC, the NYSE and the BCBA.
As a general rule, Brazilian Corporate Law provides that a quorum for a shareholders’stockholders’ meeting consists of shareholdersstockholders representing at least 25% of a company’s issued and outstanding voting share capital, on the first date the meeting is called for, and, if a quorum is not reached, any percentage of the company’s voting share capital on a second date the meeting is called for. Generally, our meetings are held with a quorum representing approximately 90% of our voting share capital.
In order to attend a shareholders’stockholders’ meeting, shareholdersstockholders must present an identification document. A shareholderstockholder may be represented at a shareholders’stockholders’ meeting by a proxy appointed less than a year before the meeting. The proxy must be a shareholder,stockholder, an officer of the company, a lawyer or a financial institution. Investment funds must be represented by their investment fund officer.
Since 2012, we made available an “Online Meeting” tool. This tool is an electronic voting platform that provides shareholdersstockholders with more accessibility, allowing them to exercise their voting rights in advance, from any place.
Board of Directors
Our Board of Directors is the body responsible for establishing the general guidelines of our business, including our controlled companies, and is elected annually by our shareholders.stockholders.
Board members must act impartially, in compliance with pre-established rules, so as to prevent conflicts of interest. Such rules include:
· | not taking part in resolutions related to matters in which the director’s interests conflict with our interests. The director must inform the Board of Directors about the conflict of interest as soon as the matter giving rise to such conflict is included in the agenda or proposed by the Chairman of the Board, and in any event, before the beginning of any discussion on such matter; |
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· | in the event the director or a company controlled or managed by the director carries out a transaction with any company of the Itaú Unibanco Group: (a) the transaction must be carried out at arm’s length; (b) if it is not a customary transaction or involve the provision of services, there must be an opinion issued by recognized financial advisors evidencing that the transaction was carried out at arm’s length; and (c) the transaction must be disclosed to and conducted under the supervision of the Related Parties Committee, the Ethics and Ombudsman Superintendence or the channels usually competent in the hierarchy of Itaú Unibanco Group, subject to the rules and conditions set forth in our Related Party Transactions Policy; and |
· | serving on no more than four boards of directors of companies that do not belong to the same group. |
The Board of Directors’ performance is assessed yearly to ensure that board members are aligned with the organization’s values and that they represent the interests of our shareholders.stockholders.
Our Board of Directors is currently composed of twelve members, four of whichwhom are independent (33%). Our board members meet on a regular basis eight times a year and on a special basis whenever necessary.necessary (in practice, on average, once a month).
According to our Bylaws, the positions of Chairman of the Board of Directors and Chief Executive Officer or principal executive officer cannot be held by the same person.
Pursuant to Brazilian law, the election or reelection of each member of our Board of Directors is subject to approval by the Central Bank. All directors are elected for a term of one year and can be reelected upon the Central Bank’s approval. Also under Brazilian law, an acting director retains his position until he is reelected or his successor takes office.
Please refer towww.itau.com.br/_arquivosestaticos/_ arquivosestaticos/RI/pdf/InternalCharterof...pdf,, for further information.
Committees of the Board of Directors
There are seven committees and one advisory council, presented in the management organization chart above, that report directly to the Board of Directors. Their members are elected by the Board of Directors for a term of one year, and must have proven knowledge in their respective professional fields as well as technical qualification compatible with their responsibilities.
The committees may hire outside experts but must always be careful to maintain the integrity and the confidentiality of their work.
Please refer towww.itau.com.br/investor-relations/corporate-governance/rules-and-policies,, for each committee rules.
Audit Committee
The Audit Committee is a statutory body responsible for overseeing the quality and integrity of our financial statements, the compliance with legal and regulatory requirements, the performance, independence and quality of the services provided by our independent auditors and of the work performed by our internal auditors, and of the effectiveness of theour internal controls and risk management systems. It is a single body which is responsible for overseeing companies of the Itaú Unibanco Group that are authorized to operate by the Central Bank or supervised
by the Superintendency of Private Insurance (Superintendência deSeguros Privados,, or SUSEP).
All Audit Committee members are independent, pursuant to Brazilian banking regulation, and the Board of Directors will terminate the term of office of any member of the Audit Committee if such member’s independence is affected by any conflict or potentially conflicting situation. In order to meet the requirements of CMN, National Council of Private Insurance (Conselho Nacional de Seguros Privados, or CNSP) as well as those of the SEC and the NYSE, the Audit Committee hasBoard of Directors determined Mr Diego Fresco Gutierrez as an independent financial expert: Mr. Diego Fresco Gutierrez.expert who qualifies as an “Audit Committee Financial Expert” as such term is defined in SEC rules.
The Audit Committee assessments are based on information received from management, external auditors, internal auditors, the units responsible for risk management and internal controls and on the Audit Committee’s members own analyses resulting from direct observation. After establishing an annual schedule to comply with its duties, the Committee held 149169 meetings over 5351 days in the period from January to December 2014.2015.
Pre-approval
“In 2015, the Committee held 169 meetings over 51 days and it was particularly engaged in the monitoring of Policiesinternal controls and Procedures
Among the Audit Committee’s responsibilities is to establish policies and procedures regarding services that can be provided by our external auditors. On an annual basis, the Audit Committee issues (i) the list of those services which cannot be provided by our external auditors, due to the fact that such services could, eventually, affect their independence, (ii) the list of pre-approved services, and (iii) those services that need to be previously approved by the Audit Committee.
Fees and Servicescompliance of the Principal Auditor
The table below presents the total amount charged by PricewaterhouseCoopers Auditores Independentes by category for services rendered in 2014, 2013 and 2012:
(In thousands of R$) | ||||||||||||||||||||||||
% APPROVED | % APPROVED | % APPROVED | ||||||||||||||||||||||
BY THE AUDIT | BY THE AUDIT | BY THE AUDIT | ||||||||||||||||||||||
FEES | 2014 | COMMITTEE | 2013 | COMMITTEE | 2012 | COMMITTEE | ||||||||||||||||||
Audit Fees | 44,364 | 100.0 | 39,129 | 100.0 | 37,191 | 99.0 | ||||||||||||||||||
Audit-Related Fees | 5,686 | 100.0 | 6,264 | 99.0 | 3,330 | 100.0 | ||||||||||||||||||
Tax Fees | 224 | 100.0 | - | - | 64 | 100.0 | ||||||||||||||||||
All Other Fees | 475 | 100.0 | 508 | 100.0 | 1,491 | 100.0 | ||||||||||||||||||
Total | 50,749 | 45,901 | 42,075 |
“In 2014, the Committee held 149 meetings on 53 days and was particularly focused on monitoring the organization’s internal controls and compliance and the activities of the Internal Audit department both locally and at the foreign units.abroad.
During this period, Committee members Eduardo Augusto de Almeida Guimarães, Gustavo Jorge Laboissière LoyolaAlkimar Ribeiro Moura completed his term and Guy Almeida Andrade reached the end of their terms of office and werehe was replaced by the new Committee members Diego Fresco Gutierrez, in the capacity of financial expert, Maria Helena dos Santos Fernandes de Santana and Sergio Darcy da Silva Alves.member Antonio Francisco Lima Neto.”
Geraldo Travaglia Filho
Independent Director and President of the Audit Committee
Internal Audit
Internal Audit, under the technical supervision of the Audit Committee, provides the Board of Directors and senior management with independent, impartial and timely evaluations of the effectiveness of risk management, the adequacy of controls and compliance with the regulations and rules related to the operations of the conglomerate. Such audit jobs occur periodically, with intervals from 12 to 36 months.
Following the best practices and standards of The Institute of Internal Auditors, the Internal Audit methodology requires the assessed area to establish action plans for deficiencies identified, considering the deadlines which vary according to the risk ratings.
Pre-approval of Policies and Procedures
Among the Audit Committee’s responsibilities is to establish policies and procedures regarding services that can be provided by our external auditors. On an annual basis, the Audit Committee issues (i) the list of
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those services which cannot be provided by our external auditors, due to the fact that such services could, eventually, affect their independence, (ii) the list of pre-approved services, and (iii) those services that need to be previously approved by the Audit Committee.
Fees and Services of the Principal Auditor
The table below presents the total amount charged by PricewaterhouseCoopers Auditores Independentes by category for services rendered in 2015 and 2014:
(In thousands of R$) | ||||||||||||||||
% Approved by the | % Approved by the | |||||||||||||||
Fees | 2015 | Audit Committee | 2014 | Audit Committee | ||||||||||||
Audit Fees | 48,133 | 100.0 | 44,364 | 100.0 | ||||||||||||
Audit-Related Fees | 3,728 | 100.0 | 5,686 | 100.0 | ||||||||||||
Tax Fees | 423 | 100.0 | 224 | 100.0 | ||||||||||||
All Other Fees | 1,175 | 99.0 | 475 | 100.0 | ||||||||||||
Total | 53,459 | 50,749 |
· | Audit Fees: corresponds to the audit of our annual consolidated financial statements, the review of our quarterly financial statements, according to ISRE 2410, as well as the audit and review of financial statements of our subsidiaries, services relating to issuance of comfort letters in securities offerings and audit of internal controls in connection with the Sarbanes-Oxley Act requirements. |
· | Audit-Related Fees: corresponds to services provided in connection with the issuance of appraisal reports at book value, assistance related to review of documents to be filed with local and foreign regulatory bodies, including documents regarding compliance with legislation and regulations, audit of specific financial statements, compliance with Greenhouse Gas Emissions controls and policies, due diligence activities, assurance of special purpose reports and previously agreed-upon procedures to review profit share calculation with respect to commercial partnership contracts. |
· | Tax Fees: corresponds to tax consulting and advising on cross-border transactions, revision of tax contingencies and of potential tax risks, and review of Brazilian income tax. |
· | Other Fees: corresponds to internet security testing, evaluation of business continuity management, benchmarking and diagnostics, use of surveys and technical materials, independent review of accounting and tax matters of transactions outside Brazil, independent review of the implementation plan using the COSO 2013 framework, independent review of credit models, and consultancy related to internal processes and benchmarking of a middle market transaction. |
Personnel Committee
The Personnel Committee is responsible for establishing the main guidelines related to personnel. Its duties include establishing guidelines related to talent attraction and retention, recruiting and qualification, and our long term incentive programs.
“The year 2014 wasIn 2015, we took an important to complete what we call at Itaú Unibancostep in the “Meritocracy Cycle”. Now, allconsolidation of our executives receive feedbackcorporate culture with the update ofNosso Jeito de Fazer (Our Way of Making it Happen). Five years after being launched, we noted the need for revisiting the “decalogue” – a set of ten attributes that translated our culture and are assessed based not only on their past performance but also with respect toreflected the progressionneeds of their careers. This way, it is possible to prepare an Individual Development Plan (IDP), an important instrument that allows both the organization and the Executive Board to set development targets in a clear and organized way, including possible future fields of work. Additionally, the IDP provides Itaú Unibanco with a complete mappingperiod of its group of executives, identifying strengths and any weaknesses.launch, soon after the merger. The current challenge is to emphasize the principal aspects that should support our strategy moving forward.
The attraction, trainingdiscussion process involved the Associates, Partners and developmentmembers of talented professionalsthe Personnel Committee. Our Way was alsodefined as follows: (1) It’s only good for us if it’s good for the client; (2) We’re passionate about performance; (3) People mean everything to us; (4) The best argument is the one that matters; (5) Simple. Always; (6) We think and act like owners; and (7) Ethics are non-negotiable. We went from ten to seven attributes, consisting of more modern and direct language.
Concurrently, we advanced in the harmonization of our major advanceshuman resources (HR) practices of Itaú BBA and Itaú Unibanco, which came together to constitute the Wholesale (DGA). We were successful in 2014. converging the different models and practices, while always respecting the particularities and needs of each area.
We can cite, for example, the significant increase in our contracting of traineescontinue acting strongly to attract talent from the best universities in Brazil and highlightthroughout the holiday intern program that has beenworld, increasingly attracting interest from young people. An important program is the training program to the employees who take the great challenge of managing teams. Here, the focus is to develop theminvesting in People Managementvacation internships, trainee programs and Ethics and Labor Legislation. For the leaders that are further along in their careers, a new Executive Education Program has been launched that was exclusively designed for the needs and challenges of Itaú Unibanco.international MBAs.
These and other advances related to our People agenda have allowed us to meetAll this with a significant result in the milestone of 80% employee satisfaction a growth of 400 basis points as measuredsurvey, which improved by our organizational climate survey called Fale Francamente (Speak Frankly). Our internal culture, called Nosso Jeito de Fazer (Our Way of Making It Happen) was also strengthened in 2014 based on the results of our survey with respect200 bps, from 80% to the adherence to the attitudes we value in the organization, where we reached 82%, an increase of 900 basis points..”
Pedro Moreira Salles
Chairman of the Board of Directors and President of the Personnel Committee
Related Parties Committee
The Related Parties Committee is responsible for analyzing transactions between related parties in the circumstances specified by our Transactions
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with Related Parties Policy in order to ensure equality and transparency in such transactions. It is entirely composed of independent members.
"Beginning in December 2014, the Committee's duties were expanded and now include the analysis of all transactions with related parties or sets of related transactions in which the aggregate amount involved during a one-year period exceeds R$ 1 million. Previously, the Committee's analysis was applicable to transactions with related parties that had reached, in one agreement or in the aggregate with successive agreements for the same purpose, an amount equal to or higher than 0.1% of our stockholders' equity during any such one-year period. This change represented a significant expansion of the Committee's duties. During 2015, the conglomerate's internal procedures were revised to reflect this expansion and the recent regulatory changes concerning related party transactions. We thus continue with the mission of assuring equal treatment and transparency, as well as ensuring stockholders, investors and stakeholders that Itaú Unibanco Holding is aligned with the best practices with respect to corporate governance."
Gustavo Jorge Laboissiere Loyola
Independent Director and member of the Related Parties Committee
Transactions with related parties
Our Policy for Transactions with Related Parties, (Relatedor Related Parties Policy)Policy, defines the concept of related partyparties and establishes rules and procedures for transactions among them. It provides that such transactions must be carried out in writing, under market conditions, pursuant to our internal practices (such as the guidelines set forth in our Code of Ethics) and, disclosed in our financial statements, accordingsubject to materiality criteria defined by accounting standards.standards disclosed in our financial statements.
Transactions with related parties involving “significant” amounts as defined in our Related Parties Policy,higher than a certain threshold are subject to additional internal governance.governance procedures. In December 2014, our Related Parties Policy was amended to establish that “Significant Transactions”transactions with relatesrelated parties, (i.e. transactions or sets of connectedrelated transactions, that involve, in the period of one year, amounts higher than R$1 million)1.0 million must be approved by our Related Parties Committee, composed entirely of independent members of our Board of Directors. Prior toMoreover, such approval, “Significant Transactions” of less than R$50 milliontransactions are submitted to the analysisreview of our Ethics and Ombudsperson Superintendency. All “Significant Transactions” with related parties areSuperintendency and reported to our Board of Directors on a quarterly basis. Please refer towww.itau.com.br/www.Itaú.com.br/_arquivosestaticos/RI/pdf/en/IHF_Politica_Partes_Relacionadas_ING.pdfIHF_Politica_Partes_Relacionadas_ING.pdf for further details about our Related Parties Policy.
Instruction CVM No. 480/2009 was also recently amended to requirerequires that transactions with related parties that meet the conditions set forth by Schedule 30-XXXIII of such rule be disclosed within 7 (seven)seven business days of their occurrence, in accordance with the terms defined in such rule.
Additionally, Brazilian regulation sets forth that financial institutions are not allowed to grant loans, advances or guarantees to certain individuals and entities related to them. Please refer to section Our Risk Management, item Regulatory Environment, Loans and Advances to Related Parties for further details.them, including:
(i) | officers, and members of the board of directors, fiscal council, advisory councils and other statutory committees, as well as their spouses, ascendants, descendants and collateral relatives to the second degree, either blood relatives or in-laws; |
(ii) | individuals or legal entities that directly or indirectly control the financial institution or hold more than 10% of the financial institution's share capital; |
(iii) | legal entities directly or indirectly controlled by the financial institution or legal entities in which the financial institution directly or indirectly holds more than 10% of the share capital; or |
(iv) | legal entities directly or indirectly controlled by the individuals mentioned in items "i" and "ii" above or legal entities in which such individuals directly or indirectly hold more than 10% of the share capital. |
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 35 –- Related Parties, for further details about the related parties we do business with and the main terms of those transactions.
“In 2014, the Committee analyzed transactions with related parties that have reached, in a single contract or in successive contracts for the same purpose, an amount equal to or higher than 0.1% of our equity in the period of one (1) year, under the terms of the Policy for Transactions with Related Parties then in force. Additionally, it reported to the Board of Directors on the transactions assessed by the Superintendency of Ethics and Ombudsmanship of the Itaú Unibanco Group. At the end of 2014, we decided to increase the authority of the Committee so that, beginning in 2015, it will analyze all transactions with related parties or groups of correlated transactions having an amount, in the period of one (1) year, that exceeds R$1 million. The reduction in the amount that will require analysis by the Committee and the resulting expansion of the Committee’s duties are aimed at improving the internal governance of the process for the approval of these transactions in order to ensure equality and transparency and assure shareholders, investors and other stakeholders that Itaú Unibanco is in compliance with the best corporate governance practices.”
Gustavo Jorge Laboissière Loyola
Independent Director and member of the Related Parties Committee
Nomination and Corporate Governance Committee
The Nomination and Corporate Governance Committee is responsible for stimulating and overseeing discussions of matters related to our governance. Its duties include analyzing and issuing opinions on situations of potential conflicts of interest between the directors and companies of the Itaú Unibanco Group, periodically reviewing the criteria for nomination of our independent directors, in accordance with governance principles and applicable regulation, giving methodological and procedural support for the assessment of the board,Board of Directors, individual directors, committees and chief executive officer, and discussing and making recommendations on the succession of the directors and chief executive officer.
Please refer to section Our Governance, item Management Structure, for further information about changes in our Board of Officers.
“"The Nomination and Corporate Governance Committee held four2 meetings in 2014, focusing on2015; during which a number of matters, including:topics were discussed, such as:
• |
• |
• | Analysis of performance evaluations of the Executive Committee's members; |
Detailed performance evaluations of the various |
• | Approval of the proposal to |
Fabio Colletti Barbosa
Independent Director and member of the Nomination and Corporate Governance Committee
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Risk and Capital Management Committee
The necessary restructuring has been discussedRisk and Capital Management Committee is responsible for supporting the Board of Directors in performing its responsibilities related to our capital and risk management as well as submitting reports and recommendations on these topics for the approval of the Board of Directors. Its duties include establishing our risk appetite and minimum return expected on our capital, overseeing our risk control and management activities in order to assure their adequacy to the risk levels assumed and the succession processcomplexity of our operations as well as the compliance with regulatory requirements. It is also responsible for promoting the improvement of our risk culture.
"During 2015, the Risk and Capital Management Committee, in the performance of its duties of supervising risk and capital management activities, continued overseeing our risk appetite, ensuring the alignment with the established strategies, monitored the conglomerate's main credit risk exposures, assessed the sufficiency and adequacy of our capital levels, in normal and stress scenarios, and conducted an in-depth analysis of our credit models, information security and money laundering prevention."
Pedro Luiz Bodin de Moraes
Independent Director and President of the current CEO has been submitted. Also, the age limitRisk and Capital Management Committee
Strategy Committee
The Strategy Committee is responsible for leading discussions of strategic matters critical to us. Its duties include proposing budgetary guidelines for the CEOBoard of Directors, and issuing opinions and recommendations on the strategic guidelines and investment opportunities in order to support the decisions of the Holding company was changedBoard of Directors.
"In 2015, the Strategy Committee reviewed and validated certain points of its strategic plan, which covers the period ending in 2020. New technological challenges, including digital payment methods and security of banking operations, were subject to 62 yearsconstant discussion by the Committee. Of note is the creation of agethe Technology Subcommittee as an advisory body to the Strategy Committee. The merger of our operations in Chile and Colombia with CorpBanca were completed as planned. The budget and goals of the age limit of 60 years of age remainedItaú Unibanco conglomerate for the management2016 fiscal year are aligned with this strategic plan."
Nildemar Secches
Independent Director and member of the Retail and Wholesale Departments.”Strategy Committee
Compensation Committee
The Compensation Committee is responsible for leading discussions of matters related to our management compensation. Its duties include developing the Compensation Policy for our management members, proposing to our Board of Directors different methods of fixed and variable compensation, in addition to benefits and special recruiting and termination programs, discussing, analyzing and overseeing the implementation and operation of our existing compensation models, and discussing the general principles for the compensation of our employees.
"During 2015, the Compensation Committee was engaged in:
• | Adjusting and correcting certain distortions in the models in use, particularly in certain pools and their effects on areas of support; |
• | Approving individual penalties as a consequence of realized Allowance for Loan Losses; |
• | Establishing the global amount for use in compensation of the members of the Board of Directors and Executive Board of Officers; |
• | Approving the individual compensation of the members of the Executive Committee; and |
• | Analyzing the comparative study on compensation and executive market research, and the conclusion was that our model is consistent with market levels and our results." |
Henri Penchas
Director and memberMember of the NominationCompensation Committee
Annual evaluation of the Board of Directors and Board Committees
To assess the performance of our management and in order to comply with best corporate governance practices, we annually carry out an evaluation of our Board of Directors, its members and its Chairman, as well as the Board committees.
Decisions regarding whether to propose the reelection of Board members to the Annual General Shareholders' Meeting and of the members of the Board committees to the Board take into account both (i) positive performance results and high attendance to meetings during the previous term and (ii) the level of independence and industry experience.
Evaluation process
The evaluation process consists of the following stages: self-evaluation of the members of the Board, cross-evaluation of the members of the Board (Board members evaluate each other), evaluation of the Board itself by its members, evaluation of the Chairman by the Board members and evaluation of the Board committees by their members.
The evaluation process is structured taking into consideration the specific responsibilities of the Board, its members, its Chairman, and each of the Board's committees. Therefore, we aim at a high level of expertise.
The evaluation process is conducted by an independent person, responsible for distributing specific questionnaires to the Board of Directors and to each of the Board committees, as well as interviewing members of the Board and Board committees individually. The independent person is also responsible for analyzing the answers and comparing them to the results from the previous years to identify and address any findings and/or gaps relating to the Board of Directors or the Board committees that may be revealed by this process.
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Methodological support and independent evaluation
The Appointments and Corporate Governance Committee
Risk provides methodological and Capital Managementprocedural support to the evaluation process. The Committee
The Capital and Risk Management Committee is responsible for supporting also discusses the Board of Directors in performing its responsibilities related to our capital and risk management as well as submitting reports and recommendations on these topics for the approvalresults of the Board of Directors. Its duties include establishing our risk appetite and minimum return expected on our capital, overseeing our risk control and management activities in order to assure their adequacy to the risk levels assumed and the complexity of our operationsevaluation, as well as the compliance with regulatory requirements. It is also responsible for promotingcomposition and succession plan of the improvement of our risk culture.
Board.
“In 2014, the Risk and Capital Management Committee continued to perform its duties of supervision of our risk and capital management activities. Accordingly, it continued to monitor the assessment of the sufficiency and adequacy of our capital levels, in normal and stressed conditions, as well as our consolidated exposures. This year, the Committee reviewed limits establishedBesides such support by the risk appetite were reviewedAppointments and the discussions on the structure of market risk controls were strengthened.”
Pedro Luiz Bodin de Moraes
Independent Director and President of the Risk and Capital Management
Corporate Governance Committee,
Strategy Committee
The Strategy Committee an independent person is responsible for leading discussions of critical strategic matters to us. Its duties include: proposing budgetary guidelines forcarrying out the Board of Directors, issuing opinions and recommendations on the strategic guidelines and investment opportunities in order to support the decisions of the Board of Directors.evaluation process itself.
“In 2014, the Strategy Committee continued to implement the strategies determined in its plan for 2020, in addition to aligning the budget and targets for 2015 with such plan.
Accordingly, it is worth noting the divestiture of our large risk insurance operation, as part of the strategy of focusing Itaú Unibanco’s operation on the sale of mass-market insurance products related to retail banking. The merger of our banking operations in Chile and Colombia with CorpBanca continued to evolve and is expected to be completed in mid 2015. Special attention has also been paid to the new investments in digital operations, including with respect to the infrastructure and architecture of the systems or to new products.”
Nildemar Secches
Independent Director and member of the Strategy Committee
Compensation Committee
The Compensation Committee is responsible for leading discussions of matters related to our management compensation. Its duties include developing the Compensation Policy for our management members, proposing to our Board of Directors different methods of fixed and variable compensation, in addition to benefits and special recruiting and termination programs, discussing, analyzing and overseeing the implementation and operation of our existing compensation models, discussing the general principles for the compensation of our employees and recommending its improvement to the Board of Directors.
“In 2014, the Compensation Committee made efforts to assess the impact of legislation on share-based payments, Law No. 12,973. Based on guidance in this Law and regulatory, tax and risk management studies, the Committee approved some changes in the long-term incentive models that will be submitted for approval at the Annual General Shareholders’ Meeting.
In addition to the study on the impact of Law No. 12,973, the Compensation Committee continued its activities with respect to the analysis of the incentives arising from the variable compensation models of Itaú Unibanco Holding, with a focus on maintaining the total amounts paid in line with the organization’s risk appetite.”
Israel Vainboim
Independent Director and member of the Compensation Committee
International Advisory Council
The International Advisory Council is responsible for evaluating the prospects for the world economy and the adoption by us of internationally accepted codes and standards, especially with respect to monetary and financial policy, corporate governance, capital markets, payments systems and prevention of money laundering, in order to contribute towards strengthening our presence in the international financial community and to provide guidelines for the Board of Directors. The International Advisory Council is comprised byof the following individuals, some of whom are not members of our Board of Directors or employees of the Itaú Unibanco Group: Pedro Sampaio Malan, Alessandro Profumo, AndréAndre Lara Rezende, Andres Velasco, Angel CorcóCorcóstegui, Carlos Ghosn,Pascal Lamy, Pedro Moreira Salles, Ricardo Villela Marino, Roberto Egydio Setubal and Vikram Pandit and Woods Staton.Pandit.
Fiscal Council
The Fiscal Council is an independent body composed of three to five members, and the same number of alternates, elected annually by our shareholdersstockholders to supervise the activities of our management, to examine our financial statements for the year ended and to issue an opinion on such financial statements, among other duties established by the Brazilian law. The fiscal council must operate independently from management, our external auditors and the audit committee.Audit Committee.
Although its permanent existence is not legally mandatory, we have had a Fiscal Council established and functioning uninterruptedly since 2000.
Please refer towww.itau.com.br/_arquivosestaticos/www.itaú.com.br/_ arquivosestaticos/RI/pdf/en/Rules_Fiscal_Council.pdf,Rules_Fiscal Council.pdf, for each committee rules.
Board of Officers
Our Board of Officers is elected annually by the Board of Directors and its role is to implement the guidelines proposed by our Board of Directors. The officers manage our daily business activities, ensuring the best allocation and management of our funds to accomplish our established goals. The structure of our Board of Officers is duly comprised, takingtakes into account the segmentation of our business.businesses, which demands in-depth knowledge in different areas, skills and business sectors given our organization's complexity.
Pursuant to Brazilian law, the election of each member of our Board of Officers must be approved by the Central Bank. Also under Brazilian law, an acting officer retains his or her position until he or she is reelected or a successor takes office. Our officers are subject to internal and periodic assessment, in which performance criteria such as client satisfaction, personnel and financial management are considered.
As announced on February 23, 2015, structural changes were made to the management of Itaú Unibanco Holding. The chart below presents our Board of Officers, made up of three General Managers and two Vice Presidents:
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Disclosure and Trading Committee
The Disclosure and Trading Committee reports to the Board of Officers and is comprised of members of the Board of Directors and of the Board of Officers of Itaú Unibanco Holding or any company of the Itaú Unibanco Group, and professionals of proven knowledge in the capital markets area, appointed by our Investor Relations Officer, who is also a permanent member of the committee.
The committee is responsible for managing our Policy of Material Information Disclosure and our Policy on Trading of Securities. We were among the first publicly held companies in Brazil to have such a committee.
The duties of the Disclosure and Trading Committee include carrying out internal actions intended to improve the information flow and foster the ethical conduct of our management members and our employees in order to ensure transparency, quality, equality and security in the information provided to our shareholders,stockholders, investors and other agents ofparticipants in the capital market.markets.
Our Directors and Executive Officers
Four of our directors, Alfredo Egydio Arruda Villela Filho, Ricardo Villela Marino, Alfredo Egydio Setubal and Roberto Egydio Setubal, are members of the Egydio de Souza Aranha family and one of our directors, Pedro Moreira Salles, is a member of the Moreira Salles family.
During the Board of Directors meeting held on March 26, 2015, Executive Officers Claudia Politanski and Eduardo Mazzilli deVassimon kept their positions of Vice President, and Officer Alexsandro Broedel Lopes was appointed as an Executive Officer. During the same meeting, Officer Leila Cristiane Barboza Braga de Melo was appointed as an Executive Officer and Alvaro Felipe Rizzi Rodrigues and José Virgilio Vita Neto were elected as Officers.
Our Board of Directors was elected on April 29, 2015 at our annual stockholders'meeting. Pedro Moreira Salles, Alfredo Egydio Arruda Villela Filho, Roberto Egydio Setubal, Alfredo Egydio Setubal, Candido Botelho Bracher, Demosthenes Madureira de Pinho Neto, Gustavo Jorge Laboissière Loyola, Henri Penchas, Nildemar Secches, Pedro Luiz Bodin de Moraes and Ricardo Villela Marino were reelected as members of our Board of Directors, each for a term of one year. On the same date, Fabio Colletti Barbosa was also elected as a member of the Board of Directors. Israel Vainboim was not reelected, having reached the age limit provided in our Bylaws.
In addition, Iran Siqueira Lima, Alberto Sozin Furuguem and Luiz Alberto de Castro Falleiros were reelected as members of our Fiscal Council, and José Caruso Cruz Henriques and João Costa were reelected as alternate members of our Fiscal Council. At the beginningsame time, Carlos Roberto de Albuquerque Sá was elected as an alternate member of 2014, we announced the following changes to our audit committee:Fiscal Council, replacing Ernesto Rubens Gelbcke.
During the audit committee independent financial expert),Board of Directors meeting held on April 29, 2015, the members of our Board of Executive Officers were reelected for a term of one year. On the same date, Officers Marco Ambrogio Crespi Bonomi, Márcio de Andrade Schettini and Maria Helena dos Santos Fernandes de SantanaPaulo Sergio Miron were elected to the Audit Committee (on February 27, March 20 and April 24, respectively). On April 24, 2014, the appointmentsnominated as members of Guy Almeida Andrade and Gustavo Jorge Laboissiere Loyola were not renewed.
On April 24, 2014, we announced the following changes to our senior management:
The members of the Officer responsibleAudit Committee were also reelected for Credit Risk Management;a term of one year, except for Alkimar Ribeiro Moura who was not reelected as a member of the Audit Committee, remaining in this office until the members elected on April 29, 2015 took office. On that date, Antonio Francisco de Lima Neto was also elected as a member of the Audit Committee.
On June 26, 2015, the Central Bank approved the election and
All members of our Board of Directors were reelected at the Ordinary Shareholders' Meeting held on April 27, 2016, for a one-year term, with the exception of Henri Penchas, who has reached the ceiling age as per our Bylaws. On that same date, José Galló was also appointed aselected a member of the Disclosure and Trading Committee.
Ana TerezaPursuant to best corporate governance practices, let the record show that Directors Fábio Colletti Barbosa, Gustavo Jorge Laboissière Loyola, José Galló, Nildemar Secches, and Pedro Luiz Bodin de Lima e Silva Prandini resigned from her position onMoraes are deemed to be independent members of the Board of Executive Officers while Robert George Stribling, responsible for Liquidity Risk Management, and Rogério Calderón Peres were not reelected.Directors.
As concerns our Fiscal Committee, Iran Siqueira Lima was reelected as an effective member, with José Caruso Cruz Henriques, also reelected, as his alternate. Alkimar Ribeiro Moura was elected an effective members, with João Costa, also reelected, as his alternate. The current alternate Carlos Roberto de Albuquerque Sá was elected an effective member with Eduardo Azevedo do Valle, elected on the present date, as his alternate.
At the Meeting of the Board of Directors of April 28, 2016, the members of our Board of Officers were reelected for a term of office of one year, on the same occasion Atilio Luiz Magila Albiero Júnior, Fernando Barçante Tostes Malta, Gilberto Frussa and Sergio Mychkis Goldstein being elected officers. The members of the Audit Committee were also reelected for a term of office of one year with the exception of Luiz Alberto Fiore. On May 29, 2014, Matias Granatathe same date, Ricardo Baldin was elected to a seat on this Committee.
At the meeting of the Board of Executive Officers and isDirectors of April 28, 2016, the Officer responsiblemembers of the Audit Committee were also reelected for Liquidity Risk and Market Risk Management.the term of office of one year with the exception of Luiz Alberto Fiore. As of the same date, Ricardo Baldin was elected as a member of this Committee.
On February 2, 2015, Adriano Cabral VolpiniThe elections and Cláudio José Coutinho Arromatte were electedre-elections of the members are subjective to approval by the BoardCentral Bank of Executive Officers. Since February 11, 2015, Adriano Cabral Volpini is the Officer responsible for Prevention and Combat of Money Laundering and Cláudio José Coutinho Arromatte is the Officer responsible for Operational Risk Control, Supply of Information, Internal Procedures and Controls with respect to the Trading of Securities in Regulated Markets and Compliance with the Socioenvironmental Responsibility Policy.Brazil.
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On February 21, 2015, we announced a new structure of Itaú Unibanco Holding. Please refer to section Our profile, item 2014 highlights, Recent Developments for further information.
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Name (age), position | |||||||||||||||||||||||
Pedro Moreira Salles | 08/2009 | P | P | P | P | M | |||||||||||||||||
Alfredo Egydio Arruda Villela Filho | 03/2003 | M | M | ||||||||||||||||||||
Chairman Roberto Egydio Setubal | 03/2003 | M | M | M | M | ||||||||||||||||||
Chairman Alfredo Egydio Setubal | 06/2007 | M | M | M | |||||||||||||||||||
Candido Botelho Bracher (57), Member | 02/2009 | M | M | ||||||||||||||||||||
Board of | Directors(3) | Demosthenes Madureira de Pinho Neto | 05/2012 | M | M | ||||||||||||||||||
I | M | M | M | ||||||||||||||||||||
Gustavo Jorge Laboissière Loyola (63), Independent Member | I | 07/2006 | M | M | |||||||||||||||||||
Henri Penchas | 03/2003 | M | M | M | |||||||||||||||||||
Nildemar Secches | I | 05/2012 | M | P | M | ||||||||||||||||||
Pedro Luiz Bodin de Moraes | I | M | P | M | |||||||||||||||||||
Ricardo Villela Marino | 06/2008 | M | M | ||||||||||||||||||||
Roberto Egydio Setubal | |||||||||||||||||||||||
08/2005 | |||||||||||||||||||||||
Marco Ambrogio Crespi Bonomi (59), General Manager | 07/2015 | ||||||||||||||||||||||
Claudia Politanski | 11/2008 | ||||||||||||||||||||||
Eduardo Mazzilli de Vassimon | 03/2013 | ||||||||||||||||||||||
Alexsandro Broedel Lopes | 08/2012 | ||||||||||||||||||||||
Leila Cristiane Barboza Braga de Melo (44), Executive Officer | 04/2015 | ||||||||||||||||||||||
Board of Officers | Paulo Sergio Miron (49), Executive Officer | 07/2015 | |||||||||||||||||||||
(19 members) | Adriano Cabral Volpini (43), Officer | 02/2015 | |||||||||||||||||||||
Álvaro Felipe Rizzi Rodrigues (38), Officer | 04/2015 | ||||||||||||||||||||||
Cláudio José Coutinho Arromatte (49), Officer | 02/2015 | ||||||||||||||||||||||
Eduardo Hiroyuki Miyaki | 08/2011 | ||||||||||||||||||||||
Emerson Macedo Bortoloto | 11/2011 | ||||||||||||||||||||||
José Virgilio Vita Neto (37), Officer | 04/2015 | ||||||||||||||||||||||
Marcelo Kopel | 06/2014 | ||||||||||||||||||||||
Matias Granata (41), Officer | 07/2014 | ||||||||||||||||||||||
Rodrigo Luis Rosa Couto (40), Officer | 01/2012 | ||||||||||||||||||||||
Wagner Bettini Sanches (44), Officer | 06/2014 | ||||||||||||||||||||||
I | M | ||||||||||||||||||||||
Diego Fresco Gutierrez | I | 04/2014 | M | ||||||||||||||||||||
Audit Committee(3) | Geraldo Travaglia Filho | I | 03/2013 | P | |||||||||||||||||||
(6 members) | Luiz Alberto Fiore | I | 03/2012 | M | |||||||||||||||||||
Maria Helena dos Santos Fernandes de Santana | I | 06/2014 | M | ||||||||||||||||||||
Sergio Darcy da Silva Alves | I | 04/2014 | M | ||||||||||||||||||||
Fiscal Council(3) | Alberto Sozin Furuguem | I | 07/2006 | ||||||||||||||||||||
Iran Siqueira Lima | I | 03/2003 | |||||||||||||||||||||
(3 members) | |||||||||||||||||||||||
Luiz Alberto de Castro Falleiros | I | 04/2012 |
(1) | Includes individuals that are not members of our Board of Directors: |
(2) | Includes individuals that are not members of our Board of Directors or employees of the Itaú Unibanco Group: Alessandro Profumo, André Lara Rezende, Andres Velasco, Angel Corcóstegui, |
(3) | Independence criteria for the members of the Board of Directors, Audit Committee and Fiscal Council are diverse, under our policies and applicable regulations in force. |
P President | M Member | I | Independent Member |
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COMPOSITION OF THE STATUTORY BODIES AS AT DECEMBER 31, 2015.
Board of Directors
Pedro Moreira Salles (Chairman)has held several positionswithinpositions within the Itaú Unibanco Group including Vice Chairman of the Board of Directors (February 2010 to April 2012) of Banco Itaú BBA S.A.; Vice Chairman of the Board of Directors (March 2008 to November2008)and CEO of Unibanco Holdings S.A. (March 2007 to November 2008); Vice Chairman of the Board of Directors and CEO at Unibanco –- União de Bancos Brasileiros S.A. (September 2004 to November 2008) and Chairman of the Board of Directors of Unibanco Seguros S.A. (December 1995 to February 2009).
He has also been a Member of the Board of Directors of Totvs S.A. since March 2010 and Chairman of the Board of Directors of Companhia E. Johnston de ParticipaçParticipações since 2008 and Member of the Board of Directors of IUPAR since November 2008 at IUPAR having beenpreviously served as Chairman (November2008to April 2012).
He also served as Vice Chairman of the Board of Directors of Porto Seguro S.A. (November2009to March 2012) and as Chairman of the Board of Directors of E. JohnstonRepresentação e Participações S.A. (2001 to February 2009).
He has a Bachelor’sBachelor's degree, magna cum laude, in Economics and History from the University of California, Los Angeles. He also attended the international relations master’smaster's program at Yale University and the OPM –- Owner/President Management Program at Harvard University both in the United States.
Alfredo Egydio Arruda Villela Filho (Vice Chairman)hasbeenhas been a Vice Chairman of the Board of Directors since March 2003. He has also served a Member of the Board of Directors since April 1997; being Vice Chairman since January 2010; and having been Chairman (April 2009 to January 2010) and Vice Chairman (April 1997 to April 2009) of Itautec S.A.; Member of the Board of Directors (April 2004 to April 2010), being the Board’sBoard's Chairman (April 2009 to November 2009) and Vice Chairman (April 2004 to April 2009 and November 2009 to April 2010) of Elekeiroz S.A.; Member of the Board of Directors since 1996, being the Board’sBoard's Vice Chairman since 2008 of Duratex S.A.; Member of the Board of Directors since August 1995, serving as Vice Chairman since May 20112015 and CEO since September(September 2009 to May 2015) of Itaúsa.
He has also been a memberMember of the Itaú Unibanco Group serving as Vice Chairman of the Board of Directors of Itaú Unibanco S.A. (August 2002 to March 2003).
He has a Bachelor’sBachelor's degree in Mechanical Engineering from Mauá Engineering School of the Mauá Technology Institute (IMT) and Postgraduate degree in Business Administration from the Getulio Vargas Foundation(Fundação Getulio Vargas,, or FGV) both in Brazil.
Roberto Egydio Setubal (Vice Chairman)has held severalpositionsseveral positions within the Itaú Unibanco Group including Chief Executive Officer since November 1995 and currently responsible for the ombudsman area at Itaú Unibanco Holding S.A.;Holding; Chairman of the Board of Directors of Banco Itaú BBA S.A. (November 2004 to April 2015).
He has also served as Vice President of Itaúsa since November 2004;May 1994; President and CEO since April(April 1994 to March 2015), General Manager (July 1990 to April1994)and Member of the Board of Directors (May 1991 to March 2003) of Itaú Unibanco S.A.
He has also served as Executive Vice President of Itaúsa since May 1994;Unibanco; Member of the Board of the International Monetary Conference since 1994; Member of the International Advisory Committee of The Federal Reserve Bank of New YorkBankof NewYork since 2002; Member of the International Advisory Committee of the NYSE since April 2000; Member of the China Development Forum since 2010; President of the National Federation of Banks (FENABAN) and of the Brazilian Federation of Banks (FEBRABAN) (April 1997 to March 2001); President of the Advisory Board of the FEBRABANBrazilian Federation of Banks (FEBRABAN) since October 2008; Co-Chair doof WEF 2015 (World(Word Economic Forum) since 2015.
He has a Bachelor’sBachelor's degree in Production Engineering from the Polytechnic School of the University of São Paulo(Universidadede São Paulo,, or USP) in Brazil and a Master’sMaster's degree in ScienceEngineeringScience Engineering from Stanford University in the United States.
Alfredo Egydio Setubal (Member)has held several positionswithinpositions within the Itaú Unibanco Group including Executive Vice President since April 1996;(April 1996 to March 2015); Executive Officer (May 1993 to June 1996), Managing Officer (between 1988 and 1993) and Investor Relations Officer (1995 to 2003) of Itaú Unibanco S.A.Unibanco.
He has also served as Vice Chairman of the Board of Directors of Itaúsa since September 2008; CEO and Investor Relations Officer since May 2015 of Itaúsa; Advisory Board Member of the Securities Dealers’Dealers' Association (ADEVAL) since 1993; Financial Officer for the São Paulo Museum of Modern Art (MAM) since 1992 and of ABRASCA since 1999.
He was Chairman of the Higher Committee for Guidance, Nomination and Ethics since 2009 and Member of the Board of Directors (1999 to2009)of the IBRI. He was a Vice President (1994 to August 2003) and President (August 2003 to August 2008), of the National Association of Investment Banks (ANBID) (now Brazilian Financial and Capital Markets Association – ANBIMA).
He has a Bachelor’sBachelor's and Postgraduate degrees in Business Administration from FGV in Brazil with specialization course at INSEAD in France.(France).
Candido Botelho Bracher (Member)has been a Vice ChairmanofChairman of the Board of Directors since March(March 2013 to April 2015) and CEO of Banco Itaú BBA S.A. since August 2005. Wholesale General Manager of Itaú Unibanco Holding since April 2015.
He has been a Member of the Board of Directors of the São Paulo Stock Exchange –- BM&FBovespa S.A. (April 2009 to June 2014); Alternate Member
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of the Board of Directors (September 1999 to June 2005) and Member of the Board of Directors (June 2005 to March 2013) of Pão de Açúcar –- Cia. Brasileira de Distribuição. He was Executive Vice President of Banco Itaú BBA S.A. (February 2003 to August 2005) where he was responsible for the Commercial, Capital Markets and Human Resources Policies units. He served as an Officer at Banco Itaú BBA Creditanstalt S.A. (1988 to 2003).
He has a Bachelor’sBachelor's degree Business Administration from FGV in Brazil.
Demosthenes Madureira de Pinho Neto (Member)servedasserved as Executive Officer of Itaú Unibanco S.A. (November 2008 to January 2012).
He was an Executivea Vice President at Banco Itaú BBA S.A. (November 2008 to April 2009); Executive Vice President at Unibanco (December 2004 to April 2009); Executive Officer at
Unibanco Asset Management (August 2002 to July 2005). He was Vice President of the National Association of Investment Banks (ANBID) (2000 to 2003); Chief Executive Officer at Dresdner Asset Management (November 1999 to 2002); Director of Foreign Affairs at the Central Bank (1997 to March 1999) and General Monetary and Financial Policy Coordinator for the Ministry of Finance (1993).
He has a Bachelor’sBachelor's and Master’sMaster's degrees in Economics from the Pontifical Catholic University of Rio de Janeiro (PontifíPontifícia UniversidadeCatólica do Rio de Janeiro,, or PUC-Rio)PUC- Rio) in Brazil and a Ph.D. inEconomicsPh.D in Economics from the University of California in the United States.
Fábio Colletti Barbosa(Member) was aChairman of the Board of Directors of Banco Santander (Brazil) S.A. (January 2011 to September 2011) and Chairman of the Board of Directors of Banco Santander S.A. (August 2008 to December 2010); Chief Executive Officer of Banco Real S.A. (1998 to 2008).
He was the President of April Communications S.A. (September 2011 to March 2014); Chairman of the Board of Directors of OSESP Foundation; Member of the Deliberative Council of Insper Institute of Education and Research; Member of the Board of UN Foundation (United Nations Foundation - USA), Instituto Empreender Endeavor, ALMar Participações S.A. and Vox Capital - Investments.
He has a Bachelor's degree in Economics from the Faculty of Economics of FGV in Brazil, and Master in Business Administration by the Institute for Management and Development, Lausanne.
Gustavo Jorge Laboissière Loyola (Independent Member)wasChairman of the Fiscal Council (March 2003 to April 2006) and Chairman of the Audit Committee (September 2008 to April 2014) at Itaú Unibanco Holding S.A.Holding. He has been a Partner at Tendências Consultoria Integrada S/S Ltda. since November 2002 and Tendências Conhecimento Assessoria Econômica Ltda. since July 2003. He has also been a Managing Partner at Gustavo Loyola Consultoria S/C since February 1998. He served as governor of the Central Bank (November 1992 to March 1993 and June 1995 to August 1997) and as deputy governor for Financial System Regulations and Organization of the National Financial System at the Central Bank (March 1990 to November 1992).
He has a Bachelor’sBachelor's degree in Economics from the University of Brasília(Universidade de Brasília,, or UnB) and a Ph.D.Ph.D in Economics from FGV, both in Brazil.
Henri Penchas (Member)has been at the Itaú Unibanco GroupasGroup as a Member of the Board of Directors of since September(September 1998 to April 2015) and Vice Chairman (July 2003 to April 2009) of Banco Itaú BBA S.A.; Member of the Board of Directors (April 1997 to March 2003), Senior Vice President (April 1997 to April 2008), Executive Vice President (May 1993 to April 1997), Executive Director (1988 to 1993) of Itaú Unibanco S.A.Unibanco.
He has also been the Member of the Board of Directors of Itaúsa since May 2015. He was an Executive Vice President since(April 2009 to April 2009 and2015), Investor Relations Officer since 1995. He was an(1995 to 2015) and Executive Officer of Itaúsa (December 1984 to April 2008). He has served as a Member of the Board of Directors and Member of the Audit and Risk Management Committee of Duratex S.A. since April 2013 and as a Member of the Board of Directors of Elekeiroz S.A. since April 2013. He has been a Member of the Board of Directors and Member of the Disclosure Committee since April 2013 and CEO (April 2013 to April 2014) of Itautec S.A. –- Itautec Group.
He has a Bachelor’sBachelor's degree in Mechanical Engineering from Mackenzie University and Postgraduate degree in finance from FGV, both in Brazil.
Israel VainboimNildemar Secches (Independent Member)washas been a Member ofthe Board of Directors of Unibanco (1988 to 2008) and CEO of Unibanco Holdings S.A. (1994 to 2007), having acted asVice Chairman of the Board of Directors (2007 to 2009). He served as CEO (1988 to August 1992), Managing Vice President (1978 to 1988) of Unibanco and was responsible for the back office of the Unibanco Group (1973 to 1977).
He has a Bachelor’s degree in Mechanical Engineering from the Federal University of Rio de Janeiro (Universidade Federal do Rio de Janeiro, or UFRJ) in Brazil and a M.B.A. from Stanford University inthe United States.
Nildemar Secches (Independent Member)has been a ViceChairman of the Board of Directors of WEGWeg S.A. (1998 to 2011) and Member of the Board of Directors since 2011; Vice Chairman of the Board of Directors of Iochpe-Maxionlochpe-Maxion since 2004; Member of the Board of Directors of Suzano Papel e Celulose since May 2008 and of Ultrapar S.A. since April 2002.
He was the CEO of Perdigão S.A. (January 1995 to October 2008); General Corporate Officer of the Iochpe-Maxionlochpe-Maxion Group (1990 to 1994). He served as a Director of the Brazilian Economic and Social Development Bank(Banco Nacional de Desenvolvimento Econômicoe Social,, or BNDES) (1987 to 1990) and Chairman of the Board ofDirectorsof Directors of Brasil Foods –- BRF S.A. (April 2007 to April 2013). He served as President of the Association of Chicken Producers and Exporters (2001 to 2003).
He has a Bachelor’sBachelor's degree in Mechanical Engineering from USP, in São Carlos, a Ph.D.Ph.D in Economics from University of Campinas (Universidade Estadual de Campinas,, or UNICAMP) and a Postgraduate degree in Finance from PUC-Rio, in Brazil.
Pedro Luiz Bodin de Moraes (Independent Member)servedasserved as a Member of the Board of Directors at Unibanco (July 2003 to December2008). He was an Officer and Partner at Banco Icatu S.A. (1993 to 2002). He has been a Partner since 2003 and Officer (2002 to 2003) at Icatu Holding S.A. He served as Monetary Policy Director of the Central Bank (1991 to 1992) and Director of theBanco Nacional de Desenvolvimento Econômico e Social, or BNDES(1990 BNDES (1990 to 1991).
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He has a Bachelor’sBachelor's and Master’sMaster's degrees in Economics from PUC-Rio in Brazil and Ph.D. degree in Economics from the Massachusetts Institute of Technology (MIT) in the United States.
Ricardo Villela Marino (Member)has served Itaú UnibancoGroupUnibanco Group as an Executivea Vice President of Itaú Unibanco S.A. since August 2010. He served as Executive Officer (September 2006 to August 2010), Senior Managing Director (August 2005 to September 2006), Managing Director (December 2004 to August 2005) at Itaú Unibanco S.A.Unibanco. He has served as an Alternate Member of the Board of Directors of Itaúsa since April 2011.
He has served as an Alternate Member of the Board of Directors of Duratex S.A., Elekeiroz S.A. and Itautec S.A. since April 2009. He was President of the Latin American Federation of Banks (FELABAN) (2008 to 2010).
He has a Bachelor’sBachelor's degree in Mechanical Engineering from the Polytechnic School of USP in Brazil and a Master’sMaster's degree in Business Administration from MIT Sloan School of Management, Cambridge in the United States.
Board of Officers
Caio Ibrahim David (Chief Financial OfficerThe resumes of Mr. Roberto Egydio Setubal (Vice Chairman and Chief Executive Officer)has been an, Mr. Candido Botelho Bracher (Member of the Board and Chief Executive Officer of Banco Itaú BBA S.A.) and Mr. Ricardo Villela Marino (Member of the Board and Vice President of Itaú Unibanco S.A.since August 2010.Unibanco) are detailed above, in the Board of Directors item.
He joinedMárcio de Andrade Schettini (General Manager)has served the Itaú Unibanco S.A. in 1987Group as a trainee, having worked in the controller’sGeneral Manager since April 2015 and market and liquidity risk control departments. He worked as an associate at Bankers Trust in New York in the
Vice President (November 2008 to March 2015) of Itaú Unibanco.
Global Risk Management unit in 1998. He has served as a Member of the Board of Directors of Investimentos Bemge S.A. since April 2012 and as a Member of the Board of Directors of Dibens Leasing S.A. – Arrendamento Mercantil since July 2010. He also served as Executive Officer of Itauseg Participações S.A. (a BM&FBovespa-listed company until November 2012)Vice President (April 20102004 to April 2013). He served as Vice Chairman of the Board of Directors of Redecard S.A. (June 2010 to December 2012).2009) at Unibanco.
He has a Bachelor’sBacharelor's degree in Engineering and a Master's Degree in Business Administration from Mackenzie University (1990),PUC-Rio, where he also specialized in mathematical models. He also attended the Administration program for Owners and Presidents at Harvard University.
Marco Ambrogio Crespi Bonomi (General Manager)has served Itaú Unibanco Group as a PostgraduateGeneral Manager since April 2015 and Vice President (April 2007 to March 2015); Executive Director (April 2004 to April 2007); Senior Managing Director (October 2000 to April 2004); Managing Director (August 1998 to October 2000) of Itaú Unibanco.
He has served as an Executive Director (November 2008 to June 2014) of Unibanco; Vice President since April 2004 of ACREFI - National Association of Credit.
He has a Bacharelor's degree in Economics and Finance (1993) from USP, Master’s degree in Controllership from USP (1997) in Brazil, and an M.B.A. from theFundação Armando Alvares Penteado (FAAP) (1978), Executive Financial courses at FGV (1982) and Capital Markets at New York University (1999) with specialization in finance, accounting and international business in the United States.(1984).
Claudia Politanski (Executive Officer)(Vice President)has held several positions within the Itaú Unibanco Group including Vice President since April 2015 at Itaú Unibanco Holding, having been an ExecutiveViceExecutive Officer (November 2008 to March 2015); Vice President of Itaú Unibanco S.A. since July 2013. She is currently responsible for our ombudsman and our legal divisionthe Legal, Institutional & People areas and serves as general legal counsel.
She joined Unibanco in 1991 and became an Executive Officer (August 2007 to July 2014),; Officer (February 2006 to August 2007) and a Deputy DirectorOfficer (July 2003 to February 2006). She was also an Executive Officer of Itaú Unibanco S.A. (February 2010 to MarchJuly 2013).
She has a Bachelor’sBachelor's degree in Law from USP and an M.B.A.MBA from Dom Cabral Foundation, in Minas Gerais, both in Brazil. She also has a Master of Laws (L.L.M.) from the University of Virginia in the United States.
Eduardo Mazzilli de Vassimon (Executive Officer)(Vice President)has heldseveralheld several positions within the Itaú Unibanco Group including Managing Vice President of Itaú Unibanco S.A. since March 2013 and Member of the Board of Directors of Banco Itaú BBA S.A. since November 2004.(November 2004 to April 2015).
He also served as Managing Vice President of Banco Itaú BBA S.A. (November 2004 to December 2008), and was responsible for the international, financial institutions, products, client desk and treasury departments. He has served as General Manager of Itaú Unibanco S.A. (1980 to 1990). He served as Vice Chairman of the Board of Directors at Investimentos Bemge S.A. since February 2013. He worked as Deputy Foreign Exchange Director (1990 to 1991) and as International Unit Director (1992 to 2003) of Banco BBA-Creditanstalt S.A.
He has a Bachelor’s degreesBachelor's degree in Economics from the School of Economics of USP (1980) and in Business Administration from FGV (1980). Master’sMaster's degrees from the São Paulo Business Administration School of FGV (1982) and from ÉcoleÉcole dês Hautes ÉtudesEtudes Commerciales (1982) in France.
Ricardo Baldin (Executive Officer)served the Itaú UnibancoGroup as an Executive Officer at Itaú Unibanco S.A. (February 2010 to April 2011).
He has been a Member of the Audit Committee of Porto Seguro S.A. since October 2011. In 1977, he was hired as a trainee by PricewaterhouseCoopers where he was a partner for 18 years. As an independent auditor, he was the partner responsible for financial institutions. He was also the partner responsible for the financial institutions group of PricewaterhouseCoopers in South America, where he was responsible for the coordination of many projects in the region, including the assessment of the Ecuadorian financial system. He was the Director of the National Association of Financial, Business Administration and Accounting Executives (ANEFAC) and he was also responsible for the financial institutions group of the Institute of Independent Auditors of Brazil (IBRACON).
He has a Bachelor’s degree in Accounting from Vale do Rio dos Sinos University, São Leopoldo, State of Rio Grande do Sul (1978) and continued education certificates in management and finance from the Dom Cabral Foundation and FGV.
Alexsandro Broedel Lopes (Officer)(Executive Officer)has served the ItaúUnibanco Group as an Finance Executive Officer since March 2015 and Officer (May 2012 to March 2015) at Itaú Unibanco S.A. since May 2012.Unibanco.
He has been an Officer at Investimentos Bemge S.A. since June 2012 and an Officer at Dibens Leasing S.A. –- Arrendamento Mercantil since August 2012. He has been a Fullmember of the Accounting Standards Advisory Forum (ASAF) of the International Accounting Standards Board (IASB); member of the Board of Directors at CETIP and IRB Brasil Resseguros; member at IIRC (International Integrated Report Committee). He also is Professor at University of AccountingSão Paulo (Accounting and FinanceLaw School) and visiting professor at USP since 2002, teaching in undergraduate, master’s and Postgraduate level courses in the finance and accounting fields. London School of Economics.
He served as a Commissioner at the CVMtheCVM (2010 to 2012)., member on the Audit Committee of BMF&Bovespa and Consultant at Mattos Filho Lawyers. He is a membertaught at EAESP-FGV, Manchester Business School of the Standards Advisory CouncilEconomics. Has several books and of the IFRS Foundation Education Advisory Group.technical articles published in Brazil and abroad.
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He has a Ph.D. in Accounting and Finance from the Manchester Business School (2008) in the United Kingdom, a Postgraduate degree in Controllership and Accounting from USP (2001), a Bachelor’sBachelor's degree in Accounting from USP (1997), and a Bachelor’sBachelor's degree in Law from USP (2012). He was also awarded thePrêmioUnibanco de Desempenho Universitário(Unibanco Award forUniversityfor University Performance) and thePrêmio Prof. Ari Toríbio de MelhorTrabalho de Conclusão de Curso(Prof. (Prof. Ari Toríbio Award for the BestCourseBest Course Final Paper).
Leila Cristiane Barboza Braga de Melo (Executive Officer)has held several positions in the Legal Department of Itaú Unibanco Group, including the current position of Executive Officer (since March 2015 at Itaú Unibanco) and Officer (February 2010 to March 2015).
She was Deputy Officer at Unibanco (October 2008 to April 2009). She joined Unibanco in 1997 and was initially responsible for providing legal assistance on banking transactions involving banking, credit card, mortgage and vehicles, and projects related to mergers and acquisitions, corporate restructuring and capital market, among others.
She has a Bachelor's degree in Law from USP, and a specialization in Corporate Law with emphasis in Corporate Finance and Capital Markets from the Brazilian Institute of Capital Markets(Instituto Brasileiro de Mercado de Capitais, or IBMEC), and a specialization on the Fundamentals of Business Law from New York University (NYU).
Paulo Sergio Miron (Executive Officer)has held several positions within PricewaterhouseCoopers in São Paulo, he served as partner (1996 to 2015), being responsible for the audit work for large Brazilian Financial Conglomerates, among them: Unibanco (1997 to 2000), Banco do Brasil (2001 to 2005) and Itaú Unibanco (2009 to 2013); in Brasília he served as partner (2001 to 2008), being in charge of Government related services (2004 to 2008) and banking (1997 to 2008). At PricewaterhouseCoopers, he was also the training area coordinator for over 10 years and served as a University professor for a few years on matters related to the financial market.
He is a member of the Brazilian Institute of Accountants and speaker at various seminars related to financial instruments and audit.
He has a Bachelor's degree in Accounting fromUniversidade São Judas Tadeu and in Economics from Mackenzie University, both in Brazil.
Adriano Cabral Volpini (Officer)has held several positions within the Itaú Unibanco Group including Corporate Safety Officer since July 2012; Senior Manager of Illicit Act Prevention (August 2005 to March 2012); Manager of Illicit Act Prevention (January 2004 to July 2005); Inspection Manager (June 2003 to December 2003); Inspector (January 1998 to March 2003); Auditor (May 1996 to December 1997); Branch Operational Area (March 1991 to April 1996) of Itaú Unibanco.
He has been a Director since January 2014; Executive Director (June 2012 to January 2014) at Dibens Leasing S.A.
He has a Bachelor's degree in Social Communications from FAAP (1991-1995); a Post-graduate degree in Accounting and Financial Administration from FAAP (1998-2000); and an MBA in Finance from IBMEC (2000 to 2002).
Álvaro Felipe Rizzi Rodrigues (Officer)has served as Officer since October 2014 at Itaú Unibanco. Before, he was our Legal Superintendent (July 2008 to August 2014) and Legal Manager (March 2006 to July 2008). He is now responsible within the Legal Department for coordinating and overseeing proprietary M&A (Mergers & Acquisitions) transactions, corporate governance and corporate paralegal matters, Anti-Trust, Intellectual Property, non-financial contracts, proprietary real estate transactions, as well tax and corporate matters associated with our international vehicles. He also manages and coordinates our legal teams located in countries where we do business through international vehicles pertaining to Itaú Unibanco group of companies.
Before joining Itaú Unibanco group, he practiced Corporate and Contracts Law (August 1998 to February 2005) at Tozzini Freire Advogados.
He has a Bachelor's degree in Law from USP Law School, class of 1999, a specialization diploma in Business Law fromPontifícia Universidade Católica de São Paulo (PUC-SP) in 2001, and a Master Degree in Law - LL.M. from Columbia University's School of Law in New York (2004).
Cláudio José Coutinho Arromatte (Officer)has served as Officer since February 2010 at Itaú Unibanco and as Officer since April 2015 at Dibens Leasing S.A.
He also served as Officer at Unibanco (December 2004 to November 2008) and (May 2013 to July 2014); Director of the Logistics and Business of Fuel Stations at Casas Sendas Comércio e Indústria; as Manager of logistics and distribution at Rio de Janeiro Refrescos Ltda. (1998 to 2001), where he was responsible for production, marketing and distribution; as Controlling Manager at Brahma (current AMBEV) (1993 to 1998), where he was responsible for the Financial Management and logistics in manufacturing unit of Fratelli Vita mineral water. In 1997, he participated in the Joint- Venture with Gessy Lever for the production, marketing and distribution of tea (Lipton Iced Tea), and was responsible for the production, marketing and distribution of isotonic (Marathon). He began his career in 1986, at White Martins Gases Industriais S.A., in Rio de Janeiro, in the area of information technology management, serving as Coordinator of distribution systems, where he remained until 1993.
He has a Bachelor's degree in Electric Engineering and Master's degree in System Control and Optimization from PUC-Rio in Brazil.
Eduardo Hiroyuki Miyaki (Officer)served the Itaú Unibanco GroupasGroup as an Officer at Itaú Unibanco S.A. (August 2010 to August 2011).
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He was as Compliance Manager and Officer in the Money Laundering Prevention program of Itaú Unibanco S.A. (1996 to 2003). He was the manager responsible for the Internal Audit Department of our Asset Management and Treasury units (2003 to 2004). He was also the manager of our Internal Audit, Capital Markets, Insurance and Securities units (2005 to 2010).
He has a Bachelor’sBachelor's degree in Civil Engineering from USP and a Postgraduate degree in sanitation from Gunma University, in Japan. He also has a Postgraduate degree in Business Administration from FGV. He has an M.B.A.MBA degree in Finance and Foreign Affairs from New York University, Leonard Stern School of Business in the United States.
Emerson Macedo Bortoloto (Officer)joined the Itaú UnibancoS.A.Unibanco in July 2003, holding positions in the Internal Audit Department. Since November 2008, he has been responsible for evaluating processes related to market, credit and operational risks, in addition to auditing projects and continuous audit. He was also responsible for audits in the processes of information technology and retail credit analysis and granting. He also worked at Ernst & Young Auditores Independentes (May 2001 to June 2003).
He worked at Banco Bandeirantes S.A. (1992 to 2001) and was responsible for performing IT and operational process audits.
He has a Bachelor’sBachelor's degree in Data Processing Technology from Tibiriçaá Integrated Schools and Postgraduate degree in Audit and Consultancy in Information Security from Associated Schools of São Paulo (FASP). In 2004, he obtained the CISA certification issued by ISACA. He has an M.B.A.MBA degree in Internal Audit from the Institute for Accounting, Actuarial and Financial Research Foundation(Fundação Instituto de Pesquisas Contábeis, Atuariais eFinanceiras,, or FIPECAFI).
José Virgilio Vita Neto (Officer)has served as Officer since October 2011 at Itaú Unibanco.
He joined Unibanco in January 2001, as a lawyer until June 2003, and was responsible for the wholesale banking legal advisory areas. From June 2003 to December 2004, he was the Legal Manager in charge of the legal advisory services for the wholesale bank. From January 2006 to June 2008, he was the Legal Manager responsible for legal advice related to the retail bank. From June 2008 to October 2009, he worked as a Legal Senior Manager, in charge of retail legal advisory services and administrative and investigation processes, large scale litigation and public civil suits. In the Itaú Unibanco Group he worked as a Legal Senior Manager from December 2009 to March 2011, in charge of the Retail Legal Advisory area, large scale litigation and public civil suits, management of Higher Court appeals, administrative and investigation processes, fiscal administrative processes and criminal processes.
He has a Bachelor's degree in Law from USP in 2000; a Master's degree in Civil Law with emphasis in Contracts fromUniversidad de Salamanca, in Spain (2006); and Ph.D in Civil Law with emphasis in Contracts from USP (2007).
Marcelo Kopel (Officer)was an Executive Officer at RedecardS.A.Redecard S.A. (May 2010 to July 2014) and Officer at Itaú Unibanco S.A. since July 2014. He also worked as an Officer at Banco Credicard S.A. (November 2004 to February 2010), Financial Officer at Banco Citibank S.A. (2006 to 2010) and ING Bank in Brazil (1992 to 1998) and for Latin America (1998 to 2002). At Bank of America he worked as a Financial Officer accumulating the position of Operations Officer (2002 to 2003). He is Investor Relations Officer at Itaú Unibanco Holding S.A. since February 2015.
He has a degree in Business Administration fromFundaçãoArmando Alvares Penteado(FAAP) FAAP in Brazil.
Matias Granata (Officer)has held several positions within theItaúthe Itaú Unibanco Group including as an Officer since July 2014; Senior Manager for Market Risk from October 2010 to April 2014; and Senior Manager for Operational Risk from March 2009 to October 2010.2010 at Itaú Unibanco.
He also served as a Senior Treasury Trader –- Proprietary Desk São Paulo (August 2007 to March 2009); Senior Treasury Trader –- Proprietary Desk London (August 2004 to August 2007), Treasury Trader –- Proprietary Desk, São Paulo (April 2003 to August 2004); Senior Economic Research Economist (May 2002 to April 2003).
He has a Master of Arts –- International Economic Policy from the University Ofof Warwick, UK. British Chevening Scholarship (2000-2001); a Master’sMaster's degree in Economics from theUniversidad Torcuato Di Tella (UTDT), Argentina (1998-2000) and completed a Degree Course in Economics from theUniversidad de Buenos Aires (UBA), Argentina (1992-1997).
Rodrigo Luís Rosa Couto (Officer)has held several positionswithinpositions within the Itaú Unibanco Group including as an Officer since January 2012 and Head of Corporate Risks (February 2008 to December 2011) at Itaú Unibanco Holding S.A. and Officer since December 2011 at Itaú Unibanco S.A.Unibanco.
He has served as Officer at Dibens Leasing S.A. - Arrendamento Mercantil since January 2014. He has worked as an Inspector of the Direct Supervision Department –- DESUP at Central Bank (1988 to 2003), Financial Stability Institute of the BIS where he carried out an internship during which he participated in the preparation and lectured in a preparation course for bank supervisors of regulatory authorities worldwide (April to June 2003) and McKinsey & Company Associate at Consultant Member of the Risk Management Practice and Specialized in Risk and Finance subjects (September 2005 to February 2008).
He has a Bachelor’sBachelor's degree in Administration, with an emphasis on Finance, from the Federal University of Rio Grande do Sul (Universidade Federal do Rio Grande do Sul (UFRS)- UFRS) (1997) in Brazil and an M.B.A.MBA with honors from The Wharton School, University of Pennsylvania (2005) in the United States.
Wagner Bettini Sanches (Officer)has been an Officer of the ItaúUnibanco Group as an Officer since June 2014 at Itaú Unibanco Holding S.A. and Officer since October 2011 at Itaú Unibanco S.A. and Officer since November 2012 at Banco Itaú BMG Consignado S.A.
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He previously held a number of positions within the Itaú Unibanco Group, including Company Market Consultancy Analyst (1996 to 1999); Coordinator of the Company Market Consultancy (1999 to 2000); Manager of the Company Market Consultancy (2000 to 2001); Manager of the Corporate Credit – Company Market (2003 to 2007); Senior Manager of the Commercial Corporate Real Estate, in charge of the commercial relationship with real estate developers throughout the country (2007 and 2008); Senior Manager of Credit and Collection of Real Estate Lending Operations, in charge of the lending desk to individuals, credit analysis of companies, planning, monitoring of projects, management of collection and operational and litigation collections as from 2009 of Itaú Unibanco S.A.Unibanco.
He has a Bachelor’s degree in Production Engineering from Polytechnic School of USP in Brazil; a Post-graduadePost-graduate degree from the University of Michigan; an M.B.A.MBA with high distinction, with an emphasis on Finance and Strategy from the Ross School Business in the United States (2003).
Audit Committee
Alkimar Ribeiro MouraAntonio Francisco de Lima Neto (Independent Member)was anIndependent Memberserved as a President (August 2009 toOctober 2013) at Banco Fibra S.A.
He has worked as President (December 2006 to April 2009); Vice President of Retail and Distribution (July 2005 to December 2006); Vice President of International Business and wholesale (November 2004 to July 2005); Commercial Director (September 2001 to November 2004); Executive Superintendent of the SupervisionCommercial Board of the São Paulo Stock Exchange, BM&FBovespa S.A. (October 2007(July 2000 to September 2010)2001); aTocantins State Superintendent (May 1999 to May 2000) and Regional Superintendent of Belo Horizonte (January 1997 to May 1999) at Banco do Brasil S.A.
He has also served as Member of the Board of Directors of Banco Nossa Caixa(2007 to 2009) at Brasilprev Insurance and Pension S.A. (May 2006 to February 2007); Vice-President of Finance and Capital Markets of Banco do Brasil S.A. (April 2001 to January 2003). He was as a Member of the Board of Directors (2006 to 2009) at FEBRABAN Brazilian Federation of Cia. Brasil de Seguros (May 2001 to February 2003) and of Banco Bandeirantes S.A. (May 1999 to December 2000). He was Deputy Governor for Monetary Policy (February 1994 to February 1996) and for Financial System Regulations and OrganizationBanks; Member of the National Financial System (February 1996Board of Directors (2004 to September 1997), both2005) at BB Securities Limited; Member of the CentralBoard of Directors (2003 to 2005) at Brasilsaúde Insurance Company; Member of the Board of Directors (2001 to 2009) at Alliance Insurance Company of Brazil; Member of the Board of Directors (2000 to 2007) at BB Security - Brazil Bank of Brazil. He is a retired Professor of Economics at the São Paulo Business Administration School of FGV (EAESP/FGV).Pension Fund.
He is pursuing a Master’s degree in Economics at FGV since January 2014. He has a Course for Advisors from the Brazilian Institute of Corporate Governance (2014); a Post-Graduate degree in Marketing from PUC-Rio (2001); Training for Executive MBA from Dom Cabral Foundation (1997). He has a Bachelor’s degree in Economics from the Federal University of Minas Gerais in Brazil, a Master of Arts degree from the University of California and a Ph.D. in Applied Economics from Stanford University, both in the United States.Pernambuco (Universidade Federal de Pernambuco– UFPE – 1996).
Diego Fresco Gutierrez (Independent Member)Member and Financial Expert)has servedasserved as an independent consultant on complex issues of financial reporting, particularly to companies with double listingdoubly listed (in Brazil and in the U.S.A.)United States) since June 2013. He served as Partnerwas a partner at PwC – São Paulo (2000 to June 2013) in the Capital Markets and Accounting Advisory Services area and before hadprior to that held several positions at PwC in Uruguay (1998 to 2000 and 1990 to 1997) and in the United States.States (1997 to 1998).
He has a Bachelor’s degree in Accounting fromUniversidad de la RepublicaOriental del Uruguayin 1994; has been1994. He is a Certified Public Accountant -– “CPA”registered in the State of Virginia (United States) since 2002 (Registration 27.245)27,245) and is aContador registered with the Regional Council of Accountancy of the State of São Paulo. He also has certifications from the Brazilian Institute of Corporate Governance as Member of the Commission of Governance in Financial Institutions of the Brazilian Institute of Corporate Governance since 2013.
Geraldo Travaglia Filho (Independent Member)served as anExecutive Officer of Itaú Unibanco S.A. and Itaú Unibanco Holding S.A. (November 2008 to April 2009) and Executive Officer at Banco Itaú BBA S.A. (November 2008 to January 2010) and as Financial Executive Officer of Redecard S.A. (May 2009 to April 2010). He served as Vice President at Unibanco (September 2004 to April 2009).
He has a Bachelor’s degree in Business Administration from USP in Brazil and a specialization in Bank Management from the Wharton School of the University of Pennsylvania in the United States.
Luiz Alberto Fiore (Independent Member)was an IndependentAuditor ofIndependent Auditorof PwC (1971 to 1973). He joined Deloitte Touche Tohmatsu, where was a Partner in the External Audit and Corporate Finance departments (1973 to 2010). He was also a Member of the Board of Officers and Board of Directors of Deloitte Brazil (1987 to 2008) and a Member of the International Board of Deloitte Corporate Finance (1998 to 2005).
He has a Bachelor’s degree in Business Administration from the Pontifical Catholic University of São Paulo (ESAN-PUC-SP) and a Bachelor’s degree in Accounting from Mackenzie University, both in Brazil.
Maria Helena dos Santos Fernandes de Santana (Independent Member)served asis a Member of the BoardofBoard of Directors since April 2013 and Chairman since April 2014 of theofthe Corporate Governance Committee at Companhia Brasileira de Distribuição S.A.; Member of the Board of Directors at CPFL Energia S.A. since April 2013; a Member of the Board of Directors and Coordinator of the Audit Committee at Totvs S.A. since April 2013; and a Member of the Board of Trustees of the IFRS Foundation since January 2014. She was a Member of the Board of Directors at CPFL Energia S.A. (2013 to 2015); Chairperson (July 2007 to July 2012) and Commissioner (July 2006 to July 2007) at CVM; Chairperson of the Executive Committee (2010 to 2012) at the International Organization of Securities Commissions, or IOSCO; Vice President (2004 to 2006) and Member of the Board of Directors since 2001 at Brazilian Institute of Corporate Governance (Instituto(Instituto Brasileiro de Governança Corporativa, or IBGC); Chairperson of the Executive Committee (2010 to 2012) at International Organization of Securities Commissions, or IOSCO.. Worked for BOVESPA – São Paulo Stock Exchange (now BM&FBovespa S.A.) for 12 years, acting as Head of Listings and Issuer Relations from 2000 to June 2006. Was involved, since the beginning, with the creation
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of the Novo Mercado and the Corporate Governance Listing Tiers, having been in charge of their implementation.
She has a Bachelor’s degree in Economics from the School of Economics, Business and Accounting at the University of São Paulo (Faculdade de Economia, Administração eContabilidade daUniversidade de São Paulo, or FEAUSP)orFEA-USP) in Brazil.
Sergio Darcy da Silva Alves (Independent Member)served as aMembera Member of the Audit CommitteeAuditCommittee of Banco Santander S.A. (October 2006 to March 2013) and Member of the Regulatory Committees as Coordinator and Auditor of São Paulo Stock Exchange –at BM&FBovespa S.A. since January 2007. He has held several positions: Director of the National Financial System Regulation and Organization (September 1997 to April 2006); in the Central Bank; Head of the National Financial System Regulation and Organization Department (April 1991 to August 1997); Deputy Head of the National Financial System Regulation and Organization (March 1985 to March 1991); Coordinator of the Capital Markets Department in the Division of Financial Institutions Authorization up to 1985.
He has a Bachelor’s degree in Economics fromFaculdade deEconomia e Administraçãoof UFRJ (1968)UFRJ(1968) and an Advance CourseonCourse on Accounting Sciences from theAssociação de EnsinoUnificado deBrasília(AEUDF) (1975 to 1978)both in Brazil.
Fiscal Council
Alberto Sozin Furuguem (Independent Member)previouslyheldpreviously held several positions atpositionsat the Central Bank, including Economist and Head of the Economic Department (1981 to 1983), Officer (1985), Regional Delegate in São Paulo (1991 to 1992) and Clerk (1963 to 1966). He also worked at the Ministry of Finance as Minister Mário Henrique Simonsen’s Assistant (March 1974 to March 1975) and at the Government of the State of Rio de Janeiro as a Development Bank Officer (1975 to 1979).
He graduated with an undergraduate degree in Economics and with a Postgraduate Degree from FGV, both in Brazil (January 1967 to December 1968).
Iran Siqueira Lima (Independent Member)held severalpositionsseveral positions at the Central Bank holding various positions (1967 to 1993), including: Deputy Head of the Capital Markets Inspection Department (1976 to 1979), Head of the Capital Markets Department (1979 to 1984), Officer of the Capital Markets Department (1984), Officer of the Inspection Department (1985) and Regional Delegate in São Paulo, State of São Paulo (1991 and 1993). In 1986, he took a leave of absence from the Central Bank and served as Officer of the Capital Markets Department at Banco da Cidade S.A. In that same period (1986 to 1988), he founded a consulting firm in the capital markets field, where he held the position of Managing Partner from 1987 to June 1988. At the Brazilian Federal Government he worked as Secretary of Budget and Control of Government Companies (SEST)– SEST (July 1988 to March 1990). He was Economic and Finance Officer of Telebrás – Telecomunicações Brasileiras S.A. (May 1991 to December 1992) and was a Member of the Board of Directors of the BNDES, of Telesp – Telecomunicações de São Paulo and of Telebrás – Telecomunicações Brasileiras S.A. Since 1972, he has been teaching courses related to Accounting and Finance in the following Universities: Association of Unified Education of the Federal District (AEUDF), UnB, USP, and the M.B.A.MBA courses of FIPECAFI.
He has a Bachelor’s degree in Economics from the University of the State of Rio de Janeiro (UERJ) (1969)(Universidade Estadual do Rio de Janeiro – UERJ – 1969) and a Bachelor’s degree in Accounting from the Association of Unified Education of the Federal District Associação de Ensino Unificadode Brasília(AEUDF) (1973). He has a Postgraduate degree in Economics EngineeringEconomicsEngineering and Industrial Administration from Candido Mendes University (1971) and Master’s and Postgraduate degrees in Accounting and Controllership from USP (1976 and 1998, respectively).
Luiz Alberto de Castro Falleiros (Independent Member)hasbeen ahas beena Member of the Board of Directors at Tiradentes University since April 2009, an Alternate Member of the Fiscal Council at AES, TietêTiete and Tupy S.A. since April 2010. He was a Member of the Fiscal Council at Banco Indusval (April 2010 to April 2012). Additionally, he was General Manager at Banco Alfa de Investimento S.A. (July 1998 to December 2000), Superintendent of Market Relations at SABESP – Companhia de Saneamento Básico do Estado de São Paulo (January 1997 to June 1998), Deputy Director Investment (January 1992 to December 1996) and Underwriting Officer (January 1991 to January 1992) at Banco ABC – Roma S.A.
He has a Bachelor’s degree in Economics from UNICAMP, in Campinas (1978) and an M.B.A.MBA in Finance from the Schools of Campinas (Faculdadesde Campinas, or FACAMP) (2004), both in Brazil.
Directors’ and Senior Management’s Compensation
Our Compensation Policy, applicable to directors and officers in Brazil (constituting a majority of the management of Itaú Unibanco Group), is in accordance with guidelines provided under applicable Brazilian regulation and is built upon our principles and practices and is intended to better align the interests of our shareholdersstockholders and our management. Regarding variable compensation, the purpose of our Compensation Policy is to attract, retain and reward management achievements; and also intendsachievements, as well as to stimulate the adoption of prudent levels of risk exposure in the short, medium and long term.
Accordingly, our Compensation Policy sets forth that of the total aggregate variable compensation paid, at least 50% must be paid in shares or share based instruments, and at least 50% must be deferred for future payment in a minimum period of three years. DeferredIf the institution or business unit records a significant decrease in the realized recurring profit or a negative result during the deferral period, the deferred and
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unpaid portions mayof the compensation will be reversed proportionally retained due to a significant reduction of realized recurring net income or negativethe decrease in result for the current period (claw back)(malus).
Our governance structure for the establishment of compensation sets forth clear and transparent processes, and is overseen by the Compensation Committee. Among others, its responsibilities comprise the formulation of our Compensation Policy, which must be submitted to the annual approval of the Board of Directors. Additionally, our Compensation Committee acts as an important intermediateliaison with the Central Bank, increasing the accuracy and transparency of information provided to this regulatory body. Please refer towww.itau.com.br/ www. itau.com.br/_arquivosestaticos/RI/pdf/CompensationCommittee.pdfCompensation Committee.pdf for further information.
The maximum amount to be paid to management is proposed by the Board of Directors and approved at our Annual General Shareholders’ Meeting. For 2014, the amount approved was R$145 million.
Additionally, weWe have established a profit sharing plan pursuant to which each beneficiary is assigned annually a base amount for computation of payments. The final amount of the payment to an individual is based on the consolidated results of the Itaú Unibanco Group, the results of the business unit to which the individual belongs and the individual’s performance. This individual amount is determined by multiplying the base amount by several indexes that represent the mentionedthose Key Performance Indicators (Itaú Unibanco Holding results and/or business unit results and individual performance).
Our Annual General Shareholders’ MeetingWe also approvedhave an individual monthly fixed compensationinstitutional program called the Partners Program (Programa de Sócios), comprised of R$15,000 for the members of management and employees approved by the Personnel Committee as having provided an outstanding contribution and performance. The beneficiaries are entitled to use part or their total annual variable compensation to purchase our fiscal councilpreferred shares (“own shares”). If they hold the ownership of these own shares, free of any liens or encumbrances and R$6,000of other suspension conditions set forth in the program regulation for their alternates.3- and 5-year terms as from the initial investment, the return on investment will be through the receipt of our preferred shares (“partners shares”) also for 3- and 5-year terms. These partners’ shares will subsequently remain unavailable for 5- and 8-year terms as from the initial investment in own shares. The Partners Program may also consider instruments derived from shares rather than actual shares.
In 2014,2015, we recorded expenses at Itaú Unibanco Group for our management compensation, including the stock option planlong term incentives plans (Partners Program and Stock Option Plan) in the amount of approximately R$845 million, which includes fees907 million. Our long term incentive plans take into consideration amounts granted in the approximate amount of R$343 million, profit sharing of approximately R$261 million andpast but that are still being recorded. Management compensation also considers contributions to pension plans of approximately R$7.0 million. In addition, management received9 million and other benefits, such as health and dental care, which totaled R$4.03 million. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 35 – Related Parties – (b) Compensation of the Key Management Personnel, for further details.
Brazilian legislation does not require the disclosure of individual compensation of our management, except for the highest and lowest amount received, and it is not necessary to identify those individuals. The Brazilian Institute of Financial Executives of Rio de Janeiro (InstitutoBrasileiro de Executivos de Finanças, or IBEF Rio de Janeiro)Janeiro) filed, on behalfofbehalf of its members, a lawsuit challenging the legality of this disclosure requirement, and an injunction was granted to suspend such requirement. We do not intend to make this disclosure until the matter is finally determined. Please refer to section Our Risk Management, item Regulatory Environment, Compensation of Directors and Officers of Financial Institutions, for further information.
Our Compensation Policy provides for post-employment benefits for our management, including medical benefits such as health plan and annual medical check-up. Except for the benefits established by our Compensation Policy, we do not have service contracts with our management providing for benefits upon termination of employment.
Stock Option Plan
We have a stock option plan through which our employees and management receive stock options. These options enable employees and management to share the risk of fluctuation of the price fluctuations of our preferred shares with other shareholdersstockholders and is intended to integrate the beneficiaries of our Stock Option Plan into the development process of our group in the medium and long term.
Our Personnel Committee manages the Stock Option Plan, including matters such as strike prices, vesting periods and effectiveness of options, in compliance with the rules set forth in the Stock Option Plan.
Options may only be granted to beneficiaries if there is net income sufficient for the distribution of mandatory dividends. Please refer to section Our profile, item Information for the Investor, Shareholders’Stockholders' Payment, for further information on the payment of dividends. Also, to avoid the dilution of shareholders,stockholders, the sum of shares to be used for compensation of management and options to be granted each year will not exceed the limit of 0.5% of total shares outstanding at the closing balance sheet date of the same year. In the event the number of shares delivered and options granted is below the 0.5% limit, the difference may be added for purposes of share based compensation or granting of options in any one of the seven subsequent fiscal years.
In view of the effects related to Article 33 of Law No. 12,973/2014, 11,007,189the amounts granted under the Partners Program and not yet paid, which used to be under our Stock Option Plan, are now recognized as compensation. As a result, on April 29, 2015, our stockholders approved, among other modifications, to exclude from our Stock Option Plan the provisions on the granting of partner options (related to our prior Partners
Our risk management | A-66 |
Annual Report 2015 |
Program), so that the Stock Option Plan will provide only the granting of simple options.
In 2015, no simple options were granted pursuant to our Stock Option Plan. On December 31, 2014,2015, we still had 74,451,39945,948,317 options to be exercised by the beneficiaries, comprising 572 beneficiaries of simple options and 249 beneficiaries of partners’ options.beneficiaries. Please refer to section Performance, Item Consolidated Financial Statements (IFRS), Note 22 – Share-based Payment, I - Stock OptionOptions Plan.
Main Differences between Brazilian and U.S. Corporate Governance Practices corporate governance practices
In the U.S., we have listed our ADSs on the NYSE as a foreign private issuer and, as a result, the NYSE allows us to comply with certain corporate governance requirements established by applicable Brazilian legislation in lieu of those under the NYSE’s corporate governance listing standards applicable to U.S. companies with securities listed on the NYSE.
Under the NYSE rules, we are only required to:
(i) have an audit committee or an audit board that meets certain requirements, as discussed below; (ii) provide notice by our chief executive officer to the NYSE with respect to any non-compliance by us with any applicable NYSE corporate governance listing standards; (iii) provide the NYSE with annual and interim written affirmations of our compliance with the NYSE corporate governance listing standards; and (iv) provide a statement of the significant differences between our corporate governance practices and practices required by the NYSE to be followed by U.S. listed companies. Except for those requirements, we are permitted to manage our corporate governance in accordance with applicable Brazilian legislation.
The description of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below. Our main rules and policies can be found atwww.itau.com.br/investor-relations/corporate-governance/rules-and-policies.rules-and-policies.
Majority of Independent Directors
The NYSE rules require that the majority of the board members be independent. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. However, under NYSE rules, listed companies (whether U.S. or foreign) of which more than 50% of the voting power is held by an individual, a group or another company, such as in our case, are not required to comply with the majority independence requirement.
Brazilian legislation does not have a similar requirement. Nevertheless, our Board of Directors has four directors considered independent pursuant to the criteria established in our Corporate Governance Policy. For further information on the composition of our Board of Directors, see section Our Governance, item Management Structure, Our Directors Officers and Committee Members.Executive Officers.
Additionally, Brazilian Corporate Law, the Central Bank and the CVM have established rules that address the duties and responsibilities of companies’ officers and directors and their professional qualification, so as to ensure the proper operation of the board.
Executive Sessions
NYSE rules require that non-management directors meet at regularly scheduled executive sessions without the presence of directors who are also officers of the company.
Brazilian legislation does not have a similar requirement. However, we hold such executive sessions at least once a year. Currently, two thirdsthree quarters of the members of our Board of Directors are non-management directors.
Nomination and Corporate Governance Committee and Compensation Committee
NYSE rules require that listed companies have a nominating or corporate governance committee and also a compensation committee, each entirely composedcomprised of independent directors and governed by a charter on the purposes and responsibilities of such committee. However, under NYSE rules, listed companies (whether U.S. or foreign) of which more than 50% of the voting power is held by an individual, a group or another company, such as in our case, are not required to comply with such requirement.
Brazilian legislation does not require us to have a nominating or corporate governance committee. However, we have elected to form a Nomination and Corporate Governance Committee responsible for stimulating and overseeing discussions of matters related to the company’s governance. Currently, one out of six members of our Nomination and Corporate Governance Committee is considered independent under our Corporate Governance Policy.
Brazilian legislation does not require listed companies to have a compensation committee. Nonetheless, we are required to establish a Compensation Committee pursuant to Brazilian banking regulation. In accordance with such regulation, our Compensation Committee reports to the Board of Directors and members of the Compensation Committee are not required to be independent. However, currently, two out of sixfive members of our Compensation Committee are considered independent under our Corporate Governance Policy.
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Annual Report 2015 |
Please refer to section Our Governance, item Management Structure, for further information about our Nomination and Corporate Governance Committee and our Compensation Committee.
Audit Committee
NYSE rules require that listed companies have an audit committee that (i) is composed of at least three independent members who are financially literate; (ii) complies with SEC rules related to the audit committee of companies registered with NYSE; (iii) has at least one member who has accounting or financial management expertise; and (iv) is governed by a charter that expressly sets out the purposes and responsibilities of the committee and that establishes annual performance assessments.
The applicable Brazilian legislation regulates independent audit services rendered to financial institutions and requires the establishment of an audit committee composed of at least three independent members, pursuant to Brazilian banking regulation. Our Audit Committee, formed on April 28, 2004, meets applicable Brazilian legal requirements, is elected annually by the Board of Directors and is composed of professionals with proven technical qualification compatible with the responsibilities of this committee.
Under SEC rules, we are not required to have an Audit Committee constituted or operated in accordance with NYSE rules if we meet specified SEC requirements. We believe that our Audit Committee is compliant with the requirements of Rule 10A-3(c)(3) under the Exchange Act and that it is able to act independently when performing its responsibilities. Our Audit Committee, to the extent permitted by Brazilian legislation, performs all functions required to be performed by an audit committee by Rule 10A-3 under the Exchange Act.
In line with the applicable Brazilian legislation, hiring independent auditors is the responsibility of the Board of Directors, whereas the recommendation for hiring and removing independent auditors is the responsibility of the Audit Committee. Thus, our Board of Directors acts in lieu of the Audit Committee, as permitted by Rule 10A-3(c)(3)(v) under the Exchange Act, for the purpose of hiring our independent auditors.
Shareholders’Stockholders’ Approval of Management Members’ Compensation and Long-Term Incentive Programs Stock Option Plans
NYSE rules require that shareholdersstockholders have the opportunity to vote on all share-based compensation plans and significant changes thereto, including significant increases in the number of shares available to the plan, with a few exceptions.
Brazilian legislation sets forth a similar requirement, as it establishes the need for approval of the aggregate annual compensation of management members (including shares) and stock option plans at General Stockholders’ Meetings. Please refer to section Our Governance, items Directors’ and Senior Management’s Compensation and Long-Term Incentive Programs for further information.Compensation.
Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose their corporate governance guidelines.
Brazilian legislation does not establish a similar requirement. However, we have a Corporate Governance Policy that consolidates the corporate governance principles and practices that we adopt. We believe such corporate governance principles and practices, consistent with Brazilian legislation, are compatible with the guidelines established by the NYSE. We have adopted stricter rules than those required by Brazilian legislation, since we voluntarily adhered to BM&FBovespa’s Level 1 of Corporate Governance and granted tag-along rights to all shareholders,stockholders, regardless of their voting rights. Please refer to section Our Governance, item Our Practices, for further information.
Code of Ethics
NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for their directors, officers and employees. NYSE also requires that listed companies promptly disclose any waiver of the code provisions for directors or officers.
Brazilian legislation does not have a similar requirement. However, we have a Code of Ethics that, among other matters, governs the conduct of all directors, officers and employees of the Itaú Unibanco Group, detailing the principles that guide our attitudes and practices.
Internal Audit
NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and internal control systems.
Brazilian banking legislation establishes a similar requirement, since it requires that financial institutions have an internal audit function. Our internal audit function is responsible for assessing the sufficiency and effectiveness of our operating and management controls, as well as the adequacy of our risk identification and risk management processes. In addition, our internal audit function is independent from management in carrying out its activities and has access to all places, information and people deemed necessary for it to carry out its duties. The internal audit function is administratively subordinated to the Chairman of the Board of Directors, and its activities are supervised by the Audit Committee.
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Annual Report |
This section addresses the risks we consider relevant for our business and for investment in our securities. Should any of these events occur, our business and financial condition, as well as the value of the investments made in our securities, may be adversely affected. Accordingly, investors should carefully assess the risk factors described below and the information disclosed in this document.
Other risks that we currently deem irrelevant or we are not aware of may give rise to effects similar to those mentioned above should they actually occur.
Macroeconomic Risks
Changes in economic conditions may adversely affect us.
Our operations are dependent upon the performance of the Brazilian economy and, to a lesser extent, the economies of other countries in which we do business. The demand for credit and financial services, as well as clients’ ability to pay, is directly impacted by macroeconomic variables, such as economic growth, income, unemployment, inflation, and fluctuations in interest and foreign exchange rates. Therefore, any significant change in the Brazilian economy and, to a lesser extent, in the economies of other countries in which we do business may affect us.
After a period of accelerated economic expansion, Brazil’s growth rates began to slow down in 2011 and continued at a slow rate through 2014.by 2015 the country was in recession. Growth may be limited by a number of factors, including structural factors, such as inadequate infrastructure, which entail risks of potential energy shortages and deficiencies in the transportation sector, among others, and lack of qualified professionals, which can reduce the country’s productivity and efficiency levels. Low levels of national savings require relatively large financial flows from abroad, which may falter if political and fiscal instability is perceived by foreign investors. Depending on their intensity, these factors could lead to decreasing employment rates and to lower income and consumption levels, which could result in increased default rates on loans we makegrant for individuals and non-financial corporations and, therefore, have a material adverse effect on us.
Brazilian authorities exercise influence on the Brazil-ianBrazilian economy. Changes in monetary, fiscal and foreign exchange policies and in the Brazilian government’s structure may adversely affect us.
Brazilian authorities intervene from time to time in the Brazilian economy, through changes in fiscal, monetary, and foreign exchange policies, which may adversely affect us. These changes may impact variables that are crucial for our growth strategy (such as foreign exchange and interest rates, liquidity in the currency market, tax burden, and economic growth), thus limiting our operations in certain markets, affecting our liquidity and our clients’clients' ability to pay and, consequently, affecting us.
In addition, changes in the Brazilian government’s structure may result in changes in government policies, which may affect us. This uncertainty may, in the future, contribute to an increase in the volatility of the Brazilian capital markets, which, in turn, may have an adverse impact on us. Other political, diplomatic, social and economic developments in Brazil and abroad that affect Brazil may also affect us.
Inflation and fluctuations in interest rates may have a material adverse effect on us.
Sudden increases in prices and long periods of high inflation may cause, among other effects, loss of purchasing power and distortions in the allocation of resources in the economy. Measures to combat high inflation rates include a tightening of monetary policy, with an increase in the SELIC interest rate, resulting in restrictions on credit and short-term liquidity, which may have a material adverse effect on us. Changes in interest rates may have a material effect on our net margins, since they impact our funding and credit granting costs.
In addition, increases in the SELIC interest rate could reduce demand for credit,credit; increase the costs of our reserves and the risk of default by our clients. Conversely, decreases in the SELIC interest rate could reduce our gains from interest-bearing assets, as well as our net margins.
Instability of foreign exchange rates may negatively affect us.
Brazil has a floating foreign exchange rate system, pursuant to which the market establishes the value of the Brazilianreal in relation to foreign currencies. However, the Central Bank may intervene in the purchase or sale of foreign currencies for the purpose of easing variations and reducing volatility of the foreign exchange rate. In spite of those interventions, the foreign exchange rate may significantly fluctuate. In addition, in some cases, interventions made with the purpose of avoiding sharp fluctuations in the value of the Brazilianreal in relation to other currencies may have the opposite effect, leading to an increase in the volatility of the applicable foreign exchange rate.
Instability in foreign exchange rates could negatively impact our business. A potential depreciation of the Brazilianreal could result in (i) losses on our liabilities denominated in or indexed to foreign currencies; (ii) a decrease in our ability to pay for obligations denominated in or indexed to foreign currencies, as it would be more costly for us to obtain the foreign currency required to meet such obligations; (iii) a decrease in the ability of our Brazilian borrowers to pay us for debts denominated
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Annual Report 2015 |
in or indexed to foreign currencies; and (iv) negative effects on the market price of our securities portfolio. On the other hand, an appreciation of the Brazilianreal could cause us to incur losses on assets denominated in or indexed to foreign currencies. For further information on how the effects of these variables may affect us, please see “The value“Crises and volatility in the financial markets of countries other than Brazil may affect the global financial markets and the Brazilian economy and have a negative impact on our securities and derivatives is subject to market fluctuations due to changes in Brazilian or international economic conditions and may produce material losses”operations” below.
An expansionist
Government fiscal policyaccounts deterioration may affect us.us
An excessively expansionistThe fiscal policy, combined with increased intervention by the Brazilian government in the economy,accounts deterioration if maintained, could generate a loss of confidence of local and foreign investors. Regional governments are facing fiscal concerns likewise, due to their high debt burden, declining revenues and inflexible expenditures. Less credibility could lead to the downgrading of the Brazilian sovereign debt by credit rating agencies, and negatively impact the local economy, causing the depreciation of the Brazilianreal, an increase in inflation and interest rates and a deceleration of economic growth, thus adversely affecting our business, results of operations and financial condition.
Crises and volatility in the financial markets of countries other than Brazil may affect the global financial markets and the Brazilian economy and have a negative impact on our operations.
The economic and market conditions of other countries, including the United States, countries of the European Union, and emerging markets, may affect the credit availability and the volume of foreign investments in Brazil, to varying degrees. Crises in these countries may decrease investors’ interest in Brazilian assets, which may materially and adversely affect the market price of our securities, making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.
Banks that operate in countries considered to be emerging markets, including us,ours, may be particularly susceptible to disruptions and reductions in the availability of credit or increases in financing costs, which may have a material adverse impact on their operations. In particular, the availability of credit to financial institutions operating in emerging markets is significantly influenced by movements of aversion to global risk. In addition, any factor impacting investors’ confidence, such as a downgrade in credit ratings, since the ratings of financial institutions, including ours, tend to be subject to a ceiling based on the sovereign credit rating, or an intervention by a government or monetary authority in one of such markets, may affect the price or availability of resources for financial institutions in any of these markets, which may affect us.
The disruptions and volatility in the global financial markets may also have significant consequences in the countries in which we operate, such as volatility in the prices of equity securities, interest rates and foreign exchange rates. Higher uncertainty and volatility may result in a slowdown in the credit market and the economy, which, in turn, could lead to higher unemployment rates and a reduction in the purchasing power of consumers. In addition, such events may significantly impair our clients’ ability to perform their obligations and increase overdue or non-performing loan operations, resulting in an increase of the risk associated with our lending activity. Thus, global financial crises, in addition to the Brazilian macroeconomic environment, may also affect in a material and adverse way the market price of securities of Brazilian issuers or lead to other negative effects in Brazil and in the countries in which we operate and have a material adverse effect on us.
Please refer to section Context, item Macroeconomic Context, Global and Brazilian Context for further details about data and economic indicators.
Ongoing high profile anti-corruption investigations in Brazil may affect the perception of Brazil and domestic growth prospects.
Certain Brazilian companies in the energy and infrastructure sectors are facing investigations by the CVM, the SEC, the U.S. Department of Justice (DOJ), the Brazilian Federal Police and other Brazilian public entities who are responsible for corruption and cartel investigations, in connection with corruption allegations (so calledLava Jato investigations) and, depending on the outcome of such investigations and the time it takes to conclude them, they may face downgrades from credit rating agencies, experience funding restrictions and have a reduction in revenues, among other negative effects. Such negative effects may hinder the ability of those companies to timely honor their financial obligations bringing loses to us as a number of them are our clients. The companies involved in theLava Jato investigations, a number of which are our clients, may also be prosecuted by investors on the grounds that they were misled by the information released to them, including their financial statements. Moreover, the current corruption investigations have contributed to reduce the value of the securities of several companies. The investment banks (including ItaúItau BBA Securities) that acted as underwriters on public distributions of securities of such investigated companies are also a party in someparties to certain law suits in the U.S. and may be parties to other legal proceedings yet to be filed. We cannot predict how long the corruption investigations may continue, or how significant the effects of the corruption investigations may be for the Brazilian economy and for the financial sector that may be investigated for the commercial relationship thatrelationships it may behave held with companies and persons involved in Lava Jato investigations. Other high profile investigation, besides Lava Jato, ongoing in Brazil is the so called Zelotes operation. If the allegations of such investigations are confirmed it may also affect some of our clients and their credit trustworthness. After reviewing our control procedures and our monitoring systems, we believe we are in compliance with the existing standards, especially related to anti-money laundering standardsstandards; notwithstanding, due to the size and therefore,breadth of our
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Annual Report 2015 |
operations and our commercial relationship with investigated companies or persons we did not identify any criminal illicit practice to be assigned to us.may also become scope of such investigations, which may ultimately result in reputational damage and/or civil liability. Negative effects on a number of companies may also impact the level of investments in infrastructure in Brazil, which may also lead to lower economic growth.
Legal and Regulatory Risks
Changes in applicable law or regulations may have a material adverse effect on our business.
Changes in the law or regulations applicable to financial institutions in Brazil may affect our ability to grant loans and collect debts in arrears, which may have an adverse effect on us. Our operations could also be adversely affected by other changes, including with respect to restrictions on remittances abroad and other exchange controls as well as by interpretations of the law by courts and agencies in a manner that differs from our legal advisors’ opinions.
FinancialIn the context of economic or financial crises, may also cause the Brazilian government may also decide to change laws and regulationsimplement changes to the legal framework applicable to the operation of Brazilian financial institutions. For example, in response to the global financial crisis which began in late 2007, Brazilian national and intergovernmental regulatory entities, such as the Basel Committee on Banking Supervision, proposed regulatory reforms aiming to prevent the recurrence of similar crises, includingwhich included a new requirement to increase the Basel III framework, which increased minimum regulatory capital requirements.(Basel III). Please refer to section Our Risk Management, item Regulatory Environment, Basel III Framework and Implementation of Basel III in Brazil for further details about regulatory capital requirements. Once the implementation of the Basel III framework is completed for Brazilian banks and its effects fully evaluated, we may need to reassess our funding strategy for regulatory capital ifshould additional regulatory capital will be required to support our operations under the new standards.
Moreover, the Brazilian Congress is considering enacting new legislation that, if signed into law as currently drafted, could adversely affecthave an adverse effect on us. For example, a proposed law to modifyamend the Brazilian consumer protection code would allow courts to change themodify terms and conditions of credit agreements in certain situations and would makecircumstances, imposing certain difficulties for the collection of amounts from those individuals more difficult.final consumers. In addition, several other local or state legislatures are consideringmay, from time to time consider bills intending to impose differing physical security measures and standards offor customer services, such as limits in queues and accessibility requirements, that, if signed into law, could affect our operations. More recently, certain bills have passed and proposed bills(and others were proposed) in certain state legislatures are imposingBrazilian states or intendingmunicipalities that impose, or aim to impose, restrictions on the ability of creditors in general to have their reportinclude the information about insolvent borrowers includeddebtors in the records of to credit protection bureaus, which could also adversely affect us.
our ability to collect credit outstanding.
We also have operations in countries outside of Brazil, including, but not limited to, Argentina, Chile, Colombia, Paraguay, United Kingdom, Uruguay, United States and Switzerland. Changes in the laws or regulations applicable to our business in the countries where we operate, or the adoption of new laws, and related regulations, may have an adverse effect on us.
Increases in compulsory deposit requirements may have a material adverse effect on us.
Compulsory deposits are reserves that financial institutions are required to maintain with the Central Bank. Compulsory deposits generally do not provide the same returns as other investments and deposits because a portion of these compulsory deposits does not bear interest; instead, these funds must be held in Brazilian federal government securities and used to finance government programs, including a federal housing program and rural sector subsidies. The Central Bank has periodically changed the minimum level of compulsory deposits. Increases in such level reduce our liquidity to grant loans and make other investments and, as a result, may have a material adverse effect on us.
We are subject to regulation on a consolidated basis and may be subject to liquidation or intervention on a consolidated basis.
We operate in a number of credit and financial services related sectors through entities under our control. For regulation or supervision purposes, the Central Bank treats us and our subsidiaries and affiliates as a single financial institution. While our consolidated capital base provides financial strength and flexibility to our subsidiaries and affiliates, their individual activities could indirectly put our capital base at risk. Any investigation or intervention by the Central Bank, particularly in the activities carried out by any of our subsidiaries and affiliates, could have a material adverse impact on our other subsidiaries and affiliates and, ultimately, on us.
If we or any of our financial subsidiaries becomes insolvent, the Central Bank may carry out an intervention or liquidation process on a consolidated basis rather than conduct such procedures for each individual entity. In the event of an intervention or a liquidation process on a consolidated basis, our creditors would have claims on our assets and the assets of our consolidated financial subsidiaries. In this case, credits of the same nature held against us and our consolidated financial subsidiaries would rank equally in respect of payment. If the Central Bank carries out a liquidation or intervention process with respect to us or any of our financial subsidiaries on an individual basis, our creditors would not have a direct claim on the assets of such financial subsidiaries, and the creditors of such financial subsidiaries would have priority in relation to our creditors in connection with such financial subsidiaries’ assets. The Central Bank also has the authority to carry out other corporate reorganizations or transfers of control under an intervention or liquidation process.
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Annual Report 2015 |
Holders of our shares and ADSs may not receive any dividends.
According to our Bylaws, weCorporations in Brazil are obligatedlegally required to pay their stockholders a minimum mandatory dividend at least on a yearly basis (except in specific cases provided for in applicable law). Our Bylaws determine that we must pay our shareholdersstockholders at least 25% of our annual adjusted net income whichcalculated and adjusted pursuant to Brazilian Corporate Law. Applicable Brazilian legislation also allows corporations to consider the amount of interest on shareholders’ equity distributed to their stockholders for purposes of calculating the minimum mandatory dividends. Notwithstanding, the calculation of net income pursuant to the Brazilian Corporate Law may significantly differ significantly from our net income calculated under IFRS. However, this adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed by Brazilian Corporate Law. In addition,
Brazilian Corporate Law also allows us to suspendthe suspension of the payment of the mandatory distribution of dividends in any particular year if our Board of Directors informs our general shareholders meeting that such distributionpayment would be incompatible with our financial condition. Therefore, in the occurrence of such event, the holders of our shares and ADSs may not receive any dividends. If this happens, the dividends that were not paid in the particular fiscal year shall be registered as a special reserve and, if not used to cover any losses of subsequent years, the amounts of unpaid dividends still available under such reserve shall be distributed when the financial condition of the corporation allows for such payment.
Furthermore, duepursuant to the implementation of Basel III rules,its regulatory powers provided under Brazilian law and banking regulations, the Central Bank may at its sole discretion reduce or determine that no dividends will be paid by a financial institutions that are not in compliance withinstitution if such restriction is necessary to mitigate relevant risks to the CMN’s capital requirements.Brazilian financial system or the financial institution.
Please refer to section Our Profile,profile, item Our shares, Information for the Investor, Shareholders’Shares, Stockholders’ Payment and section Our Risk Management, item Regulatory Environment, Basel III Framework, Implementation of Basel III in Brazil for further details about the payments of dividends on our shares and ADSs and information about CMN’s capital requirements.requirements and to the section Performance, item Consolidated Financial Statements (IFRS), Note 2.4 (w) and 21, for further details about Dividends and Interest on Capital.
Tax reforms may adversely affect our operations and profitability.
The Brazilian government regularly amends tax laws and regulations, including by creating new taxes, which can be temporary, and changing tax rates, the basis on which taxes are assessed or the manner in which taxes are calculated, including in respect of tax rates applicable solely to the banking industry. Tax reforms may reduce the volume of our transactions, increase our costs or limit our profitability.
Decision on lawsuits due to government monetary stabilization plans may have a material adverse effect on us.
We are defendants in numerous standardized lawsuits filed by individuals in respect of the monetary stabilization plans, or MSP, from 1986 to 1994, implemented by Brazilian federal government to combat hyperinflation.hyper-inflation. We record provisions for such claims upon service of process for a claim.
In addition, we are defendants in class actions, similar to the lawsuits by individuals, filed by either (i) consumer protection associations or (ii) public attorneys’ office (Ministério Público) on behalf of holders of savings accounts. Holders of savings accounts may collect any amount due based on such a decision. We record provisions when individual plaintiffs apply to enforce such decisions, using the same criteria used to determine provisions for individual lawsuits.
The Federal Supreme Court (Supremo Tribunal Federal, or STF) has issued somea number of decisions in favor of the holders of savings accounts, but has not issued a final ruling with respect to the constitutionality of the MSPs as applicable to savings accounts. In relation to a similar dispute with respect to the constitutionality of the MSPs as applicable to time deposits and other private agreements, the STFFederal Supreme Court has decided that the billslaws were constitutional.in accordance with the Brazilian federal constitution. In orderresponse to facilitate a final and definitive ruling regarding saving accounts,this discrepancy, theConfederação Nacional do Sistema Financeiro, or Consif,CONSIF, an association of Brazilian financial institutions, filed a special proceeding with the STFFederal Supreme Court (Arguição de Descumprimento de Preceito Fundamentalnº 165) 165), in which the Central Bank hasfiledhas filed an amicus brief, arguing that holders of savings accounts did not incur actual damages and that the MSPs as applicable to
savings accounts were in accordance with the federal constitution. Accordingly, the STF suspended the ruling of all appeals involving this matter until it has handedhands down a final decision. However, there is no estimate of when the STF will render a judgment in the case, as there has not been a sufficient quorum to decide the issue.
In addition, the Superior Court of Justice (Superior Tribunal de Justiça, or STJ), which is the highest court responsible for deciding cases relating to federal laws, is expected to imminently rule on several aspects that will directly determine the amount due, in case the STF rules against the constitutionality of the MSPs. The most relevant of such decisions will be: (i) the accrual of compensatory interests on the amount due to the plaintiff, in filings that carry no specific claim to such interests; (ii) the initial date of default interests, in regard to class actions; and (iii) the possibility of compensating the negative difference arising in the month of the MSP implementation, between the interests actually paid on saving accounts and the inflation rate of the same period, with the positive difference arising in the months subsequent to the MSP implementation, between the interests actually paid on saving accounts and the inflation rate of the same period. Also,In relevant trials during 2015, the STJ ruled that: (i) compensatory interest would not be included in judgment awards, unless the ruling in question specifically provides for the award thereof;
Our risk management | A-73 |
Annual Report 2015 |
and (ii) compensatory interest shall not be required to be paid to savings accountholders once the institution in question can prove that the corresponding savings account has been terminated. In addition, such rulings also confirmed that inflationary effects from MSPs that became effective after those that are subject to the judicial action in question may be included in the claim for purposes of determining the amounts due thereunder, even without the express request of the account holder seeking judicial relief.
In addition, the STJ ruled that the term for filing class actions expired 5 years offrom the date of the MSP implementation. As a consequence, numerous class actions have been extinct by the Judiciary as a result of such ruling.
We are also subject to operational risks associated with the handling and conducting of a large number of lawsuits involving government monetary stabilization in case of loss.
Please refer to section Performance, Item Financial Performance, Liabilities, Litigation for further information.
Tax assessments may adversely affect us.
As part of the normal course of business, we are subject to inspections by federal, municipal and state tax authorities. These inspections, arising from the divergence in the understanding of the application of tax laws may generate tax assessments which, depending on their results, may have an adverse effect on our financial results.
Risks Associated With Our Business
Market Risk Factor
The value of our securities and derivatives is subject to market fluctuations due to changes in Brazilian or international economic conditions and, as a result, may subject us to material losses.
The securities and derivative financial instruments in our portfolio may cause us to record gains and losses, when sold or marked to market (in the case of trading securities), and may fluctuate considerably from period to period due to domestic and international economic conditions. If, for example, we enter into derivative transactions to hedge against decreases in the value of the Brazilianrealor in interest rates and the Brazilianrealappreciates or interest rates increase, we may incur financial losses and such financial losses could have a material adverse effect on us. In addition, we may incur losses from fluctuations in the market value of positions held, including risks associated with transactions subject to variations in foreign exchange rates, interest rates, price indexes, and equity and commodity prices, along with various indexes on these risk factors.
We cannot predict the amount of realized or unrealized gains or losses for any future period. Gains or losses on our investment portfolio may not contribute to our net revenue in the future or may cease to contribute to our net revenue at levels consistent with more recent periods. We may not successfully realize the appreciation or depreciation now existing in our consolidated investment portfolio or in any assets of such portfolio.
Operational Risk
Factor
Failures, deficiency or inadequacy of our internal processes and human error or misconduct may adversely affect us.
Although we have in place information security controls, policies and procedures designed to minimize human error, and make continuous investments in infrastructure, management of crises and operations, the operational systems related to our business may stop working properly for a limited period of time or may be temporarily unavailable due to a number of factors. These factors include events that are totally or partially beyond our control such as power outages, interruption of telecommunication services, and generalized system failures, as well as internal and external events that may affect third parties with which we do business or that are crucial to our business activities (including stock exchanges, clearing houses, financial dealers or service providers) and events resulting from wider political or social issues, such as cyber-attacks or unauthorized disclosures of personal information in our possession.
Operating failures, including those that result from human error andor fraud, not only increase our costs and cause losses, but may also give rise to conflicts with our clients, lawsuits, regulatory fines, sanctions, intervention,interventions, reimbursements and other indemnity costs, all of which may have a material adverse effect on our business, reputation and results of operations.
Cyberattacks may cause loss of revenue and reputational harm through data security breaches that may disrupt our operations or result in the dissemination of proprietary or confidential information.
We manage and store certain proprietary information and sensitive or confidential data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. We are strongly dependent on technology and thus are vulnerable to viruses, worms and other malicious software, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems. We also rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us.
The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber incident could be significant and the lack of remediation may result in interruptions, delays and may affect clients and partners.
Our risk management | A-74 |
Annual Report |
Competition Risk Factor
We face risks associated with the increasingly competitive environment and recent consolidations in the Brazilian banking industry.
The Brazilian market for financial and banking services is highly competitive. We face significant competition from other large Brazilian and international banks. Competition has increased as a result of recent consolidations among financial institutions in Brazil and of regulations that increase the ability of clients to switch business between financial institutions. Please refer to section Our Risk Management, item Regulatory Environment, Antitrust Regulation for further information about the competition on the Brazilian Markets. Such increased competition may adversely affect us by, among other things, limiting our ability to retain or increase our current client base and to expand our operations, or by impacting the fees and rates we adopt, which could reduce our profit margins on banking and other services and products we offer.
Credit Risk Factors
Changes in the profile of our business may adversely affect our loan portfolio.
Our historical loan loss experience may not be indicative of our future loan losses. While the quality of our loan portfolio is associated with the default risk in the sectors in which we operate, changes in our business profile may occur due to our organic growth or merger and acquisition activity, changes in local economic conditions and, to a lesser extent, in the international economic environment, in addition to changes in the tax regimes applicable to the sectors in which we operate, among other factors. Any changes affecting any of the sectors to which we have significant lending exposure may adversely affect our loan portfolio. For example, in recent years, Brazilian banks have experienced an increase in loans to consumers, particularly in the automotive sector. However, this increased demand for vehicle financing was followed by a significant rise in the level of consumer indebtedness, which led the automotive sectorthis portfolio to incur high nonperforming loan rates. As a result, many financial institutions recorded higher loan losses due to an increased volume of provisions and a decrease in loans for vehicle acquisition.
We may incur losses associated with counterparty exposure risks.
We may incur losses if any of our counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. This counterparty risk may arise, for example, from our entering into reinsurance agreements or credit agreements pursuant to which counterparties have obligations to make payments to us and are unable to do so, or from our carrying out transactions in the foreign currency market (or other markets) that fail to be settled at the specified time due to non-delivery by the counterparty, clearing house or other financial intermediary. We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, and their failure to meet their contractual obligations may adversely affect our financial performance.
We have significant exposure to Brazilian federal government debt.
Like most Brazilian banks, we invest in debt securities issued by the Brazilian government. As of December 31, 2014,2015, approximately 12.0%13.9% of all our assets and 54.9%60.5% of our securities portfolio were comprised of these debt securities. Any failure by the Brazilian government to make timely payments under the terms of these securities, or a significant decrease in their market value could negatively affect our results of operations and financial condition.
Underwriting Risk Factor
Factor Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.
Our insurance and pension plan subsidiaries establish prices and calculations for our insurance and pension products based on actuarial or statistical estimates. The pricing of our insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or payment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity and persistency. We could suffer losses due to events that are contrary to our expectations directly or indirectly based on incorrect biometric and economic assumptions or faulty actuarial bases used for contribution and provision calculations.
Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims, and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.
Our risk management | A-75 |
Annual Report 2015 |
Management Risk Factors
Our policies, procedures and models related to risk control may be ineffective and our results may be adversely affected by unexpected losses.
Our risk management methods, procedures and policies, including our statistical models and tools for risk measurement, such as value at risk (VaR), and default probability estimation models, may not be fully effective in mitigating our risk exposure in all economic environments or against all types of risks, including those that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based on our observations of the historical market behavior. In addition, due to limitations on information available in Brazil, to assess clients’ creditworthiness, we rely largely on credit information available from our own databases, on certain publicly available consumer credit information and other sources. We apply statistical and other tools to these observations and data to quantify our risk exposure. These tools and metrics may fail to predict all types of future risk exposures. These risk exposures, for example, could
arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses, therefore, could be significantly greater than indicated by historical measures. In addition, our quantified modeling may not take all risks into account. Our qualitative approach to managing those risks could prove insufficient, exposing us to material unexpected losses.
Our results of operations and financial position depend on our ability to evaluate losses associated with risks to which we are exposed and on our ability to build these risks into our pricing policies. We recognize an allowance for loan losses aiming at ensuring an allowance level compatible with the expected loss, according to internal models credit risk measurement. The calculation also involves significant judgment on the part of our management. Those judgments may prove to be incorrect or change in the future depending on information as it becomes available. These factors may adversely affect us.
Damages to our reputation could harm our business and outlook.
We are highly dependent on our image and credibility to generate business. A number of factors may tarnish our reputation and generate a negative perception of the institution by our clients, counterparties, shareholders,stockholders, investors, supervisors, commercial partners and other stakeholders, such as noncompliance with legal obligations, making irregular sales to clients, dealing with suppliers with questionable ethics, clients data leakage, inadequate behaviors by our employees, and third-party failures in risk management, among others. In addition, certain significant actions taken by third parties, such as competitors or other market participants, may indirectly damage our reputation with clients, investors and the market in general. Damages to our reputation could have a material adverse effect on our business and prospects.
StrategyOperational Risk
Factor Failures, deficiency or inadequacy of our internal processes and human error or misconduct may adversely affect us.
Although we have in place information security controls, policies and procedures designed to minimize human error, and make continuous investments in infrastructure, management of crises and operations, the operational systems related to our business may stop working properly for a limited period of time or may be temporarily unavailable due to a number of factors. These factors include events that are totally or partially beyond our control such as power outages, interruption of telecommunication services, and generalized system failures, as well as internal and external events that may affect third parties with which we do business or that are crucial to our business activities (including stock exchanges, clearing houses, financial dealers or service providers) and events resulting from wider political or social issues, such as cyber-attacks or unauthorized disclosures of personal information in our possession.
Operating failures, including those that result from human error or fraud, not only increase our costs and cause losses, but may also give rise to conflicts with our clients, lawsuits, regulatory fines, sanctions, interventions, reimbursements and other indemnity costs, all of which may have a material adverse effect on our business, reputation and results of operations.
Cyberattacks may cause loss of revenue and reputational harm through data security breaches that may disrupt our operations or result in the dissemination of proprietary or confidential information.
We manage and store certain proprietary information and sensitive or confidential data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. We are strongly dependent on technology and thus are vulnerable to viruses, worms and other malicious software, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems. We also rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us.
The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber incident could be significant and the lack of remediation may result in interruptions, delays and may affect clients and partners.
Our risk management | A-74 |
Annual Report 2015 |
Competition Risk Factor
We face risks associated with the increasingly competitive environment and recent consolidations in the Brazilian banking industry.
The Brazilian market for financial and banking services is highly competitive. We face significant competition from other large Brazilian and international banks. Competition has increased as a result of recent consolidations among financial institutions in Brazil and of regulations that increase the ability of clients to switch business between financial institutions. Please refer to section Our Risk Management, item Regulatory Environment, Antitrust Regulation for further information about the competition on the Brazilian Markets. Such increased competition may adversely affect us by, among other things, limiting our ability to retain or increase our current client base and to expand our operations, or by impacting the fees and rates we adopt, which could reduce our profit margins on banking and other services and products we offer.
Credit Risk Factors
Our controlling shareholder hasChanges in the ability to direct our business.
As of January 31, 2015, IUPAR, our controlling shareholder, directly owned 51.00%profile of our common shares and 25.54% ofbusiness may adversely affect our total share capital, giving it the power to appoint and remove our directors and officers and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of dividends.
In addition, IUPAR is jointly controlled by Itaúsa, which, in turn, is controlled by the Egydio de Souza Aranha family, and by the Moreira Salles family. The interests of IUPAR, Itaúsa and the Egydio de Souza Aranha and Moreira Salles families may be different from the interests of our other shareholders.loan portfolio.
Our Board of Directors is currently comprised of 12 members, only four of whom are deemed independent in accordance with our Corporate Governance Policy. Our shareholders do not have the same protections as if the majority of our Board of Directors’ members were independent, since our directors’ interestshistorical loan loss experience may not be aligned at all timesindicative of our future loan losses. While the quality of our loan portfolio is associated with the interestsdefault risk in the sectors in which we operate, changes in our business profile may occur due to our organic growth or merger and acquisition activity, changes in local economic conditions and, to a lesser extent, in the international economic environment, in addition to changes in the tax regimes applicable to the sectors in which we operate, among other factors. Any changes affecting any of the sectors to which we have significant lending exposure may adversely affect our loan portfolio. For example, in recent years, Brazilian banks have experienced an increase in loans to consumers, particularly in the automotive sector. However, this increased demand for vehicle financing was followed by a significant rise in the level of consumer indebtedness, which led this portfolio to incur high nonperforming loan rates. As a result, many financial institutions recorded higher loan losses due to an increased volume of provisions and a decrease in loans for vehicle acquisition.
We may incur losses associated with counterparty exposure risks.
We may incur losses if any of our shareholders.counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. This counterparty risk may arise, for example, from our entering into reinsurance agreements or credit agreements pursuant to which counterparties have obligations to make payments to us and are unable to do so, or from our carrying out transactions in the foreign currency market (or other markets) that fail to be settled at the specified time due to non-delivery by the counterparty, clearing house or other financial intermediary. We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, and their failure to meet their contractual obligations may adversely affect our financial performance.
In addition, some of our directors are affiliated with IUPAR and circumstances may arise in which the interests of IUPAR and its affiliates conflict with the interests of our other shareholders. To the extent that these and other conflicting interests exist, our shareholders will depend on our directors duly exercising their fiduciary duties as members of our Board of Directors.We have significant exposure to Brazilian federal government debt.
Like most Brazilian banks, we invest in debt securities issued by the Brazilian government. As of December 31, 2015, approximately 13.9% of all our assets and 60.5% of our securities portfolio were comprised of these debt securities. Any failure by the Brazilian government to make timely payments under the terms of these securities, or a significant decrease in their market value could negatively affect our results of operations and financial condition.
Underwriting Risk
Factor Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.
Our insurance and pension plan subsidiaries establish prices and calculations for our insurance and pension products based on actuarial or statistical estimates. The integrationpricing of acquiredour insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or merged businesses involves certain riskspayment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity and persistency. We could suffer losses due to events that are contrary to our expectations directly or indirectly based on incorrect biometric and economic assumptions or faulty actuarial bases used for contribution and provision calculations.
Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims, and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.
Our risk management | A-75 |
As
Annual Report 2015 |
Management Risk Factors
Our policies, procedures and models related to risk control may be ineffective and our results may be adversely affected by unexpected losses.
Our risk management methods, procedures and policies, including our statistical models and tools for risk measurement, such as value at risk (VaR), and default probability estimation models, may not be fully effective in mitigating our risk exposure in all economic environments or against all types of risks, including those that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based on our observations of the historical market behavior. In addition, due to limitations on information available in Brazil, to assess clients’ creditworthiness, we rely largely on credit information available from our own databases, on certain publicly available consumer credit information and other sources. We apply statistical and other tools to these observations and data to quantify our risk exposure. These tools and metrics may fail to predict all types of future risk exposures. These risk exposures, for example, could arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses, therefore, could be significantly greater than indicated by historical measures. In addition, our quantified modeling may not take all risks into account. Our qualitative approach to managing those risks could prove insufficient, exposing us to material unexpected losses.
Our results of operations and financial position depend on our ability to evaluate losses associated with risks to which we are exposed and on our ability to build these risks into our pricing policies. We recognize an allowance for loan losses aiming at ensuring an allowance level compatible with the expected loss, according to internal models credit risk measurement. The calculation also involves significant judgment on the part of our growth strategymanagement. Those judgments may prove to be incorrect or change in the Brazilianfuture depending on information as it becomes available. These factors may adversely affect us.
Damages to our reputation could harm our business and Latin America financial sector, we have engaged in aoutlook.
We are highly dependent on our image and credibility to generate business. A number of mergers, acquisitionsfactors may tarnish our reputation and partnerships withgenerate a negative perception of the institution by our clients, counterparties, stockholders, investors, supervisors, commercial partners and other companies and financial institutions in the past and may pursue further such transactions in the future. Any such transactions involve risks,stakeholders, such as the possible incurrence of unanticipated costs as of result of difficultiesnoncompliance with legal obligations, making irregular sales to clients, dealing with suppliers with questionable ethics, clients data leakage, inadequate behaviors by our employees, and third-party failures in integrating systems, finance, accounting and personnel platforms, fail in diligence or the occurrence of unanticipated contingencies.risk management, among others. In addition, wecertain significant actions taken by third parties, such as competitors or other market participants, may not achieve the operating and financial synergies and other benefits that we expected from such transactions.
There is also the risk that antitrust and other regulatory authorities may impose restrictions or limitations on the transactions or on the businesses that arise from certain combinations or applying fines or sanction due to the interpretation of the authorities of irregularities on a corporate merger, consolidation or acquisition, even if the institution has done this legally, clearly and transparently, as theyindirectly damage our reputation with clients, investors and the expertsmarket in corporate law understood.
If we are unablegeneral. Damages to take advantage of business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisitions, or if we incur greater integration costs than we have estimated, then we may be adversely affected.
Financial Reporting Risks
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptionsreputation could have a material adverse effect on our operating results.business and prospects.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected.
As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or fraud may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence in our company and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
We regard risk management as an essential instrument to optimize the use of our resources and to assist us in selecting business opportunities in order to maximize value creation to shareholders.
Our risk management process includes:
The purpose of the identification of risks is to map the internal and external risk events that may affect the strategies and goals of our business and support units, with potential impact on our results, capital, liquidity and reputation.
Risk management processes permeate through our entire institution and are aligned with the guidelines of our Board of Directors and senior management which, through the committees described below determine overall risk management objectives by establishing targets and limits applicable to our business units. The control and capital management units, in turn, support our management by means of monitoring procedures and risk and capital analysis. Please refer to section Our Governance, item Management Structure, Board of Directors and Board of Officers for further details about our Board of Directors responsibilities.
Our organizational risk management governance is structured in compliance with regulations in Brazil and abroad and in line with market best practices. Control of our credit, market, operational, liquidity and underwriting risks is performed in a centralized manner by an independent unit, led by an executive director reporting to our Chief Executive Officer (CEO) and to the Board of Directors, in order to ensure that such risks are managed pursuant to our risk appetite and our existing policies and procedures. This independent unit is also responsible for centralizing our capital management. Centralized control is intended to provide the Board of Directors and senior management with a global view of our exposures to risks, as well as with a prospective view of our capital adequacy, so as to optimize and expedite appropriate corporate decisions with respect thereto.
We manage proprietary information technology (IT) systems to comply with the Central Bank’s capital reserve requirements, as well as for risk measurement purposes, following regulations and regulatory models. We also coordinate actions among different units to verify compliance with qualitative and quantitative requirements established by relevant authorities to maintain the minimum required capital and monitor risks.
Risk and Capital Governance
We established committees that are responsible for risk and capital management and report directly to the Board of Directors. Committee members are elected by the Board of Directors, the highest authority with respect to risk and capital management decisions. At the executive level, risks are managed by the Superior Committees, which are chaired by our CEO. Please also refer to section Our Governance, item Management Structure, Committees of the Board of Directors, Risk and Capital Management Committee for further details about the responsibilities of these Committees.
The following committees are part of our risk and capital management governance structure:
Risk and Capital Management Committee (CGRC):supportsthe Board of Directors in the implementation of its duties related to our risk and capital management by meeting every two months and submitting reports and recommendations to assist the Board of Directors in its decision-making with respect to:
Audit Committee:we have a single Audit Committee overseeingall entities within the Itaú Unibanco Group that are either authorized to operate by the Central Bank or that are supervised by the SUSEP.
In accordance with its internal rules, approved by the Board of Directors, the Audit Committee must meet at least quarterly and otherwise when the Chairman of the committee deems necessary. The committee is responsible for overseeing the quality and integrity of our financial statements, the compliance with legal and regulatory requirements, the performance, independence and quality of
the services provided by our independent auditors and of work performed by our internal auditors, and the quality and effectiveness of the internal control and risk management systems.
Please refer to the section Our Governance, item Management Structure for further details about the responsibilities of these Committees.
Superior Risk Policies Committee (CSRisc):meets at least everytwo months and is responsible for:
Superior Institutional Treasury Committee (CSTI):meets everymonth and is for, within the authority level established by the CSRisc, discussing and deciding on:
Superior Institutional Treasury and Liquidity Committee (CSTIL):meets on a quarterly basis and is responsible for:
Superior Credit Committee (CSC):meets on a weekly basis todiscuss our credit risk and is our highest authority on approval of individual credit levels. It is responsible for:
Superior Audit and Operational Risk Management Committee (CSAGRO):meets at least on a quarterly basis andseeks to understand the risks associated with our processes and business, defines guidelines for managing operational risks, and assesses the results of our internal control and compliance system. It is responsible for:
Risk Policies Committee (CNR):meets on a quarterly basisand reviews, validates and approves, within the authority level established by the CSRisc, our risks control and capital management institutional policies.
Model Assessment Technical Committee (CTAM):
CTAM – Market:it meets every two months or upon request forthe approval and assessment of market and pricing risk models based on the opinion of the independent model validation group and it suggests and monitors action plans for the validated models. Its main responsibilities are: approve models related to the calculation of market and pricing risk, decide whether or not to use the market and pricing risk models, approve, recommend, suggest and monitor the action plans proposed for the validated models and monitor the performance of the market risk model as time goes by, determining new developments, if necessary.
CTAM – Credit:to recommend or to veto the use of credit riskmodels based on the opinion of the independent model validation department, inform of any points of risk and monitor the action plans. Its responsibilities are separated into Executive Authority Level (which meets on a monthly basis or upon request) and Superintendent Authority Level (which meets every fifteen days or upon request).
Superior Product Committee (CSP):meets on a weekly basisand is the highest authority to approve our products, operations, services and related processes. It is responsible for:
Superior Foreign Units Committee (CSEXT):meets on aquarterly basis, supervises our businesses outside of Brazil and is the highest authority for approving initiatives, transactions, services and processes in the markets where we operate outside Brazil. It is responsible for:
“Over the past two years, we have simplified our processes and intensified the focus on risk management, in addition to control and mitigation, starting to understand and contribute to the business. We also worked to increase the dissemination of the risk culture throughout the bank, with the involvement of our executives, reviewing the expected behavior of our employees and introducing the subject in the institution’s routine operations”.
Eduardo Vassimon
Itaú Unibanco’s Vice President – Risks Control in 2014 and Risks & FinanceControl and Management starting in 2015
Risk Management
Credit Risk
Credit risk is the possibility of losses due to (i) the failure by the borrower, issuer or counterparty to perform their respective financial obligations under agreed upon terms; (ii) the devaluation of a credit agreement arising from a deterioration of the risk rating of the borrower, issuer or counterparty; (iii) the reduction of earnings or remuneration; and (iv) the benefits granted upon renegotiation or the recovery costs.
Our credit risk management structure is the primary responsibility of all Business Units and aims to maintain the quality of our credit portfolio consistent with risk appetite levels for each market segment in which we operate. The Business Units are responsible for:
Our institutional policies on credit risk management are approved by our Board of Directors and applicable to all of our companies and subsidiaries in Brazil and abroad.
Our credit policy is developed based on internal factors, such as borrower ratings criteria, performance and evolution of our portfolio, default levels, return rates, and allocated economic capital, and on external factors related to the economic environment, interest rates, market default indicators, inflation and changes in consumption levels.
Our credit risk management governance is conducted through corporate bodies that report to the Board of Directors or to our executive officers and act primarily by assessing competitive market conditions, setting our credit limits, reviewing control practices and policies and approving actions at different authority levels. The risk communication and reporting process, including the disclosure of institutional policies on credit risk management, is also part of this governance structure.
Our credit risk control is carried out by an independent area within the bank, which is responsible for risk management and which operates separately from business units, as required by current regulations. For the credit risk control process, the main responsibilities of the risk management control area are:
Our evaluation process, with respect to policies and products, enables us to identify potential risks in order to ensure that credit decisions fall within our acceptable risk parameters, taking into account the economic benefits thereof.
Our centralized process for approving credit policies and validating models ensures the synchronization of credit actions.
The credit rating for our wholesale transactions is based on information such as the economic and financial condition of a potential borrower, its cash-generating capabilities, its relevant affiliated parent and companies and the current and prospective situation of the economic sector in which it operates. Credit proposals are analyzed on a case-by-case basis through our internal approval governance structure.
With respect to our retail transactions (individuals, small and middle-market companies), rating is assigned based on two statistical models: (i) application (in the early stages of our relationship with a customer) and (ii) behavior (used for customers with whom we already have a relationship). Decisions are made based on scoring under these models and resulting ratings are continuously monitored by our credit risk independent unit. In some cases, an individual analysis of specific cases may be performed, in which case credit approval is submitted to the applicable authority levels.
Government securities and other debt instruments to be purchased or held in our portfolio are classified by our credit risk independent area or business unit according to our credit quality parameters with the purpose of managing the exposures.
We seek to strictly control our credit exposure to clients and counterparties, taking action to remediate occasional situations in which our actual exposure exceeds targeted levels. In the cases where our actual exposure exceeds targeted levels, we may seek enforcement of contractual provisions such as the right to demand early payment or require additional collateral and/or guarantees.
We count on a specific structure and processes aimed at ensuring that the country risk related to our client is managed and controlled, including: (i) country risk governance; (ii) country ratings; (iii) credit limits for specific countries; (iv) limits monitoring; and (v) actions for limit breaches.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about Credit Risk.
Loan Approval Process
Extensions of credit are approved based on policies at the Business Unit level, determined in accordance with the assumptions of each department and our bank’s risk appetite. The decision to extend credit may be granted by means of a pre-approval process or the traditional approval mechanism, which is applied on a client by client basis. In both cases, the decisions are made based on principles of credit quality such as credit rating supported by statistical models, percentage of income committed by/leverage of the client and credit restrictions determined by us and the market.
The Business Units prepare and keep updated the policies and procedures of the credit cycle.
The credit granting process contemplates the use of credit protection services with the purpose of checking whether a client’s credit history includes information that could be considered an obstacle to granting a loan, such as assets blocked by court orders, invalid tax payer identification numbers, prior or pending debt restructuring or renegotiation processes and checks not honored due to insufficient funds.
The policy assessment process allows for the identification of potential risks and is intended to ensure that credit decisions make sense from both an economic and a risk perspective.
Individuals
Our branch network extends nationwide and adopts a client segmentation strategy pursuant to which products and services are developed to meet the specific needs of a diversified client base. Credit products offered at our branch network and through our electronic channels include, among others, overdraft protection, credit cards, personal loans and vehicle financing.
In all cases, an internal credit score is applied and a cut-off threshold is defined for each product line.
In the case of pre-approved credit, if a client’s risk profile is within the cut-off threshold and parameters established under our credit policy, the credit is considered pre-approved and is automatically available to the client. In the cases where credit is not pre-approved, credit review is carried out through a traditional process under which proposals are assessed on an individual basis by a credit expert. Under this process, approvals are decided by a credit desk, since commercial managers do not have authority to approve individual applications.
Documentation required at the moment the client decides to open an account with us or when we grant a loan includes an application form with the client’s signature, personal identification and proof of income.
Credit cards
Our credit card business is comprised of Itaucard and Hipercard credit cards as well as credit cards from associations and commercial agreements with significant retailers. Our credit cards are available to account-holding or non-account holding clients, and can be applied for by telephone, internet or points of service at our partner institutions.
The credit granting process for credit cards includes a pre-qualification phase in which internal or market restrictive filters are applied. For eligible clients, the maximum credit amount offered takes into consideration the client’s risk, based on statistical models specifically designed for credit cards (application score) and on the applicants’ income. A fixed interest rate is applied to revolving credit transactions.
Personal loans
Our decision on whether to grant loans to our account holders takes into account the client’s income level and our internal client credit rating, which is based on internally developed statistical models. Through these models, we determine which clients will receive credit offers and in which amounts, the maximum number of installments and the maximum amount for monthly installments, based on fixed interest rates.
Payroll loans
Our payroll loan products are available to account-holding or non-account holding clients. Fixed installments are directly deducted from the borrower’s payroll to the bank´s account without being recorded in the debtor’s account.
The maximum percentage of loan installments is defined by law and is limited to 30% of a payroll loan borrower’s net income.
Our strategy in this segment is to focus on loans to the INSS´s beneficiaries, that receive benefits from federal, state or municipal governments, which, combined with our good management practices and credit policies, should allow us to increase this portfolio with low delinquency levels compared to other types of products.
Documentation required to receive a payroll loan includes personal identification, proof of payroll and residence and proof of the bank account where the client receives payroll benefits. If the salary is deposited with us, this documentation is not necessary.
Itaú BMG Consignado is the financial institution controlled by Itaú Unibanco Holding through which we engage in the offering, distribution and sale of payroll loans in Brazil.
Vehicle financing
Vehicle financing proposals are submitted through (i) partner car dealers throughout Brazil for all types of clients (whether account holders or not) or (ii) directly at our branches or through electronic channels for account holders.
A client’s internal credit rating and the terms and conditions of the proposed transaction are taken into account before approving the proposal. If the proposed transaction meets all of our credit policy requirements, which determine maximum installment amounts, loan to value, or LTV, and maturity, and the client’s personal information is validated by credit protection services, the loan is automatically approved.
A fixed interest rate is set based on the credit rating and the characteristics of the transaction. All vehicle financing transactions are secured by the asset itself, and the maximum LTV is defined to support any possible stress periods.
Mortgage loans
In addition to real estate loans provided through our branch network, we have entered into partnerships with large real estate brokers in Brazil, which originate real estate financing transactions for us on an exclusive basis and in different cities across the country.
The approval of real estate loans is based on assumptions involving the portion of a client’s income to be committed to loan repayments, the client rating according to our internal rating system and the maximum LTV, so that even under a stress scenario LTV is kept at adequate levels. Interest rates are fixed.
The data included in the financing proposal is analyzed, validated and confirmed by supporting documentation provided by the client. The proposal may be rejected if the information provided to us is found to be inconsistent, the proposal fails to meet our current policy requirements or any requested information fails to be provided.
Credit to very small and small companies
We offer products such as working capital financing and discount of trade receivables to very small and small companies.
Credit limits to very small and small companies are assigned according to a client’s revenues and are based on a business risk assessment, as well as on other criteria such as the financial condition of the company´s shareholders or partners, the identification of possible credit restrictions and an evaluation of the economic sector in which the company operates.
Similarly to our procedures for granting of loans to individuals, credit may be granted to very small and small companies pursuant to a pre-approved limit or subject to an individual analysis by a credit desk.
Documentation required includes the company’s governing documents, proof of revenues and information on the partners or shareholders.
Much of the credit we extend to for companies in this segment requires the provision of collateral or guarantees. Transactions to finance the production of goods usually require machinery and equipment as collateral. Working capital financing may be collateralized by trade receivables, checks receivable or credit cards receivable or may be collateralized by the company’s partners or shareholders and/or third parties.
Interest rate can be fixed or variable depending on the product that is chosen by the client.
Corporate Credit
The credit analysis process for middle market and large companies is carried out based on the financial condition of such companies and any corporate groups to which they belong. The credit analysis takes into account the company’s history, financial capacity and adequacy of the requested transaction to the client’s needs. This analysis is based on the company’s financial statements (balance sheet, statement of income, statement of cash flows), on-site meetings with the company, market conditions, analysis of the economic sector in which the company operates and inquiries into credit protection services. An environmental analysis is carried out simultaneously with our credit analysis, and a plan of action may be created as a result of this analysis for the company to comply with the requirements determined by our internal environmental policy or a recommendation to deny the credit may be issued.
The proposed maximum credit amount extended and the client internal rating, with a cut-off defined, are submitted to the appropriate credit authorization levels depending on the amount involved, term of the transaction and available security or guarantees, in accordance with our governance policies. Interest rate can be fixed or variable depending on the product that is chosen by the client within the credit limit approved.
International Units
We operate in 18 countries outside of Brazil, seven in Latin America (Argentina, Chile, Paraguay, Uruguay, Colombia, Peru and Mexico), six in Europe (France, Germany, Portugal, United Kingdom, Spain, and Switzerland), United States, China, Japan, Middle East (Dubai) and the Caribbean (Bahamas).
The individual and legal entities of International Units follow procedures similar to those applied to individuals and the corporate segments mentioned above. For the individuals segment, lending is mainly based on income level and internal credit rating. In the corporate segment, the granting of credit is based on the economic and financial analysis of the client.
Credit granting in our subsidiaries operating outside of Brazil follows the same corporate governance and policies described above. All subsidiaries are subject to a centralized management that monitors the performance of our portfolio, establishes rules for credit granting and is responsible for the corporate governance related to credit granting.
The total loan and lease operations in Latin America increased by 14.9% in 2014, representing 9.2% of our total loan and lease operations portfolio.
Risk-Mitigating Instruments
As part of our credit risk control, we have institutional policies establishing guidelines and duties in connection with the request of provision of collateral and each business unit is responsible for establishing, in their own credit policies, credit risk management rules for the acceptance of such collateral.
Collateral are required to mitigate our risk exposure to certain transactions. Collateral may be personal or in the form of security interest or other legal arrangements designed to mitigate credit risk.
In order to be considered a risk-mitigating instrument, collateral must meet the certain legal requirements.
All collateral that may impact credit risk, capital allocation and accrual are periodically reviewed by us, ensuring that they are legally enforceable.
Market Risk
Market risk is the possibility of losses resulting from fluctuations in the market value of positions held by a financial institution, most typically caused by variations in foreign exchange rates, interest rates, Brazilian inflation indexes, equity and commodity prices, along with various indexes for these risk factors. Market risk management is the process by which our management monitors and controls risk of variations in the value of financial instruments due to market movements, while aiming to optimize the risk-return ratio through an adequate limit and alert structure (described below), effective risk management models and related management tools.
Our policies and general market risk management framework are consistent with the principles contained in CMN regulations and applying all business units and legal entities of the Itaú Unibanco Group.
Our market risk management strategy is aimed at balancing corporate business goals, taking into account, among other things:
Our market risk management framework is subject to the governance and hierarchy of committees, with specific limits assigned to different portfolios and levels (for example, Banking Portfolio, Trading Portfolio, Equities Desk), as well as classes of market risk (such as interest rate risk, foreign exchange risk, among others). Daily risk reports, used by the business and control units, are also sent to senior management. In addition, our market risk management and control process is subject to periodic reviews. The key principles underlying our market risk control are as follows:
Market risk is controlled by a unit that is independent from our “risk originating” business units and is responsible for performing the daily activities of: (i) risk measurement, and assessment; (ii) monitoring of stress scenarios, limits and alerts; (iii) application of stress scenarios, analysis and tests; (iv) reporting of risk findings to responsible individuals within the relevant business unit, in accordance with our governance requirements; (v) monitoring the necessary actions to readjust positions and/or levels of risk to make them viable; and (vi) providing support for the launch of new financial products. To this end, we have a structured process of communication and information flow that provides information to our Superior Committees and monitors compliance with the requirements of Brazilian and relevant foreign regulatory agencies.
Our structure of limits and alerts follows the guidelines of the Board of Directors and is approved by the Superior Risk Policies Committee (CSRisc), that meets at least every two months, after endorsement by the Superior Institutional Treasury Committee (CSTI). This structure of limits and alerts promotes the effectiveness and coverage of control and is reviewed at least annually. The limits range from aggregated risk indicators at the portfolio level to more granular limits at the individual desk level. The market risk limits framework extends to the risk factor level, with specific limits that aim to improve the process of risk monitoring and understanding as well as prevent risk concentration. Limits and alerts are calibrated based on projections of future balance sheets, stockholders’ equity, liquidity, complexity and market volatility and our risk appetite. The process of setting these limit levels and breach reporting follows the procedures approved by our financial conglomerate´s internal policies. There is a structured process of communication and information flow, which provides information for all executive levels at our institution, including the Board of Directors members through the CGRC, that meets every two months. Market risk limits are monitored on a daily basis and breaches and potential breaches of limits are reported and discussed in appropriate committees in accordance with the following procedure:
We hedge transactions with clients and proprietary positions, including foreign investments, in order to mitigate risks arising from fluctuations in market risk factors (e.g., prices) and maintain the positions on the breaching limits. Derivatives are commonly used for these hedging activities. When these transactions are classified as hedges for accounting purposes, specific supporting documentation is reviewed, allowing for an ongoing follow up of the hedge effectiveness (retrospectively and prospectively) and of any changes in the accounting process. The accounting and managerial hedging procedures are governed by our internal institutional polices. Our market risk framework categorizes transactions as part of either the Banking Portfolio or the Trading Portfolio, in accordance with criteria established by specific regulation.
Our Trading Portfolio is composed of all transactions with financial and commodity instruments (including derivatives) held with the intention of trading, to benefit from arbitrage opportunities, or using such transactions to hedge risk within this portfolio, and that have no restriction on trading. Profits are based on changes in actual or expected prices in the short term.
Our Banking Portfolio is predominantly characterized by trades originated from the banking business and related to the management of our balance sheet. As a general rule, this desk’s portfolios are held without intent of trading and time horizon of medium and long term.
Market risk exposures that are inherent to many financial instruments, including derivatives, are composed of various risk factors. A risk factor refers to a market parameter whose variation impacts the evaluation of a certain position. The main risk factors measured by us are:
The CMN has regulations establishing the segregation of market risk exposure at a minimum into the following categories: interest rates, FX rates, equities and commodities. Brazilian inflation indexes are treated as a group of risk indicators and receive the same treatment of the others risk indicators, such as interest rates and FX rates and follows the governance and risk limits framework adopted by our management for market risk assessment.
Market risk is analyzed based on the following key metrics:
In addition to the risk metrics described above, sensitivity and loss control measures are also analyzed. They include:
Please refer to our Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about Market Risk.
VaR – Consolidated Itaú Unibanco Holding
We improved our internal methodology to calculate Consolidated VaR, migrating from the “parametric” approach to a “historical simulation” approach (except with respect to our Foreign Units, which are in the process of migrating to the historical simulation methodology). This new methodology carries out the full repricing of all positions, using the real historical distribution of assets.
The table below shows the Consolidated Total VaR (utilizing both approaches), comprising our Trading Portfolio and Banking Portfolio, and our subsidiaries abroad, namely Itaú BBA International, Banco Itaú Argentina, Banco Itaú Chile, Banco Itaú Uruguay, Banco Itaú Paraguay and Itaú BBA Colombia showing where there are higher concentrations of market risk. We adhered to our policy of operating within low limits in relation to capital and maintained our conservative management and portfolio diversification approach through the period.
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||||||||||
GLOBAL VAR | DECEMBER | DECEMBER | DECEMBER | |||||||||||||||||||||||||||||||||||||||||||||
(PARAMETRIC APPROACH) | AVERAGE | MINIMUM | MAXIMUM | 31, 2014 | AVERAGE | MINIMUM | MAXIMUM | 31, 2013 | AVERAGE | MINIMUM | MAXIMUM | 31, 2012 | ||||||||||||||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian Interest rate | 89.0 | 37.0 | 193.0 | 127.8 | 172.4 | 65.6 | 416.9 | 69.1 | 191.2 | 71.8 | 427.6 | 348.7 | ||||||||||||||||||||||||||||||||||||
Other Interest rate | 43.8 | 21.1 | 149.4 | 90.4 | 26.2 | 8.6 | 76.7 | 45.2 | 20.4 | 7.3 | 49.6 | 11.4 | ||||||||||||||||||||||||||||||||||||
FX rate | 28.7 | 3.6 | 110.6 | 8.9 | 34.5 | 4.4 | 70.2 | 10.4 | 25.7 | 4.6 | 53.9 | 8.8 | ||||||||||||||||||||||||||||||||||||
Brazilian Inflation Indexes | 89.0 | 45.9 | 144.7 | 82.9 | 76.1 | 37.3 | 155.5 | 65.7 | 110.3 | 14.8 | 325.0 | 51.2 | ||||||||||||||||||||||||||||||||||||
Equities and commodities | 19.1 | 10.4 | 35.0 | 24.8 | 29.6 | 14.0 | 60.1 | 20.4 | 24.2 | 13.6 | 43.5 | 16.8 | ||||||||||||||||||||||||||||||||||||
Foreign Units | ||||||||||||||||||||||||||||||||||||||||||||||||
Itaú BBA International | 1.1 | 0.4 | 2.3 | 1.6 | 2.4 | 1.6 | 4.1 | 1.9 | 1.7 | 0.7 | 5.1 | 1.1 | ||||||||||||||||||||||||||||||||||||
Banco Itaú Argentina | 4.0 | 0.9 | 18.8 | 1.9 | 4.0 | 2.2 | 7.4 | 5.7 | 3.0 | 1.7 | 5.6 | 5.5 | ||||||||||||||||||||||||||||||||||||
Banco Itaú Chile | 3.3 | 1.3 | 5.5 | 5.3 | 5.6 | 2.1 | 13.6 | 2.1 | 5.5 | 3.2 | 9.6 | 4.4 | ||||||||||||||||||||||||||||||||||||
Banco Itaú Uruguai | 1.6 | 0.8 | 2.6 | 2.1 | 2.8 | 1.5 | 8.9 | 1.7 | 1.7 | 0.3 | 3.4 | 2.0 | ||||||||||||||||||||||||||||||||||||
Banco Itaú Paraguai | 1.3 | 0.6 | 3.6 | 3.5 | 0.9 | 0.4 | 1.8 | 0.9 | 0.4 | 0.2 | 1.4 | 1.0 | ||||||||||||||||||||||||||||||||||||
Banco Itaú BBA Colombia | 0.4 | 0.1 | 1.2 | 0.5 | 0.4 | 0.0 | 1.3 | 0.2 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Diversification effect(1) | (169.3 | ) | (113.0 | ) | (77.1 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total | 125.5 | 59.0 | 231.4 | 180.4 | 224.5 | 97.9 | 443.4 | 110.4 | 289.7 | 118.0 | 601.4 | 373.7 |
(1) Reduction of risk due to the combination of all risk factors.
GLOBAL VAR (HISTORICAL | DECEMBER | |||||||||||||||
SIMULATION APPROACH)(1) | AVERAGE | MINIMUM | MAXIMUM | 31, 2014 | ||||||||||||
Group of Risk Factor | ||||||||||||||||
Brazilian Interest rate | 92.4 | 37.0 | 161.8 | 124.8 | ||||||||||||
Other Interest rate | 60.4 | 21.1 | 93.2 | 83.6 | ||||||||||||
FX rate | 36.1 | 3.6 | 141.2 | 26.5 | ||||||||||||
Brazilian Inflation Indexes | 99.1 | 45.9 | 162.9 | 115.7 | ||||||||||||
Equities and commodities | 22.8 | 10.4 | 60.7 | 22.5 | ||||||||||||
Foreign Units | ||||||||||||||||
Itaú BBA International | 1.1 | 0.4 | 2.3 | 1.6 | ||||||||||||
Banco Itaú Argentina | 4.0 | 0.9 | 18.8 | 1.9 | ||||||||||||
Banco Itaú Chile | 3.3 | 1.3 | 5.5 | 5.3 | ||||||||||||
Banco Itaú Uruguai | 1.6 | 0.8 | 2.6 | 2.1 | ||||||||||||
Banco Itaú Paraguai | 1.3 | 0.6 | 3.6 | 3.5 | ||||||||||||
Banco Itaú BBA Colombia | 0.4 | 0.1 | 1.2 | 0.5 | ||||||||||||
Diversification effect(2) | (194.9 | ) | ||||||||||||||
Total | 131.9 | 59.0 | 227.7 | 193.1 |
(1) Except for the “Foreign Units” (calculated by the parametric methodology).
(2) Reduction of risk due to the combination of all risk factors.
On December 31, 2014, our average global VaR (parametric) was R$125.5 million, or 0.12% of our consolidated stockholders’ equity on December 31, 2014, compared to our average global VaR (parametric) of R$224.5 million on December 31, 2013 or 0.27% of our consolidated stockholders’ equity on December 31, 2013, and to R$289.7 million on December 31, 2012, or 0.38% of our consolidated stockholders’ equity on December 31, 2012. On December 31, 2014, our average global VaR (historical simulation) was R$131.9 million, or 0.13% of our consolidated stockholders’ equity on December 31, 2014.
VaR – Trading Portfolio
The table below presents risks arising from all positions with the intention of trading, following the criteria defined above for our trading portfolio, or the Trading Portfolio.
Our total average Trading Portfolio VaR was R$25.7 million on December 31, 2014, compared to R$40.2 million on December 31, 2013 and to R$54.3 million on December 31, 2012.
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||||||||||
DECEMBER | DECEMBER | DECEMBER | ||||||||||||||||||||||||||||||||||||||||||||||
TRADING PORTFOLIO VAR | AVERAGE | MINIMUM | MAXIMUM | 31, 2014 | AVERAGE | MINIMUM | MAXIMUM | 31, 2013 | AVERAGE | MINIMUM | MAXIMUM | 31, 2012 | ||||||||||||||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian Interest rate | 22.2 | 7.8 | 44.8 | 16.6 | 38.2 | 15.7 | 104.9 | 20.1 | 38.3 | 12.8 | 95.4 | 25.2 | ||||||||||||||||||||||||||||||||||||
Other Foreign Interest rate | 12.1 | 3.6 | 35.0 | 3.6 | 13.7 | 4.5 | 31.7 | 21.7 | 10.7 | 4.2 | 27.2 | 6.4 | ||||||||||||||||||||||||||||||||||||
FX rates | 7.9 | 2.4 | 22.8 | 10.7 | 31.8 | 6.2 | 68.1 | 9.4 | 25.1 | 4.9 | 55.6 | 9.9 | ||||||||||||||||||||||||||||||||||||
Brazilian Inflation Indexes | 15.9 | 8.1 | 27.3 | 8.1 | 12.0 | 3.1 | 30.4 | 21.4 | 9.4 | 1.8 | 22.2 | 7.1 | ||||||||||||||||||||||||||||||||||||
Equities and commodities | 10.3 | 1.7 | 57.2 | 4.3 | 19.2 | 5.8 | 38.2 | 13.7 | 23.3 | 13.8 | 41.5 | 14.8 | ||||||||||||||||||||||||||||||||||||
Diversification effect(1) | (26.4 | ) | (56.0 | ) | (38.6 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total | 25.7 | 13.1 | 54.3 | 16.9 | 40.2 | 17.7 | 71.7 | 30.3 | 54.3 | 21.3 | 112.3 | 24.7 |
(1) Reduction of risk due to the combination of all risk factors.
Sensitivity Analyses (Trading and Banking Portfolios)
As required by Brazilian regulation, we conduct sensitivity analysis for market risk factors considered important. The highest resulting losses are presented below, with impact on result, by risk factor, in each such scenario and are calculated net of tax effects, providing a view of our exposure under different circumstances.
The sensitivity analyses of the Trading Portfolio and Banking Portfolio presented here are based on a static assessment of the portfolio exposure. Therefore, such analyses do not consider the dynamic response capacity of management (e.g., treasury and market risk control unit) to initiate mitigating measures and minimize the possibility of significant losses. In addition, the analysis is intended to assess risk exposure, regardless of whether or not financial instruments are accounted for on an accrual basis.
(In thousands of R$) | ||||||||||||||||||||||||||
TRADING PORTFOLIO(1) | TRADING AND BANKING PORTFOLIOS(1) | |||||||||||||||||||||||||
EXPOSURES | DECEMBER 31, 2014 | DECEMBER 31, 2014 | ||||||||||||||||||||||||
RISK FACTORS | RISK OF CHANGE | SCENARIO I | SCENARIO II | SCENARIO III | SCENARIO I | SCENARIO II | SCENARIO III | |||||||||||||||||||
Interest Rate | Fixed Income Interest Rates in reais | (540 | ) | (126,764 | ) | (237,705 | ) | (5,493 | ) | (1,417,835 | ) | (2,688,954 | ) | |||||||||||||
Foreign Exchange Linked | Foreign Exchange Linked Interest Rates | 22 | (1,729 | ) | (3,374 | ) | - | (19,266 | ) | (34,458 | ) | |||||||||||||||
Foreign Exchange Rates | Prices of Foreign Currencies | 610 | 165,600 | 337,463 | (17,308 | ) | (247,730 | ) | (414,333 | ) | ||||||||||||||||
Price Index Linked | Prices Indexes Linked Interest Rates | (16 | ) | (5,703 | ) | (11,680 | ) | (1,700 | ) | (238,647 | ) | (430,973 | ) | |||||||||||||
TR | TR Linked Interest Rates | (20 | ) | (5,093 | ) | (9,579 | ) | 705 | (224,170 | ) | (473,074 | ) | ||||||||||||||
Equities | Prices of Equities | (78 | ) | (11,769 | ) | (35,990 | ) | 1,661 | (49,699 | ) | (122,034 | ) | ||||||||||||||
Total | (22 | ) | 14,542 | 39,135 | (22,135 | ) | (2,197,347 | ) | (4,163,826 | ) |
(1) Amounts net of tax effects.
In order to measure these sensitivities, the following scenarios (modified on the second quarter of 2014), are used:
Interest rate sensitivity
Interest rate sensitivity is the relationship between market interest rates and net interest income arising from the maturity or the characteristics of the renegotiation of prices of interest-bearing assets and liabilities.
Our strategy for interest rate sensitivity considers the return rates, the underlying risk level and the liquidity requirements, including our minimum regulatory cash reserves, mandatory liquidity ratios, withdrawals and maturity of deposits, capital costs and additional demand for funds.
The pricing structure is matched when equal amounts of these assets or liabilities mature or are renegotiated. Any mismatch of interest-bearing assets and liabilities is known as a gap position. A negative gap position indicates liability sensitivity and normally means that a decline in interest rates would have a positive effect on net interest income, while a positive gap position indicates asset sensitivity and normally means that an increase in interest rates would have a positive effect on net interest income. Additionally, the interest rate sensitivity may vary in the renegotiation periods presented due to the different renegotiation dates within the period. Also, variations among the different currencies in which the interest rate positions are denominated may arise.
These relationships are material for a particular date, and significant fluctuations may occur on a daily basis as a result of both the market forces and management decisions. Our Superior Institutional Treasury and Liquidity Committee (CSTIL) analyzes the Itaú Unibanco Group’s mismatch position on a monthly basis and establishes limits for market risk exposure, interest rate positions and foreign currency positions.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about the position of our interest-bearing assets and liabilities as of December 31, 2014. Note 36 to our audited interim consolidated financial statements provides a snapshot view, and accordingly, does not reflect the interest rate gaps that may exist at other times, due to changing asset and liability positions, and management’s actions to manage the risk in these changing positions.
Exchange rate sensitivity
Most of our banking operations are denominated in or indexed to Brazilianreais. We also have assets and liabilities denominated in foreign currency, mainly in U.S. dollars, as well as assets and liabilities that, although denominated in Brazilianreais, are indexed to U.S. dollars and, therefore, expose us to exchange rate risk. The Central Bank regulates our maximum open, short and long foreign currency positions. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of financial risks for further details.
The gap management policy adopted by the Superior Institutional Treasury and Liquidity Committee takes into consideration the tax effects with respect to our foreign exchange positions. Since the gains from the foreign exchange rate variation on investments abroad are not taxed, we set up a hedge (a liability in foreign currency derivative instruments) in an amount sufficient so that our total foreign exchange exposure, net of tax effects, is consistent with our low risk exposure strategy.
Our foreign exchange position on the liability side is composed of various elements, including the issuance of securities in international capital markets, credit from foreign banks used to finance import and export transactions, and dollar-linked on-lendings from government financial institutions. The proceeds of these financial operations are usually invested in loans and in the purchase of dollar-linked securities.
(In millions of R$, except percentages) | ||||||||||||||||||||
% OF AMOUNTS DENOMINATED | ||||||||||||||||||||
BRAZILIAN | DENOMINATED IN | INDEXED TO FOREIGN | IN AND INDEXED TO FOREIGN | |||||||||||||||||
AS OF DECEMBER 31, 2014 | CURRENCY | FOREIGN CURRENCY(1) | CURRENCY(1) | TOTAL | CURRENCY OF TOTAL | |||||||||||||||
Assets | 677,430 | 286,197 | 163,576 | 1,127,203 | 39.9 | |||||||||||||||
Cash and deposits on demand | 7,391 | 7,727 | 2,409 | 17,527 | 57.8 | |||||||||||||||
Central Bank compulsory deposits | 58,476 | 4,630 | - | 63,106 | 7.3 | |||||||||||||||
Interbank deposits | 7,874 | 15,207 | - | 23,081 | 65.9 | |||||||||||||||
Securities purchased under agreements to resell | 208,751 | 167 | - | 208,918 | 0.1 | |||||||||||||||
Held-for-trading financial assets | 118,486 | 5,905 | 8,553 | 132,944 | 10.9 | |||||||||||||||
Financial assets designated at fair value through profit or loss | - | 733 | - | 733 | 100.0 | |||||||||||||||
Derivatives | 6,501 | 7,655 | - | 14,156 | 54.1 | |||||||||||||||
Available-for-sale financial assets | 11,989 | 43,697 | 22,674 | 78,360 | 84.7 | |||||||||||||||
Held-to-maturity financial assets | 13,335 | 10,767 | 10,332 | 34,434 | 61.3 | |||||||||||||||
Loan operations and lease operations portfolio | 197,346 | 146,654 | 108,431 | 452,431 | 56.4 | |||||||||||||||
Allowance for loan losses | (19,980 | ) | (2,412 | ) | - | (22,392 | ) | 10.8 | ||||||||||||
Other financial assets | 7,306 | 39,735 | 6,608 | 53,649 | 86.4 | |||||||||||||||
Investments in associates and joint ventures | 4,089 | 1 | - | 4,090 | 0.0 | |||||||||||||||
Goodwill | 1,567 | 197 | 197 | 1,961 | 20.1 | |||||||||||||||
Fixed assets, net | 7,854 | 431 | 426 | 8,711 | 9.8 | |||||||||||||||
Intangibles assets, net | 5,444 | 345 | 345 | 6,134 | 11.2 | |||||||||||||||
Tax assets | 33,570 | 835 | 838 | 35,243 | 4.7 | |||||||||||||||
Assets held for sale | 182 | 14 | - | 196 | 7.1 | |||||||||||||||
Other assets | 7,249 | 3,909 | 2,763 | 13,921 | 47.9 | |||||||||||||||
Percentage of total assets | 60.1 | % | 25.4 | % | 14.5 | % | 100.0 | % | ||||||||||||
Liabilities and Stockholders’ Equity | 616,263 | 287,741 | 223,199 | 1,127,203 | 45.3 | |||||||||||||||
Deposits | 94,584 | 100,927 | 99,262 | 294,773 | 67.9 | |||||||||||||||
Securities sold under repurchase agreements | 257,997 | 15,343 | 15,343 | 288,683 | 10.6 | |||||||||||||||
Financial liabilities held for trading | - | 486 | 34 | 520 | 100.0 | |||||||||||||||
Derivatives | 3,901 | 6,931 | 6,518 | 17,350 | 77.5 | |||||||||||||||
Interbank market debt | 39,858 | 40,430 | 42,298 | 122,586 | 67.5 | |||||||||||||||
Institutional market debt | 2,553 | 34,460 | 36,229 | 73,242 | 96.5 | |||||||||||||||
Other financial liabilities | 15,384 | 39,576 | 16,532 | 71,492 | 78.5 | |||||||||||||||
Reserves for insurance and private pension | 109,657 | 59 | 62 | 109,778 | 0.1 | |||||||||||||||
Liabilities for capitalization plans | 3,010 | - | - | 3,010 | - | |||||||||||||||
Provisions | 16,994 | 33 | - | 17,027 | 0.2 | |||||||||||||||
Tax liabilities | 3,728 | 737 | - | 4,465 | 16.5 | |||||||||||||||
Other liabilities | 12,383 | 4,356 | 6,921 | 23,660 | 47.7 | |||||||||||||||
Non-controlling interests | 1,357 | - | - | 1,357 | - | |||||||||||||||
Stockholders’ equity | 54,857 | 44,403 | - | 99,260 | 44.7 | |||||||||||||||
Percentage of total liabilities and stockholders’ equity | 54.7 | % | 25.5 | % | 19.8 | % | 100.0 | % |
(1) Predominantly U.S. dollar.
Backtesting
The effectiveness of the VaR model is validated by the use of backtesting techniques that compare hypothetical daily results with the estimated daily VaR. The number of exceptions (i.e. deviations) with respect to the pre-established VaR limits should be consistent, within an acceptable margin, with the hypothesis of 99.0% confidence intervals (i.e., there is a 1.0% probability that the financial losses are higher than the losses estimated by the model), considering a period of 250 business days (ending on December 31, 2014). The backtesting analysis presented below takes into consideration the ranges suggested on the document
“Supervisory Framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements”, published by the Basel Committee.
The ranges are divided into:
The exposure graph below illustrates the reliability of risk measures generated by the models we use in the Trading Portfolio (foreign units are not included in the graph below given the immateriality of amounts involved).
The graph shows the adequacy level of the market risk models used by us, presenting the risk (absolute value) versus return pairs for the period considered. Since the diagonal line represents the threshold where risk equals return, all the dots below this line indicate exceptions to the estimated risk. For the exposure of the Trading Portfolio, the hypothetical losses exceeded the VaR estimated by the model on 2 days during the 250 day period ended on December 31, 2014.
Operational Risk
Factor Failures, deficiency or inadequacy of our internal processes and human error or misconduct may adversely affect us.
Although we have in place information security controls, policies and procedures designed to minimize human error, and make continuous investments in infrastructure, management of crises and operations, the operational systems related to our business may stop working properly for a limited period of time or may be temporarily unavailable due to a number of factors. These factors include events that are totally or partially beyond our control such as power outages, interruption of telecommunication services, and generalized system failures, as well as internal and external events that may affect third parties with which we do business or that are crucial to our business activities (including stock exchanges, clearing houses, financial dealers or service providers) and events resulting from wider political or social issues, such as cyber-attacks or unauthorized disclosures of personal information in our possession.
Operating failures, including those that result from human error or fraud, not only increase our costs and cause losses, but may also give rise to conflicts with our clients, lawsuits, regulatory fines, sanctions, interventions, reimbursements and other indemnity costs, all of which may have a material adverse effect on our business, reputation and results of operations.
Cyberattacks may cause loss of revenue and reputational harm through data security breaches that may disrupt our operations or result in the dissemination of proprietary or confidential information.
We manage and store certain proprietary information and sensitive or confidential data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. We are strongly dependent on technology and thus are vulnerable to viruses, worms and other malicious software, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems. We also rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us.
The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber incident could be significant and the lack of remediation may result in interruptions, delays and may affect clients and partners.
Our risk management | A-74 |
Annual Report 2015 |
Competition Risk Factor
We face risks associated with the increasingly competitive environment and recent consolidations in the Brazilian banking industry.
The Brazilian market for financial and banking services is highly competitive. We face significant competition from other large Brazilian and international banks. Competition has increased as a result of recent consolidations among financial institutions in Brazil and of regulations that increase the ability of clients to switch business between financial institutions. Please refer to section Our Risk Management, item Regulatory Environment, Antitrust Regulation for further information about the competition on the Brazilian Markets. Such increased competition may adversely affect us by, among other things, limiting our ability to retain or increase our current client base and to expand our operations, or by impacting the fees and rates we adopt, which could reduce our profit margins on banking and other services and products we offer.
Credit Risk Factors
Changes in the profile of our business may adversely affect our loan portfolio.
Our historical loan loss experience may not be indicative of our future loan losses. While the quality of our loan portfolio is associated with the default risk in the sectors in which we operate, changes in our business profile may occur due to our organic growth or merger and acquisition activity, changes in local economic conditions and, to a lesser extent, in the international economic environment, in addition to changes in the tax regimes applicable to the sectors in which we operate, among other factors. Any changes affecting any of the sectors to which we have significant lending exposure may adversely affect our loan portfolio. For example, in recent years, Brazilian banks have experienced an increase in loans to consumers, particularly in the automotive sector. However, this increased demand for vehicle financing was followed by a significant rise in the level of consumer indebtedness, which led this portfolio to incur high nonperforming loan rates. As a result, many financial institutions recorded higher loan losses due to an increased volume of provisions and a decrease in loans for vehicle acquisition.
We may incur losses associated with counterparty exposure risks.
We may incur losses if any of our counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. This counterparty risk may arise, for example, from our entering into reinsurance agreements or credit agreements pursuant to which counterparties have obligations to make payments to us and are unable to do so, or from our carrying out transactions in the foreign currency market (or other markets) that fail to be settled at the specified time due to non-delivery by the counterparty, clearing house or other financial intermediary. We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, and their failure to meet their contractual obligations may adversely affect our financial performance.
We have significant exposure to Brazilian federal government debt.
Like most Brazilian banks, we invest in debt securities issued by the Brazilian government. As of December 31, 2015, approximately 13.9% of all our assets and 60.5% of our securities portfolio were comprised of these debt securities. Any failure by the Brazilian government to make timely payments under the terms of these securities, or a significant decrease in their market value could negatively affect our results of operations and financial condition.
Underwriting Risk
Factor Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.
Our insurance and pension plan subsidiaries establish prices and calculations for our insurance and pension products based on actuarial or statistical estimates. The pricing of our insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or payment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity and persistency. We could suffer losses due to events that are contrary to our expectations directly or indirectly based on incorrect biometric and economic assumptions or faulty actuarial bases used for contribution and provision calculations.
Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims, and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.
Our risk management | A-75 |
Annual Report 2015 |
Management Risk Factors
Our policies, procedures and models related to risk control may be ineffective and our results may be adversely affected by unexpected losses.
Our risk management methods, procedures and policies, including our statistical models and tools for risk measurement, such as value at risk (VaR), and default probability estimation models, may not be fully effective in mitigating our risk exposure in all economic environments or against all types of risks, including those that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based on our observations of the historical market behavior. In addition, due to limitations on information available in Brazil, to assess clients’ creditworthiness, we rely largely on credit information available from our own databases, on certain publicly available consumer credit information and other sources. We apply statistical and other tools to these observations and data to quantify our risk exposure. These tools and metrics may fail to predict all types of future risk exposures. These risk exposures, for example, could arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses, therefore, could be significantly greater than indicated by historical measures. In addition, our quantified modeling may not take all risks into account. Our qualitative approach to managing those risks could prove insufficient, exposing us to material unexpected losses.
Our results of operations and financial position depend on our ability to evaluate losses associated with risks to which we are exposed and on our ability to build these risks into our pricing policies. We recognize an allowance for loan losses aiming at ensuring an allowance level compatible with the expected loss, according to internal models credit risk measurement. The calculation also involves significant judgment on the part of our management. Those judgments may prove to be incorrect or change in the future depending on information as it becomes available. These factors may adversely affect us.
Damages to our reputation could harm our business and outlook.
We are highly dependent on our image and credibility to generate business. A number of factors may tarnish our reputation and generate a negative perception of the institution by our clients, counterparties, stockholders, investors, supervisors, commercial partners and other stakeholders, such as noncompliance with legal obligations, making irregular sales to clients, dealing with suppliers with questionable ethics, clients data leakage, inadequate behaviors by our employees, and third-party failures in risk management, among others. In addition, certain significant actions taken by third parties, such as competitors or other market participants, may indirectly damage our reputation with clients, investors and the market in general. Damages to our reputation could have a material adverse effect on our business and prospects.
Strategy Risk Factors
Our controlling stockholder has the ability to direct our business.
As of January 31, 2016, IUPAR, our controlling stockholder, directly owned 51.00% of our common shares and 25.54% of our total share capital, giving it the power to appoint and remove our directors and officers and determine the outcome of any action requiring stockholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of dividends.
In addition, IUPAR is jointly controlled by Itaúsa, which, in turn, is controlled by the Egydio de Souza Aranha family, and by Cia. E. Johnston, which in turn is controlled by the Moreira Salles family. The interests of IUPAR, Itaúsa and the Egydio de Souza Aranha and Moreira Salles families may be different from the interests of our other stockholders.
In addition, some of our directors are affiliated with IUPAR and circumstances may arise in which the interests of IUPAR and its affiliates conflict with the interests of our other stockholders. To the extent that these and other conflicting interests exist, our stockholders will depend on our directors duly exercising their fiduciary duties as members of our Board of Directors. Notwithstanding, according to Brazilian Corporation Law the controlling stockholders should always vote in the interest of the Company. In addition, they are prohibited to vote in cases of conflict of interest in the matter to be decided.
The integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.
As part of our growth strategy in the Brazilian and Latin America financial sector, we have engaged in a number of mergers, acquisitions and partnerships with other companies and financial institutions in the past and may pursue further such transactions in the future. Any such transactions involve risks, such as the possible incurrence of unanticipated costs as of result of difficulties in integrating systems, finance, accounting and personnel platforms, fail in diligence or the occurrence of unanticipated contingencies. In addition, we may not achieve the operating and financial synergies and other benefits that we expected from such transactions.
There is also the risk that antitrust and other regulatory authorities may impose restrictions or limitations on the transactions or on the businesses that arise from certain combinations or applying fines or sanction due to the interpretation of the authorities of irregularities on a corporate merger, consolidation or acquisition, even if the institution has done this legally, clearly and transparently, as they and the experts in corporate law understood.
If we are unable to take advantage of business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisitions, or if we incur greater integration costs than we have estimated, then we may be adversely affected.
Our risk management | A-76 |
Annual Report 2015 |
Socio-Environmental Risk Factors
We may experience financial and reputational losses associated to socioenvironmental risks.
Socio-environmental issues and water scarcity are the most evident socio-environmental risk factors that might impact our internal operations and our business.
The direct risks for our operations in Brazil are related to the water crisis, caused by a reduced volume of rain in the past four years, worsened by a structural situation of heavy losses in water distribution, low capacity and dependency of water storage in few reservoirs, as well as waste by consumers.
Water scarcity may affect the operations in our administrative buildings, branch network and data centers, in addition to affecting directly the distribution of electricity, as a large part of it is generated by hydroelectric power plants.
Another risk that may impact us is related to the financing of activities in sectors that are more exposed to socio-environmental impact, such as mining, construction of hydroelectric power plants, cattle breeding, and more, which demand higher diligence for its mitigation.
Socio-environmental risks may affect the payment flow of our customers and, therefore, cause late payments or default, especially in the event of major socio-environmental impacts.
Financial Reporting Risks
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our operating results.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected.
As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or fraud may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence in our company and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
We regard risk management as an essential instrument to optimize the use of our resources and to assist us in selecting business opportunities in order to maximize value creation to stockholders.
Our risk management process includes:
· | Identification and measurement of existing and potential risks in our operations; |
· | Approval of risk management and control institutional policies, procedures and methodologies according to the guidelines of the Board of Directors and our corporate strategies; and |
· | Management of our portfolio seeking optimal risk-return ratios. |
The risk identification process purpose is to map internal and external risk threats that may affect the business’ and support units’ strategies, keeping them from achieving their goals, potentially impacting our earnings, capital, liquidity and reputation.
Risk management processes are embedded in the entire institution and are aligned with the guidelines of our Board of Directors and senior management which, through the committees described below determine overall risk management objectives by establishing targets and limits applicable to our business units. The control and capital management units, in turn, support our management by means of monitoring
Our risk management | A-77 |
Annual Report 2015 |
procedures and risk and capital analysis. Please refer to section Our Governance, item Management Structure, Board of Directors and Board of Officers for further details about our Board of Directors responsibilities.
In line with CMN and Central Bank regulations, we implemented a capital management structure and the Internal Capital Adequacy Assessment Process (ICAAP).
Our organizational risk management governance is structured in compliance with regulations in Brazil and abroad and in line with market best practices. Control of our credit, market, operational, liquidity and underwriting risks is performed in a centralized manner by an independent unit, led by an executive director reporting to our Chief Executive Officer (CEO) and to the Board of Directors, in order to ensure that such risks are managed pursuant to our risk appetite and our existing policies and procedures. This independent unit is also responsible for centralizing our capital management. Centralized control is intended to provide the Board of Directors and senior management with a global view of our exposures to risks, as well as with a prospective view of our capital adequacy, so as to optimize and expedite appropriate corporate decisions.
We use information technology (IT) systems to comply with the Central Bank’s capital reserve requirements, as well as for risk measurement purposes, following regulations and regulatory models. We also coordinate actions among different units to verify compliance with qualitative and quantitative requirements established by relevant authorities to maintain the minimum required capital and monitor risks.
Risk and Capital Governance
We established committees that are responsible for risk and capital management and report directly to the Board of Directors. Committee members are elected by the Board of Directors, the main authority with respect to risk and capital management decisions. At the executive level, risks are managed by corporate committees, which are chaired by our CEO.
The following committees are part of our risk and capital management governance structure:
(1) CNRF and CTAM are chaired by Itaú Unibanco Holding’s main executive officer in charge of risk.
Risk and Capital Management Committee (CGRC):supports the Board of Directors in the performance of its duties related to our risk and capital management by meeting, at least, quarterly and submitting reports and recommendations to assist the Board of Directors in its decision-making with respect to:
· | Decisions regarding our appetite for risk in terms of capital, liquidity, results and franchise (our brand), ensuring these aspects are in alignment with our strategy and including: acceptable levels of capital and liquidity, types of risk to which we could be exposed as well as aggregate limits for each type of risk, tolerance with respect to volatility of results and risk concentrations, general guidelines on tolerance regarding risks that may have an impact on our franchise (or the value of our brand, i.e., image risk); |
· | Supervision of our risk management and control activities to ensure our adequacy to the risk levels assumed and the complexity of transactions in which we engage, as well as compliance with regulatory requirements; |
· | Review and approval of capital management institutional policies and strategies that establish mechanisms and procedures intended to maintain capital compatible with the risks incurred by us; |
· | Determination of our minimum expected return on capital for our entire business, as well as performance monitoring; |
· | Supervision of our incentive structures, including compensation, seeking to ensure their alignment with risk control and value creation objectives; and |
· | Promotion and improvement of our risk culture. |
Audit Committee:we have a single Audit Committee overseeing all entities within the Itaú Unibanco Group that are either authorized to operate by the Central Bank or that are supervised by SUSEP. In accordance with its internal rules, approved by the Board of Directors, the Audit Committee must meet at least quarterly and otherwise when the Chairman of the committee deems necessary. The committee
Our risk management | A-78 |
Annual Report 2015 |
is responsible for overseeing the quality and integrity of our financial statements, the compliance with legal and regulatory requirements, the performance, independence and quality of the services provided by our independent auditors and of work performed by our internal auditors, and the quality and effectiveness of the internal control and risk management systems.
Additionally, the Committee will, individually or jointly with the Conglomerate’s respective independent audit companies, formally communicate with the Central Bank or SUSEP, as the case may be: (i) noncompliance with the legal and regulatory provisions and internal norms that place the continuity of our companies at risk; (ii) fraud of any value perpetrated by senior management (members of the Board of Directors and Executive Board) of our companies; (iii) significant fraud perpetrated by our employees or by third parties; and (iv) errors resulting in significant inaccuracies in our financial statements of our companies.
Please refer to the section Our Governance, item Management Structure for further details about the responsibilities of these Committees.
Superior Market Risk and Liquidity Committee (CSRML):meets on a monthly basis to set guidelines and governance for investments and market and liquidity risks regarding our consolidated positions and business lines.
The CSRML is responsible for the strategic management and control of risks, and for setting limits for market and liquidity risks, according to the authority delegated by the Risk and Capital Management Committee (CGRC). The CSRML is also responsible for analyzing the levels of our current and future liquidity and taking steps to promote the safe and efficient evolution of our financial flows.
The CSRML is responsible for discussing and establishing (i) additional liquidity and market risks; (ii) guidelines to delegate operations and decision powers to the Market Risk and Liquidity Management Committee (CGRML); (iii) the funding policy and the policy on investments in the domestic and international financial markets; (iv) the criteria and rules on transfer pricing among companies of the conglomerate; (v) the strategies for financing group portfolios; (vi) the guidelines and governance for market risk and liquidity in managing funds from Technical Reserves and from Insurance, Pension and Savings Bonds; and (vii) the guidelines for monitoring the balance between assets and liabilities of Closed Private Pension Entities (Foundations) associated with the conglomerate.
Superior Operational Risk Management Committee (CSRO):meets at least on a quarterly basis. Its chief responsibilities are: understanding the risks of our processes and business, defining guidelines for managing operating risks and assessing the results achieved by our Internal Controls and Compliance System.
Superior Products Committee (CSP):meets on a weekly basis and is the highest authority to approve our products, operations, services and related processes. It is responsible for:
· | Evaluating products, operations, services and processes that do not fall under the responsibility of other committees subordinated to it; |
· | Evaluating products, operations and processes that the Wholesale Bank does not have authority to approve; and |
· | Evaluating products, operations, services and processes that involve risk to our image. |
Superior Retail Credit and Collection Committee (CSCCV):meets on a monthly basis and is responsible for approving credit policies and assessing the performance of Retail Credit and Collection portfolios and strategies.
Superior Wholesale Credit and Collection Committee (CSCCA):meets on a monthly basis and is responsible for approving credit policies and assessing the performance of Wholesale Credit and Collection portfolios and strategies.
Superior Credit Committee (CSC):meets on a weekly basis. It is responsible for:
· | Analyzing and deciding on credit proposals that are beyond the authority of the Credit Committees that report to it; and |
· | Reviewing decisions which were not made due to a lack of consensus at the committee immediately subordinate to it or that were submitted to it for review due to the relevance of the topic or other features. |
Risk and Financial Policies Committee (CNRF):meets at least five times a year, to:
· | Review and approve, by consensus, the circulars and attachments prepared by the Risk and Finance Control and Management Area (ACGRF); |
· | Recommend, for final approval by the Board of Directors, the institutional policies prepared by ACGRF; and |
· | Ratify attachments approved at the appropriate authority levels. |
Model Assessment Technical Committee (CTAM):
CTAM – Market:meets every two months or upon request for the approval and assessment of market and pricing risk models based on the opinion of the independent model validation group, suggests and monitors action plans for the validated models and monitors the performance of the market risk model our time goes by, determining new developments, if necessary.
CTAM – Credit:meets monthly or when required. Its purpose is to approve the use of credit risk models from a technical viewpoint. Its responsibilities are: to give technical approval for the use of credit risk models; to issue the technical opinions of the Broad Validation Unit on credit risk models and on other models used in the management and/or quantification of specific risks, according to our needs and priorities; to resolve important management changes to the models in use; and
Our risk management | A-79 |
Annual Report 2015 |
to decide on conditions for the use of models, recommendations for action plans to eliminate/minimize risks and suggestions for future models submitted by the Broad Validation Unit.
Risk Management
Credit Risk
Credit risk is the possibility of losses due to the failure by the borrower, issuer or counterparty to perform their respective financial obligations under agreed upon terms, the devaluation of a credit agreement resulting from a deterioration of the risk rating of the borrower, issuer or counterparty, the reduction of earnings or remuneration, and the benefits granted upon renegotiation or the recovery costs.
Our credit risk management and control structure establishes operational limits, risk mitigation mechanisms and processes, and instruments to measure, monitor and control risk that can quantify the credit risk inherent in all products, portfolio concentrations and the impacts of potential changes in the economic environment. Our portfolio, policies and strategies are continuously monitored to ensure compliance with the rules and laws in effect in each country.
Our credit risk management structure is the primary responsibility of all Business Units and aims to keep the quality of our credit portfolio consistent with risk appetite levels for each market segment in which we operate. The Business Units are responsible for:
· | Following up and closely monitoring the portfolios of credit under their responsibility; |
· | Granting credit in accordance with the authority levels, market conditions, macroeconomic prospects, changes in markets and products and the effects of sector and geographic concentrations; and |
· | Managing credit risk by adopting actions that provide sustainability to its business. |
Our institutional policies on credit risk management are approved by our Board of Directors and applicable to all of our companies and subsidiaries in Brazil and abroad.
Our credit policy is based on internal factors, such as borrower ratings criteria, performance and evolution of our portfolio, default levels, return rates, and allocated economic capital; and on external factors related to the economic environment, interest rates, market default indicators, inflation and changes in consumption levels.
We have a structured process to maintain a diversified portfolio considered appropriate by our institution. The concentrations are monitored continuously for economic sectors, and largest debtors, allowing preventive measures to be taken to avoid the violation of the established limits.
Our credit risk management governance is conducted through corporate committees that report to the Board of Directors or to our executive officers and act primarily by assessing competitive market conditions, setting our credit limits, reviewing control practices and policies and approving actions at different authority levels. The risk communication and reporting processes, including the disclosure of institutional policies on credit risk management, are also part of this governance structure.
Our credit risk control is carried out by an independent area within the bank, which is responsible for risk management and which operates separately from business units, as required by current regulations. For the credit risk control process, the main responsibilities of the risk management control area are:
· | Monitoring and controlling the performance of the credit portfolios in accordance with the limits approved by senior management; |
· | Conducting a centralized control of the credit risk area, which is through a unit that is independent from our other business units; |
· | Managing the process of preparation, review and approval of institutional policies applied to credit risk, as provided for regulatory guidelines; and |
· | Assessing the credit risk of the operations at the authority levels appointed by the credit commissions. |
Our evaluation process, with respect to policies and products, enables us to identify potential risks in order to ensure that credit decisions fall within our acceptable risk parameters, taking into account the economic benefits.
Our centralized process for approving credit policies and validating models ensures the synchronization of credit actions.
The credit rating for our Wholesale transactions is based on information such as the economic and financial condition of the counterparty, its cash-generating capabilities, its relevant affiliated parent and companies and the current and prospective situation of the economic sector in which it operates. Credit proposals are analyzed on a case-bycase basis through our internal approval governance structure.
With respect to our Retail transactions (individuals, small and middlemarket companies), rating is assigned based on two statistical models: (i) application (in the early stages of our relationship with a customer) and (ii) behavior (used for customers with whom we already have a relationship). Decisions are made based on scoring under these models and resulting ratings are continuously monitored by our credit risk independent unit. In some cases, an individual analysis of specific cases may be performed, in which case credit approval is submitted to the applicable authority levels.
Additionally, the risk assessment of both the Retail and the Wholesale segments takes into account the client´s level of indebtedness to us as well as other creditors.
Our risk management | A-80 |
Annual Report 2015 |
Government securities and other debt instruments to be purchased or held in our portfolio are classified by our credit risk independent area or business unit according to our credit quality parameters with the purpose of managing the exposures.
We seek to strictly control our credit exposure to clients and counterparties, taking action to remediate occasional situations in which our actual exposure exceeds targeted levels. In the cases where our actual exposure exceeds targeted levels, we may seek enforcement of contractual provisions such as the right to demand early payment or require additional collateral and/or guarantees.
We count on a specific structure and processes aimed at ensuring that the country risk related to our client is managed and controlled, including: (i) country risk governance; (ii) country ratings; (iii) credit limits for specific countries; (iv) limits monitoring; and (v) actions to limit breaches.
In line with the principles of the CMN regulation, our credit risk management structure and institutional policy are approved by our Board of Directors and are applicable to all companies and subsidiaries in Brazil and abroad.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about Credit Risk.
Loan Approval Process
Extensions of credit are approved based on policies at the business unit level, determined in accordance with the assumptions of each department and our bank’s risk appetite. The decision to extend credit may be granted by means of a pre-approval process or the traditional approval mechanism, which is applied on a client by client basis. In both cases, the decisions are made based on principles of credit quality such as credit rating supported by statistical models, percentage of income committed by/leverage of the client and credit restrictions determined by us and the market.
The business units prepare and keep updated the policies and procedures of the credit cycle.
The credit granting process contemplates the use of credit protection services with the purpose of checking whether a client’s credit history includes information that could be considered an obstacle to granting a loan, such as assets blocked by court orders, invalid tax payer identification numbers, prior or pending debt restructuring or renegotiation processes and checks not honored due to insufficient funds.
The policy assessment process allows for the identification of potential risks and is intended to ensure that credit decisions make sense from both an economic and a risk perspective.
Individuals
Our branch network extends nationwide and adopts a client segmentation strategy pursuant to which products and services are developed to meet the specific needs of a diversified client base. Credit products offered at our branch network and through our electronic channels include, among others, overdraft protection, credit cards, personal loans and vehicle financing.
In all cases, an internal credit score is applied and a cut-off threshold is defined for each product line.
In the case of pre-approved credit, if a client’s risk profile is within the cut-off threshold and parameters established under our credit policy, the credit is considered pre-approved and is automatically available to the client. In the cases where credit is not pre-approved, credit review is carried out through a traditional process under which proposals are assessed on an individual basis by a credit expert. Under this process, approvals are decided by a credit desk, since commercial managers do not have authority to approve individual applications.
Documentation required at the moment the client decides to open an account with us or when we grant a loan includes an application form with the client’s signature, personal identification and proof of income.
Credit cards
Our credit card business is comprised of Itaucard and Hipercard credit cards as well as credit cards from associations and commercial agreements with significant retailers. Our credit cards are available to account-holding or non-account holding clients, and can be applied for by telephone, internet or points of service at our partner institutions.
The credit granting process for credit cards includes a pre-qualification phase in which internal or market restrictive filters are applied. For eligible clients, the maximum credit amount offered takes into consideration the client’s risk, based on statistical models specifically designed for credit cards (application score) and on the applicants’ income. A fixed interest rate is applied to revolving credit transactions.
Personal loans
Our decision on whether to grant loans to our account holders takes into account the client’s income level and our internal client credit rating, which is based on internally developed statistical models. Through these models, we determine which clients will receive credit offers and in which amounts, the maximum number of installments and the maximum amount for monthly installments, based on fixed interest rates.
Payroll loans
Our payroll loan products are available to account-holding or nonaccount holding clients. Fixed installments are directly deducted from the borrower’s payroll to the bank´s account without being recorded in the debtor’s account.
The maximum percentage of installments to income is defined by law and is limited to 35% of a payroll loan borrower’s net income, of which 5% should be devoted exclusively to credit cards.
Our risk management | A-81 |
Annual Report 2015 |
Our strategy in this segment is to focus on loans to the INSS´s beneficiaries, that receive benefits from federal, state or municipal governments, which, combined with our good management practices and credit policies, should allow us to increase this portfolio with low delinquency levels compared to other types of products.
Documentation required to receive a payroll loan includes personal identification, proof of payroll and residence and proof of the bank account where the client receives payroll benefits. If the salary is deposited with us, this documentation is not necessary.
Itaú BMG Consignado is the financial institution controlled by Itaú Unibanco Holding through which we engage in the offering, distribution and sale of payroll loans in Brazil.
Vehicle financing
Vehicle financing proposals are submitted through (i) partner car dealers throughout Brazil for all types of clients (whether account holders or not) or (ii) directly at our branches or through electronic channels for account holders.
A client’s internal credit rating and the terms and conditions of the proposed transaction are taken into account before approving the proposal. If the proposed transaction meets all of our credit policy requirements, which determine maximum installment amounts, loan to value, or LTV, and maturity, and the client’s personal information is validated by credit protection services, the loan is automatically approved.
A fixed interest rate is set based on the credit rating and the characteristics of the transaction. All vehicle financing transactions are secured by the asset itself, and the maximum LTV is defined to support any possible stress periods.
Mortgage loans
In addition to real estate loans provided through our branch network, we have entered into partnerships with large real estate brokers in Brazil, which originate real estate financing, transactions for us on an exclusive basis and in different cities across the country.
The approval of real estate loans is based on assumptions involving the portion of a client’s income to be committed to loan repayments, the client rating according to our internal rating system and the maximum LTV, so that even under a stress scenario LTV is kept at adequate levels. Interest rates are fixed.
The data included in the financing proposal is analyzed, validated and confirmed by supporting documentation provided by the client. The proposal may be rejected if the information provided to us is found to be inconsistent, the proposal fails to meet our current policy requirements or any requested information fails to be provided.
Credit to very small and small companies
We offer products such as working capital financing and discount of trade receivables to very small and small companies.
Credit limits to very small and small companies are assigned according to a client’s revenues and are based on a business risk assessment, as well as on other criteria such as the financial condition of the company´s stockholders or partners, the identification of possible credit restrictions and an evaluation of the economic sector in which the company operates.
Similarly to our procedures for granting of loans to individuals, credit may be granted to very small and small companies pursuant to a preapproved limit or subject to an individual analysis by a credit desk.
Documentation required includes the company’s governing documents, proof of revenues and information on the partners or stockholders.
Much of the credit we extend to for companies in this segment requires the provision of collateral or guarantees. Transactions to finance the production of goods usually require machinery and equipment as collateral. Working capital financing may be collateralized by trade receivables, checks receivable or credit cards receivable or may be collateralized by the company’s partners or stockholders and/or third parties.
Interest rates can be fixed or variable depending on the product that is chosen by the client.
Corporate Credit
The credit analysis process for middle market and large companies is carried out based on the financial condition of such companies and any corporate groups to which they belong. The credit analysis takes into account the company’s history, financial capacity and adequacy of the requested transaction to the client’s needs. This analysis is based on the company’s financial statements (balance sheet, statement of income, statement of cash flows), on-site meetings with the company, market conditions, analysis of the economic sector in which the company operates and inquiries into credit protection services. An environmental analysis is carried out simultaneously with our credit analysis, and a plan of action may be created as a result of this analysis for the company to comply with the requirements determined by our internal environmental policy, or a recommendation to deny the credit may be issued.
The proposed maximum credit amount extended and the client internal rating, with a defined cut-off, are submitted to the appropriate credit authorization levels depending on the amount involved, term of the transaction and available security or guarantees, in accordance with our governance policies. Interest rates can be fixed or variable depending on the product that is chosen by the client within the credit limit approved.
International Units
The individual and legal entities of International Units follow procedures similar to those applied to individuals and the corporate segments mentioned above. For the individuals segment, lending is mainly based
Our risk management | A-82 |
Annual Report 2015 |
on income level and internal credit rating. In the corporate segment, the granting of credit is based on the economic and financial analysis of the client.
Credit granting in our subsidiaries operating outside of Brazil follows the same corporate governance and policies described above. All subsidiaries are subject to a centralized management that monitors the performance of our portfolio, establishes rules for credit granting and is responsible for the corporate governance related to credit granting.
Risk-Mitigating Instruments
As part of our credit risk control, we have institutional policies establishing guidelines and duties in connection with the request for provision of collateral and each business unit is responsible for establishing, in its own credit policies, credit risk management rules for the acceptance of such collateral.
Collateral or personal guarantees may be required to mitigate our risk exposure to certain transactions. In order to be considered a risk-mitigating instrument, collateral must meet legal and performance requirements established in our internal policies. All collateral that may impact credit risk, capital allocation and accrual are periodically reviewed by us, ensuring that they are legally enforceable.
Market Risk
Market risk is the possibility of losses resulting from fluctuations in the market value of positions held by a financial institution, most typically caused by variations in foreign exchange rates, interest rates, Brazilian inflation indexes, equity and commodity prices, along with various indexes for these risk factors. Market risk management is the process by which our management monitors and controls risk of variations in the value of financial instruments due to market movements, while aiming to optimize the risk-return ratio through an adequate limit and alert structure (described below), effective risk management models and related management tools.
Our policies and general market risk management framework are consistent with the principles contained in CMN regulations and apply our approach to market risk control and management across all business units and legal entities of the Itaú Unibanco Group.
Our market risk management strategy is aimed at balancing corporate business goals, taking into account, among other things:
· | Political, economic and market conditions; |
· | The profile of our portfolio; and |
· | Expertise within the Itau Unibanco Group to support operations in specific markets. |
Our market risk management framework is subject to the governance and hierarchy of committees and to a structure of limits and alerts, with specific limits assigned to different portfolios and levels (for example, Banking Portfolio, Trading Portfolio, Equities Desk), as well classes of market risk (such as interest rate risk, foreign exchange risk, among others). This structure of limits and alerts ranges from aggregated risk indicators at the portfolio level, to more granular limits at the individual desk level. The market risk limits framework extends to the risk factor level, with specific limits and aims to improve the process of understanding and monitoring risk, as well as preventing risk concentration. Limits and alerts are calibrated based on projections of future balance sheets, stockholders’ equity, liquidity, complexity and market volatility and our risk appetite. Limits are monitored on a daily basis and breaches and potential breaches of limits are reported and discussed in accordance with the following procedure:
· | within one business day, for management responsible for the business units and executives in the risk control area and business areas; and |
· | within one month, for the competent committees. |
Daily risk reports, used by the business and control units, are also sent to senior management. In addition, our market risk management and control process is subject to periodic reviews, to ensure it reflects the best market practices, and continues to improve over time.
Our structure of limits and alerts follows the Board of Directors guidelines and is approved by the committees. The process for defining limit levels and reporting violations is subject to our governance institutional policies of approval. The established information flow is intended to provide this information to our various executive levels, including members of the Board of Directors through the committees responsible for risk management.
The key principles underlying our market risk control are as follows:
· | Provide visibility and comfort for all senior management levels that market risks assumed must be in line with our risk-return objectives; |
· | Provide disciplined and informed dialogue of the overall market risk profile and its evolution over time; |
· | Increase the transparency as to how the business works to optimize results; |
· | Provide early warning mechanisms to facilitate effective risk management, without obstructing the business objectives; and |
· | Concentration of risks must be monitored and avoided. |
Market risk is controlled by a unit that is independent from our “risk originating” business units and is responsible for performing the daily activities of: (i) risk measurement and assessment; (ii) monitoring of stress scenarios, limits and alerts; (iii) application of stress scenarios, analysis and tests; (iv) reporting of risk to responsible individuals within the relevant business unit, in accordance with our governance requirements; (v) monitoring the necessary actions to readjust positions and/or levels of risk to make them viable; and (vi) supporting the secure launch of new financial products. To this end, we have a structured
Our risk management | A-83 |
Annual Report 2015 |
process of communication and information flow that provides information to our committees and monitors compliance with the requirements of Brazilian and relevant foreign regulatory agencies.
We hedge transactions with clients and proprietary positions, including foreign investments, in order to mitigate risks arising from fluctuations in market risk factors and maintain the positions on the breaching limits. We use various financial instruments to manage risks, including exchange or over-the-counter market derivatives, which mainly include: (i) interest and exchange rate futures contracts; (ii) Foreign Exchange Non-Deliverable Forwards; (iii) interest and exchange rate swap contracts; and (iv) options. Operations with derivative financial instruments are classified according to their characteristic, risk management or cash flow hedge. When these transactions are classified as hedges for accounting purposes, specific supporting documentation is reviewed, allowing for an ongoing follow up of the hedge effectiveness (retrospectively and prospectively) and of any changes in the accounting process. The accounting and managerial hedging procedures are governed by our internal institutional polices. Our market risk framework categorizes transactions as part of either the Banking Portfolio or the Trading Portfolio, in accordance with general criteria established by specific regulation.
Our Trading Portfolio is composed of all transactions with financial and commodity instruments (including derivatives) held with the intention of trading, to benefit from arbitrage opportunities, or for use of such transactions to hedge risk within this portfolio, and that have no restriction on trading. Profits are based on changes in actual or expected prices in the short term.
Our Banking Portfolio is predominantly characterized by trades originated from the banking business and related to the management of our balance sheet. As a general rule, this desk’s portfolios are held without intention of trading and for a time horizon of medium and long term.
Market risk exposures that are inherent in many financial instruments, including derivatives, are composed of various risk factors that refer to a market parameter whose variation impacts the evaluation of a certain position. The main risk factors measured by us are:
· | Interest rates: the risk of losses from transactions that are subject to interest rate variations; |
· | Other foreign interest rates: the risk of losses from transactions subject to foreign interest rate variations; |
· | FX rates: the risk of losses from positions subject to foreign exchange rate variation (e.g., foreign currency positions); |
· | Brazilian inflation indexes: the risk of losses from transactions subject to variations in inflation linked indexes; and |
· | Equities and commodities: the risk of losses from transactions that are subject to equity and commodity price variations. |
The CMN has regulations establishing the segregation of market risk exposure at a minimum into the following categories: interest rates, FX rates, equities and commodities. Brazilian inflation indexes are treated as a group of risk indicators and receive the same treatment as of the other risk indicators, such as interest rates and FX rates and follow the governance and risk limits framework adopted by our management for market risk assessment.
Market risk is analyzed based on the following key metrics:
· | Value at Risk (VaR): a statistical metric that quantifies the maximum potential economic losses based on normal market conditions, considering a defined holding period and confidence level; |
· | Losses in Stress Scenarios (Stress Testing): a simulation technique to evaluate the impact on assets, liabilities and derivatives portfolios of various risk factors in extreme market situations (based on prospective and historic scenarios); |
· | Stop Loss: a mechanism that triggers a management review of positions, if the accumulated losses in a given period reach specified levels; |
· | Concentration: cumulative exposure of certain financial instruments or risk factors calculated at market value (MtM – Mark to Market); and |
· | Stressed VaR: a statistical metric derived from VaR, aimed at capturing the largest risk in simulations of the current portfolio, taking into consideration observable returns in historical scenarios of extreme volatility. |
In addition to the risk metrics described above, sensitivity and loss control measures are also analyzed. They include:
· | Gap Analysis: accumulated exposure of cash flows by risk factor, which are marked-to-market and positioned by settlement dates; |
· | Sensitivity (DV01 – Delta Variation Risk): impact on the market value of cash flows when a one annual basis point change is applied to current interest rates or index rates; and |
· | Sensitivities to Various Risk Factors (Greek): partial derivatives of a portfolio of options in connection with the prices of the underlying assets, implied volatilities, interest rates and time. |
Our risk management | A-84 |
Annual Report 2015 |
Please refer to our Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about Market Risk.
VaR – Consolidated Itaú Unibanco Holding
The methodology for the calculation of our Consolidated VaR uses a “historical simulation” approach, which carries out the full repricing of all positions, using the real historical distribution of assets.
The table below shows the Consolidated Total VaR and provides the analysis of exposure to market risk of our Trading Portfolio, Banking Portfolio and our subsidiaries outside Brazil, namely, Itau BBA International, Banco Itaú Argentina, Banco Itaú Chile, Banco Itaú Uruguay, Banco Itaú Paraguay and Itaú BBA Colombia, showing where there are higher concentrations of market risk. We adhered to our policy of operating within low limits in relation to capital and maintained our conservative management and portfolio diversification approach throughout the period.
(In millions of R$) | ||||||||||||||||||||||||||||||||
Global VaR | December | December | ||||||||||||||||||||||||||||||
(Historical Simulation approach)(1) | Average | Minimum | Maximum | 31, 2015 | Average | Minimum | Maximum | 31, 2014 | ||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||
Brazilian Interest rate | 131.9 | 78.2 | 236.4 | 121.2 | 92.4 | 37.0 | 161.8 | 124.8 | ||||||||||||||||||||||||
Other Interest rate | 93.6 | 75.1 | 139.2 | 108.6 | 60.4 | 21.1 | 93.2 | 83.6 | ||||||||||||||||||||||||
FX rate | 47.2 | 11.3 | 118.6 | 13.1 | 36.1 | 3.6 | 141.2 | 26.5 | ||||||||||||||||||||||||
Brazilian Inflation Indexes | 134.1 | 103.9 | 294.9 | 108.9 | 99.1 | 45.9 | 162.9 | 115.7 | ||||||||||||||||||||||||
Equities and commodities | 28.5 | 17.2 | 70.4 | 59.3 | 22.8 | 10.4 | 60.7 | 22.5 | ||||||||||||||||||||||||
Foreign Units(1) | �� | |||||||||||||||||||||||||||||||
Itau BBA International(4) | 3.2 | 1.0 | 10.1 | 3.0 | 1.1 | 0.4 | 2.3 | 1.6 | ||||||||||||||||||||||||
Banco Itaú Argentina(2) | 8.5 | 1.9 | 118.1 | 7.8 | 4.0 | 0.9 | 18.8 | 1.9 | ||||||||||||||||||||||||
Banco Itaú Chile(2) | 7.5 | 4.5 | 14.0 | 4.7 | 3.3 | 1.3 | 5.5 | 5.3 | ||||||||||||||||||||||||
Banco Itaú Uruguay(3) | 2.0 | 0.9 | 4.1 | 2.6 | 1.6 | 0.8 | 2.6 | 2.1 | ||||||||||||||||||||||||
Banco Itaú Paraguay(4) | 3.8 | 1.3 | 7.8 | 7.6 | 1.3 | 0.6 | 3.6 | 3.5 | ||||||||||||||||||||||||
Banco Itaú BBA Colombia(2) | 1.2 | 0.3 | 1.7 | 0.4 | 0.4 | 0.1 | 1.2 | 0.5 | ||||||||||||||||||||||||
Diversification effect(5) | (233.3 | ) | (194.9 | ) | ||||||||||||||||||||||||||||
Total | 207.0 | 152.3 | 340.7 | 204.0 | 131.9 | 59.0 | 227.7 | 193.1 |
(1) | Determined in local currency and converted into Brazilianreais at the closing price on the reporting date. |
(2) | VaR calculated using historical simulation as from the first quarter of 2015. |
(3) | VaR calculated using historical simulation as from the third quarter of 2015. |
(4) | VaR calculated using historical simulation as from the fourth quarter of 2015. |
(5) | Reduction of risk due to the combination of all risk factors. |
(In millions of R$) | ||||||||||||||||||||||||||||||||
Global VaR | December | December | ||||||||||||||||||||||||||||||
(Parametric approach) | Average | Minimum | Maximum | 31, 2014 | Average | Minimum | Maximum | 31, 2013 | ||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||
Brazilian Interest rate | 89.0 | 37.0 | 193.0 | 127.8 | 172.4 | 65.6 | 416.9 | 69.1 | ||||||||||||||||||||||||
Other Interest rate | 43.8 | 21.1 | 149.4 | 90.4 | 26.2 | 8.6 | 76.7 | 45.2 | ||||||||||||||||||||||||
FX rate | 28.7 | 3.6 | 110.6 | 8.9 | 34.5 | 4.4 | 70.2 | 10.4 | ||||||||||||||||||||||||
Brazilian Inflation Indexes | 89.0 | 45.9 | 144.7 | 82.9 | 76.1 | 37.3 | 155.5 | 65.7 | ||||||||||||||||||||||||
Equities and commodities | 19.1 | 10.4 | 35.0 | 24.8 | 29.6 | 14.0 | 60.1 | 20.4 | ||||||||||||||||||||||||
Foreign Units | ||||||||||||||||||||||||||||||||
Itau BBA International | 1.1 | 0.4 | 2.3 | 1.6 | 2.4 | 1.6 | 4.1 | 1.9 | ||||||||||||||||||||||||
Banco Itaú Argentina | 4.0 | 0.9 | 18.8 | 1.9 | 4.0 | 2.2 | 7.4 | 5.7 | ||||||||||||||||||||||||
Banco Itaú Chile | 3.3 | 1.3 | 5.5 | 5.3 | 5.6 | 2.1 | 13.6 | 2.1 | ||||||||||||||||||||||||
Banco Itaú Uruguay | 1.6 | 0.8 | 2.6 | 2.1 | 2.8 | 1.5 | 8.9 | 1.7 | ||||||||||||||||||||||||
Banco Itaú Paraguay | 1.3 | 0.6 | 3.6 | 3.5 | 0.9 | 0.4 | 1.8 | 0.9 | ||||||||||||||||||||||||
Banco Itaú BBA Colombia | 0.4 | 0.1 | 1.2 | 0.5 | 0.4 | 0.0 | 1.3 | 0.2 | ||||||||||||||||||||||||
Diversification effect(1) | (169.3 | ) | (113.0 | ) | ||||||||||||||||||||||||||||
Total | 125.5 | 59.0 | 231.4 | 180.4 | 224.5 | 97.9 | 443.4 | 110.4 |
(1) | Reduction of risk due to the combination of all risk factors. |
Our risk management | A-85 |
Annual Report2015 |
On December 31, 2015, our average global VaR (Historical Simulation) was R$207.0 million, or 0.18% of our consolidated stockholders’ equity on December 31, 2015, compared to our average global VaR (Historical Simulation) of R$131.9 million on December 31, 2014 or 0.13% of our consolidated stockholders’ equity on December 31, 2014. On December 31, 2013, before migrating our internal methodology to calculate VaR with Historical Simulation, our average global VaR considering the parametric approach was R$224.5 million, or 0.27% of our consolidated stockholders’ equity on December 31, 2013.
VaR – Trading Portfolio
The table below presents risks arising from all positions with the intention of trading, following the criteria defined above for our Trading Portfolio. Our total average Trading Portfolio VaR was R$23.6 million on December 31, 2015, compared to R$25.7 million on December 31, 2014 and to R$40.2 million on December 31, 2013.
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||||||||||
December | December | December | ||||||||||||||||||||||||||||||||||||||||||||||
Trading Portfolio VaR | Average | Minimum | Maximum | 31, 2015 | Average | Minimum | Maximum | 31, 2014 | Average | Minimum | Maximum | 31, 2013 | ||||||||||||||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian Interest rate | 25.7 | 8.7 | 48.9 | 22.9 | 22.2 | 7.8 | 44.8 | 16.6 | 38.2 | 15.7 | 104.9 | 20.1 | ||||||||||||||||||||||||||||||||||||
Other Foreign Interest rate | 11.5 | 5.7 | 32.2 | 14.0 | 12.1 | 3.6 | 35.0 | 3.6 | 13.7 | 4.5 | 31.7 | 21.7 | ||||||||||||||||||||||||||||||||||||
FX rates | 15.8 | 6.5 | 35.3 | 12.9 | 7.9 | 2.4 | 22.8 | 10.7 | 31.8 | 6.2 | 68.1 | 9.4 | ||||||||||||||||||||||||||||||||||||
Brazilian Inflation Indexes | 9.3 | 4.0 | 18.6 | 7.7 | 15.9 | 8.1 | 27.3 | 8.1 | 12.0 | 3.1 | 30.4 | 21.4 | ||||||||||||||||||||||||||||||||||||
Equities and commodities | 5.6 | 3.5 | 11.0 | 6.6 | 10.3 | 1.7 | 57.2 | 4.3 | 19.2 | 5.8 | 38.2 | 13.7 | ||||||||||||||||||||||||||||||||||||
Diversification effect(1) | (43.2 | ) | (26.4 | ) | (56.0 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total | 23.6 | 10.6 | 49.4 | 20.8 | 25.7 | 13.1 | 54.3 | 16.9 | 40.2 | 17.7 | 71.7 | 30.3 |
(1) | Reduction of risk due to the combination of all risk factors. |
Sensitivity Analyses
(Trading and Banking Portfolios)
As required by Brazilian regulation, we conduct sensitivity analysis for market risk factors considered important. The highest resulting losses are presented below, with impact on result, by risk factor, in each such scenario and are calculated net of tax effects, providing a view of our exposure under different circumstances.
The sensitivity analyses of the Trading Portfolio and Banking Portfolio presented here are based on a static assessment of the portfolio exposure. Therefore, such analyses do not consider the dynamic response capacity of management (e.g., treasury and market risk control unit) to initiate mitigating measures, whenever a situation of high loss or risk is identified, minimizing the possibility of significant losses. In addition, the analysis is intended to assess risk exposure and the respective protective actions, taking into account the fair value of financial instruments, regardless of whether or not financial instruments are accounted for on an accrual basis.
(In thousands of R$) | ||||||||||||||||||||||||||
Trading Portfolio(1) | Trading and Banking Portfolios(1) | |||||||||||||||||||||||||
Exposures | December 31, 2015 | December 31, 2015 | ||||||||||||||||||||||||
Risk Factors | Risk of change | Scenario I | Scenario II | Scenario III | Scenario I | Scenario II | Scenario III | |||||||||||||||||||
Interest Rate | Fixed Income Interest Rates inreais | (285 | ) | (114,002 | ) | (228,507 | ) | (4,376 | ) | (1,572,640 | ) | (3,021,487 | ) | |||||||||||||
Foreign Exchange Linked | Foreign Exchange Linked Interest Rates | (162 | ) | (5,312 | ) | (11,459 | ) | 873 | (22,408 | ) | (25,705 | ) | ||||||||||||||
Foreign Exchange Rates | Prices of Foreign Currencies | 657 | 57,436 | 242,760 | 533 | 33,770 | 200,816 | |||||||||||||||||||
Price Index Linked | Prices Indexes Linked Interest Rates | (32 | ) | (4,063 | ) | (649 | ) | (1,334 | ) | (229,441 | ) | (444,651 | ) | |||||||||||||
TR | TR Linked Interest Rates | (0 | ) | (7 | ) | (14 | ) | 783 | (276,817 | ) | (635,021 | ) | ||||||||||||||
Equities | Prices of Equities | (148 | ) | 27,369 | 50,887 | 4,591 | (86,428 | ) | (176,770 | ) | ||||||||||||||||
Total | 30 | (38,579 | ) | 53,018 | 1,071 | (2,153,963 | ) | (4,102,820 | ) |
(1) | Amounts net of tax effects. |
Our risk management | A-86 |
Annual Report2015 |
Interest rate sensitivity
Interest rate sensitivity is the relationship between market interest rates and net interest income arising from the maturity or the characteristics of the renegotiation of prices of interest-bearing assets and liabilities.
Our strategy for interest rate sensitivity considers the return rates, the underlying risk level and the liquidity requirements, including our minimum regulatory cash reserves, mandatory liquidity ratios, withdrawals and maturity of deposits, capital costs and additional demand for funds.
The pricing structure is matched when equal amounts of these assets or liabilities mature or are renegotiated. Any mismatch of interest-bearing assets and liabilities is known as a gap position. The interest rate sensitivity may vary in the renegotiation periods presented due to the different renegotiation dates within the period. Also, variations among the different currencies in which the interest rate positions are denominated may arise.
These relationships are material for a particular date, and significant fluctuations may occur on a daily basis as a result of both the market forces and management decisions. Our Superior Market Risk and Liquidity Committee (CSRML) analyzes the Itaú Unibanco Group’s mismatch position on a monthly basis and establishes limits for market risk exposure, interest rate positions and foreign currency positions.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about the position of our interest-bearing assets and liabilities as of December 31, 2015. Note 36 to our audited interim consolidated financial statements provides a snapshot view, and accordingly, does not reflect the interest rate gaps that may exist at other times, due to changing asset and liability positions, and management’s actions to manage the risk in these changing positions.
Exchange rate sensitivity
Most of our banking operations are denominated in or indexed to Brazilianreais. We also have assets and liabilities denominated in foreign currency, mainly in U.S. dollars, as well as assets and liabilities that, although denominated in Brazilianreais, are indexed to U.S. dollars and, therefore, expose us to exchange rate risk. The Central Bank regulates our foreign currency positions. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of financial risks for further details.
The gap management policy adopted by the Superior Market Risk and Liquidity Committee (CSRML) takes into consideration the tax effects with respect to our foreign exchange positions. Since the gains from the foreign exchange rate variation on investments abroad are not taxed, we set up a hedge (a liability in foreign currency derivative instruments) in an amount sufficient so that our total foreign exchange exposure, net of tax effects, is consistent with our low risk exposure strategy.
Our foreign exchange position on the liability side is composed of various elements, including the issuance of securities in international capital markets, credit from foreign banks used to finance import and export transactions, and dollar-linked on-lendings from government financial institutions. The proceeds of these financial operations are usually invested in loans and in the purchase of dollar-linked securities.
Our risk management | A-87 |
Annual Report2015 |
The information set forth below was prepared on a consolidated basis, eliminating transactions between related parties. Our investments abroad, which are eliminated when we consolidate the accounting information, represented R$64.7 billion as of December 31, 2015, under the gap management policy adopted, as mentioned above. Note that we apply either economic hedges or hedge accounting to those net investments abroad.
(In millions of R$, except percentages) | ||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||
% of amounts | ||||||||||||||||||||
Denominated | Indexed | denominated in and | ||||||||||||||||||
Brazilian | in foreign | to foreign | indexed to foreign | |||||||||||||||||
Exchange rate sensitivity | currency | currency(1) | currency(1) | Total | currency of total | |||||||||||||||
Assets | 1,000,798 | 237,216 | 38,401 | 1,276,415 | 21.6 | |||||||||||||||
Cash and deposits on demand | 5,738 | 11,449 | 1,357 | 18,544 | 69.1 | |||||||||||||||
Central Bank compulsory deposits | 59,384 | 7,172 | - | 66,556 | 10.8 | |||||||||||||||
Interbank deposits | 7,502 | 23,023 | - | 30,525 | 75.4 | |||||||||||||||
Securities purchased under agreements to resell | 252,295 | 2,109 | - | 254,404 | 0.8 | |||||||||||||||
Held-for-trading financial assets | 154,737 | 6,531 | 3,043 | 164,311 | 5.8 | |||||||||||||||
Financial assets designated at fair value through profit or loss | 505 | 137 | - | 642 | 21.3 | |||||||||||||||
Derivatives | 7,445 | 9,266 | 10,044 | 26,755 | 72.2 | |||||||||||||||
Available-for-sale financial assets | 51,621 | 33,633 | 791 | 86,045 | 40.0 | |||||||||||||||
Held-to-maturity financial assets | 27,378 | 14,807 | - | 42,185 | 35.1 | |||||||||||||||
Loan operations and lease operations portfolio | 336,668 | 123,370 | 14,210 | 474,248 | 29.0 | |||||||||||||||
Allowance for loan losses | (22,219 | ) | (4,294 | ) | (331 | ) | (26,844 | ) | 17.2 | |||||||||||
Other financial assets | 39,287 | 5,362 | 8,857 | 53,506 | 26.6 | |||||||||||||||
Investments in associates and joint ventures | 4,397 | 2 | - | 4,399 | 0.0 | |||||||||||||||
Goodwill | 1,744 | 313 | - | 2,057 | 15.2 | |||||||||||||||
Fixed assets, net | 8,062 | 479 | - | 8,541 | 5.6 | |||||||||||||||
Intangibles assets, net | 5,779 | 516 | - | 6,295 | 8.2 | |||||||||||||||
Tax assets | 51,399 | 750 | - | 52,149 | 1.4 | |||||||||||||||
Assets held for sale | 471 | 15 | - | 486 | 3.1 | |||||||||||||||
Other assets | 8,605 | 2,576 | 430 | 11,611 | 25.9 | |||||||||||||||
Percentage of total assets | 78.4 | % | 18.6 | % | 3.0 | % | 100.0 | % | ||||||||||||
Liabilities and Stockholders’ Equity | 968,175 | 278,157 | 30,083 | 1,276,415 | 24.1 | |||||||||||||||
Deposits | 180,137 | 112,020 | 453 | 292,610 | 38.4 | |||||||||||||||
Securities sold under repurchase agreements | 312,856 | 23,787 | - | 336,643 | 7.1 | |||||||||||||||
Financial liabilities held for trading | - | 412 | - | 412 | 100.0 | |||||||||||||||
Derivatives | 9,670 | 10,256 | 11,145 | 31,071 | 68.9 | |||||||||||||||
Interbank market debt | 91,292 | 63,819 | 1,775 | 156,886 | 41.8 | |||||||||||||||
Institutional market debt | 38,425 | 53,348 | 2,145 | 93,918 | 59.1 | |||||||||||||||
Other financial liabilities | 50,317 | 8,641 | 9,757 | 68,715 | 26.8 | |||||||||||||||
Reserves for insurance and private pension | 129,203 | 100 | 2 | 129,305 | 0.1 | |||||||||||||||
Liabilities for capitalization plans | 3,044 | - | - | 3,044 | - | |||||||||||||||
Provisions | 18,964 | 30 | - | 18,994 | 0.2 | |||||||||||||||
Tax liabilities | 4,098 | 873 | - | 4,971 | 17.6 | |||||||||||||||
Other liabilities | 16,110 | 4,871 | 4,806 | 25,787 | 37.5 | |||||||||||||||
Non-controlling interests | 1,807 | - | - | 1,807 | - | |||||||||||||||
Stockholders’ equity | 112,252 | - | - | 112,252 | - | |||||||||||||||
Percentage of total liabilities and stockholders’ equity | 75.8 | % | 21.8 | % | 2.4 | % | 100.0 | % |
(1) | Predominantly U.S. dollar. |
Note that the information presented in the table above is not prepared on the same basis as presented in the Consolidated Financial Statements.
Our risk management | A-88 |
Annual Report2015 |
Backtesting
The effectiveness of the VaR model is validated by the use of backtesting techniques that compare hypothetical daily results with the estimated daily VaR. The number of exceptions (i.e. deviations) with respect to the pre-established VaR limits should be consistent, within an acceptable margin, with the hypothesis of 99.0% confidence intervals (i.e., there is a 1.0% probability that the financial losses are higher than the losses estimated by the model), considering a period of 250 business days (ending on December 31, 2015). The backtesting analysis presented below takes into consideration the ranges suggested on the document “Supervisory Framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements”, published by the Basel Committee.
The ranges are divided into:
The exposure graph below illustrates the reliability of risk measures generated by the models we use in the Trading Portfolio (foreign units are not included in the graph below given the immateriality of amounts involved).
The graph shows the adequacy level of the market risk models used by us, presenting the risk (absolute value) versus return pairs for the period considered. Since the diagonal line represents the threshold where risk equals return, all the dots below this line indicate exceptions to the estimated risk. For the exposure of the Trading Portfolio, the hypothetical losses exceeded the VaR estimated by the model on 3 days during the 250 day period ended on December 31, 2015.
Backtesting – Trading Portfolio Exposure(1)
(In millions of R$)
(1) Foreign units are not considered.
Source: Itaú Unibanco Holding
Operational Risk
Operational risk is defined as the possibility of losses arising from failure, deficiency or inadequacy of internal processes, people or systems or from external events that affect the achievement of strategic, tactical or operational objectives. It includes legal risk associated with inadequacy or deficiency in contracts signed by us, as well as penalties due to noncompliance with laws and punitive damages to third parties arising from the activities undertaken by us.
Internally, we classify the following as first-level operational risks:
In line with CMN regulation,and Central Bank regulations, we have an operational risk management governance structure and an institutional policy, which are annually approved by the Board of Directors and are applicable to our local and foreign companies and subsidiaries.
OurOperational risk management is the process composed of operational risk management structure is composed ofand control activities, of operational risk control and management, the purpose of which objective is to support the institution in decision making processes, always searching for the proper identification and assessment of risks, and our decision-making process, the creation of value for stockholders and the protection of our assets and image.
Our operational risk management structure is supported by a governance process that is structured through discussion forums and committees, that report to the CSAGRO and CSRisc, which, in turn, report to the Board of Directors, and is based on well-defined roles and responsibilities in order to reinforce the segregation of the business and management and control activities. This structure is intended to ensure independence between our units and, consequently, informed decisions with respect to risks. This independence is reflected in the risk management carried out on a decentralized basis under the responsibility of the business units and in the centralized control carried out by the operational risk and internal control and compliance units by means of methodologies, training and certification of the control environment on an independent basis and providing tools for monitoring them.
Our management structure seeks to identify, assess, mitigate,prioritize and manage any operational risks, and to monitor and report the operational riskmanagement activities, for ourthe purpose of ensuring the quality of the control environment in accordance with ourthe internal guidelines and applicable regulations.regulation in effect.
Our risk management | A-89 |
Annual Report2015 |
The managers of our executive units use corporate methodologies that are built and made available by the internal control, compliance and operational risk departments. Among the methodologies and tools used are the self-evaluation and the map of the organization’s prioritizesprioritized risks, the approval of processes and products, the monitoring of key risk indicators and the database of operational losses. Therefore, our operational risk Managementmanagement ensures a single framework for the management of processes, systems, projects and new products and services.
Within the governance of our management process, there are specific operational risk, internal control and compliance forums where the consolidated reports on risk monitoring, controls, action plans and operational losses are regularly presented to our business unit executives.
The dissemination of the risk and control culture to the employees by means of training is an important pillar of our operational risk agenda, aimed at providing a better understanding of the matter and playing a relevant role in risk mitigation.
Cyber Security
We have structured solutions in an effort to mitigate the main threats posed by cyberattacks at different levels of our organization, through the definition of policies, processes and procedures that support the entire chain of information.
We monitor and address all types of attacks and security incidents. We have a certified IT staff with knowledge of various technologies. We control the access to our systems and digital resources, while constantly updating our registry to maintain a high level of security and avoid breaches and unauthorized access. We employ state-of-the-art technology in seeking to secure our network and data, as well as other barriers such as restricted access to our servers, facilities, and virtual environments, through the use of firewalls, password-protection and encryption.
Our Corporate Security area works together with our business, IT, internal controls and audit teams to keep our systems always up-to-date, seeking to reduce financial losses and reputational damages in Brazil and abroad that could result from cyber attacks.
Crisis Management and Business Continuity
The purpose of our Business Continuity Program is to protect our employees, ensure the continuity of the critical functions of
our business lines, safeguard revenue and sustain both a stable financial market in which we operate and the trust of our clients and strategic partners in providing our services and products.
Our Business Continuity Program is composed of procedures for relocating and/or recovering operations in response to a variety of interruption levels and can be divided into two key elements:
In order to keep continuity solutions aligned with applicable requirements with respect to processes, minimum resources and legal requirements, among others, the Business Continuity Program applies the following tools to analyze our organization:
Please refer towww.itau.com.br/_arquivosestaticos/RI/pdf/en/Corporate_Business_Continuity_Policy.pdf,, for further details about our Corporate Business Continuity Policy.
Our risk management | A-90 |
Annual Report2015 |
Liquidity Risk
Liquidity risk is defined as the likelihood that an institution will not be able to effectively honor its expected and unexpected current and future obligations, including those from guarantee commitments, without affecting its daily operations and not incurring significant losses.
Our liquidity risk control is carried out by an independent group of our business units and is responsible for determining the composition of our reserves, proposing assumptions for the performance of cash flows in different timeframes, proposing and monitoring liquidity risk limits in accordance with the group risk appetite, communicating any mismatches, considering liquidity risk on an individual basis in the countries where we operate, simulating the behavior of cash flows in stress conditions, assessing and reporting in advance the risks inherent to new products and operations and reporting the information required by the regulatory agencies. All activities are subject to assessment by our independent validation, internal controls and audit units.
The liquidity risk measurement has to comprise all financial trades of our companies, as well as possible contingent and unexpected exposures, such as derived from settlement services, provision of sureties and guarantees, credit lines contracted and not used.
The liquidity policies of management and associated limits are established based on prospective scenarios, reviewed periodically and based on definitions from senior management.
Pursuant to the requirements of CMN Resolutions No. 4,090 and Central Bank Circular No. 3,393,regulations, Itaú Unibanco is required to deliver on a monthly basis its Liquidity Risk Statements (DLR) to the Central Bank. In connection with such analysis, the following items are regularly prepared and submitted to the senior management for monitoring and decision support:
The basic requirement for the effectiveness of the liquidity risk control is the proper measurement of the risk exposure. The liquidity risk measurement process uses corporate systems and own applications that are internally developed.
The structure of liquidity risk management of our institution is considered adequate and in line with the best practices, allowing for the timely control of the risk. In 2014,2015, we made investments to improve and provide more efficiency to our liquidity risk controls.
Please refer to section Performance, item Financial Performance, Results, for further details about liquidity and capital resources.
We have diversified sources of funding, of which a significant portion comes from the retail segment. Our principal sources of funds are deposits, securities sold under repurchase agreements from own issue and funds from acceptances and issuance of securities.
Please refer to section Performance, item Financial Performance, Liabilities, for further details about funding and results and item Consolidated Financial Statements (IFRS), Note 17 – Deposits, Note 19 – Securities Sold under Repurchase Agreements and Interbank and Institutional Market Debts, and Note 36 – Management of Financial Risks for further details.
Please refer to section Our Risk Management, item Regulatory Environment, for further details about the implementation of Basel III in Brazil.
Social and Environmental Risk
In managing our business, we continuously take into consideration the risk of potential losses due to exposure to social and environmental events arising from the performance of our activities that impact on the environment or human health.
Our social and environmental risk management is dealt with our Social and Environmental Risk Committee and its main responsibility is to propose institutional policies with respect to our activities and operations’ exposure to social and environment risk and formalize them by means of internal regulations and procedures.
Please refer towww.itau.com.br/_arquivosestaticos/RI/pdf/en/SOCIAL_ENVIRONMENTAL_RISK_POLICY.pdf,POLICY_ FOR_SUSTAINABILITY_RI_2015__ING_.pdf, for further detailsabout our Sustainability and Social and Environmental RiskResponsability Policy.
In addition to seeking the development of several internal processes aimed at the control and the mitigation of events that may lead to the occurrence of the social and environmental risk, we consistently seek to evolve in the management of the social and environmental risk, taking into account the challenges as to changes in and demands of society. Among other actions, we have assumed and incorporated into our internal processes a number of national and international voluntary commitments and pacts aimed at integrating social, environmental and governance aspects in our business. The main ones are the Principles for Responsible Investment (PRI), the Charter for Human Rights – Ethos, the Equator Principles (EP), the Global Impact, the Carbon Disclosure Project (CDP), the Brazilian GHG Protocol Program, thePactoNacional para Erradicação do Trabalho Escravo(National (National Pact forEradicatingfor Eradicating Slave Labor), among others.
Reputational Risk
We define reputational risk as the risk arising from internal practices, risk events and external factors that may generate a negative perception of our bank among clients, counterparties, stockholders, investors, supervisors, commercial partners, among others, which could affect
Our risk management | A-91 |
Annual Report2015 |
the value of our brand and financial losses, in addition to adversely affecting our capability to maintain our existing commercial relations, enter into new businesses and maintain continued access to financing sources.
Since the reputational risk directly or indirectly permeates all of our operations and processes, we have an infrastructure governance that seeks to ensure that potential reputational risks are identified, analyzed and managed while in the initial phases of its operations and the analysis of new products.
In general,We believe that our reputation is based onextremely important in order to achieve our strategy (vision, culturelong- term goals which is why we seek to align our external communications with ethical and skills) thattransparent practice and work, which is built fromessential to raise the direct or indirect experienceconfidence of its stakeholders by means of the three following interactions:
Inour stakeholders. Therefore, in order to maintain our strong reputation and avoid negative impact on the perception of our image by many stakeholders, reputational risks are addressed by many internal processes and initiatives which, in turn, are supported by internal regulations with the main purpose of providing mechanisms for the monitoring, management, control and mitigation of the main reputational risks to which we could become exposed. They include:
Regulatory Risk
The regulatory risk is the risk arising from losses due to fines, sanctions and other penalties applied by regulatory agencies resulting from noncompliance with regulatory requirements. The regulatory risk is managed through a structured process aimed at identifying changes in the regulatory environment, analyzing their impact on our various departments and monitoring the implementation of actions directed at compliance with regulatory requirements.
We have a structured and consistent flow of procedures for addressing compliance with new rules and regulations, covering the stages of identification, distribution, monitoring and compliance, and all of these processes and procedures are applied consistently throughout our organization and established in internal rules. Risk control covers the entire life cycle of a new law or regulation from its enactment until compliance. The structure and flow for addressing the regulatory risk are composed of: (i) monitoring of legislative bills, notices and public consultation; (ii) recognition of new rules for determining action plans; (iii) relationship with regulators; (iv) monitoring of action plans; and (v) prioritization of risks.risks; and (vi) control of compliance with legal decisions on class actions and with the conduct adjustment instruments to which we are party (Termos de Ajustamentode Conduta, or TACs).
Model Risk
Our risk management has proprietary models for the management of risks that are continuously monitored and reviewed when necessary in order to ensure the effectiveness of our strategic and business decisions.
Model risk is defined as the risk that arises when our models do not reflect, on a consistent basis, the relationships of variables of interest, creating results that systematically differ from actual results. This risk may materialize mainly as a result of methodological inadequacies during the development of the model or because the application of such models in situations other than those anticipated in the modeling process.
We use the best market practices to manage the model risk to which we are exposed during the entire lifecycle of a model and the stages of which may be classified into four main stages:
development, implementation, validation and use. The best practices we apply to our model risk control include: (i) quality certification of our database, (ii) application of a list of essential steps to be taken during the model´s development, (iii) application of a conservative approach in our decision making, as applied to our models, (iv) use of external benchmarks, (v) approval of results generated in the model´s implementation,implementation; (vi) independent validation unit,technical validation; (vii) validation,assessments of use; (viii) assessmentassessments of a model´sthe impact once in use andthe use; (ix) monitoring of performance.performance; and (x) monitoring of the distribution of the explanatory variables and final score.
Country Risk
Country risk is defined as risks related to our operations outside of Brazil, including losses arising from noncompliance with the financial obligations in the terms agreed-upon by borrowers, issuers, counterparties or guarantors as a result of actions taken by the government of the country where the borrower, issuer, counterparty or guarantor is or as a result of political, economic and social events related to the country.
In order to properly address country risk, we have a specific process structure aimed at ensuring that the risk is managed and controlled. These processes include: (i) country risk governance; (ii) establishment of country ratings; (iii) determination of limits for countries; and (iv) monitoring of limits and treatment of noncompliance.
Business and Strategy Risk
We define the business and strategy risk as the risk of a negative impact on our financial results or capital as a consequence of the lack of strategic planning, the making of adverse strategic decisions, our inability to implement the proper strategic plans and/or changes in its business environment.
Our risk management | A-92 |
Annual Report2015 |
Since business and strategic risk can directly affect the creation of value and the feasibility of our bank, we have implemented various mechanisms to ensure that both the business and the strategic decision making processes follow proper governance standards, have the active participation of officers and the Board of Directors, are based on market, macroeconomic and risk information and are aimed at optimizing the risk-return ratio.
In order to properly address risk, we utilize the governance standards and processes listed below. These governance standards and processes are utilized by senior management and the risk control and management department of the relevant business and strategic decisions in order to ensure that the risk is managed and that the decisions are sustainable. These governance standards and processes are as follows:
Insurance Risk, Pension Plan and Premium Bond Products Risk
The portfolio of our insurance companies is comprised of life and elementary insurance (for example, credit life and housing), as well as pension plans and premium bond. With respect to such products, insurance risk relates to:
Our guidelines for the risk management framework forIn line with good national and international practices and to ensure that risks arising from insurance products, pension plans and premium bond productsbonds are properly identified, measured, evaluated, reported and approved in relevant forums, we have a risk management framework in place, of which the guidelines are established pursuant to our internal policies,institutional norms are approved by our Board of Directors, that is applicable to companies and oursubsidiaries at risk from insurance products, pension plans and premium bonds, in Brazil and abroad.
The process of risk management for insurance, pensions and special savings plans is based on defined responsibilities distributed between the control and business areas, ensuring that they are independent of each other and focusing on the special nature of each risk, as per the guidelines established by us.
As part of the risk management process, for these risksthere is based on responsibilities defineda governance structure where decisions may be taken by committees, thus ensuring compliance with several regulatory and distributed between our control and business units, promoting independence between them.internal requirements, as well as balanced decisions relative to risks.
Our objective is to ensure that assets serving as collateral for long-term products, with guaranteed minimum returns, are managed according to the characteristics of the liabilities, so that they are actuarially balanced and solvent over the long term. Each year, liabilities for long-term products, which result in projected future benefits flows, are mapped using actuarial premises. This mapping enables Asset Liability Management models to be created, and these are used to define the best makeup of the asset portfolio to neutralize the risk of this type of product, taking into account their economic and financial viability over the long term. Portfolios of collateral assets are rebalanced periodically according to changes in market prices, our liquidity requirements and the changes in the characteristics of the liabilities.
Capital Management
The Board of Directors is our highestthe main authority with respect to capital management and is responsible for monitoring capital adequacy, approving the Internal Capital Adequacy Assessment Process (ICAAP)capital management institutional policy and guidelines regarding the capitalization level of the conglomerate, approving the ICAAP report and analyzing the results of the independent validation of ICAAP’s models and processes, performed by our internal controls and model validation teams, as well as approving our institutional capital management policy.teams. Additionally, the conclusions of and points of attention raised by auditors on capital management processes are submitted to the Board of Directors.
The ICAAP is a process that aimsintended to evaluateassess the adequacy of our capital adequacy level given our risk profile, our strategic guidelinesby identifying material risks; by assessing whether capital is required for such risks and the economic environment.means of quantifying it; by elaborating a capital plan, both for normal and stress situations; and by preparing a capital contingency plan. In order to independently validate the effectiveness of ICAAP’s processes and models, our internal controls team is responsible for evaluating our governance framework, processes, policies and activities of monitoring and reporting. Our team responsible for the technical validation of models analyzes the documentation, data, methodology, performance and the use
Our risk management | A-93 |
Annual Report2015
The result of the models involved. Thelatest ICAAP final report and its components are approved by– which was dated December 2015 – shows that, in addition to the Board of Directors for their consideration.capital required to cover material risks, we have a significant capital surplus, thus ensuring the bank’s soundness.
The methodologies for risk assessment and capital calculation, as well as the capital-related documents and topics are evaluated by the Senior Management Committee before its submission to the Board of Directors.
In the capital management context, we prepare a capital plan consistent with our strategic planning and designed to maintain an adequate and sustainable capital level, taking into account analyses of the economic, competitive and political environment, in addition to other external factors. Our capital plan is also approved by the Board of Directors and comprises the following:
· | Our short and long-term capital goals and projections, under normal and stress scenarios, according to the Board of Directors’ guidelines; |
· | Description of our main sources of capital; and |
· | Our contingency capital plan, identifying actions to be taken in the event of a potential capital deficiency. |
As part of our capital planning, extreme economic and market conditions are simulated, emulating serious events, in order to identify potentialmeasure our capital restrictions.position under stress. The stress scenarios are approved by the Board of Directors, and their impacts on capital are considered when devising our strategy and positioning of our businesses and capital.
Complementing the calculation of capital to cover the risks of Pillar 1 risks (credit risk, market risk and operational risk), we have been developing mechanisms to identify and analyze the materiality of other risks, assumed by us, in addition to methodologies for assessing and quantifying the need for additional capital to cover such risks.
In order to provide the necessary information for our officers and Board of Directors to make decisions, managerial reports are prepared and presented at committee meetings, where committee members are informed about our capital adequacy, as well as about the projections of future capital levels in normal and stress situations.
Please refer to section Our Risk Management, item Regulatory Environment, for further details about the implementation of Basel III in Brazil.
Minimum requirements
Our minimum capital requirements are expresseddenominated in the form of ratios between the available capital, as disclosed in the form ofPatrimônio de ReferênciaRegulatory Capital (PR), and risk-weighted assets, or Total Capital, and the risk-weightedassets (RWA).RWA. These minimum capital requirements are consistentwere established by a with a set of resolutions and circulars disclosedpublished by the CMN and Central Bank since 2013, and which implement in Brazil the global capital requirement standards known as Basel III.
The PROur available Regulatory Capital (PR) consists of the sum of Tier 1 and Tier 2 Capital, as defined by CMN resolutions. The total RWA is determined as the sum of the risk-weighted asset amounts for credit risk, market risk, and operational risk.
For purposes of calculating these minimum capital requirements, the total RWA is determined as the sum of the risk-weighted asset amounts for credit risk, market risk, and operational risk. Itaú Unibanco useswhich are calculated using the standardized approaches to calculate these risk-weighted asset amounts.approaches.
The minimum TotalRegulatory Capital requirement correspondscorresponded to 11 percent11% from October 1, 2013 to December 31, 2015, decreasingand will decrease gradually to reach 8 percent throughin January 1, 2019. CMN and Central Bank standards also require for the Common Equity Tier 1, which corresponds to the sum of the components – ACPConservation’ ACPCountercyclical and ACPSystemic – which, in together with the requirements mentioned in the preceding paragraph, increase capital requirements over time. CMN and Central Bank standards also established requirements to qualify instruments eligible for Tier 1 or Tier 2 Capital. Additionally, these standards establish a gradual reduction of eligibility of capital instruments issued pursuant to the former regulation on Regulatory Capital instruments that are still outstanding.
Capital Composition
Pursuant to current regulations ourPatrimônio de Referência Regulatory Capital (PR), used to monitor our compliance with the capital requirements imposed by the CMN and the Central Bank, is the sum of Tier 1 Capital and Tier 2 Capital, according to which:
· | Additional Tier 1 |
· | Tier 2 Capital: debt instruments |
In accordance with applicable Brazilian regulations, we must maintain our TotalRegulatory Capital, (PR), Tier 1 Capital and Common Equity Tier 1 Capital ratios above the minimum regulatory requirements established at all times. The RWA used for assessing these minimum regulatory requirements can be determined by adding the following portions:
RWACPAD = portion relating to exposures to credit risk;
RWACAM = portion relating to exposures in gold, foreign exchange rate and assets subject to foreign exchange rate variations;
RWAJUR = portion relating to exposures subject to variations of interest rates, interest coupons and coupon rates and classified in the Trading Portfolio;
RWACOM = portion relating to exposures subject to variations in commodity prices;
RWAACS = portion relating to exposures subject to variations in equities prices and classified in the Trading Portfolio; and
Our risk management | A-94 |
RWAOPAD = portion relating to the calculation of operational risk capital requirements.
Capital Adequacy
Through our Internal Capital Adequacy Assessment Process (ICAAP), we ensure the sufficiency of our capital to cover credit, market and operational risks, which are represented by our Minimum TotalRequired Regulatory Capital Required and to cover other risks we consider material.
In order to ensure our capital strength and availability of capital to support business growth, we maintain PRRegulatory Capital levels above the minimum required regulatory capital required levels, based on the BIS ratio (as defined below) and on the Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital ratios (calculated by dividing Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital by the total risk weighted assets).
On December 31, 2014,2015, our TotalRegulatory Capital (PR) at the financialprudential conglomerate level reached R$129.790128,465 million, an increasea decrease of R$4.6461,325 million when compared to December 31, 2013,2014, at the financial conglomerate, mainly due to the increasedecrease of our Tier 12 Capital.
(In millions of R$) | (%) | |||||||||||||||||||
AS OF DECEMBER 31, | ||||||||||||||||||||
CAPITAL COMPOSITION (FINANCIAL CONGLOMERATE) | 2014 | 2013 | 2012 | 2014-2013 | 2013-2012 | |||||||||||||||
Tier 1 Capital(1) | 96,232 | 87,409 | 79,711 | 10.1 | 9.7 | |||||||||||||||
Common Equity Tier 1(2) | 96,212 | 87,409 | - | 10.1 | - | |||||||||||||||
Additional Tier 1 Capital(3) | 20 | - | - | - | - | |||||||||||||||
Tier 2 Capital(4) | 33,559 | 37,734 | 40,654 | (11.1 | ) | (7.2 | ) | |||||||||||||
Exclusions (funding instruments issued by financial institutions) | - | - | (420 | ) | - | - | ||||||||||||||
Total Capital (PR) | 129,790 | 125,144 | 119,945 | 3.7 | 4.3 | |||||||||||||||
Minimum Total Capital Required “(minimum PR)” | 84,488 | 83,099 | 72,798 | 1.7 | 14.2 | |||||||||||||||
Excess Capital in relation to Minimum Capital Required | 45,302 | 42,045 | 47,148 | 7.7 | (10.8 | ) | ||||||||||||||
Risk weighted assets (RWA) | 768,075 | 755,441 | 661,797 | 1.7 | 14.1 |
(In millions of R$) | (%) | |||||||||||||||||||
As of December 31, | ||||||||||||||||||||
Prudential | ||||||||||||||||||||
Conglomerate | Financial Conglomerate | Variation | ||||||||||||||||||
Capital Composition | 2015 | 2014 | 2013 | 2015-2014 | 2014-2013 | |||||||||||||||
Tier 1 Capital(1) | 101,001 | 96,232 | 87,409 | 5.0 | 10.1 | |||||||||||||||
Common Equity Tier 1 Capital(2) | 100,955 | 96,212 | 87,409 | 4.9 | 10.1 | |||||||||||||||
Additional Tier 1 Capital(3) | 46 | 20 | - | 129.9 | - | |||||||||||||||
Tier 2 Capital(4) | 27,464 | 33,559 | 37,734 | (18.2 | ) | (11.1 | ) | |||||||||||||
Regulatory Capital | 128,465 | 129,790 | 125,144 | (1.0 | ) | 3.7 | ||||||||||||||
Minimum Required Regulatory Capital | 79,471 | 84,488 | 83,099 | (5.9 | ) | 1.7 | ||||||||||||||
Excess Capital in relation to Minimum Required Regulatory Capital | 48,994 | 45,302 | 42,045 | 8.1 | 7.7 | |||||||||||||||
Risk weighted assets (RWA) | 722,468 | 768,075 | 755,441 | (5.9 | ) | 1.7 |
(1) | Comprised of the Common Equity Tier 1 Capital, as well as the Additional Tier 1 Capital. |
(2) |
(3) | Comprised of |
(4) | Comprised of |
Our BIS ratio (calculated as the ratio between ourPatrimônio deReferência(PR) or Total Regulatory Capital and the total amount of RWA) atthe financialat the prudential conglomerate level reached 16.9%17.8%, on December 31, 2014,2015, an increase compared to December 31, 2013,2014, at the financial conglomerate, mainly explained due to an increase in PR which exceeded the growtha decrease in RWA. Our BIS ratio on December 31, 20142015 consisted of 12.5%14.0% of Common Equity Tier 1 Capital and 4.4%3.8% of Tier 2 Capital.
(%) | ||||||||||||
CAPITAL RATIOS | AS OF DECEMBER 31, | |||||||||||
(FINANCIAL CONGLOMERATE) | 2014 | 2013 | 2012 | |||||||||
BIS ratio | 16.9 | 16.6 | 18.1 | |||||||||
Tier 1 Capital | 12.5 | 11.6 | 12.0 | |||||||||
Common Equity Tier 1 | 12.5 | 11.6 | 0.0 | |||||||||
Additional Tier 1 Capital | 0.0 | 0.0 | ||||||||||
Tier 2 Capital | 4.4 | 5.0 | 6.1 |
Our TotalRegulatory Capital, Tier 1 Capital and Common Equity Tier 1 Capital ratios were calculated on a consolidated basis, applied to the financial institutions included in our Financial Conglomerate, up to December 31, 2014. BeginningFrom January 1, 2015, instead of calculating ratios for our Financial Conglomerate we shall be required to calculate themcalculated at the consolidated enterprisePrudential Conglomerate level, which is comprised of not only financial institutions but also collective financing plans ((“consórcios”), payment entities, factoring companies or companies that directly or indirectly assume credit risk, and investment funds in which our Itaú Unibanco Group retains substantially all risks and rewards.
Please refer to section Our Risk Management, item Regulatory Environment, Implementation of Basel III in Brazil, for further details about minimum capital ratios.
CMN and Central Bank standards also provide for the Additional Tier 1 Capital, which corresponds to conservation (fixed) and countercyclical (variable) buffers by increasing capital requirements over time, and define new requirements to qualify instruments eligible for Tier 1 or Tier 2 Capital. Additionally, these standards establish a gradual reduction of eligibility with respect to securities outstanding issued pursuant to CMN Resolution No. 3,444.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 33 – Regulatory Capital for further details about regulatory capital.
(%) | ||||||||||||
As of December 31, | ||||||||||||
Prudential | Financial Conglomerate | |||||||||||
Capital Ratios | 2015 | 2014 | 2013 | |||||||||
BIS ratio | 17.8 | 16.9 | 16.6 | |||||||||
Tier 1 Capital | 14.0 | 12.5 | 11.6 | |||||||||
Common Equity Tier 1 Capital | 14.0 | 12.5 | 11.6 | |||||||||
Additional Tier 1 Capital | - | - | - | |||||||||
Tier 2 Capital | 3.8 | 4.4 | 5.0 |
Please refer to section Our Risk Management, item Regulatory Environment, Basel III Framework, Implementation of Basel III in Brazil.
Money Laundering Prevention
With the purpose ofFinancial institutions play a key role in preventing and combating illegal activities, amongfighting illicit acts, which areincludes money laundering, corruption, terrorism financing and fraud, we adopted anti-money laundering measures, as well as rulesfraud.
The challenge is to identify and proceduresprevent increasingly sophisticated operations that seek to preventconceal the usesource, ownership and transfer of our productsgoods and services inassets, derived from illegal transactions. We haveactivities.
Itaú Unibanco established a corporate policy aimed at preventing, detectingto prevent its involvement in illicit activities, protecting its reputation and reporting illegal activitiesimage among employees, customers, strategic partners, suppliers, service providers, regulators and basedthe society, through a governance structure focused on this policy, each business unit implementstransparency, strict compliance with the rules and regulations and cooperation with police and judicial authorities. It also continuously seeks to align itself with the local and international best practices to prevent and fight illicit acts, through investments and training its own anti-money laundering policies, which include prior risk assessment of money laundering activities and terrorism financing in new products, electronic monitoring of transactions to detect money laundering attempts, as well as online screening of lists of international restrictionsemployees on new accounts.ongoing basis.
We haveIn order to be compliant with the corporate policy guidelines, Itaú Unibanco established a program for the prevention, detectionto prevent and reporting of illegal activities, based onfight illicit acts, which includes the following pillars:
Our risk management | A-95 |
Annual Report2015 |
This program is applicable to all of Itaú Unibanco Group, including our subsidiaries and affiliated companiesits controlled entities in Brazil and abroad. The oversight of prevention and detection of illegal activities is carried out by the Board of Directors, the Audit Committee, the Superior AuditCompliance and Operational Risk Management Committee, (CSAGRO), the Internal Operational Risk Sectorial Committees (CSR)Committee, and the MoneyAnti-Money Laundering Prevention Committee.
Please refer to section Our Risk Management, item Regulatory Environment for further details about money laundering regulation and towww.itau.com.br/_arquivosestaticos/RI/pdf/en/PREVENTION_AGAINST_ILLICIT_ACT_RI2013.pdf,PREVENTION_AGAINST_ILLICIT_ACT_ RI2013.pdf, for furthermore detailsabout our Corporate Policy for theIllicit Acts Prevention and Fight Against Illegal Activities.Combat Corporate Policy.
Politically Exposed Persons
Our commitment to the compliance with applicable law and to the adoption of the best practices for prevention and detection of money laundering activity is also reflected in the identification, assessment and monitoring of politically exposed persons, or PEPs, whether as individuals or entities.
PursuantAs per our policies related to our policiesPEPs, we apply enhanced due diligence with respect to PEPs, only directorsthese customers and we require a higher level of sales haveapproval (at a minimum at the authoritydirector level), prior to approve the beginning of a businessestablishing any relationship with a politically exposed person.such PEPs.
Please refer to section Our Risk Management, item Regulatory Environment for further details about politically exposed persons.
“In 2014, we intensified our focus on initiatives with respect to customer satisfaction, such as a dialogue with consumer protection associations. In addition, with our business units, we implemented improvements identified by our Ombudsman and by customer feedback, having engaged in a preventive analysis of new products”.
Claudia Politanski
Itaú Unibanco’s Executive Vice President – Legal and Ombudsman Office in2014 and Legal, Institutional & People starting in 2015
Regulatory Environmentenvironment
We are subject to regulation by, and supervision of, several entities, in accordance with the countries and segments in which we operate. The supervisory activities of these entities are essential to the structure of our business, and they directly impact our growth strategies. Below we describe the main entities that regulate and supervise our activities in Brazil:
Outside of Brazil, we have main operations subject to oversight by local regulatory authorities in the following jurisdictions: South America, in particular Argentina, Colombia, Chile, Uruguay and Paraguay; Europe, in particular United Kingdom and Switzerland; Central America and the Caribbean, in particular Bahamas and Cayman Islands; and the United States of America.
Financial institutions are subject to a number of regulatory requirements and restrictions, among which the following are noteworthy:
Our risk management | A-96 |
Annual Report2015 |
Basel III Framework
The Basel III framework increases minimum capital requirements and creates new conservation and countercyclical buffers, changes risk-based capital measures, and introduces a new leverage limit and new liquidity standards.standards in comparison to the former framework. The new rules will be phased in gradually and each country is expected to adopt such recommendations in laws or regulations applicable to local financial institutions.
The Basel III framework requires banks to maintain minimum capital levels corresponding to the following percentages of risk-weighted assets: (i) a minimum common equity capital ratio of 4.5%, composed of common shares; (ii) a minimum Tier 1 Capital ratio of 6.0%; and (iii) a minimum total capital ratio of 8.0%. In addition to the minimum capital requirements, Basel III requires a “capital conservation buffer” of 2.5% and each national regulator is given discretion to institute a “countercyclical buffer” if it perceives a greater system-wide risk to the banking system as the result of a build-up of excess credit growth in its jurisdiction. Basel III also introduces a new leverage ratio, defined as Tier 1 Capital divided by the bank’s total exposure.
Basel III implemented a liquidity coverage ratio, or LCR, and a net stable funding ratio, or NSFR. The LCR requires affected banks to maintain sufficient high-quality liquid assets to cover the net cash outflows that could occur under a potential liquidity disruption scenario over a thirty-day period. The NFSR establishes a minimum amount of stable sources of funding that banks will be required to maintain based on the liquidity profile of the banks’ assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments over a one-year period.
Additional requirements apply to non-common equity Tier 1 Capital or Tier 2 Capital instruments issued by internationally active banks. To be included in Additional Tier 1 Capital or Tier 2 Capital, an instrument must contain a provision that requires that, at the discretion of the relevant authority, such instrument be either written-off or converted into common shares upon a “trigger event.” A “trigger event” is the decision of a competent authority pursuant to which, for a bank to remain a feasible financial institution, it is necessary: (i) to write-off an instrument, or (ii) to inject government funds, or equivalent support, into such bank, whichever occurs first. The requirements are applicable to all instruments issued after January 1, 2013. The instruments qualified as capital issued before that date that do not comply with these requirements will be phased out of banks’ capital over a ten-year period, beginning on January 1, 2013.
Additional regulatory capital requirements apply to systemically important financial institutions, or G-SIFIs. The Basel Committee’s assessment methodology to determine which financial institutions are G-SIFIs is based on indicators that reflect the following aspects of G-SIFIs: (i) size; (ii) interconnectedness; (iii) lack of readily available substitute or financial institution infrastructure for the services provided; (iv) global or cross-jurisdictional activity; and (v) complexity, each of these factors receiving an equal weight of 20.0% in the assessment.
The Basel Committee has also issued a framework for the regulation of domestic systemically important banks, or D-SIBs, which supplements the G-SIFI framework by focusing on the impact that the distress or failure of systemically important banks would have on the domestic economy of each country.
Implementation of Basel III in Brazil
Law No. 12,838 of July 9, 2013 adapted financial bills (letrasfinanceiras) to the Basel III framework and granted the CentralBank power to limit the payment of dividends and interest on capital by financial institutions that do not comply with the CMN capital requirements. With the changes enacted by Law No. 12,838, Brazilian financial institutions will likely issue Basel III-compliant hybrid or subordinated debt instruments under the regulatory framework of financial bills. The main characteristics of financial bills changed by Law No. 12,838 are:
CMN and the Central Bank have issued several rules which detail the implementation of the Basel III framework in Brazil.
Brazilian banks’ minimum total capital ratio is calculated as the sum of the following threetwo components:
• | Regulatory |
• | Additional Core Capital (adicional de capital principal). |
Brazilian banks’ regulatory capital continues to beRegulatory Capital is comprised of Tier 1 Capital and Tier 2 Capital.TierCapital. Tier 1 Capital is further divided into two portions: Common Equity Tier 1 Capital (common equity capital and profit reserves, orcapital principal) and Additional Tier 1 Capital (hybrid debt and equity instrumentsequityinstruments authorized by the Central Bank, orcapital complementar).
In order to qualify as Additional Tier 1 Capital or Tier 2 Capital, all instruments issued after October 1, 2013 by a Brazilian bank must contain loss-absorbency provisions, including a requirement that such instruments to be automatically written off or converted tointo equity upon a “trigger event“. A “trigger event” is the earlier of: (i) Common Equity Tier 1 Capital being less than 5.125% of the risk-weighted assets for Additional Tier 1 Capital instruments and 4.5% for Tier 2 Capital instruments; (ii) the execution of a firm irrevocable written agreement for the government to inject capital in the financial institution; (iii) the Central Bank declaring the beginning of a special administration regime (Regime de AdministraçãoEspecial Temporária, or RAET) or intervention in the financialinstitution; financial institution;or (iv) a decision by the Central Bank, according to criteria established by the CMN, that the write-off or conversion of the instrument is necessary to maintain the bank as a viable financial institution and to mitigate relevant risks to the Brazilian financial system. Specific procedures and criteria for the conversion of shares and the write-off of outstanding debt related to funding instruments eligible to qualify as regulatory capital are established by CMN regulation.
Existing hybrid instruments and subordinated debt previously approved by the Central Bank as eligible capital instruments may continue to qualify as Additional Tier 1 Capital or Tier 2 Capital, as
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Annual Report2015 |
the case may be, provided that they comply with the above requirements and a new authorization from the Central Bank is obtained. Instruments that do not comply with these requirements will be phased out as eligible capital instruments by deducting 10.0% of their book value per year from the amount that qualifies as Additional Tier 1 Capital or Tier 2 Capital. The first deduction occurred on October 1, 2013, and subsequent deductions will take place annually starting January 1, 2014 until January 1, 2022.
The CMN establishedAdditional Core Capital requirement is subdivided into three elements: the capital conservation and countercyclical capital buffers for Brazilian financial institutions throughbuffer (Adicional de CapitalPrincipal Conservação), the establishment of Additional Core Capitalcountercyclicalcapital buffer (Adicional de Capital PrincipalContracíclico) requirements.and the higher loss absorbencyrequirement for domestic systemically important banks (Adicional de Capital PrincipalSistêmico). The Additional Core Capital required willbe determinedcapital conservation buffer isaimed at increasing the loss absorption ability of financial institutions. The countercyclical capital buffer can be imposed within a range by the Central Bank within a range predefined byif it judges that credit growth is increasing systematic risk. The higher loss absorbency requirement for domestic systemically important banks seeks to address the CMN:impact that the minimum requirement set bydistress or failure of Brazilian banks may have on the CMN corresponds to the capital conservation buffer and any additional amount required by the Central Bank will correspond to the countercyclical capital buffer. No countercyclical capital buffer will be required in Brazil when the Additional Core Capital requirement is phased-in on January 1, 2016.local economy. In the event of non-compliance with thisthe Additional Core Capital requirement, certain restrictions will apply, including the inability of the financial institution to: (i) pay officers and directors their share of variable compensation; (ii) distribute dividends and interest on equity to shareholders;stockholders; and (iii) repurchase its own shares and effect reductions in its share capital.
Beginning onFrom October 1, 2015, a minimum LCR in a standardized liquidity stress scenario will beis required for banks with total assets in excess of R$100 billion, individually or at the consolidated enterprise level (conglomerado prudencial), as the case may be. The calculation of the LCR follows the methodology set forth by the Central Bank which is aligned with the international guidelines. During periods of increased need for liquidity, banks may report a lower LCR than the minimum required ratio, provided that they also report to the Central Bank the causes for not meeting the minimum requirement, the contingent sources of liquidity it has available, and the measures it plans to adopt to be in compliance with the LCR requirement. Banks will also be required to effect public disclosures of their LCR on a quarterly basis after April 1, 2016.
The following table presents the schedule for phased-in implementation by the Central Bank of the capital adequacy and liquidity coverage ratio requirements under Basel III.III, as applicable to Itaú Unibanco Holding. The figures presented below refer to the percentage of the financial institution’sour risk-weighted assets.
(%) | ||||||||||||||||||||||||||||
FROM OCTOBER 1, | FROM JANUARY 1, | |||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||||||
Common equity Tier 1 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | |||||||||||||||||||||
Tier 1 Capital | 5.5 | 5.5 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | |||||||||||||||||||||
Total regulatory capital | 11.0 | 11.0 | 11.0 | 9.875 | 9.25 | 8.625 | 8.0 | |||||||||||||||||||||
Capital conservation buffer | - | - | - | 0.625 | 1.25 | 1.875 | 2.5 | |||||||||||||||||||||
Countercyclical capital buffer | - | - | - | Up to 0.625 | Up to 1.25 | Up to 1.875 | Up to 2.5 | |||||||||||||||||||||
Liquidity coverage ratio | 60 | (1) | 70 | 80 | 90 | 100 |
(1) From October 1, 2015.
(%) | ||||||||||||||||||||
From January 1, | ||||||||||||||||||||
Basel III – Schedule | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
Common equity Tier 1 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | |||||||||||||||
Tier 1 Capital | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | |||||||||||||||
Total regulatory capital | 11.0 | 9.875 | 9.25 | 8.625 | 8.0 | |||||||||||||||
Additional common equity Tier 1 (ACP) | - | 0.625 | 1.5 | 2.375 | 3.5 | |||||||||||||||
Capital conservation buffer | - | 0.625 | 1.25 | 1.875 | 2.5 | |||||||||||||||
Countercyclical capital buffer(1) | - | - | - | - | - | |||||||||||||||
Systemic | - | - | 0.25 | 0.5 | 1.0 | |||||||||||||||
Common equity Tier 1 + ACP | 4.5 | 5.1 | 6.0 | 6.9 | 8.0 | |||||||||||||||
Total regulatory capital + ACP | 11.0 | 10.5 | 10.8 | 11.0 | 11.5 | |||||||||||||||
Prudential adjustments deductions | 40 | 60 | 80 | 100 | 100 |
(1) | According to Circular No. 3.769 of Central Bank, the ACP countercyclical requirement is zero. |
The Central Bank has also established the calculation methodology for the leverage ratio. However, it has not yet determined a minimum ratio. Banks will beare required to prepare public disclosures of their leverage ratios on a quarterly basis after October 1, 2015.
The Central Bank has adopted the same indicators set out by the Basel Committee to determine if Brazilian financial institutions qualify as G-SIFIs, which include: (i) size; (ii) interconnectedness; (iii) lack of readily available substitute or financial institution infrastructure for the services provided; (iv) global or cross-jurisdictional activity; and (v) complexity, with each of these factors receiving an equal weight of 20.0% in the assessment. This assessment should be carried out by banks with Total Exposure – the denominator for the leverage ratio – in excess of R$ 500 billion, individually or at the consolidated enterprise level (conglomeradoprudencial), as the case may be. However, no additional lossabsorbency requirements for Brazilian G-SIFIs has been established.
CMN regulation also defines the entities that compose the consolidated enterprise level (conglomerado prudencial) of a Brazilian financial institution, and establishes the requirement that a financial institution prepare and file with the Central Bank monthly consolidated financial statements at the consolidated enterprise level as(conglomerado prudencial) pursuant to the parameters defined therein. Such financial statements should also be audited by external auditors on a semi-annual basis. As of January 1, 2015, minimum capital and ratio requirements apply at the consolidated enterprise level (conglomerado prudencial).
In addition to the resolutions and circular letters issued in accordance with the criteria set forth in Basel III, in July, 2013, Law No. 12,838 was issued, allowing the determination of deemed credit based on tax credits arising from temporary differences resulting from allowances for loan losses, which, in practice, exempts financial institutions from deducting this type of credit from its core capital. The law also changes the rules for the issue of financial bills, allowing for the inclusion of clauses for the suspension of the stipulated compensation and the termination of the credit right or its conversion into shares, and conditions stockholders’ remuneration to compliance with the prudential requirements established by the CMN.
The CMN requires Brazilian financial institutions are also required to implement a capital management structure compatible with the nature of its transactions, the complexity of the products and services it offers, as well as with the extent of its exposure to risks. Capital management is defined as a process that includes: (i) monitoring and controlling the financial institution’s capital; (ii) assessing capital needs in light of the risks to which the financial institution is subject; and (iii) setting goals and conducting capital planning in order to meet capital needs due to changes in market conditions. Financial institutions should publish a report describing the structure of their capital management at least on
Our risk management | A-98 |
Annual Report2015 |
an annual basis. Disclosure and reporting of risk management matters, risk-weighted asset calculation, and adequate compliance with regulatory capital requirements are regulated by the Central Bank and reflect the so-called “Pillar 3” of regulatory capital recommended under Basel III, aimed at improving governance and disclosure.
Implementation of Basel IIIG-SIFI assessment in Brazil — Expected Future Rules
The Central Bank has adopted the same indicators set out by the Basel Committee to determine if Brazilian financial institutions qualify as global systemically important financial institutions, or G-SIFIs, which include: (i) size; (ii) interconnectedness; (iii) lack of readily available substitute or financial institution infrastructure for the services provided; (iv) global or cross-jurisdictional activity; and the CMN are also expected to issue regulations(v) complexity, with each of these factors receiving an equal weight of 20.0% in the near future onassessment. This assessment should be carried out by banks with total exposure – the assessment methodologydenominator for the leverage ratio – in excess of R$500 billion, individually or at the additionalconsolidated enterprise level (conglomeradoprudencial), as the case may be. However, noadditional loss absorbency requirements for D-SIBsBrazilian G-SIFIs have been established. We were not included on the latest list of G-SIFIs issued on November 3, 2015. The next update is expected in Brazil.November 2016.
Foreign Currency Transactions and Exposure
Transactions involving the sale and purchase of foreign currency in Brazil may only be conducted by institutions authorized to do so by the Central Bank. There are no limits for long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. The compulsory deposit requirement rate on the foreign currency short position held by financial institutions is currently 0%.
In accordance with CMN regulation, financial institutions in Brazil may raise funds abroad, either through direct loans or through the issuance of debt securities. Funds raised accordingly may be freely invested in Brazil, including but not limited to on-lending to Brazilian companies and financial institutions. Brazilian banks authorized to operate in foreign currency markets which hold regulatory capital higher than R$5 billion may also use these funds to grant loans abroad to Brazilian companies, their offshore subsidiaries and to foreign companies controlled by Brazilians or to acquire securities issued or guaranteed by such companies in the primary market. Cross-border loans, in which one party is in Brazil and the other party is abroad, require previous registration with the Central Bank, which may establish limits on the conditions of such foreign currency loan transactions. Please refer to item Taxation for further details about tax on foreign exchange transactions.
Financial institutions may also grant loans in or indexed to a foreign currency to their clients’ trade-related activities, such as by granting advances on foreign exchange contracts (Adiantamento sobre Contratode Câmbio), advances on delivered comercial papers (Adiantamento sobre Cambiais Entregues) or export or import prepayment agreements
(agreements(Pré-Pagamento de Exportação e Financiamento à Importação), all in accordance with Brazilian regulations on foreign exchange markets and international capital flows.
The Central Bank and the Brazilian government frequently change rules and regulations applicable to foreign currency borrowing and loans in accordance with the economic scenario and Brazilian monetary policy.
Beside legislation sets forth that the total exposure in gold and other assets and liabilities indexed or linked to the foreign exchange rate variation undertaken by financial institutions (including their offshore branches), and their direct and indirect subsidiaries, on a consolidated basis, may not exceed 30.0% of their regulatory capital.
Liquidity and Fixed Assets Investment Regime
In accordance with CMN regulation, financial institutions may not hold, on a consolidated basis, permanent assets, including investments in unconsolidated subsidiaries, real estate, equipment and intangible assets, exceeding 50.0% of the adjusted regulatory capital.
Lending Limits
Furthermore, we are legally prevented from granting loans or advances, and guarantees, entering into derivative transactions, underwriting or holding in our investment portfolio securities of any clients or group of affiliated clients that, in the aggregate, give rise to exposure to such client or group of affiliated clients that exceeds 25.0% of our regulatory capital.
Credit Exposure Limits
For the purpose of this limit, the following public sector entities are to be considered as separate customers: (i) the Brazilian government, (ii) an entity controlled directly or indirectly by the Brazilian government which is not financially dependent on another entity controlled directly or indirectly by the Brazilian government, (iii) entities controlled directly or indirectly by the Brazilian government which are financially dependent among themselves, (iv) a State or the Federal District, jointly with all entities directly or indirectly controlled by it, and (v) a municipal district, jointly with all entities directly or indirectly controlled by it.
Registration and Centralized Deposit of Financial Assets
On January 8, 2015, the Central Bank issued Circular No. 3,743, which regulates the registration and deposit of financial assets in Brazil, as well as the registration of encumbrances/liens on deposited assets. The regulation aims to facilitate the control and registration of financial assets.
Risk Weighted Asset Calculation
On December 17, 2014, the Central Bank issued Circular No. 3,739, which provided certain modifications for theThe calculation of risk weighted assets, in relation to the required capital for a standardized approach of Risk-Weighted Assets for Operational Risk (RWAOPAD).
The regulations established rules for calculating the RWAOPAD of institutions that are part of “consolidated enterprise levels” (conglomeradoprudencial). These calculations, in accordance with the rules, are to usethe data from the semesters in which consolidated financial statements from the consolidated enterprise levels are required.
Compulsory deposit requirements
In 2014 the Central Bank amended the regulations applicable to compulsory deposit requirement. The amendments enactedexposure is based on several factors set forth by the Central Bank aim at increasingregulations and impacts the liquidity incapital requirements. The components take into consideration the Brazilian economytype of risk and include the parameters and procedures for calculation of the risk weighted asset (RWA) to determine the capital requirements resulting from each
Our risk management | A-99 |
Annual Report2015 |
risk exposure. The Central Bank has been frequently changing and updating the rules and regulations for calculation of RWA.
Financial Bills
Law No. 12,838 of July 9, 2013 adapted financial bills (letras financeiras) to the Basel III framework and granted the Central Bank power to limit the payment of dividends and interest on capital by increasingfinancial institutions that do not comply with the deductions thatCMN capital requirements. With the changes enacted by Law No. 12,838, Brazilian financial institutions may use forwill likely issue Basel III-compliant hybrid or subordinated debt instruments under the purposesregulatory framework of calculating the amountfinancial bills. The main characteristics of their compulsory deposits requirements.financial bills changed by Law No. 12,838 are:
In January 2015,system, the Central Bank enactedmay determine that financial bills be converted into equity or writen-off. These determinations will not be considered a new regulation pursuant to which financial institutions may reduce their compulsory deposit requirements on demand depositsdefault by the outstanding balance of financings that meet certain criteria.
Socio-Environmental Responsibility Policy
On April, 28, 2014, the CMN enacted a new regulation establishing the guidelines for the implementation of a socio-environmental responsibility policy applicable to financial institutions (the Responsibility Policy). The Responsibility Policy must take into account the level of exposure of the activities of the financial institution to socio-environmental risks and be compatible with the nature of the financial institution and will not accelerate the complexitymaturity of its activities, servicesother debts; and products.
The Responsibility Policy must guide
Financial institutions are required to have a Responsibility Policy and an action plan to guide its implementation in place by 2015. Our Responsibility Policy and action plan were approved by our Board of Directors in October 2014 and published internally in November 2014.
Anti-Corruption Law
In January 2014, a new Brazilian anti-corruption law came into force which establishes that legal entities will have strict liability (regardless of fault or willful misconduct) if they are involved in any form of bribery. Although known as an anti-corruption law, it also encompasses other injurious acts contrary to the Brazilian or foreign public administration including bid rigging and obstruction of justice. The law provides for heavy penalties, both through administrative and judicial proceedings including determination of dissolution of a company, prohibition to undertake financing with public entities and prohibition to participate in
public biddings.
public biddings. TheIn addition, the law authorizes however, the public administrative authorities responsible for the investigation to enter into leniency agreements. The self-disclosure of violations and cooperation by legal entities may result in the reduction of fines and other sanctions as determined by the new federal regulation issued in March 2015. Also, on December 2015, the Brazilian government enacted Provisional Measure No. 703 (MP 703) amending the rules applicable to leniency agreements. MP 703 authorizes the federal, state, and local governments, severally or jointly with the Prosecutor’s Office or the General Attorney, to enter into leniency agreements. In addition, MP 703 provides more details as to the procedure to execute such agreements. The definitive conversion into law of MP 703 still needs to be approved by the Brazilian Congress and, subsequently, sanctioned by the President.
The new regulation also provides parameters for the application of the anti-corruption law including with respect to penalties and compliance programs. Please refer towww.itau.com.br/_arquivosestaticos/RI/pdf/en/POLITICA_CORPORATIVA_DE_PREVENCAO_A_CORRUPCAO_ENGL. pdf forPOLITICA_CORPORATIVA_DE_PREVENCAO_A_CORRUPCAO_ENGL.pdf from which you can electronically access further details about our Bribery Prevention Corporate Policy. As of 2014, the workforce's target segment had attended corruption prevention modules as part of training programs.
Loans and Advances to Related Parties
Brazilian regulation sets forth that financial institutions are not allowed to grant loans, advances or guarantees to certain individuals and entities related to them, including:
Compensation of Directors and Officers of Financial Institutions
Compensation policies applicableAccording to management of financial institutions, particularly the rules on variable compensation, are regulatedset forth by the CMN.
CMN, Brazilian financial Institutions are required to have a compensation policy. If variable compensation is to be paid to management, at least 50% of the total compensation should be paid in shares or share-based instruments and at least 40% of the total compensation should be deferred for future payment for at least three years. If the institution records a significant decrease in the realized recurring profit or a negative result during the deferral period, the deferred and unpaid portions of the compensation should be reversed proportionally to the decrease in result, in order to minimize the loss incurred by the financial institutions and their stockholders (claw back).stockholders.
Our compensation policy, applicable to directors and officers in Brazil (major part of the management population of the Itaú Unibanco Group), complies with BrazilianCMN’s regulatory requirements and ourrequirements. Our compensation principles and practices of seekingworldwide are compliant with each local regulation and seek to increase alignment between the interests of our stockholders and our management.
For further information, see section Our Governance, item Corporate Governance, Directors’ and Senior Management’s Compensation.
Antitrust Regulation
The Brazilian Antitrust Law sets forth that transactions resulting in economic concentration should be previously submitted for approval to CADE, the Brazilian antitrust regulator, provided that they meet the following criteria: (i) the economic group of any of the parties to a transaction recorded, in the fiscal year prior to that of the transaction, minimum gross revenues of R$750 million; and (ii) at least one of the other economic groups involved in the transaction recorded, for the same time period, minimum gross revenues of R$75 million. The closing of a transaction before CADE’s approval subjects the parties to fines ranging from R$60,000 to R$60 million, the annulment of the relevant agreement and potential administrative proceedings.
Financial conglomerates shall submit transactions in various industries to CADE’s approval. Additionally, Circular No. 3,590/122012 of Central Bank
Our risk management | A-100 |
Annual Report2015 |
requires submission of concentration acts involving two or more financial institutions to the Central Bank’s approval in the following cases: (i) acquisition of corporate control, (ii) merger, (iii) acquisition or (iv) transfer of the business to another financial institution, and (v) another transactions that lead institutions to increase market share in the market segments which operates.
With respect to the conflict of jurisdiction to review and approve concentration acts involving financial institutions, the matter remains undefined, and the uncertainty around whether the CADE or the Central Bank should review and approve concentration acts involving financial institutions has resulted in financial institutions submitting for approval all concentration acts in the banking sector not only to the Central Bank but also to CADE.
Please refer to www.itau.com.br/_arquivosestaticos/RI/pdf/en/ANTITRUST_CORPORATE_POLICY_RI_2015.pdf for further details about our Antitrust Corporate Policy.
Treatment of Past Due Debts
Brazilian financial institutions are required to classify their credit transactions (including leasing transactions and other transactions characterized as credit advances) at different levels and recognize provisions according to the level attributed to each such transaction. The classification is based on the financial condition of the clients the terms and conditions of the transaction and the period of time during which the transaction is past due, if any. For purposes of Central Bank requirements, transactions are classified as level AA, A, B, C, D, E, F, G or H, with AA being the highest classification. Credit classifications must be reviewed on a monthly basis and, apart from additional provisions required by the Central Bank which are deemed necessary by the management of financial institutions, each level has a specific allowance percentage that is applied to it and which we use to calculate our allowance for loan losses, as specified in more detail in the table below:
CLASSIFICATION(1) | AA | A | B | C | D | E | F | G | H | |||||||||||||||||||||||||||
Allowance (%) | 0 | 0.5 | 1 | 3 | 10 | 30 | 50 | 70 | 100 | |||||||||||||||||||||||||||
Past due (in days) | - | - | 15 to 30 | 31 to 60 | 61 to 90 | 91 to 120 | 121 to 150 | 151 to 180 | Over 180 |
(1) Our credit classification also takes into account the client´s credit profile, which may negatively impact the past due classification.
Classification(1) | AA | A | B | C | D | E | F | G | H | |||||||||
Allowance (%) | 0 | 0.5 | 1 | 3 | 10 | 30 | 50 | 70 | 100 | |||||||||
Past due (in days) | - | - | 15 to 30 | 31 to 60 | 61 to 90 | 91 to 120 | 121 to 150 | 151 to 180 | Over 180 |
(1) | Our credit classification also takes into account the client´s credit profile, which may negatively impact the past due classification. |
Under IFRS, the allowance for loan losses is based on our internally developed incurred loss models, which calculate the allowance for loan losses by multiplying the probability of default by the clients or counterparty (PD) by the potential for recovery on defaulted credits (LGD) for each transaction, as described in Note 2.4(g) VIII to our consolidated financial statements under IFRS. The risk levels are categorized as “lower risk,” “satisfactory,”risk”, “satisfactory”, “higher risk,”risk”, and “impaired” based on the probability of default, following an internal scaling, as set out in Note 36 to our consolidated financial statements under IFRS.
Bank Insolvencyinsolvency
The insolvency of financial institutions is handled pursuant to applicable laws and regulations by the Central Bank, which initiates and monitors all applicable administrative proceedings. There are three types of special regimes that may be imposed to financial institutions (private or public, but not federal) or similar institutions: (i) temporary special administration regime (RAET), (ii) intervention, and (iii) extrajudicial liquidation. Financial institutions may also be subject to the bankruptcy regime.
In the course of the special regimes described below, the steering committee, the intervenor, and the liquidator may, when authorized by the Central Bank: (i) dispose of assets and rights of the financial institution to third parties and (ii) proceed with corporate restructuring processes in the financial institution or its subsidiaries, among other possible measures of similar effect.
RAET
The RAET is a less severe special regime which allows financial institutions to continue to operate. Its main effect is that directors lose their offices and are replaced by a steering committee appointed by the Central Bank with broad management powers. Its duration is limited and its main objective is the adoption of measures aimed at the resumption of the financial institution’s regular activities. If resumption is not possible, this regime may be turned into an extrajudicial liquidation.
Intervention
Under this regime, the Central Bank appoints an intervenor that takes charge of the financial institution's management, suspending its regular activities and dismissing the financial institution’s management. In general, the intervention is aimed at preventing the continuation of certain irregularities and the aggravation of the financial situation of the financial institution, which can put assets at risk and harm the financial institution’s creditors. The intervention is also time-limited and may be followed by the resumption of the financial institution’s regular activities or the declaration of extrajudicial liquidation or bankruptcy.
The intervention suspends all actions related to payment obligations of the financial institution, prevents the early settlement or maturity of its obligations and freezes pre-existing deposits.
Extrajudicial Liquidation
Extrajudicial liquidation generally corresponds to the process of dissolution of the company in cases of unrecoverable insolvency or severe violations of the rules that regulate a financial institution’s
Our risk management | A-101 |
Annual Report2015 |
activities. The extrajudicial liquidation aims at promoting the liquidation of the existing assets for the payment of creditors, with the return of any amounts left to shareholders.stockholders. Controlling shareholdersstockholders may be held responsible for remaining liabilities.
The extrajudicial liquidation (i) suspends actions and executions related to the financial institution, (ii) accelerates the maturity of the financial institution’s obligations; and (iii) interrupts the statute of limitations of the financial institution's obligations. In addition, the debt of the estate under liquidation will no longer accrue interest until all obligations to third parties are settled.
Deposit Insurance
In the event of intervention, extrajudicial liquidation or liquidation of a financial institution in a bankruptcy proceeding, the Credit Insurance Fund, or FGC, a deposit insurance system, guarantees the maximum amount of R$250,000 for certain deposits and credit instruments held by an individual, a company or another legal entity with a financial institution (or financial institutions of the same economic group). The resources of the FGC come primarily from mandatory contributions from all Brazilian financial institutions that receive deposits from clients, currently at a monthly rate of 0.0125% of the amount of the balances of accounts corresponding to the obligationsfinancial instruments that are the subject matter of the ordinary guarantee, even if the related credits are not fully covered by FGC, and certain special contributions. Deposits and funds raised abroad are not guaranteed by the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC.
Payment of Creditors in Liquidation
In the event of extrajudicial liquidation of a financial institution or liquidation of a financial institution in a bankruptcy proceeding, the salaries of employees and the related labor claims up to a certain amount, secured credits and tax charges have priority in any claims against the entity in liquidation. The payment of unsecured credits, including deposits from regular retail clients that are not guaranteed by the FGC, is subject to the prior payment of preferred credits. Additionally, upon the payment of the deposits guaranteed by the FGC, the FGC becomes an unsecured creditor of the estate in liquidation.
Insurance Regulation
With governmental approval, insurance companies in Brazil may offer all types of insurance, except for workers’ compensation insurance, directly to clients or through qualified brokers.
Insurance companies must set aside reserves to be invested in specific types of securities. As a result, insurance companies are among the main investors in the Brazilian securities market and subject to CMN regulations regarding the investment of technical reserves.
In the event an insurance company is declared bankrupt, the insurance company will be subject to a special procedure administered by SUSEP or by ANS. If an insurance company is declared bankrupt and (i) its assets are not sufficient to guarantee at least half of the unsecured credits or (ii) procedures relating to acts that may be considered bankruptcy-related crimes are in place, the insurance company will be subject to ordinary bankruptcy procedures.
There is currently no restriction on foreign investments in insurance companies in Brazil.
Brazilian legislation establishes that insurance companies must buy reinsurance to the extent their liabilities exceed their technical limits under the rules of the regulatory body (CNSP and SUSEP), and reinsurance contracts may be entered into through a direct negotiation between the insurance and reinsurance companies or through a reinsurance broker authorized to operate in Brazil.
Insurance companies, until December 31, 2016, when transferring their risks in reinsurance, must transfer 40.0% of each reinsurance cessionfacultative or automatic contract to local reinsurers (companies domiciled in Brazil). From January 1, 2017, this percentage will reduce annually until it reaches 15% in January 1, 2020.
In addition, until December 31, 2016, risk assignment between insurers and reinsurers belonging to the same economic group is currently limited to 20.0% of the premiums pertaining to a given insurance coverage.each facultative or automatic contract.
Anti-Money Laundering Regulation
The Brazilian anti-money laundering law establishes the basic framework to prevent and punish money laundering as a crime.
It prohibits the concealment or dissimulation of origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated from crimes, subjecting the agents of these illegal practices to imprisonment, fortemporary disqualification from managing enterprises up to ten years in addition toand monetary fines.
The Brazilian anti-money laundering law also created the Financial Activities Control Council, or COAF, which is the Brazilian financial intelligence unit that operates under the jurisdiction of the Ministry of Finance. COAF performs a key role in the Brazilian anti-money laundering and counter-terrorism financing system, and its legal responsibility is to coordinate the mechanisms for international cooperation and information exchange.
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In compliance with the Brazilian anti-money laundering law and related regulations enacted by the Central Bank, including the rules applicable to procedures that must be adopted by financial institutions to prevent and combat money laundering and terrorism financing, as well as in response to the recommendation of the Financial Action Task Force – FATF and United Nations Security Council, financial institutions in Brazil must establish internal control and procedures aiming at:
Non-compliance with any of the obligations above subjects the financial institution and its officers to penalties ranging from: (i) formal notice, (ii) fines (from 1.0% to 200.0% of the amount of the transaction, 200.0% of the profit generated thereby, or a fine of up to R$20,000,000), (iii) rendering executive officers ineligible for holding any management position in financial institutions, to (iv) the cancellation of the financial institution’s license to operate.
In August 2013, the Brazilian Association of Banks (FederaçãoBrasileira deBancos, or FEBRABAN) enacted an anti-moneylaunderinganti-money laundering and terrorism financingterrorismfinancing self-regulation. The purpose of the document is to improve the contribution of the Brazilian financial system to the prevention of money laundering and make consistent the practices adopted by all banks, encouraging them to reinforce their preventive procedures.
Politically Exposed Persons (PEPs)
PEPs are public agents who hold or have held a relevant public position, as well as their representatives, family members or other close associates, over the past five years, in Brazil or other countries, territories and foreign jurisdictions. It also includes their legal entities. Financial institutions must develop and implement internal procedures to identify PEPs and obtain special approval from a more senior staff member, such as an officer, than otherwise would be required to approve relationships prior to establishing any relationship with those individuals. They should also adopt reinforced and continuous surveillance actions regarding transactions with PEPs and report all suspicious transactions to COAF.
Portability of Credit Transactions
On December 20, 2013, the CMN enacted a new resolution, which became effective on May 2, 2014, providing for theThe portability of credit transactions defined asis regulated by the Central Bank since 2013. It consists of the transfer of a credit transaction from the original creditor to another institution, at the request of the debtor, maintaining the same outstanding balance and payment conditions. The ruleregulation establishes standard procedures and deadlines for the exchange of information and the mandatory use of an electronic system authorized by the Central Bank for the transfer of funds between financial institutions, prohibiting the use of any alternative procedure to produce the same effects of the portability.
On April 16, 2014, the Central Bank issued a circular letter explaining that the impossibility of alternative procedures for the transfer of credit transactions encompasses the use of any other means,portability, including so-called "debt purchases".
On April 23, 2014, the Brazilian Association of Banks (AssociaçãoBrasileira de Bancos, or ABBC); Brazilian Association of InternationalBanks (Associação Brasileira de Bancos Internacionais, or ABBI); Brazilian Association of Real Estate Loans and Savings Companies (Associação Brasileira das Entidades de Crédito Imobiliário ePoupança, or ABECIP); Brazilian Association of Leasing Companies(Associação Brasileira das Empresas de Leasing, or ABEL); National
Association of Credit Institutions Finance and Investment (Associação Nacional das Instituições de Crédito, Financiamentoe Investimento, or ACREFI); National Association of FinancialCompanies and Automakers (Associação Nacional das EmpresasFinanceiras das Montadoras, or ANEF); and FEBRABAN; defined,together with the Interbank Chamber Clearing House (Câmara Interbancária de Pagamentos, or CIP), the operational proceduresfor compliance with CMN Resolution No. 4,292/2013.
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Rules Governing the Charge of Fees on Banking Fees and Credit Card Operations
Banking fees and credit card operations are extensively regulated by the CMN and the Central Bank. According to Brazilian legislation, we must classify the services we provide to individuals under pre-determined categories and are subject to limitations on the collection of fees for such services.
Brazilian financial institutions are generally not authorized to charge fees from individuals for providing services classified as “essential” with respect to checking and saving accounts, such as supplying debit cards, check books, withdrawals, statements and transfers, among others.
Brazilian legislation also authorizes financial institutions to charge fees related to “priority services”, a standard set of services defined by Central Bank regulation. Financial institutions must offer to their individual clients “standard packages” of priority services. Clients may also choose between these or other packages offered by the financial institution, or to use and pay for services individually instead of selecting a package.
Current rules also authorize financial institutions to charge fees for specific services called “additional services” (serviçosdiferenciados), provided that the account holderaccountholder or user is informed of the use and payment conditions relating to such services, or that fees and collection methods are defined in the contract.
The CMN also establishes rules applicable to credit cards, determining the events that allow for the collection of fees by issuers, as well as the information that must be disclosed in credit card statements and in the credit card agreement. There is also a list of priority services. The rules define two types of credit cards: (i) basic credit cards, with simpler services, without rewards programs and (ii) “special credit cards”, with benefits and reward programs. A minimum of 15% of the total outstanding credit card balance must be paid monthly by credit card holders.
A minimum 30-day prior notice to the public must precede the creation or increase of a fee, whereas fees related to priority services may only be increased 180 days after the date of a previous increase (while the reduction of a fee can take place at any time). With respect to credit cards, a 45-day prior notice to the public is required for any increase or creation of fees, and such fees may only be increased 365 days after a previous increase. The period of 365 days is also subject to changes in the rules applicable to benefit or reward programs.
Payroll Deduction of Credit Card
In 2015, the Brazilian government increased the total payroll deduction limit from 30% to 35% of an individual’s monthly income and authorized the use of payroll deduction to pay credit card bills. 5% of such limit is required to be used exclusively for the payment of credit card bills. This measure results from the conversion of Provisional Measure No. 681 into Law No. 13,172 of October 21, 2015.
Leasing regulation
Although leasing transactions are not classified as credit transactions under Brazilian legislation, the Central Bank regulates and oversees leasing transactions. The parties involved in a leasing transaction are the “lessor” (the bank) and “lessee” (our client). The leased asset, owned by the lessor, is delivered to be used by the lessee until the end of the contract, when the lessee may opt to either acquire or return it to the lessor or renew the contract for a new period.
Brazilian legislation establishes a specific methodology to account for the profits or losses in leasing transactions and all information that should be included in a lease agreement. The guaranteed residual amount paid by a lessee should correspond to a minimum return required for the transaction to be viable for the lessor, whether the purchase option is exercised or not. The laws and regulations applicable to financial institutions, such as those related to reporting requirements, capital adequacy and leverage, assets composition limits and allowance for losses, are also generally applicable to leasing companies.
Correspondent agents
We may engage other entities to provide certain services to our clients, including customer service. These entities are generally called correspondents, and our relationship with correspondents is regulated by the Central Bank. Among other requirements, the Central Bank establishes that by February 24, 2014, employees of all correspondent agents must have applied for the process to hold a technical certification authorizing them to serve customers involved in credit and leasing operations, which must be completed until March 02, 2015.operations.
Banking Secrecysecrecy
Brazilian financial institutions must maintain the secrecy of banking transactions and services provided to their clients. The only circumstances in which information about clients, services or transactions by Brazilian financial institutions or credit card companies may be disclosed to third parties are the following:
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involving funds related to any unlawful activities; and |
Except as permitted under the Brazilian legislation or by judicial order, a breach of bank secrecy is a criminal offense.
Ombudsman
In 2015, the CMN and the Central Bank updated the regulatory framework related to the ombudsman (ouvidoria) structure of the entities subject to Central Bank supervision. The new rules revoke the current applicable framework and give financial institutions until June 30, 2016 to adapt to the new provisions.
The new framework aims at establishing a more effective and transparent ombudsman that is able to provide better assistance to the relevant financial institution’s customers. The ombudsman will have the following responsibilities:
The new framework also sets forth a requirement to record telephone conversations between clients and the ombudsman services.
The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies, as well as be available to the Central Bank for at least five years.
Regulation of the Brazilian Securities Market
According to the Brazilian Corporate Law, a company is considered publicly or closely-held depending on whether the securities issued by it are accepted for trading in the securities market or not. All publicly-held companies, such as ourselves, are registered with the CVM and are subject to information disclosure and reporting requirements.
Please refer to section Our risk management, item Regulatory environment, for further information about the regulation of the Brazilian Securities Market.
Disclosure Requirements
Under CVM rules, publicly traded companies are subject to disclosure requirements and rules governing the use of material information. Any decision that may reasonably influence the price of the securities issued by a publicly-held company or the decision of investors to buy, sell, or hold these securities, is considered material.
The CVM improved the quality of the information that must be presented in periodic filings by securities issuers by requiring such issuers to file a “Reference Form” with the CVM. This form was modeled after IOSCO’s shelf registration system in gathering all of the issuer’s information in a single document.
Asset Management Regulation
The Brazilian asset management regulation requires asset managers to obtain previous registration with the CVM to perform the services of portfolio management and fund administration.
Itaú Unibanco Group provides several services in the capital markets and, in particular, performs activities related to fund administration and portfolio management under CVM registration, according to CVM regulation.
By providing these services, our entities engaged in the asset management business can be held civil and administratively liable for losses arising from either intentional acts or negligence in conducting our activities.
The CVM has regulatory powers to oversee these activities, including to impose fines and other sanctions on registered asset managers.
Funds of foreign investors
On September 29, 2014,In March 2015, a new regulatory framework issued by the CMN issued Resolution No. 4,373/2014, which amended and consolidated all of CMN’s rules applicable tothe CVM became effective regarding (i) foreign investment in the Brazilian financial and capital markets and (ii) depositary receipts. Accordingly, Resolution No. 2,689/2000 (which addressed foreign investments in the Brazilian financial and capital markets) and Resolutions No. 1,289/1987 and 1,927/1992 (which regulated depositary receipts), among others, were revoked.
Pursuant to Resolution No. 4,373/2014, theThe most significant changes in the rules applicable to foreign investment in the Brazilian financial and capital markets introduced by the new regulation are: (i) a requirement that only financial institutions authorized to operate in Brazil may act as legal representatives of non-resident investors in Brazil for purposes of any investments made within the purview of Resolution No. 4,373/2014;such rule; (ii) clarification of requirements regarding simultaneous foreign exchange transactions (without the effective transfer of money) related to foreign investments; and (iii) allowing for funds held inclarification about the types of investments that can be made through a foreign investor account (conta de domiciliado no exterior) maintained at a bank in Brazil to be used for investments denominated in Brazilian currency.Brazil.
The new regulation also amended the rules applicable to depositary receipts, by allowing the issuance of depositary receipts based on (i) any security issued by Brazilian companies registered with the CVM (companhias abertas), in contrast to the previous rules which limited the issuance of depository receipts to equity securities, and (ii) credit instruments issued by financial institutions and other types of institutions registered with the CVM and authorized by the Central Bank, and eligible to be included in the financial institution’s regulatory capital (Patrimônio de Referência).
Resolution No. 4,373/2014 is subject toSome of the implementation of regulations to be issuedchanges implemented by the CVM rules on registry, operations and disclosure of information related to foreign investment in the Central BankBrazilian financial and will become effective on March 30, 2015.capital markets were made to detail the
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activities of legal representatives, to enlarge the scope of non-resident investor´s private transactions and to determine the exceptions of transfer between non-resident investors prohibited by the CMN.
Internet and E-Commerce Regulation
On April, 2014, a new law (Federal Law No. 12,965/2014) establishing the regulatory framework for Internet services was enacted in Brazil. This law sets forth principles and rules to be observed by internet providers and users, including the protection of privacy and personal data and the preservation and safeguard of net neutrality. Also, certain aspects of electronic commerce are regulated, including the validity of electronic documents in Brazil and electronic commerce transactions from the consumer protection standpoint. Current regulation on electronic commerce is intended to: (i) clearly identify the supplier and the product sold on the Internet; (ii) provide an electronic service channel to clients; and (iii) guarantee cancellation and return of Internet orders. With respect to financial products, existing regulation only addresses the product supplier’s obligation to report to the financial institution or credit card administrator that a transaction should not be charged to the consumer or that a charge should be reversed. In addition, computer hacking offenses were criminalized in Brazil in 2012.
In light of the increased use of electronic channels in the Brazilian banking industry, the CMN has enacted a number of resolutions over the past few years in order to provide or establish:
On April 10, 2014 FEBRABAN, Brazilian Federation of Banks issued a regulation on hiring credit through remote channels (such as ATM’s, call center and Internet Banking), setting forth minimum guidelines and procedures to ensure reliability, quality, transparency and efficiency.
Regulation on Payment Agents and Payment Arrangements
A Brazilian law enacted in October 2013 established the legal framework for “payment arrangements” (i.e. the set of rules governing a payment scheme, such as a credit or debit card transaction), and “payment agents” (i.e., any agent that issues a payment instrument or acquirers a merchant for payment acceptance), which became part of the Brazilian Payments System and subject to oversight by the Central Bank. Payment agents, in spite of being regulated by the Central Bank, are not deemed to be financial institutions and are prohibited from engaging in activities that are exclusive of financial institutions.
In November 2013, the CMN and the Central Bank published a set of rules referring to payment arrangements and payment agents, which became effective in May 2014. This regulation establishes: (i) consumer protection and anti-money laundering compliance and loss prevention rules that should be followed by all entities supervised by the Central Bank when acting as payment agents and payment arrangers; (ii) the procedures for the incorporation, organization, authorization and operation of payment agents, as well for the transfer of control, subject to the Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the Brazilian Payments System; (v) payment accounts, which are divided into prepaid and post-paid accounts; and (vi) a liquidity requirement for prepaid accounts that demands the allocation of their balance to a special account at the Central Bank or to be invested in government bonds, starting at 20% in 2014 and raising gradually up to the totality of the total account balance in 2019; among other matters.
In October 2015, a new regulation was published by the Central Bank complementing the previous ones and bringing new rules and concepts, among them: limitations on closed payment arrangements, the concept of domicile institution, obligation of centralized clearing and settlement for the payment arrangements, transparency of the interoperability rules intra-arrangement and between arrangements.
Credit Performance Information
Brazilian law establishes rules for the organization and consultation of databases compiling positive credit history information of individuals and legal entities. On December 20, 2012, theThe Central Bank published Resolution No. 4,172, which regulates the provision of positive credit history information by financial institutions to such databases and the sharing of such information, such provision and sharing being subject to the express request or authorization of the client.
Consumer Protection Code
The Brazilian Consumer Protection Code, or CDC, sets forth consumer defense and protection rules applicable to clients’ relationships with suppliers of products or services. Brazilian higher courts understand that the CDC is also applicable to financial institutions.
The basic consumer rights dealing with financial institutions are as follows:
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is provided with respect to the different products and services offered, with accurate specifications for quantity, characteristics, composition, quality, and price, as well as on any risks such products pose; |
Moreover, the Brazilian Congress is considering enacting new legislation that, if signed into law as currently drafted, could have an adverse effect on us. For example, a proposed law to amend the Brazilian consumer protection code would allow courts to modify terms and conditions of credit agreements in certain circumstances, imposing certain difficulties for the collection of amounts from final consumers. In addition, local or state legislatures may, from time to time consider bills intending to impose security measures and standards for customer services, such as limits in queues and accessibility requirements, that, if signed into law, could affect our operations. More recently, certain bills have passed (and others were proposed) in certain Brazilian states or municipalities that impose, or aim to impose, restrictions on the ability of creditors to include the information about insolvent debtors in the records of credit protection bureaus, which could also adversely affect our ability to collect credit outstanding.
Regulation of Independent Auditors
In accordance with CMN regulation establishing the rules that govern external audit services provided to financial institutions, the financial statements and financial information of financial institutions must be audited by independent auditors who are (i) duly registered with the CVM; (ii) qualified as specialists in audit of banks by the CFC and the IBRACON; and (iii) meet the requirements that ensure auditor independence.
After issuing audit reports for five consecutive fiscal years, the responsible audit partner and all audit team members with management responsibilities must rotate-off and cannot be part of the audit team of such institution beforefor three consecutive fiscal years of being rotated-off.years.
CMN regulation also prohibits the engagement and maintenance of independent auditors by financial institutions in the event that: (i) any of the circumstances of impediment or incompatibility for the provision of audit services provided for in the rules and regulations of the CVM, CFC or IBRACON arise; (ii) ownership of shares of or entering into financial transactions (either asset or liability) with the audited financial institution by the audit firm or members of the audit team involved in the audit work of the financial institution; and (iii) fees payable by the institution representsrepresent 25% or more of the total annual fees of the audit firm. Additionally, the audited financial institution is prohibited from hiring partners and members of the audit team with managerial responsibilities who were involved in the audit work at the financial institution during the priorpreceding 12 months.
In addition to the audit report, the independent auditor must prepare the following reports, as required by CMN regulation:regulation.
These reports, as well as working papers, correspondence, service agreements and other documents related to the audit work must retained and made available to the Central Bank for at least five years.
Under Brazilian law, our financial statements must be prepared in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank. We also prepare financial statements in accordance with the International Financial Reporting Standards (IFRS). Please refer to Context, item Context of this Report, About our financial information for further details. Financial institutions must have their financial statements audited every six months. Quarterly financial statements filed with the CVM must be reviewed by independent auditors of the financial institutions. CVM rules require publicly-held companies, including financial institutions, to disclose information related to anynon-audit services provided by independent auditors other than audit services thatwhen they represent more than 5% of the fees for audit services. Such information should include the type of service, the amount paid and the percentage that they represent of the fees for audit of financial statements. Please refer to Our Governance, item Audit Committee, for further details about Fees and Services of the Main Auditors.
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Taxation
We summarize below the main taxes levied on the transactions entered into by entities in the Itaú Unibanco Group in Brazil. This description does not represent a comprehensive analysis of all tax considerations applicable to the Itaú Unibanco Group. For a more in-depth analysis, we recommend that potential investors consult their own tax advisors. The main taxes we are subject to, with respective rates, are as follows:
IRPJ (Corporate Income Tax) | 15.0% plus a 10.0% surtax | Net income with adjustments (exclusions, additions, and deductions) | ||
CSLL (Social Contribution on Net Income) | Net income with adjustments (exclusions, additions, and deductions) | |||
COFINS (Social Security Financing Contribution) | 4.0% (financial institutions, insurance companies and capitalization entities) or 7.6% (other Itaú Unibanco Group companies) | Gross revenue minus specific deductions | ||
PIS (Contribution on Social Integration Program) | 0.65% (financial institutions, insurance companies and capitalization entities) or 1.65% (other Itaú Unibanco Group companies) | Gross revenue minus specific deductions | ||
ISS (Service Tax) | 2.0% to 5.0% | Price of service rendered | ||
IOF (Tax on Financial Transactions) | Depends on the type of the transaction, as described below. | Transaction nominal value |
Corporate Income Tax and Social Contribution on Net Income
In accordance with applicable legislation, corporate income tax (Impostode Renda daPessoa Jurídica, or IRPJ), and social contribution on profits(contributionon profits (Contribuição Social Sobre o LucroLíquido, or CSLL) are determined by the taxable incometaxableincome regime. Under this regime, our taxable income, on which IRPJ and CSLL will be levied, must be adjusted by additions, deductions, and exclusions, such as nondeductible expenses, operating costs and equity accounting, respectively.
The IRPJ is levied at a basic 15.0% rate, and a 10.0% surtax is applicable when the total amount of profit for the fiscal period exceeds R$20,000 per month or R$240,000 per year. In other words, any portion of our profit exceeding this limit is taxed at an effective 25.0% rate.
CSLL is currently levied on our taxable income at a 15.0%20.0% rate, which is specific for financial institutions, insurance and similar companies. SomeNote that this tax is generally levied at a 9.0% for non-financial legal entities. Nonetheless, the Federal Government increased such a rate initially to 15.0%, and then to 20.0%. Despite such increase, some Brazilian financial institutions, including us, are disputing the constitutionality of this higher CSLL tax rate, since the standard rate is 9.0%.rate. The amounts in dispute are accounted for as a tax liability provision in our balance sheet. In regard to this matter, it is worth mentioning that on the same rule that increased CSLL from 15.0% to 20.0% (Law 13,169), the Federal Government also determined that, as from January 1, 2019, the CSLL rate will be reduced to 15.0%.
As other Brazilian legal entities, our companies may offset the historical nominal amount of tax losses determined in prior years against results of subsequent years at any time (i.e., with no limitations with respect to time periods), provided that such offsetting does not exceed 30.0% of the annual taxable income of such future year. For purposes of IRPJ and CSLL taxation, companies should consider their income abroad as well rather than income solely from Brazilian operations. Therefore, profits, capital gains and other income earned abroad by Itaú Unibanco Group entities in Brazil, their branches, representations, affiliates or subsidiaries, will also be computed for determination of the entities net income. However, Brazilian legislation provides for our deducting the amounts paid as corporate income tax abroad against the IRPJ due in Brazil and CSLL, provided certain limits are observed.
Income Tax for Individuals and Foreign Investors
On September 22, 2015, the President of Brazil enacted Provisional Measure No. 692, or MP 692, converted into Law No. 13,259 of March 16, 2016, which aimed at increasing the flat 15% rate of the income tax levied on capital gains derived by individuals, certain corporations and foreign investors (individuals and corporations) as a result of the disposal of assets and rights in general exceeding R$5 million, by adopting a system of progressive rates that may reach a 22.5% tax rate (for positive results exceeding R$30 million). Since capital gains arising from transactions executed through a securities exchange are subject to specific tax rules, which are not included under the scope of Law No. 13,259, it is possible to sustain the position that the provisions of this rule should not apply to such transactions. If the stockholder is a resident of or domiciled in a tax haven jurisdiction or a privileged tax regime, the capital gains are subject to withholding income tax at a 25% rate.
In order to become effective in 2016, MP 692 had to be mandatorily converted into law before the end of 2015. Since it did not occur prior to the end of 2015, such rule will not have any legal effect in 2016. If the conversion into law occurs in 2016, the effective date of MP 692 would be postponed to January 1, 2017. If MP 692 is not converted into law within 120 days from its date of enactment, which will occur on February 29, 2016, it will not produce any legal effects. During the process of converting MP 692 into law, the provisions thereof may still be subject to changes.
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Interest on Stockholders’ Equity
On September 30, 2015, the Brazilian government enacted Provisional Measure No. 694, or MP 694, which amended the income tax regulations concerning distributions of interest on stockholders’ equity by Brazilian companies. Under MP 694, the calculation of interest on stockholders’ equity will be limited to the (i) daily variation of the long term interest rate (Taxa de Juros de Longo Prazo, or TJLP), multiplied by the value of certain equity accounts of the Brazilian company or (ii) an annual 5% flat rate, whichever is lower. Moreover, MP 694 increases from 15% to 18% the withholding income tax rate levied on interest on stockholders’ equity payments made by Brazilian companies to non- Brazilian residents not domiciled in tax-haven jurisdictions, as defined by the Brazilian tax authorities. Because MP 694 was not converted into law during the effective period for such conversion, these amendments to the income tax regulations are no longer effective.
If the stockholder is a resident of or domiciled in a tax haven jurisdiction, the payment of interest on capital is subject to withholding income tax at a rate of 25%.
Contribution on Social Integration Program and So-cialSocial Security Financing Contribution
In addition to IRPJ and CSLL, Brazilian legal entities are subject to the following taxes on revenue: contribution on social integration program (Contribuição paraPara o Programa daIntegração Social, or PIS) and social security financingsecurityfinancing contribution (Contribuição Social paraPara oo Financiamento da Seguridade Social, or COFINS).
In accordance with applicable legislation, financial institutions are subject to the cumulative regime for calculation of these taxes. Under the cumulative regime, financial institutions are required to pay PIS at a 0.65% rate and COFINS at a 4.0% rate. The cumulative regime provides for rates lower than those levied under the non-cumulative regime, which is explained below, but it prevents the use of tax credits.
Some additional deductions are legally permitted to financial institutions, and therefore the calculation basis is similar to the profit margin. Some of our subsidiaries claim that the PIS and COFINS should be levied only on their revenue from the sale of products and services, rather than on the revenues from financial and other activities. The amounts in dispute are accounted for as tax contingencies in the balance sheets of these companies.
Most non-financial companies, on the other hand, are authorized to pay PIS and COFINS contributions according to the non-cumulative regime. Under the non-cumulative regime, PIS is levied at a 1.65% rate and COFINS is levied at a 7.6% rate. The calculation basis of these taxes is the gross revenue earned by the entity; however, the taxpayer may offset credits calculated through the application of the same rates on the value paid on the purchase of certain inputs used in the entity’s production process. Currently, under such non-cumulative regime, the financial income (except for income from interest on capital) of non-financial companies is not subject to PIS and COFINS.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 37 – Supplementary Information and Note 32 – Provisions, contingencies and other commitments, IV – Program for Cash or Installment Payment of Federal Taxes, for information regarding Law No. 12,973/2014.
Service Tax
The tax on services (Imposto sobre(Imposto Sobre Serviços de qualquerQualquer Natureza,, or ISS) is generally levied on the price of services rendered (e.g., banking services) and is charged by the municipality where our branch or office rendering the service is located. The tax rates vary from 2.0% up to the maximum rate of 5.0%, depending on the municipality in which the service is provided and its respective nature.
Tax on Financial Transactions
The tax on financial transactions is levied at specific rates according to the transaction in question, and may be changed by a decree from the
Executive Branch (which may become effective as of its publication date), rather than by a law enacted by the Brazilian Congress.
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The table below summarizes the main IOF rates levied on our transactions. Notwithstanding, we note that IOF is a very
comprehensive tax. Therefore, for a more in-depth analysis, we recommend that tax advisors be consulted accordingly.
Type of transaction | ||
Applicable Rates ( | ||
Foreign exchange transactions | IOF/FX: zero to 6.38% (depending on the transaction) Maximum rate: 25% | |
Insurance transactions | IOF/Insurance: zero to 7.38% Maximum rate: 25% | |
Loans and credit transactions | IOF/Credit: 0.0082% (individual) or 0.0041% Maximum rate: 1.5% per day (plus 0.38%) | |
Securities | IOF/Securities: zero to 1.5% as a general rule (possible to be higher) Maximum rate: 1.5% per day | |
Securities – Derivatives | IOF/Securities – Derivatives: zero Maximum rate: 25% |
Taxation of onshore credit transactions
On January 20, 2015 the Executive Branch enacted Decree No. 8,392, which amended the Tax on Financial Transactions (Imposto SobreOperações de Crédito, Câmbio e Seguro, e Sobre Operações Relativas a Títulos e Valores Mobiliários, or IOF) regulations in force, so as to establishnew tax rates applicable to onshore credit transactions entered into with individuals. According to such new regulation, the IOF tax rate is increased to 0.0082% per day plus a flat surtax of 0.38%. The former IOF tax rate was 0.0041% per day plus the 0.38% surtax.
Taxation of cross-border loans
On October 7, 2014, as of the enactment of, the Executive Branch enacted Decree No. 8,325 reducing to 181 days the minimum average maturity term that cross-border external loans registered before the Central Bank would have to comply with in order to benefit of a 0% rate of the IOF tax levied on the settlement of foreign exchange transactions for the inflow of funds into Brazil. Cross-border loans whose maturity terms are lower than 181 days are subject to the IOF at a 6% rate.
U.S. Foreign Account Tax Compliance Act (FATCA)
FATCA attempts to minimize tax avoidance by U.S. persons investing in foreign assets both through their own accounts and through their investments in foreign entities. FATCA requires U.S. withholding agents such as Itaú to provide information to the U.S. Internal Revenue Service (IRS) regarding their U.S. account holders including substantial U.S. owners of certain non-financial foreign entities (NFFEs) and specified U.S. persons having an interest in certain professionally managed investment vehicles and trusts known as owner-documented foreign financial institutions (FFIs).
To the extent a U.S. withholding agent is not able to properly document an account, it generally will be required to deduct 30% FATCA withholding on certain payments of U.S. source income paid on or after July 1, 2014.income. Gross proceeds from the sale of property that would yield U.S. source dividends or interest are subject to withholding beginning JulyJanurary 1, 2017.2019.
U.S. tax law has detailed rules for determining the source of income. Different rules apply for each type of income. Interest and dividends, two of the most importantcommon types of income for investors, are generally sourced by reference to the residence of the obligor. Specifically, dividends are generally treated as U.S. source income when paid by a U.S. corporation with respect to its stock, and interest is generally treated as U.S. source income when paid by a U.S. borrower of money.
The United States collaborated with other governments to develop Intergovernmental Agreements (IGAs) to implement FATCA. IGAs with partner jurisdictions facilitate the effective and efficient implementation of FATCA. The purpose of these agreements is essentially to remove domestic legal impediments to compliance with FATCA and sharing of information and to reduce burdens on FFIs located in partner jurisdictions.
More than 4070 jurisdictions have signed an IGA, including Brazil, the Cayman Islands, Switzerland, and the United Kingdom. In addition, more than 50approximately 30 other jurisdictions are deemed as having an IGA in effect. Some countries signed a reciprocal agreement, meaning that the country (such as Brazil) and the U.S. will automatically exchange annually, on a reciprocal basis, specific account holder information.
There are two types of IGAs – Model 1 IGA, where local FFIs are required to implement account opening and due diligence procedures to identify U.S. accounts and report them to the local tax authority for exchange with the IRS (examples of Model 1 IGA countries are Brazil, Cayman Islands, The Bahamas, Peru and Colombia), and Model 2 IGA, where local FFIs are enabledrequired to implement account opening and due diligence procedures to identify U.S. accounts, but report themsuch information directly to the IRS (examples of Model 2 IGA countries are Switzerland, Chile, Paraguay and Japan).
The governments of Brazil and the United States entered into a Model 1 IGA on September 23, 2014, which became effective in Brazil on August 24, 2015, after the approval by the Brazilian Congress, ratification by the President and enactment of Decree 8,506 (IGA-BR).
Under the IGA-BR, Brazilian financial institutions and other entities subject to FATCA disclosure requirements are generally required to provide certain information on their U.S. account holders to the Brazilian tax authorities, which will share this information with the U.S. Internal Revenue Service.
Pursuant to FATCA, the issuer, or any other financial institution or other entities subject to FATCA disclosure requirements to or through which any payment with respect to the preferred shares or ADSs is made may be required, pursuant to an agreement entered into by such financial institution with the U.S., an agreement entered into by a relevant jurisdiction with the U.S. (IGA)IGA-BR or under applicable law, to (i) request certain information from holders or beneficial owners of our preferred shares or ADSs, which information may be provided to the U.S. Internal Revenue Service; and (ii) withhold U.S. federal tax at a 30.0% rate on some portion or all of the payments considered “pass-thru payments” made after December 31, 2016,2018, with respect to the preferred shares or ADSs if either (x) such information is not duly provided by such a holder or beneficial owner (referred to under FATCA as a “recalcitrant account holder”) or (y) such payments are made to an FFI (as defined under FATCA) that has not entered into a similar agreement with the U.S. (and is not otherwise required to comply with FATCA under applicable law or an IGA). If the issuer or any other person is required to withhold
Our risk management | A-110 |
Annual Report2015 |
amounts under or in connection with FATCA from any payments made in respect of the preferred shares or ADSs, holders and beneficial owners of the preferred shares or ADSs will not be entitled to receive any gross up or other additional amounts to compensate them for such withholding.
The above description is based on guidance issued to date by the U.S. Treasury Department, including the final regulations.U.S. Treasury regulations and IGA-BR. Future guidance may affect the application of FATCA to the preferred shares or ADSs.
Exchange Controlscontrols
Individuals or legal entities domiciled outside Brazil may own our stock through ADSs negotiated in a U.S. Exchange or through direct investments in the Brazilian Market.
However, the right to convert dividend payments and proceeds from the sale of our shares, in the Brazilian Market, into foreign currency and to remit such amounts abroad is subject to restrictions under foreign investment and foreign currency legislation which generally requires, among other things, the documentary evidence that provides the validity and proves the economic legitimacy of the exchange operation and that the relevant investment be registered with the Central Bank and the CVM, as applicable.
In case the investment in our stock is made through ADS, the ADS holders benefit from the electronic certificate of foreign capital registration obtained in Brazil by the custodian of preferred shares underlying the ADSs, which permits the depositary bank to convert dividends and other distributions with respect to the preferred shares underlying the ADSs into foreign currency and remit the proceeds abroad.
In case the investment in our stock is made directly in the Brazilian Market, such investment needs to be registered with the Central Bank either as (i) a foreign direct investment, the Electronic Declaratory Registration of Foreign Direct Investment (RDE-IED), or (ii) a portfolio investment, the Electronic Declaratory Registration of Portfolio (RDE – Portfolio).
The foreign direct investment (RDE-IED) enables non-resident investors to hold stock of companies in Brazil. On the other hand, the portfolio investment (RDE – Portfolio) entitles certain foreign investors to invest not only in stocks, but also in almost all financial assets and securities, and to engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements of the regulation are fulfilled.
Registration under RDE – Portfolio affords favorable tax treatment to non-resident investors who are not residents or domiciled in tax haven jurisdictions, as defined by Brazilian tax laws.
Annual Report2015 |
Message from the Chief Financial Officer
Dear Reader,reader,
The year 2014 provided usAt Itaú Unibanco, we are strongly committed to transparency and relationship with excellentcapital market agents. Our wish and mission is to be close to our shareholders, investors and investment analysts, explaining them on a clear and timely basis the decisions made by our management, the performance of the organization and the risks inherent in our business.
A number of initiatives make up this communication and transparency effort. In 2015, for example, we held 22 public meetings about our results and outstanding profitability, which is the resultstrategies, distributed through cities of a strategy established in 2011 based on the reassessmentall regions of Brazil, by means of the institution’s risk appetite, with a focus onAPIMEC (Association of Capital Markets Analysts and Investment Professionals), and we participated in 30 conferences and 9 road shows, in Brazil and abroad. We frequently review our documents and financial statements, aiming at providing information that meet the loan portfolio quality improvement, on ongoing investment in efficiencymarket agents’ needs for assessment and productivity gains and on the sustainable developmentunderstanding of revenues from insurance and services.our operation.
The two important pillarsThis report supplements these initiatives and shows our commitment to constantly evolve in our disclosure practices. In 2013, we unified our annual report, 20-F form and debt prospects into the Annual Consolidated Report. Since then, we have searched for more objectivity and better alignment of that support this strategy are technology and client satisfaction. Over the past few years, we invested more than R$11 billion in various fronts, such as the construction of a new data center, which will increase our processing capacity considerably in an extremely modern and efficient environment, the development of new applications and the modernization of our operational platforms, preparing such platforms for a digital world. All these investments are intended, primarily, to improve client service through a focus on more convenience, mobility and availability.
The quality of our balance sheet has also improved as we presented a high level of liquidity and a solid capital base,document with very comfortable gearing ratios considering the current economic climate in Brazil, our major market of operation.information required by other regulatory forms. In this context, if2015, we were to fully implement our anticipated measures to addressacknowledged in three categories in the new capital requirements established by Basel and adopted byIR Magazine Awards Brazil 2015, including the Central Bank of Brazil, our core capital would already be sufficient to meet them, reaching 11.9% after the application of a few optimization measures that are already in progress.Best Annual Report.
In an environment of rapid technological changesthis document, we comment on the organization’s profile, including its history, strategies, main shareholders, business and growing regulatory demands, including with respect to consumers, Itaú Unibanco has been reinforcing its policiespresence in Brazil and developing an even stronger risk culture. In this context,abroad. We also describe our structure and corporate governance prioritizes effective controlspractices that comprise, among other information items, the resumes of our management. In the section about risk management, we detail the structure and compliance with the rules establishedpractices of control and mitigation inherent in the many countries wherebanking activity. In the same chapter, we operate by meansreassessed the description of a clear segregationrisk factors, which represent the main events that could significantly impact our business. Lastly, we detail the financial performance of functions and a formal definition of roles and responsibilities between the control and business units. Additionally, other joint forums ensure an even more robust corporate governance environment, such as the Audit Committee, composed of six independent members, and the Fiscal Council, composed of another three members who are also independent.
Regarding our financial statements, we continue to invest to prepare themItau Unibanco in 2015, in accordance with the highest levels of transparency, consistency and quality, extending their use and value added forInternational Financial Reporting Standards (IFRS).
We continue seeking excellence in serving our many stakeholders. As recognition for these investments, it is worth noting that in 2014 we were, for the second consecutive year, at the top of the rankings prepared byCompany Reportingin its IFRS Annual Report Benchmarking, a reportthat assesses, on an independent basis, the financial statements disclosed by many companies from all over the world. Additionally, also for the second consecutive year, we received theBest AnnualReportaward from IR Awards Brazil. Finally, it is worth rememberingthat Itaú Unibanco was the first financial institution in Brazil to publish the Integrated Report in accordance with the guidance of the International Integrated Reporting Council, showing its commitmentstakeholders, making available different communication channels to the community of analysts, investorsmarket, among which we point out the Investor Relations website: www.itau.com.br/ investor-relations and society in general.our pages on Facebook and Twitter. We will be honored to receive your suggestions by email: investor.relations@itau-unibanco.com.br.
Enjoy your reading!I wish you all a good reading.
Cordially,
Eduardo Vassimon – CFO & CRO
Annual Report2015 |
Significant Accounting Policies
General AspectsInformation
The preparation of the consolidated financial statements included in this annual report involves some assumptions that are based on our historical experience and other factors that we deem reasonable and material. Although we review these estimates and assumptions in the ordinary course of business, the presentation of our financial condition and results of operations often requires our management to make judgments regarding the effects on our financial condition and results of operations of matters that are uncertain by nature. The comments below describe those aspects that require significant judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. Actual results may differ from those estimated under different variables, assumptions or conditions.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue, expenses and gains and losses during the reporting period because the actual results may differ from those determined based on such estimates and assumptions.
All estimates and assumptions made by management are in accordance with IFRS and represent our best estimates made in conformity with applicable standards. Estimates and judgments are evaluated on an ongoing basis, based on past experience and other factors.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents our estimate of the probable losses inherent to our loan portfolio at the end of each reporting period. In order to determine the amount of the allowance for loan and lease losses, a portfolio is classified into two categories with respect to which specific methodologies are used to estimate losses. Loans and leases are analyzed on an individual or portfolio basis.
Loans and leases analyzed on an individual basis (corresponding to our corporate portfolio) are individually analyzed for impairment. For those considered to be impaired, we determine the amount of the allowance based on the expected cash flows of the company that will receive the loan. The loans that are not impaired are rated based on risk factors, and the inherent losses for each rating are estimated based on our historical experience, which involves judgments related to identifying risk factors and assigning a rating. |
Loans analyzed on a portfolio basis (corresponding to the following portfolios: (i) Individuals, (ii) Very Small, Small and Medium Business and (iii) Foreign Units – Latin America) are further segregated into classes, when appropriate, based on their underlying risks and characteristics. The allowance for loan and lease losses is determined by portfolio based on historical experience, which also involves judgments and assumptions. |
Many factors affect the estimate of losses in each of the categories for which we estimate the allowance on a portfolio basis, such as the methodology used to measure historical delinquency and the historical period to be used. Additionally, factors affecting the specific amount of the allowances to be recorded are subjective and include economic and political conditions, credit quality trends and volume and growth observed in each portfolio. We present information on our allowance for loan and lease losses in the table below:
(In millions of R$) | ||||||||||||
ALLOWANCE FOR LOAN AND LEASES LOSSES | 2014 | 2013 | 2012 | |||||||||
Amount Recognized in the Balance Sheet | 22,392 | 22,235 | 25,713 | |||||||||
Expense Recognized in the Income Statement | 18,832 | 17,856 | 23,982 |
(In millions of R$, except percentages) | ||||||||||||||||||||
As of December 31, | ||||||||||||||||||||
Allowance for Loan and Leases Losses | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Amount recognized in the balance sheet at the beginning of period | 22,392 | 22,235 | 25,713 | 23,873 | 19,994 | |||||||||||||||
Write-offs | (20,065 | ) | (18,675 | ) | (21,769 | ) | (22,142 | ) | (16,159 | ) | ||||||||||
Individuals | (11,235 | ) | (12,668 | ) | (13,541 | ) | (12,317 | ) | (8,655 | ) | ||||||||||
Credit card | (4,055 | ) | (3,784 | ) | (3,513 | ) | (4,073 | ) | (3,038 | ) | ||||||||||
Personal loans | (5,221 | ) | (5,150 | ) | (6,247 | ) | (4,895 | ) | (3,222 | ) | ||||||||||
Payroll loans | (622 | ) | (429 | ) | (480 | ) | (472 | ) | (308 | ) | ||||||||||
Vehicles | (1,294 | ) | (3,254 | ) | (3,263 | ) | (2,840 | ) | (2,013 | ) | ||||||||||
Mortgage loans | (43 | ) | (51 | ) | (38 | ) | (37 | ) | (74 | ) | ||||||||||
Corporate | (4,321 | ) | (672 | ) | (478 | ) | (556 | ) | (122 | ) | ||||||||||
Small and medium businesses | (3,981 | ) | (4,992 | ) | (7,573 | ) | (9,209 | ) | (7,118 | ) | ||||||||||
Foreign loans Latin America | (528 | ) | (343 | ) | (177 | ) | (60 | ) | (264 | ) | ||||||||||
Expense recognized in the income statement | 24,517 | 18,832 | 17,856 | 23,982 | 20,038 | |||||||||||||||
Amount recognized in the balance sheet at the end of period(1) | 26,844 | 22,392 | 22,235 | 25,713 | 23,873 |
Financial performance | A-114 |
Annual Report2015 |
(In millions of R$, except percentages) | ||||||||||||||||||||
As of December 31, | ||||||||||||||||||||
Allowance for Loan and Leases Losses | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Recovery of loans write-offs | 4,779 | 5,054 | 5,061 | 4,663 | 5,477 | |||||||||||||||
Individuals | 1,886 | 2,077 | 2,058 | 1,917 | 2,362 | |||||||||||||||
Credit card | 590 | 663 | 653 | 515 | 616 | |||||||||||||||
Personal loans | 563 | 577 | 525 | 427 | 446 | |||||||||||||||
Payroll loans | 458 | 453 | 278 | 172 | 160 | |||||||||||||||
Vehicles | 202 | 324 | 499 | 656 | 956 | |||||||||||||||
Mortgage loans | 73 | 60 | 103 | 147 | 184 | |||||||||||||||
Corporate | 1,411 | 1,518 | 1,490 | 1,274 | 1,455 | |||||||||||||||
Small and medium businesses | 792 | 893 | 1,003 | 1,082 | 1,355 | |||||||||||||||
Foreign loans Latin America | 690 | 566 | 510 | 390 | 305 | |||||||||||||||
Net write-offs | (15,286 | ) | (13,621 | ) | (16,708 | ) | (17,479 | ) | (10,682 | ) | ||||||||||
Ratio of write-offs during the period to average loans outstanding during the period (%) | 4.3 | 4.4 | 5.7 | 6.2 | 5.1 | |||||||||||||||
Ratio of net write-offs during the period to average loans outstanding during the period (%) | 3.3 | 3.2 | 4.4 | 4.9 | 3.3 | |||||||||||||||
Ratio of allowance for loan losses to total loans and leases (%) | 5.7 | 4.9 | 5.4 | 7.0 | 6.9 |
(1) | The carrying amount of the individual loans increased by R$435 million in 2013 due to the acquisition of companies as explained in the Consolidated Financial Statements (IFRS). |
During the year ended December 31, 2015, we wrote off a total amount of R$20,065 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 5.7%. The increase in loans written off is due to the worsening macroeconomic scenario, mainly in Brazil.
During the year ended December 31, 2014, we wrote off a total amount of R$18,675 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 4.9%. The decrease in loans written off is a result of the adoption of a policy of stricter selectivity in origination, which gave rise to lower default levels compared to the previous year.
During the year ended December 31, 2013, we wrote off a total amount of R$21,769 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 5.4%. The decrease in loans written off is a result of the adoption of a policy of stricter selectivity in origination, which gave rise to lower default levels compared to the previous year.
During the year ended December 31, 2012, we wrote off a total amount of R$22,142 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 7.0%. The increase in loans written off is due to the increase in defaults in 2011 and beginning of 2012, associated with the increase in the volume of our portfolio of credit card, personal loans, small and medium businesses.
During the year ended December 31, 2011, we wrote off a total amount of R$16,159 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 6.9%. Our ratio of allowance for loan and lease losses to total loans increased by 10 basis points when compared to the previous year, since the volume of loans and leases written off was maintained at the same level in 2011. This level was maintained as a result of the increase in default rates in 2009 and 2010, together with a strong growth of the loan and lease portfolio in 2011.
Fair Value of Financial Instruments
Financial instruments recorded at fair value on our balance sheet include mainly securities classified as held-for-trading and available-for-sale as well as other trading assets, including derivatives. Securities classified as held-to-maturity are recorded at amortized historical cost on our balance sheet, and their corresponding fair values are shown in the notes to our consolidated financial statements. We present information on the fair value of our financial instruments in the table below as of December 31, 2015, 2014 2013 and 2012.2013.
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||
FINANCIAL INSTRUMENTS | AS OF DECEMBER 31, | |||||||||||||||||||||||
RECORDED AT FAIR VALUE | 2014 | 2013 | 2012 | |||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||
Financial instruments recorded at fair value | 2015 | 2014 | 2013 | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Held-for-trading | 132,944 | 148,860 | 145,516 | 164,311 | 132,944 | 148,860 | ||||||||||||||||||
Designated at fair value through profit or loss | 733 | 371 | 220 | 642 | 733 | 371 | ||||||||||||||||||
Derivatives | 14,156 | 11,366 | 11,597 | 26,755 | 14,156 | 11,366 | ||||||||||||||||||
Available-for-sale | 78,360 | 96,626 | 90,869 | 86,045 | 78,360 | 96,626 | ||||||||||||||||||
Total | 226,193 | 257,223 | 248,202 | 277,753 | 226,193 | 257,223 | ||||||||||||||||||
Share (derivatives/total – %) | 6.3 | 4.4 | 4.7 | 9.6 | 6.3 | 4.4 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Held-for-trading | 520 | 371 | 642 | 412 | 520 | 371 | ||||||||||||||||||
Derivatives | 17,350 | 11,405 | 11,069 | 31,071 | 17,350 | 11,405 | ||||||||||||||||||
Total | 17,870 | 11,776 | 11,711 | 31,483 | 17,870 | 11,776 | ||||||||||||||||||
Share (derivatives/total – %) | 97.1 | 96.8 | 94.5 | 98.7 | 97.1 | 96.8 |
Financial performance | A-115 |
Annual Report2015 |
We determine the fair value of our financial instruments based on International Financial Reporting Standard 13 (IFRS 13), which defines fair value as the amount for whichprice that would be received to sell an asset could be exchanged or paid to transfer a liability transferred in an orderly transaction between market participants.participants at the measurement date.
According to IFRS 13, there are different levels of inputs that may be used to measure the fair value of financial instruments classified as levels 1, 2 and 3.
Level 1: observable inputs reflect the quoted prices (unadjusted) of identical assets or liabilities in active markets; |
Level 2: observable inputs reflect the information on assets and liabilities that are either directly (such as prices) or indirectly (derived from prices) observable, except for the quoted prices included in Level 1; and |
Level 3: information on assets and liabilities that are not based on observable market data due to little market activity on the measurement date. We present information on our level 3 financial instruments in the table below as of December 31, 2015, 2014 and 2013. |
measurement date. We present information on our level 3 financial instruments in the table below as of December 31, 2014, 2013 and 2012.
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||
AS OF DECEMBER 31, | As of December 31, | |||||||||||||||||||||||
LEVEL 3 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Level 3 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Held-for-trading | 790 | 27 | 20 | 60 | 790 | 27 | ||||||||||||||||||
Available-for-sale securities | 5,404 | 6,489 | 2,489 | 4,259 | 5,404 | 6,489 | ||||||||||||||||||
Net position of derivatives | 77 | 119 | 144 | 1,218 | 77 | 119 | ||||||||||||||||||
Total | 6,271 | 6,635 | 2,653 | 5,537 | 6,271 | 6,635 | ||||||||||||||||||
(Held-for-trading + Available-for-sale securities)/Total Level 3 (%) | 98.8 | 98.2 | 94.6 | |||||||||||||||||||||
(Held-for-trading + available-for-sale securities)/Total level 3 (%) | 78.0 | 98.8 | 98.2 |
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 31 – Fair Value of Financial Instruments for further details.
Judgments are also required to determine whether there is objective evidence that a financial asset or a group of financial assets is impaired. If there is any evidence of impairment for available-for-sale or held-to-maturity financial assets, the cumulative loss, measured as the difference between the acquisition cost and current fair value, is recognized in the statement of income. The primary factors that are used by management to determine whether there is objective evidence that a financial asset is impaired include the observed period of the loss, the level of the loss, whether we were required to sell the securities before the recovery and the expectation, on the date of analysis, of the possibility of realization of the security. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2 – Significant Accounting Policies for further details about other significant accounting policies.
Contingent Liabilities
Contingent liabilities arise mainly from judicial and administrative proceedings inherent to the ordinary course of our business and that are filed by third parties, including former employees and public bodies related to civil, labor, tax and social security claims.
These contingencies are assessed based on the best estimates of our management, taking into consideration the opinion of legal advisors when there is a probability that financial resources will be required to settle obligations and the amount of such obligations can be reliably measured.
Contingencies are classified as follows, based on likelihood of loss:
Probable: liabilities are recognized under “provisions” on our consolidated balance |
Possible: liabilities are disclosed |
Remote: liabilities do not require provision or disclosure. |
Contingent liabilities for which provisions are recorded and those classified as having a “possible” likelihood of loss are evaluated based on our best estimates, using models and criteria that allow for their proper evaluation despite the uncertainty that is inherent to terms and amounts.
Significant Changes in Accounting Standards
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2.2 – New Pronouncements;Pronouncements and New Accounting Standards Changes to and Interpretations of Existing Pronouncements for further details about information on significant changes in accounting standards.
Accounting Practices Adopted in Brazil
Our books and records are maintained in Brazilianreais, the official currency in Brazil, and our consolidated financial statements, for statutory and regulatory purposes, are prepared in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are applicable to institutions authorized to operate by the Central Bank. The accounting principles and standards generally applicable under Brazilian GAAP include those established under Brazilian Corporate Law, by the Accounting Pronouncements Committee, or CPC, which started issuing standards in 2007, and by the Federal Accounting Council. In the case of companies subject to regulation by the Central Bank, such as Itaú Unibanco Holding, the effectiveness of the accounting pronouncements issued by entities such as the CPC depends on approval of the pronouncement by the CMN, which also establishes the date of effectiveness of any pronouncements with respect to financial institutions. Additionally, the CVM and other regulatory bodies, such as the SUSEP and the Central Bank, provide additional industry-specific guidelines.
Financial performance | A-116 |
Annual Report2015 |
Regulation Applicable to the Presentation of the Financial Statements
Brazilian regulations establish specific rules for the consolidation of financial statements by financial institutions. Under current Central Bank regulations, financial institutions, except for credit cooperatives, are required to prepare consolidated financial statements including investments directly or indirectly held in other companies, individually or jointly controlled, and with respect to which such financial institutions have (i) the right to appoint or designate the majority of the company’s board of directors; (ii) the right to appoint or remove the majority of the company’s executives and directors; and/or (iii) operational or shareholding control. These regulations apply to the entire group to which a financial institution belongs.
Assets
Portfolio of Securities and Derivative Financial Instruments
General information
We present below our portfolio of held-for-trading financial assets, available-for-sale financial assets, held-to-maturity financial assets and derivative financial instruments as of December 31, 2015, 2014 2013 and 2012.2013.
The amounts exclude our investments in securities of unconsolidated companies. For further information on our investments in unconsolidated companies, see section Performance, item consolidated financial statement (IFRS), Note 13 – Investments in associates and joint ventures. Held-for-trading and available-for-sale financial assets are stated at fair value and held-to-maturity financial assets are stated at amortized cost. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2 – Significant Accounting Policies for further details.
As of December 31, 2014,2015, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$134,791181,574 million and R$135,587177,101 million, respectively, which represented 134.0%155.27% of our consolidated stockholders’ equity
as of that date. As of December 31, 2014,2015, we did not hold securities of any other issuer the book value of which in the aggregate represented more than 10.0% of our consolidated stockholders’ equity. This is due to our conservative assets and liabilities management and our liquidity in local currency maintained in securities issued by the Brazilian federal government. Additionally, securities issued by the Brazilian federal government are accepted as deposits in our operations in the market on BM&FBovespa.
Held-for-trading
Listed below are the assets acquired and accrued mainly for the purpose of selling in the short term or when they are part of a portfolio of financial instruments that are managed as a whole and for which there is a recent history of sales in the short term. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 7 – Financial Assets Held for Trading and Designated at Fair Value Through Profit or Loss, for further details.
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | 2015 | % of total | 2014 | % of total | 2013 | % of total | |||||||||||||||||||||||||||||||||||||
Held-for-trading financial assets | 132,944 | 100.0 | 148,860 | 100.0 | 145,516 | 100.0 | 164,311 | 100.0 | 132,944 | 100.0 | 148,860 | 100.0 | ||||||||||||||||||||||||||||||||||||
Investment funds | 870 | 0.7 | 1,062 | 0.7 | 1,468 | 1.0 | 1,051 | 0.6 | 870 | 0.7 | 1,062 | 0.7 | ||||||||||||||||||||||||||||||||||||
Government securities – domestic | 88,307 | 66.4 | 113,039 | 75.9 | 112,492 | 77.3 | 121,484 | 73.9 | 88,307 | 66.4 | 113,039 | 75.9 | ||||||||||||||||||||||||||||||||||||
Brazilian government securities | 86,393 | 65.0 | 111,135 | 74.7 | 111,206 | 76.4 | 117,053 | 71.2 | 86,393 | 65.0 | 111,135 | 74.7 | ||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | 1,914 | 1.4 | 1,904 | 1.3 | 1,286 | 0.9 | 4,431 | 2.7 | 1,914 | 1.4 | 1,904 | 1.3 | ||||||||||||||||||||||||||||||||||||
Government securities – abroad | 1,540 | 1.2 | 679 | 0.5 | 872 | 0.6 | 1,149 | 0.7 | 1,540 | 1.2 | 679 | 0.5 | ||||||||||||||||||||||||||||||||||||
Argentina | 628 | 0.5 | 99 | 0.1 | 106 | 0.1 | 696 | 0.4 | 628 | 0.5 | 99 | 0.1 | ||||||||||||||||||||||||||||||||||||
United States | 448 | 0.3 | 18 | 0.0 | 345 | 0.2 | 132 | 0.1 | 448 | 0.3 | 18 | 0.0 | ||||||||||||||||||||||||||||||||||||
Mexico | 3 | 0.0 | 182 | 0.1 | 225 | 0.2 | 3 | 0.0 | 3 | 0.0 | 182 | 0.1 | ||||||||||||||||||||||||||||||||||||
Chile | 132 | 0.1 | 6 | 0.0 | 108 | 0.1 | 36 | 0.0 | 132 | 0.1 | 6 | 0.0 | ||||||||||||||||||||||||||||||||||||
Paraguay | 128 | 0.1 | - | - | - | - | 68 | 0.0 | 128 | 0.1 | - | - | ||||||||||||||||||||||||||||||||||||
Uruguay | 41 | 0.0 | 41 | 0.0 | 33 | 0.0 | 40 | 0.0 | 41 | 0.0 | 41 | 0.0 | ||||||||||||||||||||||||||||||||||||
Colombia | 88 | 0.1 | 226 | 0.2 | 34 | 0.0 | 72 | 0.0 | 88 | 0.1 | 226 | 0.2 | ||||||||||||||||||||||||||||||||||||
Belgium | - | - | 107 | 0.1 | - | - | - | - | - | - | 107 | 0.1 | ||||||||||||||||||||||||||||||||||||
Peru | - | - | - | - | 21 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Other | 72 | 0.1 | - | - | - | - | 102 | 0.1 | 72 | 0.1 | - | - | ||||||||||||||||||||||||||||||||||||
Corporate securities | 42,227 | 31.8 | 34,080 | 22.9 | 30,684 | 21.1 | 40,627 | 24.7 | 42,227 | 31.8 | 34,080 | 22.9 | ||||||||||||||||||||||||||||||||||||
Shares | 2,351 | 1.8 | 2,896 | 1.9 | 2,815 | 1.9 | 2,161 | 1.3 | 2,351 | 1.8 | 2,896 | 1.9 | ||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 3,281 | 2.5 | 3,006 | 2.0 | 21 | 0.0 | - | - | 1 | - | 12 | 0.0 | ||||||||||||||||||||||||||||||||||||
Bank deposit certificates | 1 | 0.0 | 12 | 0.0 | 2,933 | 2.0 | 2,583 | 1.6 | 3,281 | 2.5 | 3,006 | 2.0 | ||||||||||||||||||||||||||||||||||||
Debentures | 4,243 | 3.2 | 5,097 | 3.4 | 4,636 | 3.2 | 4,522 | 2.8 | 4,243 | 3.2 | 5,097 | 3.4 | ||||||||||||||||||||||||||||||||||||
Eurobonds and other | 1,061 | 0.8 | 1,278 | 0.9 | 1,612 | 1.1 | 991 | 0.6 | 1,061 | 0.8 | 1,278 | 0.9 | ||||||||||||||||||||||||||||||||||||
Financial credit bills | 30,711 | 23.1 | 21,566 | 14.5 | 18,441 | 12.7 | 30,367 | 18.5 | 30,711 | 23.1 | 21,566 | 14.5 | ||||||||||||||||||||||||||||||||||||
Promissory Notes | 577 | 0.4 | 27 | 0.0 | 20 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Promissory notes | - | - | 577 | 0.4 | 27 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Other | 2 | 0.0 | 198 | 0.1 | 206 | 0.1 | 3 | 0.0 | 2 | 0.0 | 198 | 0.1 | ||||||||||||||||||||||||||||||||||||
Held-for-trading financial assets as a percentage of total assets (%) | 11.8 | 14.5 | 15.2 | 12.9 | 11.8 | 14.5 |
Financial performance | A-117 |
Annual Report2015 |
We note that Brazilian government bondssecurities represented over 65.0%71.2% of our portfolio of held-for-trading securitiesfinancial assets in 2014.2015. Brazilian government bondssecurities represented 7.7%9.2% of total assets in the same period.
Available-for-sale
Listed below are financial assets that, according to management’s understanding, may be sold in response to, or before changes in, market conditions and are not classified as financial assets at fair value through profit or loss, loans and receivables or held to maturity. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 10 – Available for Sale Financial Assets, for further details.
(In millions of R$, except percentages) | ||||||||||||||||||||||||
AS OF DECEMBER 31, | ||||||||||||||||||||||||
2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | |||||||||||||||||||
Available-for-sale financial assets | 78,360 | 100.0 | 96,626 | 100.0 | 90,869 | 100.0 | ||||||||||||||||||
Investment funds | 141 | 0.2 | 211 | 0.2 | 255 | 0.3 | ||||||||||||||||||
Government securities – domestic | 25,625 | 32.7 | 39,648 | 41.0 | 43,527 | 47.9 | ||||||||||||||||||
Brazilian government securities | 14,391 | 18.4 | 27,939 | 28.9 | 25,462 | 28.0 | ||||||||||||||||||
Brazilian external debt bonds | 11,234 | 14.3 | 11,709 | 12.1 | 18,065 | 19.9 | ||||||||||||||||||
Government securities – abroad | 8,619 | 11.0 | 8,658 | 9.0 | 7,137 | 7.9 | ||||||||||||||||||
United States | 726 | 0.9 | 1,101 | 1.1 | 375 | 0.4 | ||||||||||||||||||
Italy | 70 | 0.1 | 94 | 0.1 | - | - | ||||||||||||||||||
Denmark | 2,699 | 3.4 | 2,631 | 2.7 | 2,554 | 2.8 | ||||||||||||||||||
Spain | 783 | 1.0 | - | - | - | - | ||||||||||||||||||
Korea | 1,782 | 2.3 | 2,455 | 2.5 | 1,662 | 1.8 | ||||||||||||||||||
Chile | 1,119 | 1.4 | 1,047 | 1.1 | 1,534 | 1.7 | ||||||||||||||||||
Paraguay | 849 | 1.1 | 638 | 0.7 | 491 | 0.5 |
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | 2015 | % of total | 2014 | % of total | 2013 | % of total | |||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 86,045 | 100.0 | 78,360 | 100.0 | 96,626 | 100.0 | ||||||||||||||||||||||||||||||||||||||||||
Investment funds | 218 | 0.3 | 141 | 0.2 | 211 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||
Government securities – domestic | 29,108 | 33.8 | 25,625 | 32.7 | 39,648 | 41.0 | ||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | 11,796 | 13.7 | 14,391 | 18.4 | 27,939 | 28.9 | ||||||||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | 17,312 | 20.1 | 11,234 | 14.3 | 11,709 | 12.1 | ||||||||||||||||||||||||||||||||||||||||||
Government securities – abroad | 9,883 | 11.5 | 8,619 | 11.0 | 8,658 | 9.0 | ||||||||||||||||||||||||||||||||||||||||||
United States | 2,022 | 2.3 | 726 | 0.9 | 1,101 | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Italy | - | - | 70 | 0.1 | 94 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
Denmark | 2,548 | 3.0 | 2,699 | 3.4 | 2,631 | 2.7 | ||||||||||||||||||||||||||||||||||||||||||
Spain | 1,060 | 1.2 | 783 | 1.0 | - | - | ||||||||||||||||||||||||||||||||||||||||||
Korea | 1,626 | 1.9 | 1,782 | 2.3 | 2,455 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||
Chile | 1,407 | 1.6 | 1,119 | 1.4 | 1,047 | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Paraguay | 912 | 1.1 | 849 | 1.1 | 638 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||
Uruguay | 243 | 0.3 | 420 | 0.4 | 294 | 0.3 | 178 | 0.2 | 243 | 0.3 | 420 | 0.4 | ||||||||||||||||||||||||||||||||||||
Belgium | 57 | 0.1 | 51 | 0.1 | 71 | 0.1 | - | - | 57 | 0.1 | 51 | 0.1 | ||||||||||||||||||||||||||||||||||||
France | 133 | 0.2 | 88 | 0.1 | 57 | 0.1 | - | - | 133 | 0.2 | 88 | 0.1 | ||||||||||||||||||||||||||||||||||||
United Kingdon | - | - | - | - | 83 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
Netherlands | 151 | 0.2 | 126 | 0.1 | - | - | 122 | 0.1 | 151 | 0.2 | 126 | 0.1 | ||||||||||||||||||||||||||||||||||||
Other | 7 | 0.0 | 7 | 0.0 | 16 | 0.0 | 8 | 0.0 | 7 | 0.0 | 7 | 0.0 | ||||||||||||||||||||||||||||||||||||
Corporate securities | 43,975 | 56.1 | 48,109 | 49.8 | 39,950 | 44.0 | 46,836 | 54.4 | 43,975 | 56.1 | 48,109 | 49.8 | ||||||||||||||||||||||||||||||||||||
Shares | 1,999 | 2.6 | 2,025 | 2.1 | 3,812 | 4.2 | 928 | 1.1 | 1,999 | 2.6 | 2,025 | 2.1 | ||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 2,522 | 3.2 | 12,275 | 12.7 | 8,568 | 9.4 | 2,037 | 2.4 | 2,522 | 3.2 | 12,275 | 12.7 | ||||||||||||||||||||||||||||||||||||
Bank deposit certificates | 1,281 | 1.6 | 2,181 | 2.3 | 391 | 0.4 | 1,573 | 1.8 | 1,281 | 1.6 | 2,181 | 2.3 | ||||||||||||||||||||||||||||||||||||
Debentures | 20,245 | 25.8 | 15,507 | 16.0 | 13,964 | 15.4 | 22,835 | 26.5 | 20,245 | 25.8 | 15,507 | 16.0 | ||||||||||||||||||||||||||||||||||||
Eurobonds and others | 6,707 | 8.6 | 4,896 | 5.1 | 5,596 | 6.2 | 10,112 | 11.8 | 6,707 | 8.6 | 4,896 | 5.1 | ||||||||||||||||||||||||||||||||||||
Promissory notes | 1,397 | 1.8 | 1,227 | 1.3 | 777 | 0.9 | 991 | 1.2 | 1,397 | 1.8 | 1,227 | 1.3 | ||||||||||||||||||||||||||||||||||||
Rural Product Note | 1,408 | 1.8 | 625 | 0.6 | 778 | 0.9 | ||||||||||||||||||||||||||||||||||||||||||
Rural product note | 1,130 | 1.3 | 1,408 | 1.8 | 625 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
Financial credit bills | 8,005 | 10.2 | 8,804 | 9.1 | 5,720 | 6.3 | 6,846 | 8.0 | 8,005 | 10.2 | 8,804 | 9.1 | ||||||||||||||||||||||||||||||||||||
Other | 411 | 0.5 | 569 | 0.6 | 344 | 0.4 | 384 | 0.4 | 411 | 0.5 | 569 | 0.6 | ||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets as a percentage of total assets (%) | 7.0 | 9.4 | 9.5 | 6.7 | 7.0 | 9.4 |
Brazilian government bondssecurities and debtcorporate securities of companies represented 18.4%13.7% and 56.1%54.4%, respectively, of our portfolio of available-for-sale securitiesfinancial assets in 2014.2015. Brazilian government bondssecurities and debtcorporate securities of companies classified as available-for-sale securities,financial assets, which are used aas hedge for our subordinated debt portfolio, represented 1.3%1.4% and 3.9%3.7%, respectively, of total assets in the same period.
Financial performance | A-118 |
Annual Report2015 |
Held-to-maturity
Listed below are non-derivative financial assets that with respect to which we have the intention and financial ability to held to maturity. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 11 –11– Held to Maturity Financial Assets, for further details.
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | 2015 | % of total | 2014 | % of total | 2013 | % of total | |||||||||||||||||||||||||||||||||||||
Held-to-maturity financial assets | 34,434 | 100.0 | 10,116 | 100.0 | 3,202 | 100.0 | 42,185 | 100.0 | 34,434 | 100.0 | 10,116 | 100.0 | ||||||||||||||||||||||||||||||||||||
Government securities – domestic | 20,859 | 60.6 | 10,092 | 99.8 | 3,131 | 97.8 | 26,509 | 62.9 | 20,859 | 60.6 | 10,092 | 99.8 | ||||||||||||||||||||||||||||||||||||
Brazilian government securities | 10,555 | 30.7 | 3,778 | 37.4 | 3,013 | 94.1 | 11,721 | 27.8 | 10,555 | 30.7 | 3,778 | 37.4 | ||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | 10,304 | 29.9 | 6,314 | 62.4 | 118 | 3.7 | 14,788 | 35.1 | 10,304 | 29.9 | 6,314 | 62.4 | ||||||||||||||||||||||||||||||||||||
Government securities – abroad – Uruguay | 26 | 0.1 | 23 | 0.2 | 20 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
Government securities – abroad | 15 | - | 26 | 0.1 | 23 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||
Corporate securities | 13,549 | 39.3 | 1 | 0.0 | 51 | 1.6 | 15,661 | 37.1 | 13,549 | 39.3 | 1 | 0.0 | ||||||||||||||||||||||||||||||||||||
Debentures | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Eurobonds and others | 2 | 0.0 | 1 | 0.0 | 51 | 1.6 | 4 | 0.0 | 2 | 0.0 | 1 | 0.0 | ||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 13,547 | 39.3 | - | - | - | - | 15,657 | 37.1 | 13,547 | 39.3 | - | - | ||||||||||||||||||||||||||||||||||||
Held-to-maturity financial assets as a percentage of total assets (%) | 3.1 | 1.0 | 0.3 | 3.3 | 3.1 | 1.0 |
Derivatives
Derivatives are classified on the date of their acquisition in accordance with management’s intention to use them as a hedging instrument, as determined by Brazilian regulations. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 8 – Derivatives for further details Our derivatives portfolio (assets and liabilities) is composed of futures, forward, swaps, options and credit derivatives, as stated in the table below (Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 8 – Derivatives for further details):below:
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE FINANCIAL INSTRUMENTS | 2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | ||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | 2015 | % of total | 2014 | % of total | 2013 | % of total | ||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | - | - | - | - | - | - | 529 | 2.0 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Options premiums | 2,872 | 20.3 | 1,717 | 15.1 | 1,906 | 16.4 | 5,583 | 20.9 | 2,872 | 20.3 | 1,717 | 15.1 | ||||||||||||||||||||||||||||||||||||
Forwards (Brazil) | 2,394 | 16.9 | 3,315 | 29.2 | 3,530 | 30.4 | 3,166 | 11.9 | 2,394 | 16.9 | 3,315 | 29.2 | ||||||||||||||||||||||||||||||||||||
Swaps – difference receivable | 4,816 | 34.0 | 4,442 | 39.1 | 3,686 | 31.8 | 9,147 | 34.2 | 4,816 | 34.0 | 4,442 | 39.1 | ||||||||||||||||||||||||||||||||||||
Credit derivative | 122 | 0.9 | 686 | 6.0 | 728 | 6.3 | 614 | 2.3 | 122 | 0.9 | 686 | 6.0 | ||||||||||||||||||||||||||||||||||||
Forwards (offshore) | 2,106 | 14.9 | 555 | 4.9 | 379 | 3.3 | 3,430 | 12.8 | 2,106 | 14.9 | 555 | 4.9 | ||||||||||||||||||||||||||||||||||||
Check of swap – companies | 93 | 0.7 | 88 | 0.8 | 35 | 0.3 | 355 | 1.3 | 93 | 0.7 | 88 | 0.8 | ||||||||||||||||||||||||||||||||||||
Others | 1,753 | 12.4 | 563 | 5.0 | 1,333 | 11.5 | 3,931 | 14.7 | 1,753 | 12.4 | 563 | 5.0 | ||||||||||||||||||||||||||||||||||||
Total derivative financial instruments assets | 14,156 | 100.0 | 11,366 | 100.0 | 11,597 | 100.0 | 26,755 | 100.0 | 14,156 | 100.0 | 11,366 | 100.0 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments as percentage of total assets (%) | 1.3 | 1.1 | 1.2 | 2.1 | 1.3 | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | - | - | (354 | ) | 2.0 | (33 | ) | 0.3 | ||||||||||||||||||||||||||||||||||||||||
Options premiums | (5,783 | ) | 18.6 | (3,057 | ) | 17.6 | (1,921 | ) | 16.8 | |||||||||||||||||||||||||||||||||||||||
Forwards (Brazil) | (833 | ) | 2.6 | (682 | ) | 3.9 | (1,862 | ) | 16.3 | |||||||||||||||||||||||||||||||||||||||
Swaps – difference payable | (16,331 | ) | 52.6 | (9,534 | ) | 55.0 | (6,111 | ) | 53.6 | |||||||||||||||||||||||||||||||||||||||
Credit derivative | (875 | ) | 2.8 | (179 | ) | 1.0 | (391 | ) | 3.4 | |||||||||||||||||||||||||||||||||||||||
Forwards (offshore) | (3,142 | ) | 10.1 | (1,693 | ) | 9.8 | (560 | ) | 4.9 | |||||||||||||||||||||||||||||||||||||||
Swaps with USD check – companies | (545 | ) | 1.8 | (229 | ) | 1.3 | (145 | ) | 1.3 | |||||||||||||||||||||||||||||||||||||||
Others | (3,562 | ) | 11.5 | (1,622 | ) | 9.3 | (382 | ) | 3.3 | |||||||||||||||||||||||||||||||||||||||
Total derivative financial instruments liabilities | (31,071 | ) | 100.0 | (17,350 | ) | 100.0 | (11,405 | ) | 100.0 | |||||||||||||||||||||||||||||||||||||||
Derivative financial instruments as percentage of total liabilities and stockholder’s equity (%) | 2.4 | 1.5 | 1.1 |
|
(In millions of R$, except percentages) | ||||||||||||||||||||||||
AS OF DECEMBER 31, | ||||||||||||||||||||||||
DERIVATIVE FINANCIAL INSTRUMENTS | 2014 | % OF TOTAL | 2013 | % OF TOTAL | 2012 | % OF TOTAL | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Futures | (354 | ) | 2.0 | (33 | ) | 0.3 | (23 | ) | 0.2 | |||||||||||||||
Options premiums | (3,057 | ) | 17.6 | (1,921 | ) | 16.8 | (2,281 | ) | 20.6 | |||||||||||||||
Forwards (Brazil) | (682 | ) | 3.9 | (1,862 | ) | 16.3 | (2,293 | ) | 20.7 | |||||||||||||||
Swaps – difference payable | (9,534 | ) | 55.0 | (6,111 | ) | 53.6 | (5,068 | ) | 45.8 | |||||||||||||||
Credit derivative | (179 | ) | 1.0 | (391 | ) | 3.4 | (90 | ) | 0.8 | |||||||||||||||
Forwards (offshore) | (1,693 | ) | 9.8 | (560 | ) | 4.9 | (346 | ) | 3.1 | |||||||||||||||
Swaps with USD check – companies | (229 | ) | 1.3 | (145 | ) | 1.3 | (42 | ) | 0.4 | |||||||||||||||
Others | (1,622 | ) | 9.3 | (382 | ) | 3.3 | (926 | ) | 8.4 | |||||||||||||||
Total derivative financial instruments liabilities | (17,350 | ) | 100.0 | (11,405 | ) | 100.0 | (11,069 | ) | 100.0 | |||||||||||||||
Derivative financial instruments as percentage of total liabilities and stockholder’s equity (%) | 1.5 | 1.1 | 1.2 |
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
NO STATED | DUE IN 1 YEAR | DUE AFTER 1 YEAR | DUE AFTER 5 YEARS | DUE AFTER | ||||||||||||||||||||||||||||||||||||||||||||
MATURITY | OR LESS | TO 5 YEARS | TO 10 YEARS | 10 YEARS | TOTAL | |||||||||||||||||||||||||||||||||||||||||||
DISTRIBUTION OF OUR FINANCIAL | AVERAGE | AVERAGE | AVERAGE | AVERAGE | AVERAGE | AVERAGE | ||||||||||||||||||||||||||||||||||||||||||
ASSETS BY MATURITY | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | ||||||||||||||||||||||||||||||||||||
Held-for-trading financial assets, at fair value | 3,220 | - | 50,231 | - | 57,074 | - | 16,279 | - | 6,140 | - | 132,944 | - | ||||||||||||||||||||||||||||||||||||
Investment funds(1) | 870 | 0.0 | - | - | - | - | - | - | - | - | 870 | 0.0 | ||||||||||||||||||||||||||||||||||||
Government securities – domestic | - | 35,863 | 31,002 | 15,410 | 6,032 | 88,307 | ||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | - | 0.0 | 35,167 | 0.2 | 29,985 | 3.9 | 15,393 | 5.9 | 5,848 | 3.3 | 86,393 | 2.7 | ||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | - | 0.0 | 696 | 7.8 | 1,017 | 5.9 | 17 | 0.6 | 184 | 4.3 | 1,914 | 6.4 | ||||||||||||||||||||||||||||||||||||
Government securities – abroad | - | 1,279 | 245 | 13 | 4 | 1,540 | ||||||||||||||||||||||||||||||||||||||||||
Argentina | - | 0.0 | 553 | 23.5 | 71 | 21.0 | 4 | 25.2 | 0 | 1.6 | 628 | 23.2 | ||||||||||||||||||||||||||||||||||||
United States | - | 0.0 | 390 | 2.4 | 58 | 0.1 | - | 0.0 | - | 0.0 | 448 | 2.1 | ||||||||||||||||||||||||||||||||||||
Mexico | - | 0.0 | - | - | 2 | 6.0 | 1 | 4.8 | 0 | 5.9 | 3 | 6.6 | ||||||||||||||||||||||||||||||||||||
Chile | - | 0.0 | 132 | 3.9 | - | 0.0 | - | 0.0 | - | 0.0 | 132 | 3.9 | ||||||||||||||||||||||||||||||||||||
Paraguay | - | 0.0 | 128 | 5.9 | 0 | 0.0 | - | 0.0 | - | 0.0 | 128 | 5.9 | ||||||||||||||||||||||||||||||||||||
Uruguay | - | 0.0 | 34 | 12.3 | 4 | 12.8 | 1 | 6.5 | 2 | 7.2 | 41 | 12.0 | ||||||||||||||||||||||||||||||||||||
Colombia | - | 0.0 | 27 | 0.0 | 55 | 0.2 | 7 | 0.6 | 0 | 6.1 | 88 | 0.2 | ||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | 16 | 0.2 | 54 | 1.0 | - | 0.0 | 2 | 7.4 | 72 | 1.0 | ||||||||||||||||||||||||||||||||||||
Corporate securities | 2,351 | 13,088 | 25,829 | 855 | 104 | 42,227 | ||||||||||||||||||||||||||||||||||||||||||
Shares | 2,351 | 0.0 | - | - | - | - | - | - | - | - | 2,351 | 0.0 | ||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | 0.0 | - | 0.0 | - | - | 1 | 0.0 | - | 0.0 | 1 | 0.0 | ||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | 0.0 | 1,198 | 0.0 | 2,083 | 0.0 | - | - | - | 0.0 | 3,281 | 0.0 | ||||||||||||||||||||||||||||||||||||
Debentures | - | 0.0 | 794 | 0.0 | 2,521 | 0.1 | 832 | 0.2 | 96 | 0.5 | 4,243 | 0.1 | ||||||||||||||||||||||||||||||||||||
Eurobonds and other | - | 0.0 | 390 | 6.9 | 641 | 7.7 | 21 | 6.4 | 8 | 5.6 | 1,061 | 7.3 | ||||||||||||||||||||||||||||||||||||
Financial credit bills | - | 0.0 | 10,128 | 0.0 | 20,583 | 0.0 | - | 0.0 | - | 0.0 | 30,711 | 0.0 | ||||||||||||||||||||||||||||||||||||
Promissory notes | - | 0.0 | 577 | 0.0 | - | 0.0 | - | - | - | 0.0 | 577 | 0.0 | ||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | - | 0.0 | - | 0.0 | 2 | - | - | 0.0 | 2 | 0.0 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value through profit or loss – Government securities – domestic – Brazilian external debt bonds | 733 | - | - | - | - | 733 | ||||||||||||||||||||||||||||||||||||||||||
Derivatives | 2,408 | 6,311 | 3,682 | 1,755 | 14,156 | |||||||||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets, at fair value | 2,141 | - | 20,079 | - | 29,743 | - | 12,650 | - | 13,747 | - | 78,360 | |||||||||||||||||||||||||||||||||||||
Investment funds(1) | 142 | 0.0 | (1 | ) | 0.0 | - | - | - | - | - | - | 141 | ||||||||||||||||||||||||||||||||||||
Government securities – domestic | - | 300 | 8,693 | 5,007 | 11,625 | 25,625 | ||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | - | - | 260 | 0.1 | 6,358 | 1.7 | 2,415 | 5.0 | 5,358 | 4.2 | 14,391 | 3.2 | ||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | - | - | 40 | 0.1 | 2,335 | 2.1 | 2,592 | 5.9 | 6,266 | 8.3 | 11,234 | 6.3 | ||||||||||||||||||||||||||||||||||||
Government securities – abroad | - | 6,679 | 1,891 | 50 | 0 | 8,619 | ||||||||||||||||||||||||||||||||||||||||||
United States | - | 0.0 | 181 | 0.0 | 545 | 0.6 | - | 0.0 | - | 0.0 | 726 | 0.5 | ||||||||||||||||||||||||||||||||||||
Italy | - | 0.0 | - | - | 70 | 0.0 | - | 0.0 | - | 0.0 | 70 | 0.0 | ||||||||||||||||||||||||||||||||||||
Denmark | - | 0.0 | 2,459 | 8.4 | 241 | 9.5 | - | 0.0 | - | 0.0 | 2,699 | 8.5 | ||||||||||||||||||||||||||||||||||||
Spain | - | 0.0 | 783 | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | 783 | 0.0 | ||||||||||||||||||||||||||||||||||||
Korea | - | 0.0 | 1,328 | 0.0 | 454 | 0.0 | - | 0.0 | - | 0.0 | 1,782 | 0.0 |
Annual Report |
(In millions of R$, except percentages)
As of December 31, 2015
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AS OF DECEMBER 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NO STATED | DUE IN 1 YEAR | DUE AFTER 1 YEAR | DUE AFTER 5 YEARS | DUE AFTER | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MATURITY | OR LESS | TO 5 YEARS | TO 10 YEARS | 10 YEARS | TOTAL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISTRIBUTION OF OUR FINANCIAL | AVERAGE | AVERAGE | AVERAGE | AVERAGE | AVERAGE | AVERAGE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ASSETS BY MATURITY | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | R$ | YIELD (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distribution of our financial assets by maturity | R$ | No stated maturity Average yield (%) | R$ | Due in 1 year or less Average yield (%) | R$ | Due after 1 year to 5 years Average yield (%) | R$ | Due after 5 years 10 years Average yield (%) | R$ | Due after 10 years Average yield (%) | R$ | Total Average yield(%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-for-trading financial assets, at fair value | 3,212 | 32,722 | 57,702 | 65,436 | 5,240 | 164,311 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds(1) | 1,051 | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 1,051 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – domestic | - | 17,502 | 33,965 | 64,829 | 5,188 | 121,484 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | - | 0.0 | % | 17,304 | 1.5 | % | 30,229 | 2.8 | % | 64,482 | 1.4 | % | 5,038 | 1.1 | % | 117,053 | 1.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | - | 0.0 | % | 198 | 0.0 | % | 3,735 | 11.0 | % | 347 | 14.6 | % | 150 | 38.1 | % | 4,431 | 11.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – abroad | - | 1,000 | 110 | 3 | 38 | 1,149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Argentina | - | 0.0 | % | 695 | 1.4 | % | 1 | 5.6 | % | 1 | 5.3 | % | 0 | 0.0 | % | 696 | 1.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | - | 0.0 | % | 86 | 0.0 | % | 46 | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 132 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | - | 0.0 | % | 1 | 9.5 | % | 1 | 6.7 | % | 0 | 2.0 | % | 0 | 12.6 | % | 3 | 8.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | - | 0.0 | 1,103 | 2.9 | 16 | 1.4 | - | 0.0 | - | 0.0 | 1,119 | 2.9 | - | 0.0 | % | 35 | 0.6 | % | 0 | 0.0 | % | - | 0.0 | % | 1 | 0.0 | % | 36 | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | - | 0.0 | % | 68 | 0.1 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 68 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | 0.0 | % | 29 | 7.6 | % | 10 | 10.5 | % | 1 | 14.3 | % | 1 | 8.2 | % | 40 | 8.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | - | 0.0 | % | 32 | 1.0 | % | 4 | 3.6 | % | 1 | 20.9 | % | 36 | 3.8 | % | 72 | 2.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | % | 53 | 0.0 | % | 48 | 0.0 | % | 1 | 25.3 | % | 0 | 21.6 | % | 102 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | 2,161 | 14,220 | 23,627 | 604 | 14 | 40,627 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 2,161 | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 2,161 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | 0.0 | % | 2,504 | 0.2 | % | 79 | 0.0 | % | 0 | 0.0 | % | - | 0.0 | % | 2,583 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | 0.0 | % | 474 | 0.7 | % | 3,494 | 1.3 | % | 552 | 8.9 | % | 2 | 0.1 | % | 4,522 | 2.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and other | - | 0.0 | % | 167 | 1.9 | % | 769 | 2.5 | % | 43 | 1.5 | % | 12 | 10.5 | % | 991 | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial credit bills | - | 0.0 | % | 11,076 | 3.7 | % | 19,285 | 0.8 | % | 6 | 0.0 | % | - | 0.0 | % | 30,367 | 1.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 3 | 0.8 | % | - | 0.0 | % | 3 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value through profit or loss – Government securities – domestic – Brazilian external debt bonds | - | - | 642 | - | - | 642 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | - | 15,845 | 8,116 | 2,794 | 26,755 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets, at fair value | 1,145 | 21,778 | 35,098 | 15,682 | 12,342 | 86,045 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds(1) | 217 | 0.0 | % | - | 0.0 | % | 1 | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 218 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – domestic | - | 1,491 | 7,210 | 11,103 | 9,304 | 29,108 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | - | 0.0 | % | 1,491 | 11.5 | % | 1,443 | 16.6 | % | 4,183 | 15.5 | % | 4,679 | 19.0 | % | 11,796 | 16.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | - | 0.0 | % | - | 0.0 | % | 5,767 | 6.1 | % | 6,920 | 7.7 | % | 4,626 | 7.9 | % | 17,312 | 7.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – abroad | - | 8,066 | 1,750 | 66 | 1 | 9,883 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | - | 0.0 | % | 1,120 | 0.1 | % | 902 | 0.2 | % | - | 0.0 | % | - | 0.0 | % | 2,022 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Denmark | - | 0.0 | % | 2,061 | 0.5 | % | 487 | 0.5 | % | - | 0.0 | % | - | 0.0 | % | 2,548 | 0.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | - | 0.0 | % | 1,060 | 1.9 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 1,060 | 1.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Korea | - | 0.0 | % | 1,626 | 1.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 1,626 | 1.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Chile | - | 0.0 | % | 1,388 | 2.8 | % | 19 | 2.0 | % | - | 0.0 | % | - | 0.0 | % | 1,407 | 2.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | - | 0.0 | 566 | 7.1 | 283 | 8.4 | - | 0.0 | - | 0.0 | 849 | 7.5 | - | 0.0 | % | 759 | 3.7 | % | 153 | 3.5 | % | - | 0.0 | % | - | 0.0 | % | 912 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | 0.0 | 152 | 0.1 | 41 | 0.1 | 50 | 0.1 | 0 | 0.1 | 243 | 0.1 | - | 0.0 | % | 52 | 5.6 | % | 59 | 4.2 | % | 66 | 0.8 | % | 1 | 0.9 | % | 178 | 3.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Belgium | - | 0.0 | 57 | 2.8 | - | 0.0 | - | 0.0 | - | 0.0 | 57 | 2.7 | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
France | - | 0.0 | 49 | 2.7 | 84 | 1.0 | - | 0.0 | - | 0.0 | 133 | 1.6 | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | - | 0.0 | - | 0.0 | 151 | 0.0 | - | 0.0 | - | 0.0 | 151 | 0.0 | - | 0.0 | % | - | 0.0 | % | 122 | 0.4 | % | - | 0.0 | % | - | 0.0 | % | 122 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | 0 | 1.2 | 7 | 1.1 | - | 0.0 | 0 | 1.2 | 7 | 1.0 | - | 0.0 | % | - | 0.0 | % | 8 | 0.5 | % | - | 0.0 | % | - | 0.0 | % | 8 | 0.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | 1,999 | 13,101 | 19,160 | 7,594 | 2,122 | 43,975 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Corporate securities | 928 | 12,221 | 26,137 | 4,513 | 3,037 | 46,836 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 1,999 | 0.0 | - | 0.0 | - | - | - | - | - | 0.0 | 1,999 | 0.0 | 928 | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 928 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | 0.0 | 30 | 0.0 | 500 | 0.0 | 668 | 0.0 | 1,324 | 0.0 | 2,522 | 0.0 | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 2,037 | 1.3 | % | 2,037 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | 0.0 | 1,262 | 0.3 | 20 | 3.6 | - | - | - | 0.0 | 1,281 | 0.4 | - | 0.0 | % | 1,571 | 2.2 | % | - | 0.0 | % | 2 | 0.0 | % | - | 0.0 | % | 1,573 | 2.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | 0.0 | 3,478 | 3.2 | 9,761 | 2.1 | 6,238 | 2.6 | 767 | 5.1 | 20,245 | 2.6 | - | 0.0 | % | 1,866 | 11.5 | % | 16,123 | 7.1 | % | 3,954 | 8.0 | % | 892 | 4.8 | % | 22,835 | 7.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and others | - | 0.0 | 2,560 | 0.1 | 3,558 | 0.1 | 589 | 0.1 | - | 0.0 | 6,707 | 0.1 | - | 0.0 | % | 2,463 | 1.0 | % | 7,071 | 1.3 | % | 499 | 0.3 | % | 79 | 19.3 | % | 10,112 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | - | 0.0 | 1,397 | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | 1,397 | 0.0 | - | 0.0 | % | 785 | 4.6 | % | 206 | 0.1 | % | - | 0.0 | % | - | 0.0 | % | 991 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rural product note | - | 0.0 | 779 | 9.9 | 531 | 9.8 | 99 | 11.7 | - | 0.0 | 1,408 | 9.9 | - | 0.0 | % | 633 | 2.9 | % | 439 | 4.7 | % | 58 | 4.5 | % | - | 0.0 | % | 1,130 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial credit bills | - | 0.0 | 3,500 | 1.7 | 4,505 | 0.8 | - | - | - | 0.0 | 8,005 | 1.2 | - | 0.0 | % | 4,781 | 15.8 | % | 2,065 | 9.9 | % | - | 0.0 | % | - | 0.0 | % | 6,846 | 14.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | 0.0 | 95 | 0.0 | 286 | 0.0 | 0 | 0.0 | 30 | 0.0 | 411 | 0.0 | - | 0.0 | % | 122 | 3.7 | % | 233 | 4.2 | % | - | 0.0 | % | 29 | 43.6 | % | 384 | 7.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to-maturity financial assets, at amortized cost | - | - | 980 | - | 13,609 | - | 11,582 | - | 8,263 | - | 34,434 | - | - | 661 | 14,500 | 18,870 | 8,154 | 42,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – domestic | - | 50 | 10,089 | 6,789 | 3,931 | 20,859 | - | - | 12,366 | 11,397 | 2,746 | 26,509 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities | - | - | 50 | - | 6,700 | 0.0 | 1,307 | 0.0 | 2,498 | 0.0 | 10,555 | 0.0 | - | 0.0 | % | - | 0.0 | % | 7,547 | 17.9 | % | 1,429 | 56.0 | % | 2,746 | 35.8 | % | 11,721 | 26.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian external debt bonds | - | - | - | 0.0 | 3,389 | 4.4 | 5,481 | 5.4 | 1,434 | 8.8 | 10,304 | 5.5 | - | 0.0 | % | - | 0.0 | % | 4,820 | 11.7 | % | 9,968 | 17.2 | % | - | 0.0 | % | 14,788 | 15.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities – abroad | - | 16 | - | - | 10 | 26 | - | - | - | 0 | 15 | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | - | 16 | 0.1 | - | - | - | - | 10 | 0.1 | 26 | 0.1 | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | 0 | 0.0 | % | 15 | 0.0 | % | 15 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | - | 913 | 3,520 | 4,794 | 4,322 | 13,549 | - | 661 | 2,134 | 7,472 | 5,394 | 15,661 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | (0 | ) | 0.0 | % | - | 0.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and others | - | 0.0 | - | 0.0 | - | 0.0 | - | 0.1 | - | 0.0 | - | 0.0 | - | 0.0 | % | - | 0.0 | % | 0 | 0.0 | % | 4 | 0.0 | % | - | 0.0 | % | 4 | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | - | 913 | 0.0 | 3,520 | 0.0 | 4,794 | 0.0 | 4,322 | 0.0 | 13,549 | 0.0 | - | 0.0 | % | 661 | 9.8 | % | 2,134 | 10.0 | % | 7,468 | 2.4 | % | 5,394 | 0.3 | % | 15,657 | 3.0 | % |
(1) Average yields are not shown for these securities, as such yields are not meaningful because future yields are not quantifiable. These securities have been excluded from the calculation of the total yield.
Financial performance | A-120 |
(In millions of R$) | ||||||||||||||||||||||||
FAIR VALUE | AMORTIZED COST | |||||||||||||||||||||||
HELD-FOR- | FINANCIAL | HELD-TO- | ||||||||||||||||||||||
TRADING | ASSETS | AVAILABLE-FOR- | MATURITY | |||||||||||||||||||||
DISTRIBUTION OF OUR FINANCIAL | FINANCIAL | DESIGNATED AT | SALE FINANCIAL | FINANCIAL | ||||||||||||||||||||
ASSETS BY CURRENCY | ASSETS | FAIR VALUE | DERIVATIVES | ASSETS | ASSETS | TOTAL | ||||||||||||||||||
As of December 31, 2014 | 132,944 | 733 | 14,156 | 78,361 | 34,434 | 260,628 | ||||||||||||||||||
Denominated in Brazilian currency | 117,625 | - | 14,149 | 59,668 | 28,332 | 219,774 | ||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 15,079 | - | 4,590 | 6,102 | 25,771 | |||||||||||||||||||
Denominated in foreign currency(1) | 240 | 733 | 7 | 14,103 | - | 15,083 | ||||||||||||||||||
As of December 31, 2013 | 148,860 | 371 | 11,366 | 96,626 | 10,116 | 267,339 | ||||||||||||||||||
Denominated in Brazilian currency | 127,934 | - | 11,351 | 73,717 | 5,020 | 218,022 | ||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 20,397 | - | 11,927 | 5,096 | 37,420 | |||||||||||||||||||
Denominated in foreign currency(1) | 529 | 371 | 15 | 10,982 | - | 11,897 | ||||||||||||||||||
As of December 31, 2012 | 145,516 | 220 | 11,597 | 90,869 | 3,202 | 251,404 | ||||||||||||||||||
Denominated in Brazilian currency | 122,970 | 11,563 | 66,484 | 3,043 | 204,060 | |||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 21,959 | 14,610 | 159 | 36,728 | ||||||||||||||||||||
Denominated in foreign currency(1) | 587 | 220 | 34 | 9,775 | - | 10,616 |
Annual Report2015 |
(In millions of R$) | ||||||||||||||||||||||||
Fair Value | ||||||||||||||||||||||||
Distribution of our financial assets by currency | Held-for- trading financial assets | Financial assets designated at fair value | Derivatives | Available-for- sale financial assets | Amortized cost Held-to- maturity financial assets | Total | ||||||||||||||||||
As of December 31, 2015 | 164,311 | 642 | 26,755 | 86,045 | 42,185 | 319,938 | ||||||||||||||||||
Denominated in Brazilian currency | 154,737 | 505 | 7,445 | 51,621 | 27,378 | 241,686 | ||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 3,043 | - | 10,044 | 791 | - | 13,878 | ||||||||||||||||||
Denominated in foreign currency(1) | 6,531 | 137 | 9,266 | 33,633 | 14,807 | 64,374 | ||||||||||||||||||
As of December 31, 2014 | 132,944 | 733 | 14,156 | 78,360 | 34,434 | 260,627 | ||||||||||||||||||
Denominated in Brazilian currency | 126,404 | 626 | 5,519 | 55,152 | 24,102 | 211,803 | ||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 2,190 | - | 2,948 | 571 | - | 5,709 | ||||||||||||||||||
Denominated in foreign currency(1) | 4,350 | 107 | 5,689 | 22,637 | 10,332 | 43,115 | ||||||||||||||||||
As of December 31, 2013 | 148,860 | 371 | 11,366 | 96,626 | 10,116 | 267,339 | ||||||||||||||||||
Denominated in Brazilian currency | 141,958 | 263 | 5,682 | 73,799 | 3,779 | 225,481 | ||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | 2,114 | - | 2,627 | 484 | - | 5,225 | ||||||||||||||||||
Denominated in foreign currency(1) | 4,788 | 108 | 3,057 | 22,343 | 6,337 | 36,633 |
(1) Predominantly U.S. dollars.
For the purpose of analyzing the exposure of variations in foreign exchange rates, the table below presents the composition of our derivative financial instruments on December 31, 20142015 inreais and in foreign currency, including the instruments denominated in foreign currencies. For the fair value of derivative financial instruments, please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 7 – Financial Assets Held for Trading and Designated at Fair Value Through Profit or Loss and Note 36 – Management of Financial Risks.
(In millions of R$) | ||||||||||||
As of December 31, 2015 | ||||||||||||
Derivative financial instruments (notional amounts) | Brazilian Currency | Denominated in or linked to Foreign Currency | Total | |||||||||
Swap contracts | ||||||||||||
Buy (sale) commitments, net | 10,428 | (19,276 | ) | (8,848 | ) | |||||||
Forward contracts | ||||||||||||
Buy (sale) commitments, net | (38,984 | ) | (6,234 | ) | (45,218 | ) | ||||||
Future contracts | ||||||||||||
Buy (sale) commitments, net | (116,248 | ) | (95,129 | ) | (211,377 | ) | ||||||
Option contracts | ||||||||||||
Buy (sale) commitments, net | 3,726 | 4,827 | 8,553 | |||||||||
Others | ||||||||||||
Buy (sale) commitments, net | (2,306 | ) | 13,796 | 11,490 |
(In millions of R$) | ||||||||||||
DERIVATIVE FINANCIAL INSTRUMENTS | DENOMINATED IN OR LINKED | |||||||||||
(NOTIONAL AMOUNTS) | BRAZILIAN CURRENCY | TO FOREIGN CURRENCY | TOTAL | |||||||||
Swap contracts | ||||||||||||
Buy (Sale) commitments, net | 7,607 | (12,739 | ) | (5,132 | ) | |||||||
Forward contracts | ||||||||||||
Buy (Sale) commitments, net | (7,547 | ) | 6,922 | (625 | ) | |||||||
Future contracts | ||||||||||||
Buy (Sale) commitments, net | (29,889 | ) | (105,271 | ) | (135,160 | ) | ||||||
Option contracts | ||||||||||||
Buy (Sale) commitments, net | (44,853 | ) | 2,417 | (42,436 | ) | |||||||
Others | ||||||||||||
Buy (Sale) commitments, net | 4,536 | 968 | 5,504 |
Exposure to GIIPS
Our gross exposure to the sovereign bonds of the GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries as well as to corporate clients and financial institutions and other corporations and small businesses and individuals domiciled in those countries as of December 31, 2014,2015, is set forth in the table below:
(In millions of R$) | ||||||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||
Segment | Credit | Co-obligation | Sovereign | Bond | Derivative | Total Exposure | ||||||||||||||||||
Italy | 135 | - | - | - | - | 135 | ||||||||||||||||||
Corporate | 135 | - | - | - | - | 135 | ||||||||||||||||||
Financial | - | - | - | - | - | - | ||||||||||||||||||
Portugal | 240 | - | - | - | - | 240 | ||||||||||||||||||
Corporate | 240 | - | - | - | - | 240 | ||||||||||||||||||
Financial | - | - | - | - | - | - | ||||||||||||||||||
Spain | 1,350 | 567 | 1,060 | - | 13 | 2,990 | ||||||||||||||||||
Corporate | 1,350 | 535 | - | - | 1 | 1,886 | ||||||||||||||||||
Financial | - | 32 | 1,060 | - | 12 | 1,104 | ||||||||||||||||||
Total | 1,725 | 567 | 1,060 | - | 13 | 3,365 |
Financial performance | A-121 |
(In millions of R$) | ||||||||||||||||||||||||
AS OF DECEMBER 31, 2014 | ||||||||||||||||||||||||
SEGMENT | CREDIT | CO-OBLIGATION | SOVEREIGN | BOND | DERIVATIVE | TOTAL EXPOSURE | ||||||||||||||||||
Italy | 57 | - | 70 | - | - | 127 | ||||||||||||||||||
Corporate | 57 | - | 70 | - | - | 127 | ||||||||||||||||||
Financial | - | - | - | - | - | - | ||||||||||||||||||
Portugal | 97 | 1 | - | 8 | - | 106 | ||||||||||||||||||
Corporate | 97 | - | - | - | - | 97 | ||||||||||||||||||
Financial | - | 1 | - | 8 | - | 9 | ||||||||||||||||||
Spain | 1,207 | 1,152 | - | 783 | 8 | 3,150 | ||||||||||||||||||
Corporate | 1,207 | 1,075 | - | - | 1 | 2,283 | ||||||||||||||||||
Financial | - | 77 | - | 783 | 7 | 867 | ||||||||||||||||||
Total | 1,361 | 1,153 | 70 | 791 | 8 | 3,383 |
Annual Report2015 |
The total gross exposure presented above, primarily related to our exposure to corporate credits that amounted R$3,3831,725 million as of December 31, 2014,2015, and with co-obligations in the amount of R$1,153567 million. The exposure presented above has been calculated based on our estimated realizable value, which is updated depending on its nature (such as pledged amounts in current accounts used to collect customer receivables, financial investments, real estate, machinery and equipment or others), except for guarantees provided by third parties, in which case the amount corresponds to the outstanding debt. Our derivatives related to GIIPS countries amounted to R$8.013 million as of December 31, 2014.2015.
CompulsoryRequired Reserve Deposits with the Central Bank
The Central Bank requires compulsoryreserves for deposits from Brazilian financial institutions. The compulsory depositsreserve requirements are mechanismstools utilized by the Central Bank to control the liquidity of the Brazilian financial system, as well as afor both monetary policy resource of the Brazilian government.and risk mitigation purposes. These requirements are applied to banking transactions, such asbalances on demand deposits, savingssaving account deposits and time deposits. See below the compulsory deposit rates required reserve for each type of investment:deposit:
Required Reserve Deposits | Regulation(1) | Yield | 2015 | 2014 | 2013 | |||||||||||
Demand deposits | ||||||||||||||||
Compulsory | Circular No. 3,632 | Zero | 45 | % | 45 | % | 44 | % | ||||||||
Additional compulsory | Circular No. 3,655 | SELIC | 0 | % | 0 | % | 0 | % | ||||||||
Rural(2) | Resolution No. 4,096 | Zero | 34 | % | 34 | % | 34 | % | ||||||||
Microcredit(2) | Resolution No. 4,000 | Zero | 2 | % | 2 | % | 2 | % | ||||||||
Savings accounts(3) | ||||||||||||||||
Compulsory | Circular No. 3,093 | TR + 6.17% p.a. | 24.5 | % | 20 | % | 20 | % | ||||||||
Additional compulsory | Circular No. 3,655 | SELIC | 5.5 | % | 10 | % | 10 | % | ||||||||
Real estate financing(2) | Resolution No. 3,932 | Zero | 65 | % | 65 | % | 65 | % | ||||||||
Time and interbank deposits received from leasing companies | ||||||||||||||||
Compulsory | Circular No. 3,569 | SELIC | 25 | % | 20 | % | 20 | % | ||||||||
Additional compulsory | Circular No. 3,655 | SELIC | 11 | % | 11 | % | 11 | % |
COMPULSORY DEPOSITS | REGULATION(1) | YIELD | 2014 (%) | 2013 (%) | 2012 (%) | |||||||||||
Demand Deposits | ||||||||||||||||
Compulsory | Circular No. 3,632 | Zero | 45 | 44 | 45 | |||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 0 | 0 | 5 | |||||||||||
Rural(2) | Resolution No. 4,096 | Zero | 34 | 34 | 30 | |||||||||||
Microcredit(2) | Resolution No. 4,000 | Zero | 2 | 2 | 2 | |||||||||||
Savings Accounts(3) | ||||||||||||||||
Compulsory | Circular No. 3,093 | TR + 6.17 p.a. | 20 | 20 | 20 | |||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 10 | 10 | 10 | |||||||||||
Real estate financing(2) | Resolution No. 3,932 | Zero | 65 | 65 | 65 | |||||||||||
Time and Interbank Deposits Received from Leasing Companies | ||||||||||||||||
Compulsory | Circular No. 3,569 | SELIC | 20 | 20 | 14 | |||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 11 | 11 | 4 |
(1) Most recent regulation on the matter.
(2) This is a compulsory investment of resources that is made in eligible transactions, that is, the funds are granted to other economic entities.
(3) Remuneration on funds in savings deposits:
For deposits made until March 5, 2012, inclusive: TR + 6.17 per annum.
For deposits made after March 5, 2012: (a) If the target of the Selic rate is higher than 8.5 per annum: TR + 6.17 per annum; (b) If the target of the Selic rate is lower than 8.5 per annum: TR + 70
(1) | Most recent regulation on the matter. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) | This is a compulsory investment of resources that is made in eligible transactions, that is, the funds are granted to other economic entities. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(3) | Remuneration on funds in savings deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For deposits made until March 5, 2012, inclusive: TR + 6.17% per annum. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For deposits made after March 5, 2012: (a) If the target of the Selic rate is higher than 8.5% per annum: TR + 6.17% per annum; (b) If the target of the Selic rate is lower than 8.5% per annum: TR + 70% of the target of the Selic rate per annum.
In 2015, the Central Bank enacted a set of rules changing the reserve requirements that Brazilian financial institutions are required to deposit with the Central Bank, as a mechanism to control the liquidity of the Brazilian financial system.
The regulations that govern the compulsory deposit rates are frequently changed by the Central Bank in accordance with the economic scenario and The compulsory reserve requirements imposed on time deposits (currently applicable to On December 31,
Loan and lease operations Substantially all of our loans are granted to clients domiciled in Brazil and are denominated in Brazilianreais. Additionally,
Indexation Most of our portfolio is denominated in Brazilianreais. However, a portion of our portfolio is indexed to foreign currencies, primarily the U.S. dollar. The foreign currency portion of our portfolio consists of loans and financing for foreign trade and onlending operations. Our loans
Loan and lease operations by type The following table sets out the distribution of our credit portfolio according to the type of loan and lease operations, as follows:
Loan and lease operations by maturity The following table sets out the distribution of our credit portfolio by maturity, including non-overdue and overdue, according to the type of loan and lease:
Loan and Lease Operations by interest rate The following table sets out the classification of our credit portfolio into fixed and variables rates, including non-overdue and overdue installments:
Loan and Lease Operations by economic activity The following table sets out the composition of our credit portfolio, including non-accrual loan operations, by economic activity of the borrower:
On December 31,
Loan and Lease Operations by concentration The following table presents the composition of our credit portfolio by concentration with respect to the amounts owed by the debtors:
Rating of the Loan and Lease Portfolio The following table presents the rating of our loan and lease portfolio based on the probability of default for the periods indicated below.
The credit rating in corporate transactions is based on information such as the economic and financial condition of the counterparty, its cash-generating capabilities, the economic group to which it belongs, the current and prospective situation of the economic sector in which it operates, the collateral offered and the use of proceeds. The credit proposals are analyzed on a case by case basis, through an approval-level mechanism reporting to the Superior Credit Committee.
Regarding retail transactions (individuals, small and middle-market companies) the rating is assigned based on application and behavior score statistical models. Decisions are made based on scoring models that are continuously updated by an independent unit. In limited instances, there may also be an individualized analysis of specific cases where approval is subject to competent credit approval levels. The risk ratings are grouped in four categories: (i) lower risk, (ii) satisfactory, (iii) higher risk and (iv) impaired. Please refer to section Performance, item Financial Performance – Allowance for Loan and Lease Losses, for further details on the individual and collective analyses.
Non-accrual Loans We consider all loans overdue for 60 days or more as non-accrual loans and, accordingly, cease the accrual of financial charges on such loans.
Write-offs Loans and leases are written off against the allowance for loan and lease losses when the loan is not collected or is considered permanently
impaired. We typically write off loans when they are overdue for 360 days, except for loans having an original maturity in excess of 36 months, which are written off when they are overdue for 540 days. However, write-offs may be recognized earlier than 360 days if we conclude that the loan is not recoverable.
Please refer to section Performance, item Assets – Loan and Lease Operations – Renegotiated Loans for further details.
Information on the Quality of Loans and Leases The table below shows our non-accrual loans together with certain asset quality ratios.
Assessment We first assess whether there is objective evidence of loss individually allocated to individually significant loans or collectively allocated to loans that are not individually significant.
To determine the amount of the allowance for individually significant loans with objective evidence of impairment, we use methodologies that consider both the client quality and the nature of the financing, including its collateral, to estimate the cash flow expected from these loans.
If there is no objective evidence of loss for an individually assessed loan, whether significant or not, the loan is included in a group of loans with similar credit risk characteristics which are then collectively tested for impairment. Individually assessed loans for which an impairment loss is recognized are not included in the collective assessment. The amount of loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows (excluding future loan losses that have not been incurred), discounted at the financial asset’s effective interest rate.
For collectively assessed loans, the calculation of the present value of the estimated future cash flows, for which collateral is received, reflects the historical performance and recovery of the fair value, considering the cash flows that may arise from the performances less costs for obtaining and selling that collateral.
For the purpose of collectively assessing impairment, loans are aggregated based on similar credit risk characteristics. These characteristics are relevant to estimate the future cash flows of these loans since they may be an indicator of the difficulty of the debtor in paying the amounts due, in accordance with the contractual conditions of the loan that is being assessed. The future cash flows of a group of loans that are collectively assessed in order to identify the need for recognizing an impairment are estimated based on the contractual cash flows of the group of loans and the historical experience of loss for loans with similar credit risk characteristics. The historical loss experience is adjusted, based on current observable data, to reflect the effects of current conditions that have not impacted the period on which the historical loss experience is based and to exclude the effects of conditions in the historical period that are not currently in place.
For individually significant loans with no objective evidence of impairment, such loans are classified into certain credit ratings based on several qualitative and quantitative factors applied to internally developed models. Considering the size and thedifferent risk characteristics of each credit agreement, the ratings determined under internal models may be reviewed and modified by our Credit Committee, the members of which are executives and experts in corporate credit risk. We estimate the losses inherent in every rating, using the approach internally developed to low-default portfolios, which uses our historical experience to design internal models that are used to estimate the probability of default and the potential for recovery of non-performing loans.
To determine the amount of the allowance for items that are not individually significant, loans are segregated into classes based on the underlying risks and the characteristics of each group. The allowance for loan and lease losses is determined for each of these classes through a process that considers the historical delinquency and the loan loss experience in the last years.
Allocation of the Allowance for Loan and Lease Losses
The table below presents the details, by segment and class, as defined in the segmentation of our portfolio, of the allowance for loan and lease losses, of this allowance as a percentage of the total loan and lease losses for the corresponding segment or class, and the percentage of the total loan and leases in each segment and class in relation to the total loans and leases.
Renegotiated Loans
Renegotiated loans include both loans for which the credit agreement’s original terms were amended (agreements) and new loans originated in order to settle contracts or transactions with the same client (restructured loans), which were originally past due. Amendments and restructured loans usually reflect changes in contract terms, rates or payment conditions.
In almost all cases for loan products, renegotiated loans require that at least one payment be made under the renegotiated terms in order for it to be removed from non-performing and non-accrual status. Renegotiated loans return to non-performing and non-accrual status when they reach 60 days past due under the renegotiated terms, which typically corresponds to the borrower missing two or more payments.
The fact that a loan or lease has been renegotiated is also taken into consideration when determining the allowance for loan and lease losses after the renegotiation. The past performance and the payment history of the client and the transaction, including the probability
of another default for renegotiated transactions, are considered in our risk models in order to determine the probability of default. This probability of default is generally higher than the probability assigned to similar transactions that have never been renegotiated. Another factor considered in determining the appropriate level of the allowance for loan and lease losses is the additional collateral to be offered by the debtor. The resulting allowance levels are compatible with the risk profile of each transaction.
Our renegotiated loan portfolio increased to 3.1% of our total loan portfolio as of December 31, 2015, compared to 2.6% as of December 31, 2014. At the end of 2015, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 46.8% compared to 47.2% as of December 31, 2014. This portfolio increased in 2015 due to the worsening macroeconomic scenario, mainly in Brazil, specifically in the segment corporate, as shown below in the table “Renegotiated loan and lease operations” where a breakdown by segment is presented. Our renegotiated loan portfolio decreased to
Our renegotiated loan portfolio decreased to
Our renegotiated loan portfolio increased to
During 2012, the Brazilian economy experienced an increase in the default levels for individuals, mainly with respect to vehicle financing and personal loan portfolios. As one of the largest banks in Brazil, our loan portfolio was impacted by this increase in defaults. In order to increase the recovery of overdue loans, including loans already written off as losses, and to reduce losses, we enhanced our collection and recovery initiatives. However, we require that at least one installment is paid to consider the renegotiation to be valid and to treat it as a renegotiated agreement.
The total amount of each type of renegotiated loan as of December 31, 2015, 2014
(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.
(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.
(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.
The tables below present an additional breakdown of renegotiated loans by portfolio, in segments and types, based on the type of modification, as of December 31, 2015, 2014
The following tables present an additional breakdown of renegotiated loans and leases by segment and class, as of December 31, 2015, 2014
The table below presents the changes in our loan and lease portfolio with loss event, including the changes of the renegotiated loans and leases with loss event related to each year as of December 31, 2015, 2014
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 12 – Loan operations and lease operations portfolio for further details.
Cross border outstanding Cross border outstanding are monetary assets which are denominated in non-local currency and exceeded 1% of our total assets in the case of transactions with foreign clients entered into by our subsidiaries in the United Kingdom (our former subsidiary in Portugal), the Cayman Islands, the Bahamas and
Short-term borrowings Short-term borrowings are included in our balance sheet under the “Securities sold under repurchase agreement” line item. The main category for short-term borrowings is “Deposits Received under Securities Repurchase Agreements with Own and Third-Party Financial
Liabilities
Funding
Main sources Our current funding strategy is to continue to use all of our sources of funds in accordance with their costs and availability and our general asset and liability management strategy. In order to fund our operations, we intensified the use of the liquidity generated by savings deposits, interbank deposits, debt in the interbank market and debt in the institutional market during 2015, 2014
We also used Brazilian debentures subject to repurchase as a source of funding, reported as deposits received under securities repurchase agreements and offered to institutional clients as well as private banking, corporate banking and retail clients. This funding is designed to provide increased profitability through higher spreads in our savings deposits and higher fees earned on market funds.
Our ability to obtain funding depends on several factors, including credit ratings, general economic conditions and investors’ perception of emerging markets in general and of Brazil (particularly, current political and economic conditions in Brazil and government regulations for foreign currency funding).
Part of our long-term debt provides for the advance payment of the outstanding principal balance upon the occurrence of certain facts, as is customary for long-term financing agreements. As of December 31, 2014, none of these events, including default events and non-compliance with any financial covenant, had occurred, and we have no reason to believe that any of these events are likely to occur in 2015.
Our main sources of funding are our deposits, which are split into demand deposits, savings deposits, time deposits and interbank deposits. As of December 31,
The table below shows the breakdown of our main sources of funds as of December 31, 2015, 2014
Deposits by maturity The table below shows the maturity profile of our deposits as of December 31,
The table below sets forth the maturity of outstanding time deposits with balances in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2015, 2014
The following table sets forth the mix of the individual and corporate time deposits divided among our retail, Itaú Personnalité, middle market and corporate markets (each expressed as a percentage of total time deposits) as of December 31, 2015, 2014
Other sources We also act as a financial agent in borrowing funds from BNDES and FINAME, and lending such funds at a spread determined by the Brazilian government to targeted sectors of the economy. We obtain U.S. dollar-denominated lines of credit from our affiliates, including Itaú Unibanco Holding
Litigation
Overview We are not defendants in any significant administrative proceeding before the CVM, SUSEP, the Central Bank or any municipalities. As part of the ordinary course of our business, we are subject to, and we are party to various legal and administrative proceedings (including consumer complaints) filed against us with SUSEP or the Central Bank.
Our financial statements only include reserves for probable losses that can be reasonably estimated and expenses that we may incur in connection with pending litigation or administrative proceedings, or as otherwise required by Brazilian law.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 32 – Provisions, Contingencies and Other Commitments, for further information and details about the changes in the provisions and respective escrow deposits for tax and social security lawsuits and main types of tax disputes. The following table sets forth our provisions for such contingencies as of December 31, 2015, 2014 and 2013:
No class actions alleging unfair competition, trust or monopoly practices were brought against us in 2015.
Civil Litigation Litigation Arising from Government Monetary Stabilization Plans From 1986 to 1994, the Brazilian federal government implemented several consecutive monetary stabilization plans, or MSP, to combat hyper-inflation. In order to implement these plans, the Brazilian federal government enacted several laws based on its power to regulate the monetary and financial systems as granted by the Brazilian federal constitution. Holders of savings accounts during the periods when the MSPs were implemented have challenged the constitutionality of the laws that implemented those plans, claiming from the banks where they held their savings accounts additional amounts of interest based on the inflation rates applied to savings accounts under the MSPs. We are defendants in numerous standardized lawsuits filed by individuals in respect of the MSPs. We record provisions for such claims upon service of process for a claim.
In addition, we are defendants in class actions, similar to the lawsuits by individuals, filed by either (i) consumer protection associations or (ii) public attorneys’ offices (Ministério Público) on behalf of holders of savings accounts. Holders of savings accounts may collect any amount owing on account of a final decision. We record provisions when individual plaintiffs apply to enforce any such decisions, using the same criteria used to determine provisions for individual lawsuits. The Federal Supreme Court (Supremo TribunalFederal, or STF) has issued a number of decisionsin favor of the holders of savings accounts, but has not issued a final ruling with respect to the constitutionality of the MSPs as applicable to savings accounts. In relation to a similar dispute with respect to the constitutionality of the MSPs as applicable to time deposits and other private agreements, the Federal Supreme Court has decided that the laws were in accordance with the Brazilian federal constitution. In response to this discrepancy, theConfederação Nacionaldo Sistema Financeiro, or CONSIF, an associationof Brazilian financial institutions, filed a special proceeding with the Federal Supreme Court (Arguição de Descumprimento de PreceitoFundamental nº 165), in which the Central Bankhas filed an amicus brief, arguing that holders of savings accounts did not incur actual damages and that the MSPs as applicable to savings accounts were in accordance with the federal constitution. Accordingly, the STF suspended the ruling of all appeals involving this matter until it hands down a final decision. However, there is no estimate of when the STF will render a judgment in the case, as there has not been a sufficient quorum to decide the issue. In addition, the STJ, which is the highest court responsible for deciding on federal laws, is about to rule on several aspects that will directly determine the amount due, in case the STF rules against the constitutionality of the MSPs. The most relevant of such decisions will be: (i) the accrual of compensatory interests on the amount due to the plaintiff, in filings that carry no specific claim to such interests; (ii) the initial date of default interests, in regard to class actions; and (iii) the possibility of compensating the negative difference arising in the month of the MSP implementation, between interest actually paid on saving accounts and the inflation rate of the same period, with the positive difference arising in the months subsequent to the MSP implementation, between interest actually paid on saving accounts and the inflation rate of the same period. In relevant trials during 2015, the STJ ruled that: (i) compensatory interest would not be included in judgment awards , unless the ruling in question specifically provides for the award thereof; and (ii) compensatory interest shall not be required to be paid to savings accountholders once the institution in question can prove that the corresponding savings account has been terminated. In addition, such rulings also confirmed that inflationary effects from MSPs that became effective after those that are subject to the judicial action in question may be included in the claim for purposes of determining the amounts due thereunder, even without the express request of the account holder seeking judicial relief. In addition, the STJ ruled that the term for filing class actions expired five years from the date of the MSP implementation. As a consequence, numerous class actions have been extinct by the Judiciary since such ruling. Other Civil Litigation In addition to litigation arising from government monetary stabilization plans, we are defendants in numerous civil lawsuits arising from the normal course of our business. We are not able to currently predict the total amounts involved in these claims, due to the nature of the matters disputed. However, we believe that any potential liabilities related to these lawsuits will not have a material adverse effect on our financial condition or results. Labor Litigation In 2015, we and our subsidiaries were not exposed to any labor liabilities or labor contingencies which significantly impacted our results. The pool of labor claims for our subsidiaries in such period comprises labor claims filed by employees, former employees and outsourced service providers. Labor unions and former employees have filed labor claims against us, seeking compensation for alleged breaches of employment agreements or rights under the applicable labor laws. As of December 31, 2015, there were 66,841 labor claims filed against us. The main requests in the labor claims filed by our current and former employees include: Salary differences arising from the application of the 30 working hours per week limit, provided for in art. 224 of the Brazilian Labor Laws Consolidation (CLT), wich is applicable to bank employees whose function does not require special trust from the employer; Salary differences arising from overtime not duly registered in the internal systems; Claims with respect to the method to establish the overtime work pay; and Salary parity. Labor class actions filed against us mainly relate to the continuation of health care plans, safety rules and strikes. We are also defendants in connection with labor claims filed by the labor prosecution office regarding union classification, outsourcing, occupational diseases, health and safety and compliance with the minimum quotas for disabled personnel. In the fiscal year ended December 31, 2015, we paid approximately R$1,711 million in direct labor expenses, mainly in settlements and convictions involving former employees, in accordance to the agreements signed and to the rulings imposed by labor courts. Regarding labor claims filed by outsourced service providers, they generally involve allegations of subsidiary liability of the companies within our group.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 32 – Provisions, Contingencies and Other Commitments, for further information about labor claims. Tax Litigation We have certain tax disputes that arise from our ordinary business activities, mainly relating to the constitutionality or legality of certain taxes imposed on us. Contingent liabilities arising from tax disputes are recorded according to the principal amount of taxes in dispute, subject to tax assessment notices, plus interest and, if applicable, penalties and other administrative charges.
A provision for such contingent liability is established if it involves a legal tax obligation, regardless of the probability of winning or losing the dispute. A legal tax obligation exists if the gain or loss of the related litigation depends directly on the determination of whether a currently enforceable law is constitutional or unconstitutional. In any other situation, a provision is recognized if a loss is probable (prevailing in the litigation is less likely than a loss).
On June 25, 2013, we received a notice of deficiency from the Brazilian tax authorities alleging that Itaú Unibanco Holding failed to pay approximately R$11,844.7 million of IRPJ, plus accrued penalties and interest, and approximately R$6,867.0 million of CSLL, plus accrued penalties and interest, in fiscal year 2008, as a result of the corporate transaction that led to the association of Itaú Holding and Unibanco Holdings S.A. The Brazilian tax authorities allege that corporate transactions of a different kind should have been used. However, the transaction suggested by the Brazilian tax authorities is not supported in the applicable rules to financial institutions. On January 30, 2014, we were advised that the Brazilian tax authorities confirmed the notifications in a non-unanimous ruling. On February 28, 2014 we appealed the decision at the Administrative Tax Appeals Tribunal. We continue to defend that the transactions conducted were appropriate and legitimate, having been approved by the involved companies’ management bodies and their respective
behalf of loss as remote by our lawyers. The
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 32 – Provisions, Contingencies and Other Commitments, for further
Derivative Instruments that Qualify for Hedge Accounting Hedging transactions may be classified into three categories: hedge of fair value, cash flows and net investment of foreign operations.
Please refer to section Our Risk Management item Risk and capital management, Market risk for further details about hedge.
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 9 – Hedge Accounting, for further details. With respect to the hedge accounting policy, please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2.4 g III – Summary of Main Accounting Practices.
Tabular Disclosure of Contractual Obligations The table below summarizes the maturity profile of our consolidated long-term debt, operating leases and other contractual commitments as of December 31,
Our strategy to manage interest rate risk on our long-term debt does not include fixed interest rate swaps or similar derivatives. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 19 – Deposits Received Under Securities Repurchase Agreements and Funds from Interbank and Institutional Markets for further details.
Purchases of Shares by the Issuer and Affiliated Purchasers In conformity with best corporate governance practices, on November 18, 2004, we started to voluntarily disclose our
On February 1, 2016 our Board of Directors once again renewed our share repurchase program through August 2, 2017, authorizing the purchase, in the aggregate with respect to all shares purchased under the program, of up to 10.0 million common shares and 50.0 million preferred shares
Capital Expenditures In accordance with our practice in the last few years, our capital expenditures in the twelve-month period ended December 31,
(In millions of R$, except percentages)
Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 15 – Fixed Assets and Note 16 – Intangible Assets for further details.
Fixed assets
Property, Plant and Equipment As of December 31,
As of December 31, 2015, we completed our IT investments planned for the period from 2012 to 2015, which we funded from internal resources. These investments were made in data processing systems, purchase of software, system development and in our new Data Center built in the State of São Paulo, which opened in March 2015. This technology center will provide an increase in the processing and storage capacity of our operations by 25 times, in addition to providing a 43% reduction in the use of energy, as compared to our current consumption. The new data center will support our growth up to 2050, ensuring the high performance and availability of our operations. We also lease a portion of our administrative offices and the majority of our branches at competitive market prices from third parties and under renewable leases with terms ending from the first half of
As of December 31,
Capitalization The table below presents our capitalization as of December 31,
You should read the table below in conjunction with the information included in section Our profile, item In
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, other than the guarantees we granted that are described in Note 36 – Management of Financial Risks, item 3 – Collateral and policies for mitigating credit risk and item 5 – Credit risk exposure of our consolidated financial statements and derivative financial instruments discussed above. Please refer to section Our Risk Management, item Risk and Capital Management, Exchange Rate Sensitivity for further details.
Results
Highlights The highlights for the years ended December 31,
Net income(attributable to the owners of
For 2015, our net income attributable to the owners of the parent company was R$25,740 million and increased 19.4% compared to 2014, when our net income reached R$21,555 million. For the year ended December 31, 2014, our net income attributable to the owners of the parent company
Our performance ratio, ROAE (return on average equity), calculated by dividing net income attributable to owners of the parent company by the quarterly average stockholders’ equity attributed to the owners of the parent company excluding quarterly average proposed dividends recorded, reached
Stockholders’ equity(attributable to As of December 31, 2015 our total stockholders’ equity increased December 31, 2014, and reached R$112,252 million. As of December 31, 2014, our total stockholders’ equity
R$99,260 million. As of December 31,
Loan and lease portfolio:pincreased 4.8% as of December 31, 2015 compared to December 31, 2014 and increased 9.9% as of December 31, 2014 compared to December 31, Loans and As of December 31, 2015 loans to individuals totaled R$187,220 million, an increase of 0.7% compared to December 31, 2014. The increase is primarily a result of the increases of (i) 19.5% in mortgage loans to R$34,790 million, mainly due to our focus on portfolios with lower delinquency rates, and (ii) 12.1% in payroll loans to R$45,434 million, due to a continued growth in our retail branch payroll loan operations and to the association agreement with BMG, aimed at the offering, distribution and sale of payroll loans through the incorporation of a new financial institution, Itaú BMG Consignado. This association supplemented our payroll loan distribution strategy and improved the risk profile of our loan portfolio. Vehicle financing decreased 30.9% as of December 31,
As of December 31, 2014 loans to individuals totaled R$185,953 million, an increase of 11.1% compared to December 31, 2013. The increase is primarily a result of the increases of (i) 11.6% in credit card loans to R$59,321 million, (ii) 18.8% in mortgage loans to R$29,107 million, mainly due to our focus on portfolios with lower delinquency rates, and (iii) 79.5% in payroll loans to R$40,525 million, due to a continued growth in our retail branch payroll loan Loans and lease to
As of December 31,
As of December 31, 2014 loans and leases to companies totaled R$
In addition, the depreciation of thereal against other currencies, especially the U.S. dollar, also contributed to the growth of our medium to large companies’ portfolio since a portion of our loans are denominated or originated in such currencies.
The balance of our foreign loans and leases from our operations in Latin America outside Brazil (Argentina, Chile, Colombia, Paraguay and Uruguay) totaled R$
As of December 31,
Credit quality (90-day NPL ratio):
The 90-day’s non-performing loans ratio (90-day NPL ratio), is calculated by dividing 90-day’s non-performing loans by our loan portfolio.
As of December 31, 2015, our 90-day NPL ratio reached 3.5%, an increase due to increases in the 90-day NPL ratios for both individuals and companies. The ratio for individuals increased by 70 basis points compared to December 31, 2014. As of December 31, 2014, our 90-day NPL ratio reached 3.1%, an improvement due to decreases in the 90-day NPL ratios for
The coverage ratio, calculated by dividing the provisions for allowance for loan and lease losses by 90-day’s non-performing loans, reflects the mechanics of our provisioning model and reached 164% as of December 31, 2015 compared to a ratio of 160% as of December 31,
Interest Income:
Interest and similar expenses:p increased 2.9% for the year ended December 31, 2015 compared to the same period in 2014 and increased 57.4% for the year ended December 31, 2014 compared to the same period in 2013.
Banking service fees:p increased 11.8% for the year ended December 31, 2015 compared to the same period in 2014 and increased 16.0% for the year ended December 31, 2014 compared to the same period
Income from insurance, private pension plan and capitalization operations (premium bonds) before claim and selling expenses: General and administrative expenses:pincreased
Expenses for allowance for loan and lease losses:p increased 30.2% for the year ended December 31, 2015 compared to the same period in 2014 and increased 5.5% for the year ended December 31, 2014 compared to the same period in Impaired loans:p increased from R$17,206 million as of December 31, 2014 to R$27,157 million as of December 31, 2015, an increase
Loans under renegotiation:
Unless otherwise indicated, the discussion in this section
Net income The following table shows the main components of our net income for the years ended December 31,
Banking Product (Operating Revenues) Banking product (operating revenues) is the sum of our operating revenues, net of funding costs, as detailed in the table above. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 23 – Interest and Similar Income and Expense and Net Gain (Loss) from Investment Securities and Derivatives, Note 24 – Banking Service Fees and Note 25 – Other Income for further details.
The following table shows the main components of our interest and similar income for the years ended December 31,
In 2015, the 23.0% increase in interest and similar income compared to 2014 was mainly due to increases in interest on loans and leases, in interest on securities purchased under agreements to resell and in interest on financial assets held for trading. The increase of 14.6% in interest on loans and leases is mainly due to the 35.2% growth in our Latin America loan portfolio when compared to the previous year. The increase in interest for trading is related to increases in the cumulative SELIC rate to 13.8% in 2015 from 10.9% in 2014.
In 2014, the 27.6% increase in interest and similar income compared to 2013 was mainly due to increases in interest on loans and leases, in interest on held for trading, available-for-sale and held-to-maturity financial assets, and in interest on compulsory Central Bank deposits. The increases in interest for trading, available-for-sale and held-to-maturity financial assets and on Central Bank compulsory deposits are related to increases in the cumulative SELIC rate to 10.9% in 2014 from 8.3% in 2013. The increase in 2014 of 16.3% in interest on loans and leases compared to 2013 is mainly due to the 9.9% growth in our loan portfolio combined with the growth short-term duration products such as overdrafts and credit cards.
As of December 31,
Since 2011, we have focused on reducing the credit risk of our loan portfolio. As a result, our mortgage, payroll, corporate and Latin America (ex-Brazil) loan portfolios have grown more rapidly, while our vehicle and small companies’ portfolios have decreased. Our mortgage loan portfolio has grown in line with the market and we maintained a conservative approach regarding collateral. The LTV quarterly average (Loan-to-Value: ratio between the loans and the underlying collateral) reached
The changes in the SELIC rate also affected our total interest expenses. In
In 2015 and 2014, the increase in the SELIC rate increased our interest expenses for securities sold under repurchase agreements and reserves for insurance and private pension and liabilities for capitalization plans (premium bonds).
Dividend income totaled R$98 million for the year ended December 31, 2015, compared to R$215 million for the year ended December 31,
Net gain (loss) from investment securities and derivatives totaled a loss of R$
Foreign exchange results and exchange variation on transactions totaled a loss of R$6,353 million for the year ended December 31, 2015 compared to a gain of R$9,644 million for the year ended December 31, 2014 and a gain of R$6,594 million for the year ended December 31,
The following table shows the main components of our non-interest income for the years ended December 31,
In 2015, our non-interest income amounted to R$37,403 million, representing a growth of 5.7% from the same period in the previous year, mainly due to the growth of 11.8% in banking service fees. In 2014, our non-interest income amounted to R$35,384 million, representing a growth of 15.1%
Banking service fees refer to the sum of fees from current account services, asset management, collection, credit card services, guarantees issued and credit lines, brokerage commission and other fees. In 2015, the increase in banking service fee revenues was mainly due to: (i) income from fees from credit card services, influenced by higher revenues from interchange, MDR (Merchant Discount Rate) and annual fees, and by the increase in the number of POS equipment rented in the period, and (ii) income from current account services, influenced mainly due to the offering of differentiated products and services. These products include differentiated current account service packages for individuals and the convenience and versatility of products offered to companies. The growth in banking service fees and other fees income is in line with our strategy to diversify our income, mainly to make it less dependent on changes in interest rates. In 2014, the increase in banking service fee revenues was mainly due to: (i) income from fees from credit card services, influenced by the increased revenues from credit card annual fees, increases in sales and an increase in the number of equipment (POS) rented during the period, as well as the acquisition of Credicard, and (ii) income from current account services, influenced by the expansion of our account holder base and the increase in the offering of differentiated products and services. In
decrease of R$1,024 million in
In 2014, income from insurance, private pension and capitalization operations (premium bonds) before claim and selling expenses increased R$249 million compared to 2013. The increase was influenced by (i) the lower reinsurance premium
In
In 2014, other income increased
The following chart shows the
Below is the composition of our losses on loans and claims for the years ended December 31,
Evolution of the expenses for allowance for loan and lease losses
The chart below shows the changes in the components making up our expenses for allowance for loan and lease losses which primarily account for the variation between expenses for allowance for loan and lease losses for the years ended December 31,
(1) Includes Payroll Loans. (2) Includes Credit Card Loans, Mortgage Loans, Vehicles and Latin America Loans.
For the year ended December 31, 2015, our expenses for allowance for loan and lease losses increased 30.2% compared to the same period in 2014. The growth is mainly due to a more challenging economic environment. Please refer to section Macroeconomic context – item Brazilian context for further details.
For the year ended December 31, 2014, our expenses for allowance for loan and lease losses increased 5.5% compared to the same period in 2013 despite an increase of 9.9% in our loan portfolio in this period. This was the result of our continued application of stricter requirements for granting loans, which has led to higher down payment requirements and shorter financing terms and due to the acquisition of Credicard, which increased our loan portfolio by R$8.2 billion in December 2013.
In the year ended December 31,
2014. In the year ended December 31, 2014, the recovery of loans written off as losses remained relatively stable compared to the year ended December 31, 2013 and reached R$5,054 million, representing a 0.1% decrease. In 2015, expenses for claims decreased by R$819 million when compared to 2014, mainly due to a decrease in claims of large risk insurance operations due to the sale of the large risk portfolio, in addition to decreasing claims in mandatory insurance for personal injury caused by motor vehicles (Seguro Obrigatório de Danos Pessoais Causados porVeículos Automotores de Via Terrestre, or DPVAT). In the year
Recovery of claims under reinsurance decreased by R$
Below is the composition of our general and administrative expenses for the years ended December 31,
We kept a tight control on costs and have partially offset the potential rise in costs (brought by the growth of operations, the rise in salaries and benefits due to collective labor agreements and the impact of inflation on our administrative costs) with
General and administrative expenses increased R$
In 2015, the increase of R$2,503 million in personnel expenses was mainly a result of the increase in expenses related to compensation, defined contribution plan and provision for labor claims. The annual collective labor agreement reached in October 2015, increased compensation by 10.0% starting from September 2015, and impacted the year ended December 31, 2015 compared to the same period of 2014. In 2014, the increase of R$1,211 million in personnel expenses was mainly a result of the increase in expenses related to compensation,
payroll taxes, benefits and profit sharing. The annual collective In year ended December 31, 2015. In 2014, the administrative expenses increased R$1,068 million, or 8.1%, mainly because of increases in third-party services, data processing and telecommunications, rent, security and financial services. In 2015, other expenses
provisions for civil lawsuits. In 2014, other expenses increased R$152 million, or 2.1%, mainly due to the growth in selling expenses related to credit cards
In the year ended December 31,
Certain amounts of income and expenses are recognized in our income statement but do not affect our taxable basis. Conversely, certain amounts are considered taxable income or deductible expenses in the calculation of our taxes on income but do not affect our income statement. Those items are referred to as
In the year ended December 31,
Basis of Segment Information Presentation Our segment information is based on reports used by senior management to assess the financial performance of our businesses and to make decisions regarding the allocation of funds for investment and other purposes.
Segment information is prepared according to accounting practices adopted in Brazil (our segment information is not prepared in accordance with IFRS) but includes the following pro forma adjustments: (i) the recognition of the impact related to allocated capital using a proprietary model; (ii) the use of funding and cost of capital, according to market prices, using certain managerial criteria; (iii) the exclusion of non-recurring events from our results and (iv) the reclassification of the tax effects from hedging transactions we enter into for our investments abroad. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 34 – Segment Information for further details.
The Efficiency Ratio and Risk Adjusted Efficiency Ratio are calculated based on managerial information, as presented below:
The Efficiency Ratio and Risk Efficiency Ratio are non-GAAP measures and we disclose them herein as we consider them to be an important measure to understand how we manage our overhead costs. We disclose this measure to the market on a quarterly basis.
Low
It is important to note that the change in the segments is not reflected in the annual report as of and for the year ended December 31, 2014 or any prior periods. The current operational and reporting segments are described below:
Activities with the Market and Corporation: This segment records the results derived from capital surplus, subordinated debt surplus and the net balance of tax credits and debits. It also shows the financial margin with the market, the Treasury operating cost, the equity in earnings of companies not associated to each segment and the interest in Porto Seguro.
We present below a summary of the results from our operating segments for 2015. Similar information for 2014 and 2013 is included in the
Revenues from Operations in Brazil and Abroad We conduct most of our business activities in Brazil, but we do not break down our revenues by geographic
The following table sets forth the consolidated statement of income with respect to our revenues from operations in Brazil and abroad for the years ended December 31, 2015, 2014
The following table sets forth the consolidated statement of income with respect to our
On the
Net income for the
On the other hand, with a negative impact on
Wholesale The following table sets forth the consolidated statement of income with respect to our Wholesale
In Losses on loans and claims increased 85.2%, mainly due to the increase in expenses for allowance for loan losses for companies of the corporate segment in 2015. The increase of 117.0 % in recovery of loans written-off as losses compared to 2014 was mainly driven by the restructuring with respect to amounts owed by a specific client of the corporate segment. Also, the non-interest expenses increased 21.1%, having a negative impact on net income.
In 2014, net income for our Wholesale
Activities with the Market and Corporation The following table sets forth the consolidated statement of income with respect to our Activities with the Market and Corporation segment for the years ended December 31, 2015, 2014
Activities with the Market and Corporation segment includes the result from the investment of our excess capital, costs from our excess subordinated debt and the net balance of tax assets and liabilities. It also includes the financial margin on market transactions, costs of treasury operations, equity in the earnings of companies that are not linked to any segments, as well as adjustments related to minority shareholdings in subsidiaries and our interest in Porto Seguro S.A.
In In 2014, net income from Activities with the Market and Corporation decreased 11.3% from the previous year. Having a negative effect on net income, non-interest expenses increased
Changes in Cash Flows The following table sets forth the main variations in our cash flows for the years ended December 31,
In 2015, our net decrease of R$43,350 million in cash and cash equivalents was attributed to the use of R$34,459 million in net cash provided by operating activities, by R$361 million in investing activities and by R$8,529 million in financing activities.
Operating Activities In 2015, net cash used in operating activities was R$34,459 million due to increases in financial assets held for trading, loan operations (as a result of the credit portfolio increases) and securities purchased under agreements to resell. In 2014, the changes in cash flows from operating activities resulted from a decrease in financial assets held for trading and an increase in deposits received under securities repurchase agreements, partially offset by increases in loan operations. In 2013, the changes in cash flows from operating activities resulted primarily from an increase in funds from interbank markets offset by our loan operations.
Investing Activities The investing activities include available-for-sale assets, held to maturity assets, other receivables and investment securities. In 2015, the purchase of available-for-sale assets and purchase of held-to-maturity financial assets were the main cause for the outflows in our cash flow from investing activities. In 2014, the sale of large risk insurance operations and the sale of available-for-sale assets was the main cause for the inflows in our cash flow from investing activities, offset by cash paid
Financing Activities In 2015, 2014 and
Liquidity and Capital Resources Our board of directors determines our policy regarding liquidity risk management, and establishes broad quantitative liquidity risk management limits in line with our risk appetite.
We maintain separate liquidity pools at our Brazilian operations and at each of our subsidiaries in Latin America and Europe. Our Brazilian operations include the financial institutions in Brazil and the entities used by the Brazilian operations for funding and serving their clients abroad. Each subsidiary in Latin America (e.g., in Chile, Argentina, Uruguay, Colombia and Paraguay) and in Europe has its own treasury function with appropriate autonomy to manage liquidity according to local needs and regulations, while remaining in compliance with the liquidity limits established by Itaú Unibanco Holding senior management. In general, there are rarely liquidity transfers between subsidiaries or between the head office and a subsidiary, except under very specific circumstances (e.g., targeted capital increases).
CMN regulations also establish capital conservation and countercyclical buffers for Brazilian financial institutions, and determines their minimum percentages as well as which sanctions and limitations will apply in case of non-compliance with such additional requirements.
We define our consolidated group operational liquidity reserve as the total amount of assets that can be rapidly turned into cash, based on local market practices and legal
The following table presents our operational liquidity reserve as of December 31, 2015, 2014
Management controls our liquidity reserves by projecting the resources that will be available for investment by our treasury department. The technique we employ involves the statistical projection of scenarios for our assets and liabilities, considering the liquidity profiles of our counterparties.
Short-term minimum liquidity limits are defined according to guidelines set by the
Management of liquidity makes it possible for us to simultaneously meet our operating requirements, protect our capital and exploit market opportunities. Our strategy is to maintain adequate liquidity to meet our present and future financial obligations and to capitalize on business opportunities as they arise.
We are exposed to effects of the disruptions and volatility in the global financial markets and the economies in those countries where we do business, especially Brazil. However, due to our stable sources of funding, which include a large deposit base, the large number of correspondent banks with which we have long-standing relationships, as well as facilities in place which enable us to access further funding when required, we have not historically experienced liquidity challenges, even during periods of disruption in the international financial markets.
The following table sets forth our average deposits and borrowings for the
Our principal sources of funding are interest-bearing deposits, deposits received under repurchase agreements, on-lending from government financial institutions, lines of credit with foreign banks and the issuance of securities abroad. Please refer to section Performance, item Consolidated Financial Statements, Note 17 – Deposits for further details about funding.
We may from time to time seek to retire or purchase our outstanding debt, including our subordinated notes (subject to the approval of the Central Bank), and senior notes, through cash purchases in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Notes repurchased may be held, cancelled or resold and any resale thereof will only be in compliance with applicable requirements or exemptions under the relevant securities laws. Some of our long-term debt provides for acceleration of the outstanding principal balance upon the occurrence of specified events, which are events ordinarily found in long-term financing agreements.
Under Brazilian law, cash dividends may only be paid if the subsidiary paying such dividends has reported a profit in its financial statements. In addition, subsidiaries that are financial institutions are prohibited from making loans to Itaú Unibanco Holding, but they are allowed to make deposits in Itaú Unibanco Holding, which represent interbank certificates of deposit (Certificado de Depósito Interbancário). These restrictions have not had, and are not expected to have, a material impact on our ability to meet our cash obligations.
Seasonality Generally our retail banking and our credit card businesses have some seasonality, with increased levels of retail and credit card transactions during the Christmas season and a subsequent decrease of these levels at the beginning of the year. In addition, there is a certain seasonality at the end of the year in our pension plan business, when the thirteenth salary are paid. We also have some seasonality in our banking service fees related to collection services at the beginning of the year, which is when taxes and other fiscal contributions are generally paid.
Information on trends We expect many factors to affect our future results of operations, liquidity and capital resources, including:
the Brazilian economic environment (please refer to section Context, item Macroeconomic Context, Brazilian Context and section Our Risk Management, item Risk Factors, Macroeconomic Risks for further details); legal and regulatory developments (please refer to section Context, item Macroeconomic Context, Brazilian Context and section Our Risk Management, item Risk Factors, Legal and Regulatory Risks for further details);
the effects of any ongoing international financial turmoil, including on the liquidity and capital required (please refer to section Context, item Macroeconomic Context, Global Context and section Our Risk Management, item Risk Factors, Macroeconomic Risks for further details); the inflation effects on the result of our operations (please refer to section Context, item Macroeconomic Context, Brazilian Context and section Our Risk Management, item Risk Factors, Macroeconomic Risks, Inflation and fluctuations in interest rates may have a material adverse effect on us for further details);
any acquisitions we may make in the future (please refer to Our Risk Management, item Risk Factors, The integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us).
As part of our strategy, we continue to review growth opportunities, both in Brazil and outside of Brazil. Additionally, please refer to section Our Risk Management, item Risk Factors for comments on the risks faced in our operations and that could affect our business, results of operations or financial condition.
Consolidated Financial Statements (IFRS)
The following financial statements, together with the report of the independent auditor, are part of this annual report:
Internal Control over Financial Reporting
The management of Itaú Unibanco Holding S.A is responsible for establishing and maintaining adequate internal control over financial reporting for the company.
The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those controls determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or a decline in the level of compliance with policies or procedures may occur.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31,
In connection with the evaluation required by the Exchange Act Rule 13a-15(d), our management, concluded that the changes that occurred during the year ended December 31,
The effectiveness of the Company’s internal control over financial reporting as of December 31,
A signed original copy of this report has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Date: April
Registered Public Accounting Firm
To the Board of Directors and Shareholders Itaú Unibanco Holding S.A.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Itaú Unibanco Holding S.A. and its subsidiaries (“Itaú Unibanco Holding”) at December 31,
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers PricewaterhouseCoopers Auditores Independentes
São Paulo, Brazil
Consolidated Balance Sheet (In millions of
The accompanying notes are an integral part of these consolidated financial statements.
ITAÚ UNIBANCO HOLDING S.A. Consolidated Balance Sheet (In millions of Reais)
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Income Periods ended (In millions ofReais,
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Comprehensive Income Periods ended (In millions of
(*) Amounts that will not be subsequently reclassified to income. The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Stockholders’ Equity (Notes 21 and 22) Periods ended December 31, 2015, 2014 (In millions of (1) Includes Share of other comprehensive income in associates and joint ventures – Available-for-sale financial assets. (2) Includes Cash flow hedge and hedge of net investment in foreign operation. The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statement of Cash Flows (In millions of (*) Includes the amounts of interest received and paid as shown above. The accompanying notes are an integral part of these consolidated financial statements. Notes to the Consolidated Financial Statements At December 31, (In millions of Reais, except information per share) Note 1 ITAÚ UNIBANCO HOLDING S.A. (ITAÚ UNIBANCO HOLDING) is a publicly-held company, organized and existing under the Laws of Brazil. The head office of ITAÚ UNIBANCO HOLDING is located at Praça Alfredo Egydio de Souza Aranha, ITAÚ UNIBANCO HOLDING provides a wide range of financial products and services to individual and corporate clients in Brazil and abroad, as to whether these clients have Brazilian links or not through its international branches, subsidiaries and affiliates. In Brazil we serve retail clients through the branch network of Itaú Unibanco S.A. (“Itaú Unibanco”) and to wholesale clients through Banco Itaú BBA S.A. (“Itaú BBA”), and overseas through branches in New York, Grand Cayman, Tokyo, and Nassau, and through subsidiaries mainly in Argentina, Chile, the US (New York and Miami), and Europe (Lisbon, London, Luxembourg and Switzerland), Cayman Islands, Paraguay, Uruguay and Colombia. ITAÚ UNIBANCO HOLDING is a holding company controlled by Itaú Unibanco Participações S.A. (“IUPAR”), a holding company which owns 51% of our common shares, and which is jointly controlled by (i) Itaúsa Investimentos Itaú S.A., (“Itaúsa”), a holding company controlled by members of the Egydio de Souza Aranha family, and (ii) Companhia As described in Note 34, the operations of ITAÚ UNIBANCO HOLDING are divided into These consolidated financial statements were approved by the
Note 2 – Significant accounting policies
These
In the preparation of these consolidated financial statements, ITAÚ UNIBANCO HOLDING adopted the criteria for recognition, measurement and disclosure established in the IFRS and the interpretations of the International Financial Reporting Interpretation Committee (IFRIC)
The Consolidated Statement of Cash Flows shows the changes in cash and cash equivalents during the period, arising from operating, investing, and financing
Cash flows from operating activities are presented under the indirect method. Consolidated net income is adjusted for non-monetary items, such as measurement gains and losses, changes in provisions and in receivables and liabilities balances. All income and expense arising from non-monetary transactions, attributable to investing and financing activities, are eliminated. Interest received or paid
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The following pronouncements will become applicable for periods after the date of these consolidated financial statements and were not early adopted:
· | IFRS 16 – “Leases” – The pronouncement replaces IAS 17 - Leases, and related interpretations (IFRIC 4, SIC 15 and SIC 27). It eliminates the accounting for operating lease agreements for the lessee, presenting only one lease model, that consists of: (a) recognizing leases which terms exceeds 12 months and with substantial amounts; (b) initially recognizing lease in assets and liabilities at present value; and (c) recognizing depreciation and interest from lease separately in the result. For the lessor, accounting will continue to be segregated between operating and financial lease. Effective for annual periods beginning on January 1, 2019. Possible impacts arising from the adoption of this standard are being assessed and will be completed by the date this standard is effective. |
· | Amendment to IAS 12 – “Income Taxes” – The amendment includes clarification about the recognition of deferred taxes for unrealized losses in debt instruments measured at fair value. Applicable to the years beginning on January 1, 2017. Possible impacts arising from the adoption of this change are being analyzed and will be completed until its effective date. |
· | IFRS 9 – “Financial instruments” – The purpose of the pronouncement is to replace IAS 39 - “Financial instruments: recognition and measurement”. IFRS 9 includes: (a) a logical classification and measurement model; (b) a single impairment model for financial instruments, which offers a response to expected losses; (c) the removal of volatility in income arising from own credit risk; and (d) a new hedge accounting approach. Effective for annual periods beginning on January 1, 2018. Any possible impacts arising from adopting these changes are being assessed and will be completed up to the date this standard is effective. |
· | IFRS 15 – “Revenue from Contracts with Customers” – The purpose of the pronouncement is to replace IAS 18 and IAS 11, as well as interpretations related thereto (IFRICs 13, 15 and 18). It requires that revenue is recognized in a way that shows the transfer of assets or services to the client for an amount that reflects the company’s expectation of having in consideration the rights to these assets or services. Effective for annual periods beginning on January 1, 2018. Possible |
Performance | F-11 |
Annual Report2015 |
impacts arising from this change were identified for the consolidated financial statements of ITAÚ UNIBANCO HOLDING.
· | Amendment to IFRS 11 – “Joint Arrangement” – The change establishes criteria for recognition of acquisition of joint operations, which activity constitutes one business, according to the methodology established in IFRS 3 – Business Combinations. Effective for the years beginning on January 1, 2016 and early adoption is permitted by IASB. Impacts of this change will occur only if there is an acquisition of a joint operation that constitutes a business. |
2.3.
· | Amendment to IAS 16 – “Property, Plant and Equipment” and IAS 38 “Intangible Assets” – The amendment clarifies the base principle for depreciation and amortization as being the expected standard of consumption of future economic benefits embodied in the asset. Effective for annual periods beginning on January 1, 2016, with early adoption permitted by IASB. No material impacts arising from this amendment were identified for the consolidated financial statements of ITAÚ UNIBANCO HOLDING. |
· | Amendment to IFRS 10 – “Consolidated Financial Statements” and IAS 28 – “Investments in Associates and Joint Ventures” - Changes refer to an inconsistency between the requirements of IFRS 10 and IAS 28, when addressing the sale or contribution of assets between and investor and its associate or joint venture. The effective date has not been defined by IASB yet. No material impacts arising from this change on the consolidated financial statements of ITAÚ UNIBANCO HOLDING were identified. |
· | IASB Annual Improvement Cycle (2012-2014) – Annually IASB makes minor amendments to a series of pronouncements to clarify the standards and avoid double interpretation. In this cycle IFRS 5 – “Non-Current Assets Held for Sale and Discontinued Operations”, IFRS 7 – “Financial Instruments: Disclosures”, IAS 19 – “Employee Benefits”, and IAS 34 – “Interim Financial Reporting” were reviewed. Effective for annual periods beginning on January 1, 2016. No material impacts arising from this change on the consolidated financial statements of ITAÚ UNIBANCO HOLDING were identified. |
· | Amendment to IAS 1 – “Presentation of Financial Statements” – The amendments are aimed at encouraging companies to identify which information is sufficiently material to be disclosed in the financial statements. It also clarifies that materiality is applicable to the full set of financial statements, including the notes to the financial statements, and it is applicable to any and all disclosure requirements of the IFRS standards. Effective for periods beginning on January 1, 2016. Main effects identified are related to the disclosure of accounting policies and judgment of materiality in the notes to the financial statements. |
· | Amendments to IAS 28, IFRS 10 and IFRS 12: “Investment Entities: Applying Consolidation Exception”: This document comprises guidance for applying the Investment Entities concept. Effective for annual periods beginning on January 1, 2016. No material impacts arising from this change on the consolidated financial statements of ITAÚ UNIBANCO HOLDING were identified. |
2.3. | Critical accounting estimates and judgments |
The preparation of consolidated financial statements in accordance with IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue, expenses, gains, and losses over the reporting and subsequent periods, because actual results may differ from those determined in accordance with such estimates and assumptions.
2.3.1.
2.3.1 | Critical accounting estimates |
All estimates and assumptions made by Management are in accordance with IFRS and represent the current best estimates made in compliance with the applicable standards. Estimates are evaluated continuously, considering past experience and other factors.
The Consolidated Financial Statements reflect a variety of estimates and assumptions. The critical accounting estimates and assumptions that have the most significant impact on the carrying amounts of assets and liabilities are described below:
Performance | F-12 |
a)
Annual Report2015 |
a) | Allowance for loan and lease losses |
ITAÚ UNIBANCO HOLDING periodically reviews its portfolio of loans and receivables to evaluate the existence of impairment.
In order to determine the amount of the allowance for loan and lease losses in the Consolidated Statements of Income with respect to certain receivables or group of receivables, ITAÚ UNIBANCO HOLDING exercises its judgment to determine whether objective evidence indicates that an event of loss has occurred. This evidence may include observable data that indicates that an adverse change has occurred in relation to the expected cash inflows from the counterparty or the existence of a change in local or international economic conditions that correlates with impairment. Management uses estimates based on the history of loss experience in loan operations with similar characteristics and with similar objective evidence of impairment. The methodology and assumptions used for estimating future cash flows are regularly reviewed by Management, considering the adequacy of models and sufficiency of provision volumes in view of the experience of incurred loss.
ITAÚ UNIBANCO HOLDING uses statistical models to calculate the Allowance for Loan and Lease Losses in the homogeneous loan portfolio. ITAÚ UNIBANCO HOLDING periodically carries out procedures to improve these estimates by aligning the required provisions to the levels of losses observed by the historical behavior (as described in Note 2.4g VIII). This alignment aims at ensuring that the volume of allowances reflects the current economic conditions, the composition of the loan portfolios, the quality of guarantees obtained and the profile of our clients. In 20142015 and in 2013,2014, there were no such improvements of model assumptions. In 2012, the improvement of model assumptions gave rise to a growth in the level of provisions in the amount of R$ 1,492.
The allowance amounted to R$ 22,392 (R$ 22,235 at December 31, 2013).
The details on methodologyMethodology and assumptions used by the Management are discloseddetailed in noteNote 2.4g VIII. Allowance for loan losses is detailed in Note 12b.
b)
b) | Deferred income tax and social contribution |
As explained in itemNote 2.4n, deferredDeferred tax assets are recognized only in relation to temporary differences and tax assets and loss carry forwardsfor offset to the extent that it is probable that ITAÚ UNIBANCO HOLDING will generate future taxable profit for their utilization.its use. The expected realization of ITAÚ UNIBANCO HOLDING´s deferred tax assetassets is based on the projection of future incometaxable profits and other technical studies, as disclosed in Note 27. The carrying amount of deferred tax assets was R$ 36,619 (R$ 39,545 as of December 31, 2013).
c)
c) | Fair value of financial instruments, including derivatives |
The fair value of financial instruments is measured on a recurring basis,recurrently, in conformity with the requirements of IAS 39 – “Financial instruments: recognitionFinancial Instruments: Recognition and measurement. Financial instruments recorded at fair value are assets amounting to R$ 226,193 (R$ 257,223 at December 31, 2013) of which R$ 14,156 are derivatives (R$ 11,366 at December 31, 2013) and liabilities in the amount of R$ 17,870 (R$ 11,776 at December 31, 2013) of which R$ 17,350 are derivatives (R$ 11,405 at December 31, 2013).Measurement. The fairFair value of financial instruments, including derivatives that are not traded in active markets, is calculateddetermined by using valuation techniques. This calculation is based on assumptions that take into consideration ITAÚ UNIBANCO HOLDING Management´sManagement’s judgment aboutbased on market information and conditions existingin place at the balance sheet date.
ITAÚ UNIBANCO HOLDING ranks the fair value measurements using a fair value hierarchy that reflects the significance of inputs adoptedused in the measurement process. There are three broad levels related to
The fair value of financial instruments, including Derivatives, as well as the fair value hierarchy, are detailed in Note 31.
The team in charge of the pricing of assets, in accordance with the governance defined by the committee and regulatory circulars, carries out critical analyses of the information extracted from the market and from time to time reassesses the long-termlong term of indexes. At the end of the monthly closings, the areas meet for a new round of analyses for the maintenance of the classification in connection with the fair value hierarchy. ITAÚ UNIBANCO HOLDING believes that all methodologies adopted are appropriate and consistent with market participants. Regardless of this fact, the adoption of other methodologies or use of different assumptions to estimate fair values may result in different fair value estimates.
The methodologies used to estimate the fair value of certain financial instruments are described in Note 31.
Performance | F-13 |
d) Defined benefit pension plan
At December 31, 2014, an amount of R$ (104) (R$ (358) at December 31, 2013) was recognized as an asset related to pension plans.
Annual Report2015 |
d) | Defined benefit pension plan |
The current amount of the pension plan obligations is obtained from actuarial calculations that use a varietyset of assumptions. Among the assumptions used for estimating the net cost (income) of these plans is the discount rate. Any changes in these assumptions will affect the carrying amount of pension plan assets and liabilities.
ITAÚ UNIBANCO HOLDING determines the appropriate discount rate at the end of each year, which is used for determining the present value of estimated future cash outflows necessary for settling the pension plan liabilities. In order to determine the appropriate discount rate, ITAÚ UNIBANCO HOLDING considers the interest rates of the Brazilian federal government bonds that are denominated in Brazilian Reais, the currency in which the benefits will be paid, and that have maturity terms approximating the terms of the related liabilities.
Should the discount rate currently used be lowered by 0.5% than Management’s estimates, then the actuarial amount of the pension plan obligations would be increased by approximately R$ 668, with impactThe main assumptions on the amount recognized with effect on Stockholder’s Equity – Other Comprehensive Income before taxes – of R$ 315, net of the effects of Asset Ceiling.
Other important assumptions for pensionPension plan obligations are based on, in part, based on current market conditions. Additional information is disclosed in Note 29.
e)
e) | Provisions, contingencies and other commitments |
ITAÚ UNIBANCO HOLDING periodically reviews its contingencies. These contingencies are evaluated based on Management´s best estimates, taking into account the opinion of legal counsel when
there is a likelihood that financial resources will be required to settle the obligations and the amounts may be reasonably estimated.
Contingencies classified as probable losses are recognized in the Balance Sheet under Provisions.
Contingent amounts are measured using appropriate models and criteria, despite the uncertainty surrounding the ultimate timing and amounts, as detailed in Note 32.
The carrying amount of theseProvisions, contingencies was R$ 17,027 (R$ 18,862 at December 31, 2013).and other commitments are detailed in Note 32.
f)
f) | Technical provisions for insurance and pension plan |
Technical provisions are liabilities arising from obligations of ITAÚ UNIBANCO HOLDING to its policyholders and participants. These obligations may be short-termshortterm liabilities (property and casualty insurance) or medium and long-termlongterm liabilities (life insurance and pension plans).
The determination of the actuarial liability is subject to several uncertainties inherent in the coverage of insurance and pension contracts, such as assumptions of persistence, mortality, disability, life expectancy, morbidity, expenses, frequency and severity of claims, conversion of benefits into annuities, redemptions and return on assets.
The estimates for these assumptions are based on the historical experience of ITAÚ UNIBANCO HOLDING, benchmarks and experience of the actuary, in order to comply with best market practices and the continuous review of the actuarial liability. The adjustments resulting from these continuous improvements, when necessary, are recognized in the statement of income for the corresponding period.
Additional information is described in Note 30.
2.3.2 Critical judgments in accounting policies
a) | Goodwill |
a) Goodwill
The impairment test for goodwill involves estimates and significant judgments, including the identification of cash generation units and the allocation of goodwill to such units based on the expectations of which ones will benefit from the acquisition. Determining the expected cash flows and a risk-adjusted interest rate for each unit requires that management exercises judgment and estimates. Annually submitted to the impairment test and, at December 31, 20142015 and 2013,2014, ITAÚ UNIBANCO HOLDING did not identify goodwill impairment losses.
Performance | F-14 |
2.4. Summary of main accounting practices
Annual Report2015 |
a) Consolidation
2.4. | Summary of main accounting practices |
a) | Consolidation |
I.
I. | Subsidiaries |
Before January 1, 2013, ITAÚ UNIBANCO HOLDING consolidated its subsidiaries, in accordance with IAS 27 – “Consolidated and separate financial statements”“Separate Financial Statements”, and its specificspecial purpose entities, defined in accordance with the SIC 12 – “Consolidation – special purpose entities”Special Purpose Entities”, in its Consolidated Financial Statements. As ofEffective January 1, 2013, ITAÚ UNIBANCO HOLDING adopted IFRS 10 – “Consolidated financial statements”Financial Statements”, which replaced IAS 27 and SIC 12.
In accordance with IFRS 10, subsidiaries are all entities in which ITAÚ UNIBANCO HOLDING holds control. ITAÚ UNIBANCO HOLDING controls an entity when it is exposed to, or is entitled to, its variable returns derived from its involvement with such entity, and has the capacity to impact such returns.
Subsidiaries are fully consolidated as from the date in which ITAÚ UNIBANCO HOLDING obtains its control and are no longer consolidated as from the date such control is lost.
On January 1, 2013, ITAÚ UNIBANCO HOLDING assessed its investments to determine whether the conclusions regarding theof consolidation in accordance with IFRS 10 differwere different from those conclusions reached in accordance with IAS 27 and SIC 12. The application of the standard did not have significant impacts.
Performance | F-15 |
No adjustment is required for those investments already consolidated in accordance with IAS 27 and SIC 12 and which remain consolidated in accordance with IFRS 10 on January 1, 2013 or for those investments not consolidated in accordance with IAS 27 and SIC 12 and which continue not being consolidated in accordance with IFRS 10.
Annual Report2015 |
The following table shows the main consolidated subsidiaries, withcompanies, which together represent over 95% of total consolidated assets, over R$150 million, as well as the interests of ITAÚ UNIBANCO HOLDING in their voting capital at December 31, 2014,12/31/2015 and December 31, 2013:12/31/2014
INTEREST IN VOTING | INTEREST IN TOTAL | |||||||||||||||||||||
INCORPORATION | CAPITAL AT | CAPITAL AT | ||||||||||||||||||||
COUNTRY | ACTIVITY | 12/31/2014 | 12/31/2013 | 12/31/2014 | 12/31/2013 | |||||||||||||||||
Banco Credicard S.A. | (1) (Note 3d) | Brazil | Financial institution | - | 100.00 | % | - | 100.00 | % | |||||||||||||
Banco Itaú Argentina S.A. | Argentina | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Banco Itaú BBA S.A. | Brazil | Financial institution | 99.99 | % | 99.99 | % | 99.99 | % | 99.99 | % | ||||||||||||
Banco Itaú Chile | Chile | Financial institution | 99.99 | % | 99.99 | % | 99.99 | % | 99.99 | % | ||||||||||||
Banco Itaú BMG Consignado S.A. | (Note 3c) | Brazil | Financial institution | 60.00 | % | 70.00 | % | 60.00 | % | 70.00 | % | |||||||||||
Banco Itaú Paraguay S.A. | Paraguay | Financial institution | 100.00 | % | 99.99 | % | 100.00 | % | 99.99 | % | ||||||||||||
Banco Itaú Suisse S.A. | Switzerland | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Banco Itaú Uruguay S.A. | Uruguay | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Banco Itaucard S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Banco Itauleasing S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Cia. Itaú de Capitalização | Brazil | Capitalization | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Dibens Leasing S.A. – Arrendamento Mercantil | Brazil | Leasing | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento | Brazil | Consumer finance credit | 50.00 | % | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||
Hipercard Banco Múltiplo S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
INTEREST IN VOTING | INTEREST IN TOTAL | Interest in voting | Interest in total | |||||||||||||||||||||||||||||||||||||||||
INCORPORATION | CAPITAL AT | CAPITAL AT | Incorporation | capital at | capital at | |||||||||||||||||||||||||||||||||||||||
COUNTRY | ACTIVITY | 12/31/2014 | 12/31/2013 | 12/31/2014 | 12/31/2013 | country | Activity | 12/31/2015 | 12/31/2014 | 12/31/2015 | 12/31/2014 | |||||||||||||||||||||||||||||||||
Banco Itaú Argentina S.A. | Argentina | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Banco Itaú BBA S.A. | Brazil | Financial institution | 100.00 | % | 99.99 | % | 100.00 | % | 99.99 | % | ||||||||||||||||||||||||||||||||||
Banco Itaú Chile | Chile | Financial institution | 99.99 | % | 99.99 | % | 99.99 | % | 99.99 | % | ||||||||||||||||||||||||||||||||||
Banco Itaú BMG Consignado S.A | (Note 3b) | Brazil | Financial institution | 60.00 | % | 60.00 | % | 60.00 | % | 60.00 | % | |||||||||||||||||||||||||||||||||
Banco Itaú Paraguay S.A. | Paraguay | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Banco Itaú Suisse S.A. | Switzerland | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Banco Itaú Uruguay S.A. | Uruguay | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Banco Itaucard S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Banco Itauleasing S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Cia. Itaú de Capitalização | Brazil | Capitalization | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Dibens Leasing S.A. - Arrendamento Mercantil | Brazil | Leasing | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento | Brazil | Consumer finance credit | 50.00 | % | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||||||||||||||||||||||||
Hipercard Banco Múltiplo S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Itau Bank, Ltd. | (2) | Cayman Islands | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | Cayman Islands | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||||||||||||||
Itau BBA Colombia S.A. Corporación Financiera | Colombia | Financial institution | 100.00 | % | 99.99 | % | 100.00 | % | 99.99 | % | Colombia | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Itau BBA Internacional plc | United Kingdom | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Itau BBA International plc | United Kingdom | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Itaú BBA USA Securities Inc. | United States | Broker | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | United States | Broker | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Itaú BMG Seguradora S.A. | Brazil | Insurance | 60.00 | % | - | 60.00 | % | - | (Note 3a) | Brazil | Insurance | 60.00 | % | 60.00 | % | 60.00 | % | 60.00 | % | |||||||||||||||||||||||||
Itaú Corretora de Valores S.A. | Brazil | Broker | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | Brazil | Broker | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Itaú Seguros S.A. | Brazil | Insurance | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | Brazil | Insurance | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Itaú Unibanco Financeira S.A. – Crédito, Financiamento e Investimento | Brazil | Consumer finance credit | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Itaú Unibanco Financeira S.A. - Crédito, Financiamento e Investimento | (*) | Brazil | Consumer finance credit | - | 100.00 | % | - | 100.00 | % | |||||||||||||||||||||||||||||||||||
Itaú Unibanco S.A. | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | Brazil | Financial institution | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Itaú Vida e Previdência S.A. | Brazil | Pension plan | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | Brazil | Pension plan | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Luizacred S.A. Soc. Cred. Financiamento Investimento | Brazil | Consumer finance credit | 50.00 | % | 50.00 | % | 50.00 | % | 50.00 | % | Brazil | Consumer finance credit | 50.00 | % | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||||||||||||||
Redecard S.A. – REDE | Brazil | Acquirer | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||
Redecard S.A. - REDE | Brazil | Acquirer | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
(1)(*) Company merged in 08/01/31/20142015 by Banco ItaucardItaú Unibanco S.A.
(2) Does not include Redeemable Preferred Shares. and Itaú BBA Participações S.A
ITAÚ UNIBANCO HOLDING is committed to maintaining the minimum capital required by all these joint ventures, noteworthy is that for all FIC –- Financeira Itaú CBD S.A Crédito, Financiamento e Investimento the minimum capital percentage is 25.0%25% higher than that required by the Central Bank of Brazil (Note 33).
Performance | F-16 |
II.
Annual Report2015 |
II. | Business combinations |
Accounting for business combinations under IFRS 3 (R) is only applicable when a business is acquired. Under IFRS 3, (R), a business is defined as an integrated set of activities and assets that is conducted and managed for the purpose of providing a return to investors, or cost reduction or other economic benefits. In general, a business consists of inputs, processes applied to those inputs and outputs that are, or will be, used to generate income. If there is goodwill in a set of activities or transferred assets, this is presumed to be a business. For acquisitions that meet the definition of business, accounting under the purchase method is required.
The acquisition cost is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the exchange date, plus costs directly attributable to the acquisition. Acquired assets and assumed liabilities and contingent liabilities identifiable in a business combination are initially measured at fair value at the date of acquisition, regardless of the existence of non-controlling interests. The excess of the acquisition cost, plus non-controlling interests, if any, over the fair value of identifiable net assets acquired, is accounted for as goodwill.
The treatment of goodwill is described in Note 2.4k. If the cost of acquisition, plus non-controlling interests, if any, is lower than the fair value of identifiable net assets acquired, the difference is directly recognized in income.
For each business combination, the purchaser should measure any non-controlling interest in the acquired company at the fair value or amount proportional to its interest in net assets of the acquired company.
III.
III. | Transactions with non-controlling stockholders |
IFRS 10 – “Consolidated financial statements” establishes that, changes in an ownership interest in a subsidiary, which do not result in a loss of control, are accounted for as capital transactions and any difference between the amount paid and the carrying amount of non-controlling stockholders is recognized directly in consolidated stockholders’ equity.
b) Foreign currency translation
b) | Foreign currency translation |
I.
I. | Functional and presentation currency |
The consolidated financial statements of ITAÚ UNIBANCO HOLDING are presented inreais, Reais, which is its functional and presentation currency. For each subsidiary and investment in associates and joint ventures, ITAÚ UNIBANCO HOLDING defined the functional currency, as set forth in IAS 21.
The assets and liabilities of subsidiaries with a functional currency other than the Brazilianreal are translated as follows:
• assets and liabilities are translated at the closing rate at the balance sheet date;
• income and expenses are translated at monthly average exchange rates;
• exchange differences arising from currency translation are recorded in other comprehensive income.
· | assets and liabilities are translated at the closing rate at the balance sheet date. |
· | income and expenses are translated at monthly average exchange rates. |
· | exchange differences arising from currency translation are recorded in other comprehensive income. |
II –
II. | Foreign currency transactions |
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of income as part of foreign exchange results and exchange variations on transactions and amount to R$ 3,677 for the period for the period January 1 to December 31, 2014 (R$ 2,635 for the period January 1 to December 31, 2013 and R$ 1,109 for the period January 1 to December 31, 2012).transactions.
In the case of monetary assets classified as available-for-sale, the exchange differences resulting from a change in the amortized cost of the instrument are recognized in the income statement, while those resulting from other changes in the carrying amount, except impairment losses, are recognized in other comprehensive income until derecognition or impairment.
Performance | F-17 |
c)
Annual Report2015 |
c) | Cash and cash equivalents |
ITAÚ UNIBANCO HOLDING defines cash and cash equivalents as cash and current accounts in banks (included in the heading cash and deposits on demand on the consolidated balance sheet), interbank deposits and securities purchased under agreements to resell that have original maturities of up to 90 days or less, as shown in Note 4.
d) Central Bank Compulsory deposits
The Central Banks of the countries in which ITAÚ UNIBANCO HOLDING operates currently impose a number of compulsory deposit requirements on financial institutions. Such requirements are applied to a wide range of banking activities and operations, such as demand, savings, and time deposits. In the case of Brazil, the acquisition and deposit of Brazilian federal government securities is also required.
Compulsory deposits are initially recognized at fair value and subsequently at amortized cost, using the effective interest rate method as detailed in Note 2.4g VI.
e)
e) | Interbank deposits |
ITAÚ UNIBANCO HOLDING recognizes its interbank deposits in the balance sheet initially at fair value and subsequently at the amortized cost using the effective interest method as detailed in Note 2.4g VI.
f)
f) | Securities purchased under agreements to resell and sold under repurchase agreements |
ITAÚ UNIBANCO HOLDING has purchased securities with resale agreement (resale agreements), and sold securities with repurchase agreement (repurchase agreement) of financial assets. Resale and repurchase agreements are accounted for under Securities purchased under agreements to resell and Securities sold under repurchase agreements, respectively.
The amounts invested in resale agreement transactions and borrowed in repurchase agreement transactions are initially recognized in the balance sheet at the amount advanced or raised, and subsequently measured at amortized cost. The difference between the sale and repurchase prices is treated as interest and recognized over the life of the agreements using the effective interest rate method. Interest earned in resale agreement transactions and incurred in repurchase agreement transactions is recognized in Interest and similar income and Interest and similar expense, respectively.
The financial assets accepted as collateral in our resale agreements can be used by us, if provided for in the agreements, as collateral for our repurchase agreements or can be sold.
In Brazil, control over custody of financial assets is centralized and the ownership of investments under resale and repurchase agreements is temporarily transferred to the buyer. ITAÚ UNIBANCO HOLDING strictly monitors the fair value of financial assets received as collateral under our resale agreements and adjusts the collateral amount when appropriate.
Financial assets pledged as collateral to counterparties are also recognized in the consolidated financial statements. When the counterparty has the right to sell or re-pledge such instruments, they are presented in the balance sheet under the appropriate class of financial assets.
g)
g) | Financial assets and liabilities |
In accordance with IAS 39, all financial assets and liabilities, including derivative financial instruments, shall be recognized in the balance sheet and measured based on the category in which the instrument is classified.
Financial assets and liabilities can be classified into the following categories:
Performance | F-18 |
•
Annual Report2015 |
· | Financial assets and liabilities at fair value through profit or loss – held for trading |
· | Financial assets and liabilities at fair value through profit or loss – designated at fair value |
· | Available-for-sale financial assets |
· | Held-to-maturity financial assets |
· | Loans and receivables |
· | Financial liabilities at amortized cost |
Classification of financial assets and liabilities at fair value through profit or loss – held for trading.
• Financial assets and liabilities at fair value through profit or loss – designated at fair value.
• Available-for-sale financial assets.
• Held-to-maturity financial assets.
• Loans and receivables.
• Financial liabilities at amortized cost.
The classification dependsdepend on the purpose for which financial assets were acquired or financial liabilities were assumed. Management determines the classification of financial instruments at initial recognition.
ITAÚ UNIBANCO HOLDING classifies financial instruments into classes that reflect the nature and characteristics of these financial instruments.
ITAÚ UNIBANCO HOLDING classifies as loans and receivables the following classes of balance sheet headings: Cash and deposits on demand, Central Bank compulsory deposits (Note 2.4d), Interbank deposits (Note 2.4e), Securities purchased under agreement to resell (Note 2.4f ),2.4f), Loan operations (Note 2.4g VI) and Other financial assets (Note 2.4g IX).
Regular purchases and sales of financial assets are recognized and derecognized, respectively, on the trade date.
Financial assets are derecognized when the rights to receive cash flows from the assets have expiredexpire or when ITAÚ UNIBANCO HOLDING hastransfers substantially transferred all risks and rewards of ownership, and such transfer qualifies for derecognition, according to the requirements ofwrite-off in accordance with IAS 39. Therefore, if the risks and rewards were not substantially transferred, ITAÚ UNIBANCO HOLDING evaluates the extent of39 requirements. Otherwise, control in ordershould be assessed to determine whether the continuous involvement related to any retained control does not prevent derecognition.write-off. Financial liabilities are derecognized when settled or extinguished. Financial liabilities are derecognized when discharged or extinguished.
Financial assets and liabilities are offset against each other and the net amount is reported in the balance sheet solely when there is a legally enforceable right to offset the recognized amounts and there is intention to settle them on a net basis, or simultaneously realize the asset and settle the liability.
I – Financial assets and liabilities at fair value through profit or loss –
I- | Financial assets and liabilities at fair value through profit or loss - held for trading |
These are financial assets and liabilities acquired or incurred principally for the purpose of selling them in the short term or when they are part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent history of short-term profit taking.trading transactions.
The financialFinancial assets and liabilities included in this category are initially and subsequently recognized at fair value. Transaction costs are directly recognized in the consolidated statementConsolidated Statement of income.Income. Gains and losses arising from changes in fair value are directly included in the consolidated statement of income under Net“Net gain (loss) from investmentinvestments in securities and derivatives.derivatives”. Interest income
and expensessimilar income and expense are recognized in Interest and similar income and Interest and similar expense, respectively.
II –
II- | Financial assets and liabilities at fair value through profit or loss – designated at fair value |
These are assets and liabilities designated at fair value through profit or loss upon initial recognition (fair value option). This designation cannot be subsequently changed. In accordance with IAS 39, the fair value option can only be applied if it reduces or eliminates an accounting mismatchmismatches in income or when the financial instruments are part of a portfolio for which risk is managed and reported to Management based on its fair value or when these instruments consist of hostsdebt instruments and embedded derivatives that shallshould otherwise be separated.
The financialAssets and liabilities of this category are granted the same accounting treatment as those recorded in Financial assets and liabilities included in this category are initially and subsequently recognized at fair value. Transaction costs are directly recognized in the consolidated statement of income. Gains and losses arising from changes in fair value are directly included in the consolidated statement of income under Net gain (loss) from investment securities and derivatives – Financial assets designated at fair value through profit or loss. Interest income and expenses are recognized in Income and similar income and Interest and similar expense, respectively.held for trading.
ITAÚ UNIBANCO HOLDING designated certain assets at fair value through profit or loss upon their initial recognition, because they are reported to Management and their performance is evaluated daily based on their fair value.
III- | Derivatives |
III – Derivatives
Derivatives are initially recognized at fair value on the date a derivative contract iscontracts are entered into, and are subsequently remeasuredrecorded at their fair value. All derivatives are recognized as assets when the fair value is positive, and as liabilities when negative.
Performance | F-19 |
Annual Report2015 |
Certain derivatives embedded in other financial instruments are treated as separate derivatives, when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not recognized at fair value through profit or loss. These embedded derivatives are accounted for separately at fair value, with changes in fair value recognized in the consolidated statement of income in Net gain (loss) fromon investment securities and derivatives – Financial assets held for trading and derivatives – except when ITAÚ UNIBANCO HOLDING designates these hybrid contracts as a whole as fair value through profit or loss.derivatives.
Derivatives can be designated as hedging instruments under hedge accounting and in the event they qualify, depending upon the nature of the hedged item, the method for recognizing gains or losses from changes in fair value will be different. These derivatives, which are used to hedge exposures to risk or modify the characteristics of financial assets and liabilities, and that meet IAS 39 criteria, are recognized as hedge accounting.
In accordance with IAS 39, to qualify for hedge accounting, all of the following conditions are met:
· | at the inception of the hedge there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. |
· | the hedge is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk, consistent with the originally documented risk management strategy for that particular hedging relationship. |
· | for a cash flow hedge, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss. |
· | the effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured. |
· | the hedge is assessed on an ongoing basis and it is determined that the hedge has in fact been highly effective throughout the periods for which the hedge was designated. |
IAS 39 presents three hedge accounting categories: fair value hedge, cash flow hedge, and hedge of net investments in a foreign operation.
ITAÚ UNIBANCO HOLDING uses derivatives as hedging instruments under cash flow hedge strategies, fair value hedge and hedge of net investments, as detailed in Note 9.
Fair value hedge
For derivatives that are designated and qualify as fair value hedges, the following practices are adopted:
a) | The gain or loss arising from the new measurement of the hedge instrument at fair value should be recognized in income; and |
b) | The gain or loss arising from the hedged item, attributable to the effective portion of the hedged risk, should adjust the book value of the hedged item and also be recognized in income. |
When the derivative expires or is sold or the hedge no longer meets the accounting hedge criteria or the entity revokes the designation, the entity should prospectively discontinue the accounting hedge. In addition, any adjustment in the book value of the hedged item should be amortized in income.
Cash flow hedge
For derivatives that are designated and qualify as a cash flow hedge, the effective portion of derivative gains or losses are recognized in Other comprehensive income – Cash flow hedge, and reclassified to Income in the same period or periods in which the hedged transaction affects income. The portion of gain or loss on derivatives that represents the ineffective portion or the hedge components excluded from the assessment of effectiveness is recognized immediately in income. Amounts originally recorded in Other comprehensive income and subsequently reclassified to Income are recorded in the corresponding income or expense lines in which the related hedged item is reported.
Performance | F-20 |
Annual Report2015 |
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting and also when ITAÚITAU UNIBANCO HOLDING redesignates a hedge, any cumulative gain or loss existing in Other comprehensive income is frozen and is recognized in income when the hedged item is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss recognized in Other comprehensive incomeComprehensive Income is immediately transferred to the statement of income.
Hedge of net investments in foreign operations
A hedge of a net investment in a foreign operation, including hedge of a monetary item that is accounted for as part of the net investment, is accounted for in a manner similar to a cash flow hedge:
a) | the portion of gain or loss on the hedge instrument determined as effective is recognized in other comprehensive income. |
b) | the ineffective portion is recognized in income. |
Gains or losses on the hedging instrument related to the effective portion of the hedge which is recognized in comprehensive income are reclassified to the income statement upon the disposal of the investment in the foreign operation.
IV – Available-for-sale financial assets
IV - | Available-for-sale financial assets |
In accordance with IAS 39, financial assets are classified as available-for-sale when in the Management’s judgment they can be sold in response to or in anticipation of changes in market conditions, and that were not classified into the categories of financial assets at fair value through profit or loss, loans and receivables or held to maturity.
Available-for-sale financial assets are initially and subsequently recognized in the consolidated balance sheet at fair value, plus transaction costs. Unrealized gains and losses (except losses for impairment, foreign exchange differences, dividends and interest income) are recognized, net of applicable taxes, in Other comprehensive income. Interest, including the amortization of premiums and discounts, is recognized in the consolidated statement of income under Interest and similar income. The average cost is used to determine the realized Gains and losses on Disposal of available-for-sale financial assets, which are recorded in the consolidated statement of income under Net gain (loss) fromon financial assets and liabilities – Available-for-sale financial assets. Dividends on available-for-sale assets are recognized in the consolidated statement of income as Dividend income when ITAÚ UNIBANCO HOLDING is entitled to receive such dividends and inflow of economic benefits is probable.
At the balance sheet date, ITAÚ UNIBANCO HOLDING assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of similar financial assets is impaired. In the case ofimpaired and, for equity securities classified as available-for-sale,instruments, a significant or prolonged decline in the fair value of the security below its cost is evidence of an impairment, resulting in the recognition of an impairment loss. If any impairment evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in income, is recognized in the consolidatedConsolidated statement of income as a reclassification adjustment from Other comprehensive income.
Impairment losses recognizedBoth impairment of available-for-sale financial assets and reversal of this loss are recorded in the consolidated statement of income on equity instruments are not reversed through the statement of income. However, if in a subsequent period the fair value of a debt instrument classified as an available-for-sale financial asset increases and such increase can be objectively related to an event that occurred after the loss recognition, such loss is reversed through theConsolidated statement of income.
V –
V- | Held-to-maturity financial assets |
In accordance with IAS 39, the financial assets classified into the held-to-maturity category are non-derivative financial assets for which ITAÚ UNIBANCO HOLDING has the positive intention and ability to hold to maturity.
Performance | F-21 |
Annual Report2015 |
These assets are initially recognized at fair value, plus transaction costs, and subsequently measured at amortized cost, using the effective interest rate method (as detailed in item VI below).method. Interest income, including the amortization of premiums and discounts, is recognized in the consolidated statement of income under Interest and similar income.
WhenBoth impairment of held-to-maturity financial assets and reversal of this loss are impaired, the loss is recorded as a reduction in the carrying amount through the use of an allowance account and recognized in the consolidated statement of income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the loss was recognized, the previously recognized loss is reversed. The reversal amount is also recognized in the consolidatedConsolidated statement of income.
VI –
VI- | Loan operations |
Loan operations are initially recognized at fair value, plus transaction costs and are subsequently measured at amortized cost using the effective interest rate method.
The effective interest rate approach is a method of calculating the amortized cost of a financial asset or liability and of allocating the interest income or expense over the relevant period. The effective interest rate is the discount rate that is applied to future payments or receipts through the expected life of the financial instrument that results in an amount equal to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, ITAÚ UNIBANCO HOLDING estimates cash flows considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation includes all commissions paid or received between parties to the contract, transaction costs, and all other premiums or discounts.
ITAÚ UNIBANCO HOLDING classifies a loan operation as on non-accrual status if the payment of the principal or interest has been in default for 60 days or more. When a loan is placed on non-accrual status, theIn this case, accrual of interest of the loan is discontinued.no longer recognized.
When a financial asset or group of similar financial assets is impaired and its carrying amount is reduced through an allowance for loan losses, the subsequent interest income is recognized on the reduced carrying amount using the interest rate used to discount the future cash flows for purposes of measuring the allowance for loan losses.
Our Individuals portfolio consists primarily of vehicle financing to individuals, credit card, personal loans (including mainly consumer finance and overdrafts) and residential mortgage loans. The Corporate portfolio includes loans made to large corporate clients. Our Small / Medium Business Portfolio corresponds to loans to a variety of customers from small to medium-sized companies. The Foreign Loans Latin America is substantially comprised of loans granted to individuals in Argentina, Chile, Paraguay, and Uruguay.
At a corporate level, there are two groups (independent from the business areas)Both the credit risk group and the finance group, whichareas are responsible for defining the methodologies used to measure the allowance for loan losses and for performingassessing changes in the corresponding calculationsprovision amounts on a recurring basis.
The credit risk group and the finance group, at the corporate level,These areas monitor the trends observed in the allowance for loan losses at the portfolioby segment level, in addition to establishing an initial understanding of the variables that may trigger changes in the allowance for loan losses, the probability of default or the loss given default.
Once the trends have been identified and an initial assessment of the variables has been made at the corporate level, the business areas are responsible for further analyzing these observed trends at a detailed level and for each portfolio, in order to understand the underlying reasons for the trends observed and for deciding whether changes are required in our credit policies.
VII –- Lease operations (as lessor)
When assets are subject to a finance lease, the present value of lease payments is recognized as a receivable in the consolidated balance sheet under Loan operations and Lease Operations.
Initial direct costs when incurred by ITAÚ UNIBANCO HOLDING are included in the initial measurement of the lease receivable, reducing the amount of income to be recognized over the lease period. Such initial costs usually include commissions and legal fees.
The recognition of interest income reflects a constant rate of return on the net investment of ITAÚ UNIBANCO HOLDING and is recognized in the consolidated statement of income under Interest and similar income.
Performance | F-22 |
VIII –
Annual Report2015 |
VIII- Allowance for loan and lease losses
General
ITAÚ UNIBANCO HOLDING periodically assesses whether there is any objective evidence that a receivable or group of receivables is impaired. A receivable or group of receivables is impaired and there is a need for recognizing an impairment loss if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows that can be reliably estimated.
The allowance for loan and lease losses is recognized as probable losses inherent in the portfolio at the balance sheet date. The determination of the level of the allowance rests upon various judgments and assumptions, including current economic conditions, loan portfolio composition, prior loan and lease loss experience and evaluation of credit risk related to individual loans. Our process for determining the allowance for loan and lease losses includes Management’sManagement's judgment and the use of estimates. The adequacy of the allowance is regularly analyzed by Management.
The criteria adopted by ITAÚ UNIBANCO HOLDING for determining whether there is objective evidence of impairment include the following:
· | default in principal or interest payment. |
· | financial difficulties of the debtor and other objective evidence that results in the deterioration of the financial position of the debtor (for example, debt-to-equity ratio, percentage of net sales or other indicators obtained through processes adopted to monitor credit, particularly for retail portfolios). |
· | breach of loan clauses or terms. |
· | entering into bankruptcy. |
· | loss of competitive position of the debtor. |
The estimated period between the loss event and its identification is defined by Management for each portfolio of similar receivables. Considering the representativeness of several homogeneous groups, management chose to use a twelve month period as being the most representative. For portfolios of loans that are individually evaluated for impairment this period is at most 12 months, considering the review cycle for each loan operation.
Assessment
ITAÚ UNIBANCO HOLDING first assesses whether objective evidence of impairment exists for receivables that are individually significant, and individually or collectively for receivables that are not individually significant.
To determine the amount of the allowance for individually significant receivables with objective evidence of impairment, methodologies are used that consider both the quality of the client and the nature of the transaction, including its collateral, to estimate the cash flows expected from these loans.
If no objective evidence of impairment exists for an individually assessed receivable, whether significant or not, the asset is included in a group of receivables with similar credit risk characteristics and collectively assessed for impairment. Receivables that are individually assessed for impairment and for which an impairment loss is recognized are not included in the collective assessment. The amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate.
For collectively assessed loans, the calculation of the present value of the estimated future cash flows for which there is collateral reflects the historical performance of the foreclosure and
Performance | F-23 |
Annual Report2015 |
recovery of fair value, considering the cash flows that may arise from foreclosure less costs for obtaining and selling that collateral.
For the purpose of a collective evaluation of impairment, receivables are grouped on the basis of similar credit risk characteristics. The characteristics are relevant to the estimation of future cash flows for such receivables by being indicative of the debtors’ ability to pay all amounts due, according to the contractual terms of the receivables being evaluated. Future cash flows in a group of receivables that are collectively evaluated for purposes of identifying the need for recognizing impairment are estimated on the basis of the contractual cash flows of the group of receivables and historical loss experience for receivables with similar credit risk characteristics. The historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
For individually significant receivables with no objective evidence of impairment, ITAÚ UNIBANCO HOLDING classifies these loans into certain rating categories based on several qualitative and quantitative factors applied through internally developed models. Considering the size and the different risk characteristics of each contract, the rating category determined according to internal models can be reviewed and modified by our Corporate Credit Committee, the members of which are executives and officers in corporate credit risk. ITAÚ UNIBANCO HOLDING estimates inherent losses for each rating category considering an internally developed approach for low-default portfolios, that uses our historical experience for building internal models, that are used both to estimate the PD (probability of default) and to estimate the LGD (loss given default.)
To determine the amount of the allowance for individually insignificant items loans are segregated into classes considering the underlying risks and characteristics of each group. The allowance for loan and lease losses is determined for each of those classes through a process that considers historical delinquency and loan loss experience over the most recent years.
Measurement
The methodology used to measure the allowance for loan and lease losses was developed internally by the credit risk and finance areas at the corporate level. In those areas and considering the different characteristics of the portfolios, different areas are responsible for defining the methodology to measure the allowance for each: Corporate (including loan operations with objective evidence of impairment and individually significant loan operations but with no objective evidence of impairment), Individuals, Small and Medium Businesses, and Foreign Units Latin America. Each of the four portfolio areas responsible for defining the methodology to measure the allowance for loan and lease losses is further divided into groups, including groups that develop the methodology and groups that validate the methodology. A centralized group in the credit risk area is responsible for measuring the allowance on a recurring basis following the methodologies developed and approved for each of the four areas.
The methodology is based on two components to determine the amount of the allowance: The probability of default by the client or counterparty (PD), and the potential economic loss that may occur in the event of default, being the debt that cannot be recovered (LGD) which are applied to the outstanding balance of the loan. Measurement and assessment of these risk components is part of the process for granting credit and for managing the portfolio. The estimated amounts of PD and LGD are measured based on statistical models that consider a significant number of variables which are different for each class and include, among others, income, equity, past loan experiences, level of indebtedness, economic sectors that affect collectability and other attributes of each counterparty and of the economic environment. These models are regularly updated for changes in economic and business conditions.
A model updating process is started when the modeling area identifies that it is not capturing significant effects of the changes of economic conditions, in the performance of the portfolio or when a change is made in the methodology for calculating the allowance for loan and lease losses. When a change in the model is made, the model is validated through back-testing and statistical methods are used to measure its performance through detailed analysis of its documentation, by describing step-by-step how the process is carried out. The models are validated by an area independent from the one developing it, by issuing a technical report on the assumptions used (integrity, consistency, and replicability of the bases) and on the mathematical
Performance | F-24 |
Annual Report2015 |
methodology used. The technical report is subsequently submitted to CTAM (Model assessment technical committee), which is the highest level of approval of model reviews.
Performance | F-25 |
Annual Report2015 |
Considering the different characteristics of the loans at each of the four portfolio areas (Corporate (with no objective evidence of impairment), Individuals, Small and Medium Businesses, and Foreign Units Latin America), different areas within the corporate credit risk area are responsible for developing and approving the methodologies for loans in each of those four portfolio areas. Management believes that the fact that different areas focus on each of the four portfolios results in increased knowledge, specialization and awareness of the teams as to the factors that are more relevant for each portfolio area in measuring the loan losses. Also considering such different characteristics and other factors, different inputs and information are used to estimate the PD and LGD as further detailed below:
· | Corporate (with no evidence of impairment) -factors considered and inputs used are mainly the history of the customer relationship with us, the results of analysis of the customer’s accounting statements and the information obtained through frequent contacts with its officers, aiming at understanding the strategy and the quality of its management. Additionally, industry and macroeconomic factors are also included in the analysis. All those factors (which are quantitative and qualitative) are used as inputs to the internal model developed to determine the corresponding rating category. This approach is also applied to the corporate credit portfolio outside Brazil. |
· | Individuals – factors considered and inputs used are mainly the history of the customer relationship with us, and information available through credit bureaus (negative information). |
· | Small / Medium Businesses – factors considered and inputs used include, in addition to the history of the customer relationship and credit bureau information about the customer’s revenues, industry expertise, and information about its shareholders and officers, among others. |
· | Foreign Units – Latin America – considering the relative smaller size of this portfolio and its more recent nature, the models are simpler and use the past due status and an internal rating of the customer as main factors. |
Reversal, write-off, and renegotiation
If, in a subsequent period, the amount of the impairment loss decreases and the decrease is objectively related to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment is reversed. The amount of reversal is recognized in the consolidated statement of Income under Expense for allowance for loan and lease losses.
When a loan is uncollectible, it is written-off in the balance sheet under allowance for loan and lease losses. Write-off as losses occur after 360 days of credits have matured or after 540 days for loans with maturities over 36 months.
In almost all cases for loan products, renegotiated loans require at least one payment to be made under the renegotiated terms in order for it to be removed from nonperforming and nonaccrual status. Renegotiated loans return to nonperforming and nonaccrual status when they reach 60 days past due under the renegotiated terms, which typically corresponds to the borrower missing two or more payments.
Performance | F-26 |
IX – Other financial assets
ITAÚ UNIBANCO HOLDING presents these assets, which composition is detailed in Note 20a, in the consolidated balance sheet
Annual Report2015 |
IX- | Other financial assets |
They are initially recognized at fair value and subsequently at amortized cost, using the effective interest rate method. The composition is presented in Note 20a.
Interest income is recognized in the consolidated statement of income under Interest and similar income.
X –
X- | Financial liabilities at amortized cost |
The financial liabilities thatThey are not classified at fair value through profit or loss are classified into this category and initially recognized at fair value and subsequently measured at amortized cost, using the effective interest rate method. Interest expenses areexpense is presented in consolidated statementthe Consolidated Statement of incomeIncome under Interest and similar expense.
The following financial liabilities are presented in the consolidated balance sheet and recognized at amortized cost:
· | Deposits (See Note 17). |
· | Securities sold under repurchase agreements (Note 2.4f). |
· | Funds from interbank markets (Note 19a). |
· | Funds from institutional markets (Note 19b). |
· | Liabilities for capitalization plans. |
· | Other financial liabilities (Note 20b). |
Performance | F-27 |
Annual Report2015 |
h) Investments in associates and joint ventures
h) | Investments in associates and joint ventures |
I – Associates
In accordanceconformity with IAS 28 – “Investments- Investments in associatesAssociates and joint ventures”,Joint Ventures, associates are those companies in which the investor has a significant influence but does not havehold control. Significant influence is usually presumed to exist when an interest in voting capital is held from 20.0% to 50.0%. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates and joint ventures include the goodwill identified upon acquisition, net of any cumulative impairment loss.
II – Joint arrangements
Before January 1, 2013, ITAÚ UNIBANCO HOLDING proportionally consolidated proportionally its interest held in joint ventures, in conformity with the requirements ofas required by IAS 31 – “InterestsInterests in joint ventures”. As fromJoint Ventures. From that date ITAÚ UNIBANCO HOLDINGon, it adopted IFRS 11 – “Joint arrangements”, thusJoint arrangements, changing its accounting policy from interest in joint businessarrangements to the equity method.
In accordance with the IFRS 11, investments in joint business are classified as joint operations or joint ventures. The classification is dependent upon the contractual rights and obligations held by each investor, rather than the legal structure of the joint arrangements.
ITAÚ UNIBANCO HOLDING has assessed the nature of its joint arrangementsbusiness and concluded that it has both joint operations and joint ventures. There was no change in the accounting treatment for joint operations. For joint ventures, ITAÚ UNIBANCO HOLDING adopted the new policy foron interest in joint ventures, in accordance with the IFRS 11 transition provisions.
The effects arising from adopting IFRS 11, which gave rise to a change in the accounting policy, have not had significant impacts on the consolidatedConsolidated financial statements of ITAÚ UNIBANCO HOLDING.
ITAÚ UNIBANCO HOLDING’s share in profits or losses of its associates and joint ventures after acquisition is recognized in the consolidated statement of income. Its share of the changes in the reserves of corresponding stockholders’ equity of its associates and joint ventures is recognized in its own reserves of stockholders’ equity. The cumulative changes after acquisition are adjusted against the carrying amount of the investment. When the ITAÚ UNIBANCO HOLDING share of losses of an associates and joint ventures isventureis equal or above its interest in the associates and joint ventures, including any other receivables, ITAÚ UNIBANCO HOLDING does not recognize additional losses, unless it has incurred any obligations or made payments on behalf of the associates and joint ventures.
Unrealized profits on transactions between ITAÚ UNIBANCO HOLDING and its associates and joint ventures are eliminated to the extent of the interest of ITAÚ UNIBANCO HOLDING. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the transferred asset. The accounting policies on associates and joint ventures are consistent with the policies adopted by ITAÚ UNIBANCO HOLDING.
If the interest in the associates and joint ventures decreases, but ITAÚ UNIBANCO HOLDING retains significant influence or joint control, only the proportional amount of the previously recognized amounts in Other comprehensive income is reclassified in Income, when appropriate.
Gains and losses from dilution arising from investments in associates and joint ventures are recognized in the consolidated statement of income.
i)
i) | Lease commitments (as lessee) |
As a lessee, ITAÚ UNIBANCO HOLDING has finance and operating lease agreements.
Performance | F-28 |
Annual Report2015 |
ITAÚ UNIBANCO HOLDING leases certain fixed assets. Leases of fixed assets, in which ITAÚ UNIBANCO HOLDINGand those substantially holds allholding the risks and rewardsbenefits incidental to the ownership are classified as finance leases. They are capitalized on the commencement date of the leases at the lower of the fair value of the asset and the present value of the lease future minimum payments.
Each lease installment paid is allocated partiallypart to the liabilityliabilities and partiallypart to financial charges, so that a constant rate is obtained for the outstanding debt balance. The correspondingCorresponding obligations, net of future financial charges, are included in Other financial liabilities. The interest
expense isInterest expenses are recognized in the consolidated statementConsolidated Statement of incomeIncome over the lease term, to produce a constant periodic interest rate of interest on the remaining liabilities balance of the liability for each period. Fixed assets acquired through finance lease are depreciated over their useful lives.
Expenses ofrelated to operating leases are recognized in the consolidated statement of income, on a straight-line basis, over the period of lease.
When an operating lease is terminated before the end of the lease term, any payment to be made to the lessor as a penalty is recognized as an expense in the period the termination occurs.
j)
j) | Fixed assets |
In accordance with IAS 16 – “Property,Property, plant and equipment”,equipment, fixed assets are recognized at the cost of acquisition less accumulated depreciation, which is calculated using the straight-line method and rates based on the estimated useful lives of these assets. SuchThese rates and additional details are presented in Note 15.
The residual values and useful lives of assets are reviewed and adjusted, if appropriate, at the end of each year.
ITAÚ UNIBANCO HOLDING reviews its assets in order to identify whether any indications of impairment exist. If such indications are identified, fixed assets are tested for impairment. In accordance with IAS 36 – Impairment of assets, impairment losses are recognized for the difference between the carrying and recoverable amount of an asset (or group of assets), in the consolidated statement of income. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and its value in use. For purposes of assessing impairment, assets are grouped at the lowest level for which independent cash flows can be identified (cash-generating units). The assessment may be made at an individual asset level when the fair value less the cost to sell may be reliably determined.
ITAÚ UNIBANCO HOLDING in the period ended December 31, 2014, December 31, 2013 and December 31, 2012 did not recognize any impairment losses related to fixed assets.
Gains and losses on disposals of fixed assets are recognized in the consolidated statement of income under Other income or General and administrative expenses.
k) | Goodwill |
k) Goodwill
In accordance with IFRS 3 (R) – “Business combinations”, goodwill may arise on an acquisition and represents the excess of the consideration transferred plus non-controlling interest over the net fair value of the net identifiable assets and contingent liabilities of the acquiree. Goodwill is not amortized, but its recoverable amount is tested for impairment annually or when there is any indication of impairment, using an approach that involves the identification of cash-generating units and estimates of fair value less cost to sell and/or value in use.
As defined in IAS 36, a cash-generating unit is the lowest identifiable group of assets that generates cash inflows that are independent of the cash inflows from other assets or groups of assets. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination.
IAS 36 determines that an impairment loss shall be recognized for a cash-generating unit if the recoverable amount of the cash-generating unit is less than its carrying amount. The loss shall be allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to the other assets of the unit on a pro rata basis applied to the carrying amount of each asset. The loss cannot reduce the carrying amount of an asset below the higher of its fair value less costs to sell and its value in use. The impairment loss of goodwill cannot be reversed.
Performance | F-29 |
Annual Report2015 |
Goodwill arising from the acquisition of subsidiaries is presented in the Consolidated Balance Sheet under the line Goodwill.
Goodwill of associates and joint ventures isventuresis reported as part of investment in the consolidated balance sheet under Investments in associates and joint ventures, and the impairment test is carried out in relation to the total balance of the investments (including goodwill).
l)
l) | Intangible assets |
Intangible assets are non-physical assets, including software and other assets, and are initially recognized at cost. Intangible assets are recognized when they arise from legal or contractual rights, their costs can be reliably measured, and in the case of intangible assets not arising from separate acquisitions or business combinations, it is probable that future economic benefits may arise from their use. The balance of intangible assets refers to acquired assets or those internally generated.
Intangible assets may have finite or indefinite useful lives. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Intangible assets with indefinite useful lives are not amortized, but periodically tested in order to identify any impairment.
ITAÚ UNIBANCO HOLDING semi-annually assesses its intangible assets in order to identify whether any indications of impairment exist, as well as possible reversal of previous impairment losses. If such indications are found, intangible assets are tested for impairment. In accordance with IAS 36, impairment losses are recognized as the difference between the carrying and the recoverable amount of an asset (or group of assets), and recognized in the consolidated statement of income. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and its value in use. For purposes of assessing an impairment, assets are grouped into the minimum level for which cash flows can be identified. The assessment can be made at an individual asset level when the fair value less its cost to sell can be determined reliably.
In the period ended December 31, 2014 the ITAÚ UNIBANCO HOLDING recognized impairment losses in the amount of R$ 8 related to development of software and losses reversals of R$ 25 related to association for the promotion and offer of financial products and services (At December 31, 2013, recognized impairment losses in the amount of R$ 6 related to the development of software and R$ 27 related to association for the promotion and offer of financial products and services, at
December 31, 2012, recognized impairment losses in the amount of R$ 3 related to acquisition of rights to credit payroll and R$ 4 related to association for the promotion and offer of financial products and services), caused by results below expectations.
As set forth in IAS 38, ITAÚ UNIBANCO HOLDING elected the cost model to measure its intangible assets after its initial recognition.
m) The breakdown of intangible assets is described in Note 16.
m) | Assets held for sale |
Assets held for sale are recognized in the balance sheet when they are actually repossessed or there is intention to sell. These assets are initially recorded at the lower of: (i) the fair value of the asset less the estimated selling expenses, or (ii) the carrying amount of the related asset held for sale.
Subsequent reductions in the carrying value of such assets are recorded as a loss due to decreases in fair value less costs to sell, in the consolidated statement of income under General and administrative expenses. In the case of recovery of the fair value less cost to sell, the recognized losses can be reversed.
n)
n) | Income tax and social contribution |
There are two components of the provision for income tax and social contribution: current and deferred.
Current income tax expense approximates taxes to be paid or recovered for the applicable period. Current assets and liabilities are recorded in the balance sheet under Tax assets – income tax and Socialsocial contribution –- current and Taxtax liabilities assets – income tax and Social contribution – current, respectively.
Deferred income tax and social contribution represented by deferred tax assets and liabilities are obtained based on the differences between the tax bases of assets and liabilities and the amounts reported in the financial statements at each year end. The tax benefit of tax loss carryforwards is recognized as an asset. Deferred tax assets are only recognized when it is probable that future taxable income will be available for offset.offsetting. Deferred tax assets and liabilities are recognized in the balance sheet under Tax assets – Income tax and social contribution – Deferred and Tax liabilities – Income tax and social contribution –- Deferred, respectively.
Income tax and social contribution expense is recognized in the consolidated statement of income under Income tax and social contribution, except when it refers to items directly recognized in Other comprehensive income, such as: deferred tax on fair value measurement of available-for-sale financial assets, and tax on cash flow hedges. Deferred taxes of such items are initially recognized in otherOther comprehensive income and subsequently recognized in Income together with the recognition of the gain/loss originally deferred.
Performance | F-30 |
Annual Report2015 |
Changes in tax legislation and rates are recognized in the consolidated statement of income under Income tax and social contribution in the period in which they are enacted. Interest and fines are recognized in the consolidated statement of income under General and administrative expenses. Income tax and social contribution are calculated at the rates shown below, considering the respective taxable bases, based on the current legislation related to each tax, which in the case of the operations in Brazil are for all the reporting periods as follows:
12/31/ | ||||
Income tax | 15.00 | % | ||
Additional income tax | 10.00 | % | ||
Social contribution(*) | % |
(*) On October 06, 2015, Law No. 13,169, a conversion of Provisional Measure No. 675, which increased the Social Contribution tax rate from 15.00% to 20.00% until December 31, 2018, for financial institutions, insurance companies and credit card management companies, was introduced. For non-financial operationsthe other companies, the tax rate remains at 9.00%.
On May 14, 2014, Law No. 12,973 was enacted to change the federal tax legislation about IRPJ, CSLL, PIS and COFINS, which effects started on 01/01/2015, since ITAÚ UNIBANCO HOLDING did not exercise the option of advancing the effects pursuant to articles 75 and 96. Among other matters, said Law provides for:
· | the revocation of the Transition Tax Regime – RTT, established by Law No. 11,638/07, amended by Law No. 11,941/09; |
· | taxation of legal entities domiciled in Brazil, in connection with the equity increase arising from the interest in profit earned abroad by subsidiaries and affiliates and profit earned by individuals resident in Brazil by means of a legal entity controlled abroad. |
Said law has not had significant accounting effects on the consolidated in the financial statements the social contribution rate regards 9.00%.of ITAÚ UNIBANCO HOLDING.
To determine the proper level of provisions for taxes to be maintained for uncertain tax positions, a two-phased approach was applied, according to which a tax benefit is recognized if it is more probable than not that a position can be sustained. The benefit amount is then measured to be the highest tax benefit which probability of realization is over 50.0%50%.
o)
o) | Insurance contracts and private pension |
IFRS 4 – “Insurance contracts” defines insurance contracts as contracts under which the issuer accepts a significant insurance risk of the counterparty, by agreeing to compensate it if a specified uncertain future event adversely affects it.
At the time of the first-time adoption of IFRS, ITAÚ UNIBANCO HOLDING through its subsidiaries, issues contracts to clients that have insurance risks, financial risks or a combination of both. A contract under which ITAÚ UNIBANCO HOLDING accepts significant insurance risks from its clients and agrees to compensate them upon the occurrence of a specified uncertain future event is classified as an insurance contract. The insurance contract may also transfer a financial risk, but is accounted for as an insurance contract, should the insurance risk be significant.
As permitted by IFRS 1, upon adoption of IFRS for the first time, ITAÚ UNIBANCO HOLDING electeddecided not to change its accounting policies for insurance contracts, which follow the accounting practices adoptedgenerally accepted in Brazil (“BRGAAP”).
InvestmentAlthough investment agreements with discretionary participation characteristics are financial instruments, they are treated as insurance contracts, areas established by IFRS 4, as well as those that transfertransferring a significant financial risk. Financial risk is the risk of a future change in one or more variables, such as interest rate, price of financial assets, price of commodities, foreign exchange rate, index of prices or rates, credit risk rating, credit index or other variable.
Investment contractsThese agreements may be reclassified as insurance contracts after their initial classification should the insurance risk become significant.
Investment contracts with discretionary participation features are financial instruments, but they are treated as insurance contracts, as established by IFRS 4.
Once the contract is classified as an insurance contract, it remains as such until the end of its life, even if the insurance risk is significantly reduced during such period, unless all rights and obligations are extinguished or expired.
Note 30 presents a detailed description of all products classified as insurance contracts.
Private pension plans
In accordance with IFRS 4, an insurance contract is one that exposes its issuer to a significant insurance risk. An insurance risk is significant only if the insurance event could cause an issuer to pay significant additional benefits in any scenario, except for those that do not have commercial
Performance | F-31 |
Annual Report2015 |
substance. Additional benefits refer to amounts that exceed those that would be payable if no insured event occurred.
Contracts that contemplate retirement benefits after an accumulation period (known as PGBL, VGBL and FGB) assure, at the commencement date of the contract, the basis for calculating the retirement benefit (mortality table and minimum interest).
The contracts specify the annuity fees and, therefore, the contract transfers the insurance risk to the issuer at the commencement date, and they are classified as insurance contracts.
The payment of additional benefits is considered significant in all scenarios with commercial substance, since survival of the beneficiary may exceed the survival estimates in the actuarial table used to define the benefit agreed in the contract. The option of conversion into a fixed amount to be paid for the life of the beneficiary is not available. All contracts give the right to the counterparty to choose a life annuity benefit.Insurance premiums
Insurance premiums
Insurance premiums are recognized by issuing an insurance policy or over the period of the contracts in proportion to the amount of the insurance coverage. Insurance premiums are recognized as income in the consolidated statement of income.
If there is evidence of impairment losses with respect to receivables for insurance premiums, ITAÚ UNIBANCO HOLDING recognizes a provision, sufficient to cover this loss, based on the risk analysis of realization of insurance premiums receivable with installments overdue for over 60 days.
Reinsurance
Reinsurance premiums are recognized over the same period in which the related insurance premiums are recognized in the consolidated statement of income.
In the ordinary course of business, ITAÚ UNIBANCO HOLDING reinsures a portion of the risks underwritten, particularly property and casualty risks that exceed the maximum limits of responsibility that we determine to be appropriate for each segment and product (after a study which considers size, experience, specificities, and the necessary capital to support these limits). These reinsurance agreements allow the recovery of a portion of the losses from the reinsurer, although they do not release the insurer from the main obligation as direct insurer of the risks contemplated in the reinsurance.
Reinsurance assets are valued according to consistent basis of risk assignment contracts, and in the event of losses effectively paid are revalued after 365 days elapse in relation to the possibility of non-recovery of such losses. In the event of doubt, these assets are reduced based on the provision recognized for credit risk associated to reinsurance.Acquisition costs
Acquisition costs
Acquisition costs include direct and indirect costs related to the origination of insurance. These costs, except for the commissions paid to brokers and others, are expensed directly in income as incurred. Commissions, on the other hand, are deferred and expensed in proportion to the recognition of the premium revenue, i.e. over the period of the corresponding insurance contract.
Liabilities
Reserves for claims are established based on historical experience, claims in process of payment, estimated amounts of claims incurred but not yet reported, and other factors relevant to the required reserve levels. A liability for premium deficiencies is recognized if the estimated amount of premium deficiencies exceeds deferred acquisition costs. Expenses related to recognition of liabilities for insurance contracts are recognized in the consolidated statement of income under Change in reserves for insurance and private pension.
Embedded derivatives
ITAÚ UNIBANCO HOLDING analyzes all contracts in order to check for any embedded derivatives. In the cases where these derivatives meet the definition of insurance contracts on their own, we do not separate them.
We have not identified any embedded derivatives in our insurance contracts, which may be separated or measured at fair value in accordance with IFRS 4 requirements.
Liability adequacy test
IFRS 4 requires that the insurance companies analyze the adequacy of their insurance liabilities in each reporting period through a minimum adequacy test. The liability adequacy test for IFRS was conducted by adopting the current actuarial assumptions for future cash flows of all insurance contracts in force on the balance sheet date.
As a result of this test, ifShould the assessment shows that the carrying amount of the insurance liabilities (less related deferred acquisition costs of contracts and related intangible assets) is lower than the value of the estimated future cash flows,analysis show insufficiency, any deficiency identified deficiency will have to be recognizedimmediately accounted for in income for the period. In order to perform the adequacy test, insurance contracts are grouped in portfolios that are broadly subject to similar risks and which risks are jointly managed as a single portfolio.
The assumptions used to conduct the liability adequacy test are detailed in Note 30.
Performance | F-32 |
p) Capitalization plans
ITAÚ UNIBANCO HOLDING sells capitalization certificates, in which clients deposit specific amounts, depending on the plan, which are redeemable at the original amount plus interest. Clients enter, during the term of the plan, into raffles of cash prizes.
Annual Report2015 |
p) | Capitalization plans |
While forFor regulatory purposes in Brazil they are regulated by the insurance regulator, these plans do not meet the definition of an insurance contract under IFRS 4, and therefore they are classified as a financial liability at amortized cost under IAS 39.
Revenue from capitalization plans is recognized during the period of the contract and measured as the difference between the amount deposited by the client and the amount that ITAÚ UNIBANCO HOLDING has to reimburse.
Performance | F-33 |
q)
Annual Report2015 |
q) | Post-employments benefits |
ITAÚ UNIBANCO HOLDING is required to make contributions to government social security and labor indemnity plans, in Brazil and in other countries where it operates, which are expensed in the consolidated statement of income as an integral part of general and administrative expenses, when incurred. Those contributions totaled R$ 1,747 from January 1 to December 31, 2014 (R$ 1,547 from January 1 to December 31, 2013 and R$ 1,488 from January 1 to December 31, 2012).
Additionally, ITAÚ UNIBANCO HOLDING also sponsors defined benefit plansDefined Benefit Plans and defined contribution plans,Defined Contribution Plans, accounted for pursuant to IAS 19 – “Employee benefits” up to December 31,
2012 and in accordance with the IAS 19 (revised in June 2011)(R1) – “Employee benefits” as from January 1, 2013..
Pension plans –- Defined benefit plans
The liability (or asset, as the case may be) recognized in the consolidated balance sheetConsolidated Balance Sheet with respect to the defined benefit plan corresponds to the present value of the defined benefit obligations onat the balance sheet date less the fair value of the plan assets. The defined benefit obligation is annually calculated by an independent actuarial consulting company using the projected unit credit method. The present value of the defined benefit obligationobligations is determined by discounting the estimated amount of future cash flows of benefit payments based on the Brazilian treasury long termgovernment securities denominated in reaisReais and with maturity periods similar to the term of the pension plan liabilities.
The following amounts They are recognized in the consolidatedConsolidated statement of income:
· | current service cost – defined as the increase in the present value of obligations resulting from employee service in the current period. |
· | interest on the net amount of assets (liabilities) of defined benefit plans is the change, during the period, in the net amount recognized in assets and liabilities, due to the time elapsed, which comprises the interest income on plan assets, interest expense on the obligations of the defined benefit plan and interest on the asset ceiling effects. |
Actuarial gains and losses arisearising from the non-realizationnon-adoption of the actuarial assumptions established in the latest actuarial evaluation, as compared to those effectively carried out as well as the effects fromor changes in such assumptions. Gains and lossesassumptions, are fully recognized in Other Comprehensive Income.comprehensive income.
Pension plans –- defined contribution
For defined contribution plans, contributions to plans made by ITAÚ UNIBANCO HOLDING, through pension plan funds, are recognized as an expense when due.
Other post-employment benefit obligations
Certain companies that merged into ITAÚ UNIBANCO HOLDING over the past few years were sponsors of post-employment healthcare benefit plans and ITAÚ UNIBANCO HOLDING is contractual committed to maintain such benefits over specific periods, as well as in relation to the benefits granted due to a judicial ruling.
Similarly to the defined benefit pension plans, theseThese obligations are assessed annually by independent and qualified actuaries, and the costs expected from these benefits are accruedaccumulated during the length of service. Gainsemployment period and gains and losses arising from adjustments of practices and changes in actuarial assumptions are debited from or credited to stockholders’recognized in Stockholders’ equity, in otherunder Other comprehensive income, in the period in which they occur.occurred.
r) | Share-based payment |
r) Stock-based compensation
Stock-based compensationShare-based payment is accounted for in accordance with IFRS 2 –- “Share-based payment” which requires the entity to measure the value of equity instruments granted, based on their fair value at the option grant date. This cost is recognized during the vesting period of the right to exercise the instruments.
Performance | F-34 |
Annual Report2015 |
The total amount to be expensed is determined by reference to the fair value of the options granted excluding the impact of any service and non-market performance vesting conditions (notably remaining an employee of the entity over a specified time period). The fulfillment of on-market vesting conditions is included in the assumptions about the number of options that are expected to be exercised. At the end of each period, ITAÚ UNIBANCO HOLDING revises its estimates of the number of options that are expected to be exercised based on non-market vesting conditions. It recognizes the impact of the revision of the original estimates, if any, in the consolidated statement of income, with a corresponding adjustment to stockholders’ equity.
When the options are exercised, the ITAÚ UNIBANCO HOLDING treasury shares are generally delivered to the beneficiaries.
The fair value of stock options is estimated by using option pricing models that take into account the exercise price of the option, the current stock price, the risk-free interest rate, the expected volatility of the stock price and the life of the option.
All stock based compensation plans established by ITAÚ UNIBANCO HOLDING correspond to plans that can be settled exclusively through the delivery of shares.
s) Financial guarantees
In accordance with IAS 39, the issuer of a financial guarantee contract has an obligation and should recognize it initially at its fair value. Subsequently, this obligation should be measured at: (i) the amount initially recognized less accumulated amortization and (ii) the amount determined pursuant to IAS 37 – “Provisions, contingent liabilities and contingent assets”, whichever is higher.
s) | Financial guarantees |
ITAÚ UNIBANCO HOLDING recognizes the fair value of the guarantees issued in the consolidated balance sheet under Other liabilities. Fair value is generally represented by the fee charged to client for issuing the guarantee. This amount at the issuance date is amortized over the life of the guarantee issued and recognized in the consolidated statement of income under Banking service fees.
After issuance, if based on the best estimate ITAÚ UNIBANCO HOLDING concludes that the occurrence of a loss regarding a guarantee issued is probable, and if the loss amount is higher than the initial fair value less cumulative amortization of the guarantee, a provision is recognized for such amount.
t)
t) | Provisions, contingent assets and contingent liabilities |
These are assessed, recognized and disclosed in accordance with IAS 37. Contingent assets and contingent liabilities are rights and obligations arising from past events for which materialization depends on future events.
Contingent assets are not recognized in the consolidated financial statements, except when the Management of ITAÚ UNIBANCO HOLDING understands that realization is virtually certain which, generally corresponds to lawsuits with favorable rulings, in final and unappealable judgments, withdrawal from lawsuits as a result of a payment in settlement or as a result of an agreement to offset against an existing liability.
Contingent liabilities mainly arise from administrative proceedings and lawsuits, inherent in the ordinary course of business, filed
by third parties, former employees and governmental bodies, in connection with civil, labor, and tax and social security claims.
These contingencies are evaluated based on the Management’s best estimates, taking into account the opinion of legal counsel when there is a likelihood that financial resources are required to settle the obligations and the amounts can be estimated with reasonable certainty.
Contingent losses are classified as:
· | Probable: in which liabilities are recognized in the consolidated balance sheet under Provisions. |
· | Possible: which are disclosed in the Consolidated Financial Statements, but no provision is recorded. |
· | Remote: which require neither a provision nor disclosure. |
Contingent liabilities recorded under Provisions and those disclosed as possible are measured using best estimates through the use of models and criteria which allow their appropriate measurement even if there is uncertainty as to their ultimate timing and amount, and the criteria are detailed in Note 32.
Performance | F-35 |
Annual Report2015 |
The amount of court escrow deposits is adjusted in accordance with current legislation.
Contingent liabilities guaranteed by indemnity clauses provided by third parties, such as in business combinations carried out before the transition date to IFRS, are recognized when a claim is asserted, and a receivable is recognized simultaneously subject to its collectability. For business combinations carried out after the transition date, indemnification assets are recognized at the same time and measured on the same basis as the indemnified item, subject to collectability or contractual limitations on the indemnified amount.
u) | Capital |
u) Capital
Common and preferred shares, which are equivalent to common shares but without voting rights are classified in Stockholders’ equity. The additional costs directly attributable to the issue of new shares are included in Stockholders’ equity as a deduction from the proceeds, net of taxes.
v)
v) | Treasury shares |
Common and preferred shares repurchased are recorded in Stockholders’ equity under Treasury shares at their average purchase price.
Shares that are subsequently sold, such as those sold to grantees under our stock option plan,share-based payment, are recorded as a reduction in treasury shares, measured at the average price of treasury stock held at such date.
The difference between the sale price and the average price of the treasury shares is recorded as a reduction or increase in Additional paid-in capital. The cancellation of treasury shares is recorded as a reduction in Treasury shares against Appropriated reserves, at the average price of treasury shares at the cancellation date.
w)
w) | Dividends and interest on capital |
Pursuant to the Company's bylaws, stockholders are entitled to a mandatory minimum dividend of 25.0% of net income for the year, as determined in accordance with the corporate law. Minimum dividend amounts established in the bylaws are recorded as liabilities at the end of each year. Any other amount above the mandatory minimum dividend is accounted for as liabilities,a liability when approved by the stockholders at a Stockholder´sStockholders´ Meeting. Since January 1, 1996, Brazilian companies have been permitted to attribute a tax-deductible nominal interest rate charge on net equity (called interest on capital.)
Interest on capital is treated for accounting purposes as a dividend, and it is presented as a reduction of stockholders' equity in the consolidated financial statements. The related tax benefit is recorded in the consolidated statement of income.
Dividends have been and continue to be calculated and paid based on the financial statements prepared under Brazilian accounting standards and regulations for financial institutions and not based on these consolidated financial statements prepared under IFRS.
x) Dividends and interest on capital are presented in Note 21.
x) | Earnings per share |
Earnings per share are computed by dividing net income attributable to the owners of ITAÚ UNIBANCO HOLDING by the weighted average number of common and preferred shares outstanding for each reporting year. Weighted average shares are computed based on the periods for which the shares were outstanding.
Earnings per share are presented based on the two types of shares issued by ITAÚ UNIBANCO HOLDING. Both types, common and preferred, participate in dividends on substantially the same basis, except that preferred shares are entitled to a priority non-cumulative minimum annual dividend of R$ 0.022 per share. Earnings per share are computed based on the distributed earnings (dividends and interest on capital) and undistributed earnings of ITAÚ UNIBANCO HOLDING after giving effect to the preference indicated above, without regard to whether the earnings will ultimately be fully distributed. Earnings per share amounts have been determined as if all earnings were distributed and computed following the requirements of IAS 33 – “Earnings per share”.
ITAÚ UNIBANCO HOLDING grants stock-based compensation whose dilutive effect is reflected in diluted earnings per share, with the application of the “treasury stock method“method”. Under the treasury stock method, earnings per share are calculated as if shares under stock-based compensation plans had been issued and as if the assumed proceeds (funds to be received upon exercise of the stock options and the amount of compensation cost attributed to future services and not yet recognized) were used to purchase shares of ITAÚ UNIBANCO HOLDING.
y) Revenue from servicesEarnings per share are presented in Note 28.
ITAÚ UNIBANCO HOLDING provides a number of services to its clients, such as investment management, credit card, investment banking services and certain commercial banking services.
Performance | F-36 |
Annual Report2015 |
y) | Revenue from services |
Services related to current accounts are offered to clients either in the format offormal packages or individually. These revenues areindividually, and their income is recognized when suchthese services are provided.
Income from credit card commissions arises from the capture of these transactions and allocated to income on their capture and processing date.
Revenue from certain services, such as fees from funds management, performance, collection for retail clients and custody, is recognized over the life of the related contracts on a straight-line basis.
The breakdown of the banking service fees is detailed in Note 24.
z) | Segment information |
z)
Segment information
IFRS 8 – “Operating segments” requires that operating segments are is disclosed consistently with information provided to the chief operating decision maker, who isinternal report prepared for the person or groupExecutive Committee, which makes the operational decisions of persons that allocates resources to the segments and assesses their performance. ITAÚ UNIBANCO HOLDING considers that its Executive Board is the chief operating decision maker.HOLDING.
ITAÚ UNIBANCO HOLDING has fourthree reportable segments: (i) Commercial Bank – Retail Banking (ii) Consumer Credit – Retail,Wholesale Banking and (iii) Wholesale Bank, and (iv) Activities with the Market + Corporation.
Segment information is presented in Note 34.
Performance | F-37 |
Annual Report2015 |
Note 3 – Business development
a) | Acquisitions |
a) BSF Holding
Recovery do Brasil Consultoria S.A.
On April 14, 2011,
At December 31, 2015, ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú Unibanco S.A., entered into a sale and purchasean agreement for the purchase and sale and other covenants with Banco BTG Pactual S.A. (BTG) for acquisition of shares with Carrefour Comércio e Indústria Ltda. (“Carrefour”) to acquire 49.0% of BSF Holding S.A. (“Banco Carrefour”), the entity responsible for the offer and distribution, on an exclusive basis, of financial, insurance and private pension products and services in the distribution channels of Carrefour Brazil operated under the “Carrefour” brand in Brazil. The completion of the operation was subject to the approval of the Central Bank of Brazil, which was obtained on April 23, 2012 and to the transfer of shares of BSF to ITAÚ UNIBANCO HOLDING., which was carried out on May 31, 2012.
Since May 31, 2012 ITAÚ UNIBANCO HOLDING have accounted for this interest in BSF under the equity method (Note 13) and as transactions with related parties (Note 35).
The allocation of the difference between the investment held in BSF and the interest in its net assets, at the acquisition date, is shown below:
(*) Basically represented by credit card operations.
Goodwill arising from the operation is reported as part of investment in the heading Investments in associates and joint ventures (Note 13a), and the impairment test is analyzed in relation to the total investment balance (including goodwill).
b) REDE
On September 24, 2012, ITAÚ UNIBANCO HOLDING completed the auction of the Tender Public Offer (OPA) to cancel REDE’s listed company register, pursuant to the OPA call notice published on August 23, 2012.
As a result of the auction, ITAÚ UNIBANCO HOLDING purchased, through its non-financial subsidiary Banestado Participações, Administração e Serviços Ltda., 298,989,237 common shares issued by REDE, representing 44.4% of its capital, and now it holds 635,474,593 common shares, representing 94.4% of its capital. The shares were purchased for the unit price of R$ 35.00, totaling R$ 10,469.
With the purpose of completing the purchase of the remaining minority interest, ITAÚ UNIBANCO HOLDING acquired, by way of its subsidiary Banestado Participações, Administração e Serviços Ltda., 36,423,856 common shares (24,207,582 shares in October 2012; 9,893,659 shares in November 2012; and 2,322,615 shares in December 2012) for the amount, offered at the OPA of September 24, 2012, of R$ 35.00, plus SELIC variation for the period, redeemed 999,884 common shares and canceled 72,372 treasury shares, thus increasing its81.94% interest in the capital from 94.4%of Recovery do Brasil Consultoria S.A. (Recovery), corresponding to 100.0%, totalingBTG’s total interest in Recovery, for the amount of R$ 1,283 (including fees and brokerage).640.
On October 18, 2012,In the Brazilian Securities and Exchange Commission (CVM) cancelled REDE’s registration as a publicly-held company.
Changes in stockholders’ equity ofsame transaction, ITAÚ UNIBANCO HOLDING S.A., dueagreed on the acquisition of approximately 70% of the portfolio of R$ 38 billion in credit rights related to the purchaserecovery of shares from non-controlling stockholders of REDE, are shown below:
(*) For non-financial subsidiaries, tax rate of Income Tax and Social Contribution is 34.00%.
c) Association with Banco BMG S.A.
On July 9, 2012 ITAÚ UNIBANCO HOLDING entered into an Association Agreement with Banco BMG S.A. ("BMG"), aiming at the offering, distribution and commercialization of payroll debit loans through the incorporation of a financial institution, the Banco Itaú BMG Consignado S.A. (“Itaú BMG Consignado”). After obtaining the previous approval requiredportfolios held by BTG, for starting operations, issued by the Administrative Council for Economic Defense (CADE) on October 17, 2012, the final documents were signed on December 13, 2012 and Banco BMG has been a stockholder of Itaú BMG Consignado since January 7, 2013. The completion of the operation was subject to the approval of the Central Bank of Brazil, which was obtained on April 18, 2013.
As a result of this transaction stockholders’ equity attributed to non-controlling stockholders increased by R$ 303 at the base date of 2013.
On April 29, 2014, an agreement was entered into to establish the combination of payroll loan business of BMG and Itaú BMG Consignado, which was concentrated in Itaú BMG Consignado. In
reciprocity for this business combination, on July 25, 2014, a capital increase of Itaú BMG Consignado was carried out, fully subscribed and paid in by BMG in the amount of R$ 181. The possibility of this combination was already set forth570.
Established in 2000 in Argentina and present in Brazil since 2006, Recovery is the market leader in the investment agreementmanagement of December 13, 2012, which governs the association. After this capital increase, ITAÚ UNIBANCO HOLDING will holdoverdue receivables portfolio. Recovery’s activities consist in prospecting and assessing portfolios, structuring and managing operations, acting in all segments, from individual to corporate loans, with financial and non-financial institutions, and offering a sixty per cent (60%) interest in the total and voting capital of Itaú BMG Consignado and BMG will hold the remaining forty per cent (40%).competitive advantage to its clients.
Accordingly, as from July 25, 2014Effective acquisitions and throughoutfinancial settlements will occur after the periodfulfillment of the Association, Itaú BMG Consignado is exclusive vehiclecertain contractual conditions and obtainment of BMGregulatory and its controlling shareholders for the offer, in the Brazilian territory, of payroll loans, provided that certain exceptions are observed for a maximum period of six (6) months counted from the date on which the capital of Itaú BMG Consignado is increased.government authorizations required.
It is estimated that thisThe transaction will not have significant accounting effectseffect on the results of ITAÚ UNIBANCO HOLDING, which will continue to consolidate Itaú BMG Consignado in its financial statements.HOLDING.
ConectCar Soluções de Mobilidade Eletrônica S.A.
d) Credicard
On May 14, 2013,October 21, 2015, ITAÚ UNIBANCO HOLDING, signedthrough its subsidiary Redecard S.A. (Rede), entered into a share purchase and sale commitment with Banco Citibank, a Share and Quotas Purchase AgreementOdebrecht Transport S.A. for the acquisition of Banco Credicard and Credicard Promotora50% of capital stock ofConectCar Soluções de Vendas, including “Credicard” brand,Mobilidade Eletrônica S.A. (ConectCar) for the amount of R$ 2,948 million (monetarily adjusted). The completion of this transaction was pending approval by the Central Bank of Brazil, which was obtained on December 12, 2013 and settled on December 20, 2013.170.
Banco CredicardConectCar is an institution engaged in own payment arrangements and Credicard Promotora de Vendas are these entities responsiblea provider of intermediation services for automatic payment of tolls, fuels and parking lots, ranked as the supply and distribution of financial products and services under “Credicard” brand, principally personal loans and credit cards.
In view of this transaction, ITAÚ UNIBANCO HOLDING consolidated Banco Credicard and Credicard Promotora de Vendassecond largest company in the consolidated financial statementssector, currently operating in 12 States and in the Federal District. It was organized in 2012 as from December, 2013 to August 31, 2014. Banco Credicard merged with Banco Itaucardthe result of a partnership between Odebrecht Transport S.A. on August 31, 2014.and Ipiranga Produtos de Petróleo S.A., a company controlled by Ultrapar Participações S.A., which currently holds the remaining 50% of ConectCar’s capital stock.
The allocation ofoperation was approved by BACEN on December 23, 2015.
Governance will be shared with the difference between the amount paidUltra group, and the allocationeffective acquisition and financial settlement will occur after the fulfillment of net assets at fair value led to the recognition of goodwill based on expected future profitability, in the amount of R$1,863 million, and other intangible assets.
e) BMG Seguradora S.A.
On June 25, 2013, ITAÚ UNIBANCO HOLDING, through Banco Itaú BMG Consignado S.A. (“Itaú BMG Consignado”), which is an entity indirectly controlled by ITAÚ UNIBANCO HOLDING signed a Share Purchase Agreement with controlling shareholders of Banco BMG S.A. (“Sellers”) whereby Itaú BMG Consignado agreed to acquire 99.996% of the shares issued by BMG Seguradora S.A.
BMG Seguradora generated R$ 62.6 million in retained premiums during 2012 and, from January to May 2013, a retained premiums’ volume of R$ 42.4 million, 77% higher than the volume generated during the same period of 2012.
BMG Seguradora signed exclusivity agreements with Banco BMG S.A and with the Itaú BMG Consignado for the purpose of distributing insurance products to be offered jointly with the products distributed by these financial institutions.certain contractual conditions.
The approval by the Central Bank of Brazil was obtained on December 19, 2013 and the transaction was settled on January 27, 2014 in the amount of R$ 88.1 million. This acquisition haswill not had anyhave significant accounting impacteffect on the results of ITAÚ UNIBANCO HOLDING, which has consolidated the transaction in its financial statements since January, 2014.HOLDING.
As a result of the study of Purchase Price Allocation – PPA, the allocation of difference between the amount paid and the share in net assets at fair value, resulted in the recognition of a goodwill due to expected future profitability in the amount of R$ 22.7 million.Itaú CorpBanca
f) Citibank N.A. Uruguay Branch
On June 28, 2013, Itau Unibanco Holding, whereby its subsidiary Banco Itaú Uruguay S.A. (“BIU”) executed a binding agreement with Citibank N.A. Uruguay Branch (“Citi”) establishing the rules for the acquisition by BIU of the retail business conducted by Citi in Uruguay.
As a result of this transaction, BIU assumed a portfolio of more than 15,000 clients in Uruguay related to the retail business (bank accounts, saving and term deposits). The acquired assets include mainly the credit card operations conducted by Citi in Uruguay under the Visa, Mastercard and Diners brand, which in 2012 represented slightly more than 6.0% of the Uruguayan market share.
Approval was obtained from applicable regulatory authorities on December 10, 2013.
The allocation of the difference between the amount paid and the allocation of assets and liabilities related to the operation, net at fair value, led to the recognition of goodwill based on expected future profitability and other intangible assets.
g) Partnership with Fiat
On August 20, 2013, ITAÚ UNIBANCO HOLDING announced that it renewed for another 10 years, by means of its subsidiary Itaú Unibanco S.A., the commercial cooperation agreement entered into with Fiat Group Automobiles S.p.A. and Fiat Automóveis S.A. (“Fiat”). This agreement sets forth: (i) exclusive financing offer in promotional campaigns held by car maker Fiat for the sale of new automobiles; and (ii) the exclusive use of Fiat brand in vehicle-financing related activities.
The amount involved in the transaction is not material for ITAÚ UNIBANCO HOLDING and, therefore, will not cause any material accounting effect in its results.
h) Itaú CorpBanca
On January 29, 2014, ITAÚ UNIBANCO HOLDING, together withthrough its subsidiary Banco Itaú Chile S.A. (“BIC”)(BIC) entered into an agreement (Transaction Agreement)a Transaction Agreement with CorpBanca (“CorpBanca”) and its controlling stockholders (“Corp Group”)shareholders (Corp Group) establishing the terms and conditions to mergefor the unification of operations of BIC and CorpBanca Chile in Chile and in the other jurisdictions in which CorpBanca operates.
The operation will be realized by means of (i) capital increase of BIC in the amount of US$ 652 million to be carried out by ITAÚ UNIBANCO HOLDING or one of its subsidiaries, (ii) merger of BIC intoconsummated through:
Capital increase in BIC in the amount of US$ 652 million to be made by ITAÚ UNIBANCO HOLDING or one of its subsidiaries, |
ii. | Merger of BIC into CorpBanca, with cancellation of BIC’s shares and issue of new shares by CorpBanca, at the estimated rate of 85,420.07 shares of CorpBanca for each 1 share of BIC, to be approved in the shareholders meeting of CorpBanca so that the interests in the bank resulting from the merger, which will be called Itaú CorpBanca, will be 33.58% for ITAÚ UNIBANCO HOLDING and 33.13% for Corp Group, and |
CorpBanca, with the cancellation of BIC shares and the issuance of new shares, at the estimated rate of 85,420.07 shares of CorpBanca for each 1 share of BIC, to be approved at the stockholders' meeting of CorpBanca upon the affirmative vote of two thirds (2/3) of shares issued by CorpBanca, so that the interests in the bank resulting from the merger (to be named “Itaú CorpBanca”) are 33.58% for ITAÚ UNIBANCO HOLDING and 33.13% for Corp Group, and (iii) subsequent integration of Itaú BBA Colombia
iii. | Subsequent integration of Itaú BBA Colômbia S.A. into the operations of Itaú CorpBanca or its subsidiaries. |
Performance | F-38 |
Annual Report2015 |
Itaú CorpBanca will be controlled by ITAÚ UNIBANCO HOLDING, which will enter into a stockholders’shareholders’ agreement with Corp Group when the operation is concluded.consummated. This agreement will entitle ITAÚITAU UNIBANCO HOLDING and Corp Group to appoint members for the Board of Directors of Itaú CorpBanca in accordance to their interests in capital stock, and this group of stockholdersshareholders will have the privilege of electing the majority of members of the Board of Directors, and ITAÚ UNIBANCO HOLDING will be entitled to elect the majority of these members. The chairmanchairmen of the Boards of Directors of Itaú CorpBanca and its subsidiaries will be appointed by Corp Group, and their vice-chairmanvice-chairmen by ITAÚ UNIBANCO HOLDING. The executives of Itaú CorpBanca and its subsidiaries will be proposed by ITAÚ UNIBANCO HOLDING and ratified by the Board of Directors of Itaú CorpBanca. The stockholders’shareholders agreement will also set forth that Corp Group will be entitled to approve, together with ITAÚ UNIBANCO HOLDING, certain strategic matters of Itaú CorpBanca and it will include provisions on the transfer of shares between ITAÚITAU UNIBANCO HOLDING and Corp Group, and alsothird parties.
Approvals for the merger were obtained from CorpBanca and BIC shareholders, and from all proper regulatory authorities in Chile, Brazil, Colombia and Panamá. However, as set forth in the amendment to third parties.the Transaction Agreement, celebrated on June 2, 2015, the parties agreed that the operation will be closed by May 2, 2016, when they will be fully prepared for the corporate reorganization process.
It is estimated that this operationsaid transaction will not have significant accounting effects on the results of ITAÚ UNIBANCO HOLDING, which will consolidate Itaú CorpBanca after the closing of the operation.
MasterCard Brasil Soluções de Pagamento Ltda.
On March 13, 2015, o ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú Unibanco S.A., entered into an agreement with MasterCard Brasil Soluções de Pagamento Ltda. to create an alliance in the payment solutions market in Brazil.
The purposes of the operation are (a) to focus on the expansion of its financial statements.issue and acquisition business, particularly related to the new payment solutions network, (b) to have access to new payment solutions technologies, (c) to obtain significant scale and efficiency gains, and (d) to benefit from MasterCard’s expertise in the management of payment solution brands.
The effectiveness of this operationthe alliance is subject to the satisfaction of certain conditions precedent including the aforementionedand approval by the stockholders’ meeting of CorpBanca andproper regulatory approval in Chile. The operation has already received the approval in Panama, Colombia and Brazil.authorities.
i) Major Risk Insurance OperationMaxiPago
On September 3, 2014, ITAÚ UNIBANCO HOLDING, wherebythrough its subsidiary Itaú UnibancoRedecard S.A. (Rede) entered into a share purchase agreement with the controlling shareholders of MaxiPago Serviços de Internet S.A., signed on July 4th, 2014 a “Share Purchase Agreement” with ACE Ina International Holdings, Ltd. (“ACE”) whereby Itaú Unibanco and some of its subsidiaries have undertaken to sell their total stakes in Itaú Seguros Soluções Corporativas S.A. (“ISSC”).gateway company – network interconnection for mobile electronic payments.
ISSC hadOn the ITAÚ UNIBANCO HOLDING’s major risk insurance operations,same date, subscription and payment of 13,336 shares (33.33%) and acquisition of 24,174 shares (41.67%) were carried out, so that Rede became the clientsholder of which were middle market and large corporations with policies43,510 common shares, representing high insured values. This operation was approved by the Administrative Council for Economic Defense (CADE) on September 15, 2014 and by SUSEP on October 09, 2014.
Based on pro-forma data for December 31, 2013, the major risk insurance operation comprises the following: net equity value75% of R$ 364 million, assetstotal voting capital of R$ 5.8 billion and technical reserves of R$ 4.6 billion.MaxiPago.
After certainthe compliance with the conditions establishedprecedent and approval by proper regulatory authorities, the operation was closed on January 8, 2015.
The difference between the amount paid and net assets at fair value resulted in the agreement are fulfilled, ACE paid R$ 1.515 billionrecognition of goodwill due to expected future profitability.
Purchase price | 15 | |||
(-) Fair value of identified assets and liabilities | (4 | ) | ||
(=) Goodwill | 11 |
Tecnologia Bancária S.A. (TECBAN) – New Shareholders’ Agreement
On July 17, 2014, ITAÚ UNIBANCO HOLDING, and its subsidiaries. The transfer of these shares and the financial settlement of the operation were carried out on October 31, 2014, in which the amount paid by ACE is subject to price adjustment according to the difference in the positions of Stockholders’ Equity between the pro forma balance sheet date and the closing balance sheet date.
The operation produced an accounting effect, before tax, of R$ 1.1 billion on fourth quarter ITAÚ UNIBANCO HOLDING's results.
ITAÚ UNIBANCO HOLDING’s major risk insurance operations are classified within the "Commercial Bank Retail" segment in these Financial Statements.
The sale of this operation reflects ITAÚ UNIBANCO HOLDING’s strategy of commercializing the mass-market insurance products typically related to retail banking.
The subsidiaries of ITAÚ UNIBANCO HOLDING, in conjunctiontogether with other financial institutions, on July 17, 2014 signed a new Shareholdersthe New Shareholders’ Agreement, of TecBan that will revoke and substitute the current shareholders agreement as soon as it comeswhich came into effect.
In addition to the usual provisions in shareholders agreements such as rules on governance and the transfer of shares, the Shareholders Agreement provides that within approximately 4 (four) yearseffect as from the date it comes into effect, the Parties shall have substituted part of their external network of Automatic Teller Machines (“ATM”) for Banco24Horas Network ATMs, which are and shall continue to being managed by TecBan. As a general rule, the external ATM network can be considered those ATMs located outside the branch banking environment or where access is not restricted, exclusive or controlled such as for example such equipment installed in shopping centers, gasoline service stations, supermarkets etc.operation closing date.
Performance | F-39 |
Annual Report2015 |
In line with the worldwide tendencyglobal trend towards best practice inpractices, the industry,agreement establishes that, approximately within 4 years, the Parties constituting Brazil’s leading retail banks will consolidateshould replace part of their external ATM networks on theby Banco24Horas Network terminals,network, generating increased efficiency, greater quality and capillarity of customer service. It should also be pointed out that inIn addition to the Parties, approximately 40 (forty) other banks are clients of TecBan. Consequently, this growth in the Banco24Horas Network will also significantly benefit these institutions and their respective customers.TECBAN.
TheAfter the compliance with the conditions precedent and approval by proper regulatory authorities, the operation was approved by the Administrative Council for Economic Defense (CADE)closed on October 22, 2014, with no restrictions. The effective date of sale and settlement was November 14, 2014.
This operation had no significant accounting effects on the results of ITAÚ UNIBANCO HOLDING.
Interest | Current | Previous | ||||||
Shares | 935,995,448 | 974,021,768 | ||||||
% | 24.93 | % | 25.94 | % |
k) Maxi Pago
In September 2014 ITAÚ UNIBANCO HOLDING, through its subsidiary Rede (Redecard S.A.), entered into a share purchase agreement with the controlling parties of MaxiPago Serviços de Internet S.A., a payments gateway company featuring network interconnection for mobile electronic payments.
Approval was obtained from the Central Bank on December 15, 2014, and preconditions were fulfilled on January 8, 2015. This agreement provides for the acquisition of 35,261 common shares of MaxiPago, which represents 75% of total stock and voting capital.
This operation had no significant effects on the results of ITAÚ UNIBANCO HOLDING.
l) MCC Securities ande MCC Corredora de Bolsa
In
On July 20, 2011, ITAÚ UNIBANCO HOLDING, through its subsidiary inBanco Itaú Chile S.A. (BIC), entered into a share purchase agreement with MCC Inversiones Globales (MCC Inversiones) and MCC Beneficial Owners (Chilean Individuals)individuals), by which it agreed to gradually acquire thefor phased acquisition of total shares of MCC Securities.
In June 2012 ITAÚ UNIBANCO HOLDING, through its subsidiary in Chile,On August 1, 2011, the parties entered into a share purchasean agreement with MCC Inversiones Globales (MCC Inversiones) and MCC Beneficial Owners (Chilean Individuals), by which it agreed to gradually acquire thefor phased acquisition of total shares of MCC Corredora de Bolsa.
InOn August 18, 2014, the aforementioned partiesthey entered into a new agreement for acquiring in advance the remaining shares of MCC Securities and MCC Corredora de Bolsa for amounts US$ 32.7 million and US$ 6.7 million respectively.Bolsa.
Current | Previous | |||||||||||||||
MCC Securities | MCC Corredora | MCC Securities | MCC Corredora | |||||||||||||
Shares | 6,000,000 | 2,046 | 3,000,001 | 1,024 | ||||||||||||
% | 100 | % | 100 | % | 50 | % | 50.05 | % |
Accordingly, with this operation ITAÚ UNIBANCO HOLDING validates its relevant share in the Chilean private banking market, as it now fully consolidates MCC Securities and MCC Corredora de Bolsa in its financial statements from August 31, 2014 onwards.
The final allocation of the difference between the amount paid and the interest in net assets at fair value (Purchase Price Allocation – PPA) will be completed during 2015.resulted in the recognition of goodwill due to expected future profitability and intangible assets.
In millions of US$ | ||||
Purchase price | 77 | |||
(-) Fair value of identified assets and liabilities | (13 | ) | ||
(-) Brand | (2 | ) | ||
(=) Goodwill | 62 |
BMG Seguradora S.A.
m) On June 25, 2013, ITAÚ UNIBANCO HOLDING, through its subsidiary Banco Itaú BMG Consignado S.A., entered into a share purchase agreement with the controlling shareholders of Banco BMG S.A., for the acquisition of 99.996% of the shares of BMG Seguradora S.A., represented by 35,292,627 shares for the amount of R$ 88 thousand.
BMG Seguradora S.A. entered into an exclusivity agreement with Banco BMG S.A. and Itaú BMG Consignado for the distribution of insurance products to be linked to the products sold by these banks. The purpose of the acquisition is to expand the insurance activities of ITAÚ UNIBANCO HOLDING.
After the compliance with the conditions precedent and approval by proper regulatory authorities, the transaction was closed on January 27, 2014.
The difference between the amount paid and net assets at fair value resulted in the recognition of goodwill due to expected future profitability.
Performance | F-40 |
Annual Report2015 |
Purchase price | 88 | |||
(-) Fair value of identified assets and liabilities | (65 | ) | ||
(=) Goodwill | 23 |
Citibank N.A. Uruguay Branch
On July 28, 2013, ITAÚ UNIBANCO HOLDING, through its subsidiary Banco Itaú Uruguay S.A. (BIU), entered into an agreement with Citibank N.A. Uruguay Branch, with rules for the acquisition of retail transactions in Uruguay.
As a result of this operation, BIU assumed a client portfolio related to retail transactions (current account, savings accounts and time deposits). The assets acquired involved mainly credit card transactions that Citibank developed in the country under Visa, Mastercard and Diners brands.
After the compliance with the conditions precedent and approval by proper regulatory authorities, the operation was closed on December 31, 2013.
The difference between the amount paid and net assets at fair value resulted in the recognition of goodwill due to expected future profitability and intangible assets.
In millions of US$ | ||||
Purchase price | 26 | |||
(-) Intangible Assets Subject to Amortization | (1 | ) | ||
(=) Goodwill | 25 |
Credicard
On May 14, 2013, ITAÚ UNIBANCO HOLDING, through its subsidiary Banco Itaucard S.A., entered into a share and quota purchase agreement with Banco Citibank, for the acquisition of Banco Citicard S.A. and Citifinancial Promotora de Vendas Ltda., including the “Credicard” brand, for R$ 2,948. These entities were responsible for the offer and distribution of financial products and services of the “Credicard” brand, particularly personal loans and credit cards.
After the compliance with the conditions precedent and approval by proper regulatory authorities, the operation was closed on December 20, 2013.
Due to this operation, ITAÚ UNIBANCO HOLDING fully consolidated Banco Citicard and Citifinancial Promotora de Vendas in its financial statements as from December 2013. On August 31, 2014, Banco Citicard was merged into Banco Itaucard S.A.
The difference between the amount paid and net assets at fair value resulted in the recognition of goodwill due to expected future profitability and intangible assets.
Purchase price | 2,948 | |||
(-) Fair value of identified assets and liabilities | (1,069 | ) | ||
(-) Brand | (27 | ) | ||
(+) Deferred Tax Liability | 11 | |||
(=) Goodwill | 1,863 |
Performance | F-41 |
Annual Report2015 |
b) | Partnerships and Associations |
Association with Banco BMG S.A.
On July 9, 2012, ITAÚ UNIBANCO HOLDING entered into an Association Agreement with Banco BMG S.A. (BMG) aiming at the offering, distribution and sale of payroll loans through the organization of the financial institution Banco Itaú BMG Consignado S.A., in which ITAÚ UNIBANCO HOLDING held control with a 70% interest in total voting capital, and BMG held the remaining 30%. The capital subscribed by shareholders was R$ 1,000, proportionally to each interest.
ITAÚ UNIBANCO HOLDING contributed with its economic and financial capacity, administrative experience and controls, and BMG contributed with its commercial and operating competence, in addition to the technological platform required for the development of activities.
After the compliance with the conditions precedent and approval by proper regulatory authorities, the transaction was closed on January 7, 2013.
On April 29, 2014, the agreement establishing the unification of payroll loans business, concentrating the transactions at Itaú BMG Consignado, was entered into. Starting July 25, 2014 and during the term of the association, Itaú BMG Consignado is BMG’s exclusive channel for the offer of payroll loans in the Brazilian territory, subject to certain exceptions.
In consideration for the business unification, on July 25, 2014 BMG increased the capital of Itaú BMG Consignado by R$ 181 and, therefore, ITAÚ UNIBANCO HOLDING started to hold a 60% interest in the total voting capital and BMG started to hold the remaining 40%. The possibility of this unification had already been initially considered.
This transaction had no significant accounting effects on the results and ITAÚ UNIBANCO HOLDING continued to consolidate Itaú BMG Consignado in its financial statements.
Fiat Group Automobiles S.p.A. and Fiat Automóveis S.A.
On August 20, 2013, ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú Unibanco S.A., renewed the commercial cooperation agreement maintained with Fiat Group Automobiles S.p.A. and Fiat Automóveis S.A. This agreement sets forth exclusivity for the offer of financing in promotional campaigns of car maker Fiat for the sale of new cars and exclusive use of Fiat brand in activities related to vehicle financing.
The operation did not have significant accounting effects on the financial statements of ITAÚ UNIBANCO HOLDING.
Performance | F-42 |
Annual Report2015 |
c) | Disposals |
Major Risk Insurance Operation
On July 4, 2014, ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú Unibanco S.A., entered into a share purchase agreement with ACE Ina International Holdings Ltd. (ACE), through which the former undertook to sell 100% of its interest in Itaú Seguros Soluções Corporativas S.A. (ISSC).
ISSC held the major risks operations of ITAÚ UNIBANCO HOLDING, which clients were middle-market and large companies with policies with high amounts insured.
After the compliance with the conditions precedent and approval by proper regulatory authorities, ACE paid R$ 1.5 billion to ITAÚ UNIBANCO HOLDING and its subsidiaries, through ISSC. On October 31, 2014, ISSC transferred the shares upon financial settlement by ACE, updating the price of operation considering the shareholders equity position on the operation closing date, in the amount of R$ 379.
This transaction is linked with ITAÚ UNIBANCO HOLDING’s strategy of selling retail personal and property insurance, typically related to retail banking.
Major risks operations of ITAÚ UNIBANCO HOLDING were classified in the “Retail Banking” segment in the financial statements.
Via Varejo
On October 1, 2014, ITAÚ UNIBANCO HOLDING, informed that, in viewthrough its subsidiary Itaú Seguros S.A., received from Via Varejo the amount of R$ 584 due to the early termination by Via Varejo of the operating agreements forrelated to the offer of extended warranty insurance in the “Ponto Frio”Ponto Frio and “Casas Bahia” stores, its subsidiary Itaú Seguros S.A.Casas Bahia stores. The amount received from Via Varejo the cash amount of R$ 584 million, mainly relatedrefers substantially to the refund of amounts disbursed pursuant to these agreements,under contractual terms, duly restated.
ThisThe operation had no significantrelevant accounting effects on the resultsfinancial statements of ITAÚ UNIBANCO HOLDING.
Performance | F-43 |
Annual Report2015 |
Note 4 –- Cash and cash equivalents
For purposes of consolidated statements of cash flows, Cash and cash equivalents in this note comprises the following items:
12/31/2014 | 12/31/2013 | 12/31/2015 | 12/31/2014 | |||||||||||||
Cash and deposits on demand | 17,527 | 16,576 | 18,544 | 17,527 | ||||||||||||
Interbank deposits | 13,939 | 18,599 | 22,022 | 13,939 | ||||||||||||
Securities purchased under agreements to resell | 93,852 | 20,615 | 51,083 | 93,852 | ||||||||||||
Total | 125,318 | 55,790 | 91,649 | 125,318 |
Amounts related to interbank deposits and securities purchased under agreements to resell not included in cash equivalents are R$ 8,503 (R$ 9,142 (R$ 7,061 at December 31, 2013)12/31/2014) and R$ 203,321 (R$ 115,066 (R$ 117,840 at December 31, 2013)12/31/2014), respectively.
Note 5 –- Central Bank compulsory deposits
12/31/2014 | 12/31/2013 | 12/31/2015 | 12/31/2014 | |||||||||||||
Non-interest bearing deposits | 3,392 | 5,133 | 3,790 | 3,392 | ||||||||||||
Interest-bearing deposits | 59,714 | 71,877 | 62,766 | 59,714 | ||||||||||||
Total | 63,106 | 77,010 | 66,556 | 63,106 |
Note 6 –- Interbank deposits and securities purchased under agreements to resell
12/31/2014 | 12/31/2013 | |||||||||||||||||||||||
CURRENT | NON-CURRENT | TOTAL | CURRENT | NON-CURRENT | TOTAL | |||||||||||||||||||
Interbank deposits | 22,135 | 946 | 23,081 | 25,024 | 636 | 25,660 | ||||||||||||||||||
Securities purchased under agreements to resell(*) | 208,918 | - | 208,918 | 138,260 | 195 | 138,455 | ||||||||||||||||||
Total | 231,053 | 946 | 231,999 | 163,284 | 831 | 164,115 |