We believe that the growth rate in
private sector bank credit will accelerate
in 4Q 2009, driven by Brazilian
economic recovery
􀀗 We reiterate our Overweight (V) ratings
on shares of Itaú Unibanco and our
Neutral (V) ratings on shares Banco
Bradesco and Banco do Brasil
􀀗 The Brazil growth story, combined with
low interest rates, continues to drive
big-cap banks’ multiple expansion
A recovery, fast not furious. Brazil’s macroeconomic recovery
continues unabated, as shown by September job creation
figures, strong retail sales, and recovering industrial activity. A
muted inflationary outlook led HSBC Latam economists to
expect monetary tightening in 2H 2010. Low interest rates
should serve to stimulate loan growth – scarce so far with
private sector banks – and by late 2010, higher rates should be
positive for spreads. In addition, we still see scope for earnings
relief from lower credit charges as from 2010.
Big-cap Brazilian bank multiple expansion is being driven
by the positive 2010 outlook and the potential for newproduct
development. We show the expansion of big-cap
Brazilian bank earnings multiples in charts on page 3, driven by
the increasingly attractive outlook for earnings growth, as seen
in consensus earnings revisions. In addition, the outlook for
sustainably low domestic real interest rates should drive the
long-term penetration of mortgage products, which are longmaturity
and low-delinquency credits by nature, alongside more
traditional credit products.
Stick with Itaú Unibanco. Across the spectrum, industry
valuations have expanded. We continue to believe that the bigcap
banks that can supplement top-line growth with efficiency
and cost-cutting gains are the most attractive stories in the
space.
We reiterate our Overweight (V) rating on Itaú Unibanco shares
and our Neutral (V) ratings on shares of Bradesco and Banco do
Brasil. We are raising our target prices for all three stocks on
the back of higher target earnings multiples.