What's In Store for International Banks?
The financial crisis revealed several winners and losers among foreign banks.
Despite their reputation as risky bets, many emerging-market banks--along with their countries' economies in general--fared much better during the last two years than their more "developed" cousins. Even within the developed world, there are dramatic differences between the performance of banks that took on too much risk and those that did not, with some banks having nearly destroyed their businesses and others winning market share as their rivals struggle. We think the significant divergence among international banks during the last two years will extend into the recovery, and we expect to see stark contrasts between the winners and the losers in both the speed and strength of their recoveries.
After they reported third-quarter earnings, the three Brazilian banks we cover-- Itau Unibanco (ITUB), Banco Bradesco (BBD), and Banco Santander Brasil (BSBR)--all displayed a common theme: The worst of the crisis may be over in Brazil. Together with Banco do Brasil, a government-controlled bank, they dominate Brazil's banking market. Although we think there are some convincing data points to support this optimism, we doubt that there will be a sharp recovery--especially with regard to credit quality.
Erin Davis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.