The big bank theory.

With the largest profits in Brazil's banking sector and a 10-year increase of more than 7,000 percent in its stock price, Banco Itau has shown it is much more than a family business. But with global banking giants knocking at Brazil's door, Itau CEO Roberto Setubal's next challenge is going to be his biggest.

Nothing is small in Brazil. From the size of its major cities to the dimensions of its vast agricultural complexes, Brazil is all about being big. And for Brazilian banks, size is paramount for survival-not to mention success.

According to Erivelto Rodrigues, president of Sao Paulo-based consulting firm Austin Asis, the key trend in Brazil's banking market today is consolidation. "For a bank to survive, it will need to be efficient and need to have scale," he says. "Banks are either going to need to have over four million clients or have a powerful niche to avoid closing or being incorporated by other banks."

That message was clear to Roberto Setubal from the moment he took the helm as CEO of Banco Itau in 1994, commencing an expansion program that has netted an average of one bank acquisition per year since then. Just as important to Setubal, an unpretentious man who learned his trade working in the rough-and-tumble world of international banking, Banco Itau has managed to grow without compromising profits. Last year, Banco Itau earned $1.8 billion reais (US$954 million), the largest profit in Brazil's banking sector.

While most Brazilian companies are fretting over the Tango Effect from neighboring Argentina and the potential economic derailment an Argentine default would entail, Roberto Setubal remains confident in both Brazil and Banco Itau. He has to be. "Today we have a solid and competitive financial system," he says, "the best conditions the country has seen in forty years." Setubal is confident that Itau will continue to grow, even as it crests 8 million depositors.

The ever-modest Setubal, who works out of a spartan office in downtown Sao Paulo, gives the credit for his bank's growth to the roaring Brazilian economy "The economy has shown strong growth, which means more demand for credit and higher revenues," he says. Of course, that's not to say he hasn't made a contribution. Setubal has, after all, overseen the bank's largest expansion and built Itau's solid record in bank turnarounds.

The bank's CEO is also not the only person confident in Itau's future. A recent survey of top banking sector analysts by Bloomberg estimated that Itau's profits for the first quarter of 2001 would reach US$222 million, 28 percent above last year's profits for the same period. But Itau surpassed that rosy prediction, posting first quarter profits of US$278.65 million. Assets grew even faster, by 37 percent compared with 1Q 2000, to R$74.6 billion (US$33.26 billion). Even an economic downturn shouldn't deeply alter Itau's course. A recent report by ABN Amro concluded that among Brazil's top private sector banks, Itau would weather an economic storm better than any other--largely due to the bank's traditional strong position in US dollars, insulating it from the real's recent record weakness.

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