Best practice: How they do it at Banco Itaú

Banco Itaú is a major-league institution at the forefront of Brazil’s impressive economic surge. With stockholder equity of $15.2 bn and assets of $162.3 bn, reaching a market value of $60.2 bn, the bank employs 63,743 people in Brazil and overseas.

Of all those employees, the six in the IR team have added their own distinctive value to Banco Itaú. Their efforts have put the bank at the forefront of investor relations in Brazil, and they have trophies galore to show for it. In recent years they have won IR Magazine Brazil Awards for best IR website, best corporate governance, best annual report, best investment community meetings, best conference calls and best large-cap IRO, along with the grand prix for best overall IR in the large-cap group.

Brazil’s analysts’ association, Associaçao des analistas e profissionais de investimento do mercado de capitais (APIMEC), has also given Itaú’s two successive IR superintendents five of its nine annual best IRO awards, as well as lauding the bank three times as the best publicly listed company in Brazil.

What’s more, Itaú has been a leader of the pack in helping to develop Brazil’s IR, in part by adhering to strong corporate governance standards. The team is led by Alfredo Egydio Setubal, an executive vice president of the bank and chairman of its disclosure and insider trading committee as well as a former president of the Brazilian Investor Relations Institute (IBRI). In IR magazine’s Investor Perception Study, Brasil 2007, one analyst says of Setubal: ‘He is a person known in the market for his integrity. He’s important not only to the bank, but also to the entire banking sector.’

Investors, though, are more likely to deal with Geraldo Soares, the investor relations superintendent who is also the second-term executive president of IBRI. He is also on the board of Brazil’s National Institute of Investors and coordinator of CODIM, Brazil’s market information disclosure steering committee.

Soares emphasizes how important it is that, through the work of the disclosure and insider trading committee, the IR team is capable of expanding its relationship with senior management to ensure ‘the capital markets culture permeates Itaú’.

The team’s responsibilities have been expanding as well. A new breed of individual investor has moved into the Brazilian stock market over the last five years; institutions and individuals overseas have also wanted to claim a share of the nation’s economic success, as the Bovespa Index has almost quadrupled and trading volume has increased by 2,000 percent. What’s more, the market experienced an IPO boom last year. In the first seven months of 2007 there were 48 issues, and in the second half of the year Brazil had two of its biggest IPOs ever – including the listing of the Bovespa exchange itself – despite deteriorating global economic conditions.

Banco Itaú is one of the most widely held companies, with over 60,000 stockholders. This is an additional achievement in that stocks in Brazil face serious competition from high-yielding government bonds, whose attractiveness has been enhanced by the newly fortified real currency.

Solid as a BRIC
Overseas, stocks from the vibrant economies of Brazil, Russia, India and China (the so-called BRIC countries) have come into fashion, and Banco Itaú has attracted a good bit of the attention. Helping its case are its 60 years of listing on Bovespa and its adherence to corporate governance standards that go beyond the basics.

Companies in emerging markets, still confronting some investor wariness, may have no alternative but to go with best practices. Brazil arguably beats China and Russia for investor protection in its domestic financial markets. The market has an especially strong reputation, with its tiered listing system (launched in 2000) spelling out increasingly stringent requirements on disclosure, shareholder rights and board independence. About 40 percent of Brazil’s listed companies, including Banco Itaú, adopt one of Bovespa’s three advanced corporate governance levels, and together they represent about 60 percent of Brazil’s market capitalization. A healthy economy and attractive valuations are also working to enhance interest in the country’s companies.

The growing global dimension creates its own demands beyond translating results into different international formats; Itaú’s award-winning website needs constant updating in English and Spanish, as well as Brazil’s native Portuguese. All IR team members can update the site, and indeed do, frequently. The company’s own IT team keeps updating the technology for the site, currently in its seventh version, to make it more responsive to investor needs and wants. There is a ‘Get to know Itaú’ section with detail on managers, directors, governance and ownership structure. The bank also archives webcasts of all conference calls and analyst meetings, and provides written transcripts of many events.

Banco Itaú is particularly proud of its pioneering adaptation of Microsoft’s customer relationship management (CRM) system, focusing exclusively on IR and allowing personalized needs to be met in the investor community. The system’s 12,000 registered users can access a whole box of tools for fostering user interactivity, such as tracking price histories, graphic analysis, investment simulators, a dividend calculator and a glossary.

Within a short time of implementation, queries that used to take about six hours to complete are now resolved in a matter of seconds, Soares says. ‘Our focus on the CRM project has always been on improving the quality of registered users’ service, but beyond any doubt we have achieved invaluable internal gains as well,’ he adds.

Out in the open
‘Transparency is an intrinsic characteristic of our management,’ says Soares. But there are limits. When asked whether the bank has any targets for its investor mix in the future, Soares replies: ‘Yes, but we do not disclose this as we view the information as strategic to the company.’

Itaú closely tracks trading on a daily basis, however, ‘just as we track bought and sold positions, distribution among private individuals and corporate entities, regional distribution, and so on,’ says Soares. ‘Also, internally, every month we analyze the SEC’s 13Fs, to check out potential targets.’

The IR department members do not specialize. Each of them is ready ‘to provide a tailor-made service to every one of the constituent members of this universe, segmenting the communication according to the characteristics of each one, ranging from market analysts to individual personal stockholders and others interested in the capital markets such as members of academia and the press,’ points out Soares.

Banco Itaú’s annual report highlights its ‘social balance sheet’, which is a ‘constant part’ of the report, Soares says. It is directed at the world’s growing proportion of socially concerned investors. The document, which verifies the accuracy and relevance of the bank’s social and environmental reports, is prepared according to AccountAbility’s AA1000 standards and audited by PricewaterhouseCoopers.

The standards are intended to monitor Banco Itaú’s goal ‘to employ sustainable, ethical and transparent management and social investment mechanisms and activities that ensure the creation of value for shareholders, clients, staff, suppliers and all other groups with whom we interact.’ The emphasis on stakeholders at large may seem strange to those used to the more raw ideals of Wall Street, but the standards pay dividends in a wider way. They have ensured Itaú a slot in the Dow Jones Sustainability World Index and on the Bovespa Corporate Sustainability Index.

For attracting the increasingly important socially responsible investors, it also helps that Latin Finance and Management & Excellence magazines have named Banco Itaú as Latin America’s most ethical bank, and Euromoney recently named it the best bank in Brazil for the ninth time.

Attention-grabbing news
As the rest of the banking sector tanks under the credit crunch, Banco Itaú has been able to announce that it holds no subprime or collateralized debt obligations. This news was shared in a 6K filing with the SEC last August and widely reported. As Wall Street and even European institutions teeter on the precipice of their own gullibility, Itaú’s avoidance of the more esoteric financial instruments of the developed world adds yet another reason for the Brazilian institution to hold its head, and its stock, high.

The rapid growth in the retail investor base has also confirmed the wisdom of the bank’s dividends payments, which are monthly and topped up by supplementary payments. ‘They are very important to our stockholders,’ Soares says.

As always in IR, the personal touch is important, and few weeks go by without foreign and domestic analysts arriving for meetings at the office and presentations in no fewer than 16 different cities in Brazil. Of course, the bank takes its roadshow abroad, too, principally to New York and London, but also – in a recent reflection of new trends – to places such as Dubai, Singapore and Tokyo.

As well as maintaining a constant flow of information to investors who have registered, Itaú’s IR department works closely with a separate press relations office, which ‘helps us to prepare and announce information to the market’.

Soares counts some 16 analysts whose coverage is regular enough to inform the ‘consensus’ page on Itaú’s IR site, and he stresses that there is no discrimination or filtering. Good assessment or bad, all analysts get the same treatment.

In Brazil, IR is the law, Soares notes. Listed companies are obliged to disseminate the names of their IROs ‘as the member of management legally responsible for the entire corporate relationship with the market’, but Banco Itaú and its IR team go beyond mere compliance to add enthusiasm and imagination to the profession.


What the analysts say

Lia Da Graça, Banco Banif
‘Geraldo calls me back 100 times whenever I call him. I feel Banco Itaú is more transparent because it exposes weaknesses and risks with no fear, as well as commenting on mitigating factors. Because Geraldo worked as a controller, it makes all the difference if we have questions about the bank’s financial statements. Last time I needed to resolve something, Geraldo stayed on the phone with me for almost an hour. It is very difficult to find a situation in which he does not know the answer but, if that does happen, he will find it out and call me back quickly. He knows the bank, but the real difference is that he likes what he is doing.’

Maria Laura Pessoa, Banco Fator
‘Regarding Itaú’s IR department, I can say that it is always available to answer any type of query I may have. Since I started covering banks in 2004, I have always been able to schedule meetings with Itaú’s management for myself or for institutional clients. Banco Itaú follows high corporate governance practices, and its IR department takes this very seriously.’