As we have discussed in previous articles, Brazil’s retail banking sector has been enjoying a buoyant 2009 so far. This would seem set to continue as payment card processor Redecard posts an 18% jump in financial volumes.
This should be seen as a positive for Itaú Unibanco (NYSE:ITUB), which controls Redecard, as net income for the third quarter rose to BR$333M ($195M), with financial transactions across the payment platform registering BR$ 24.7Bn ($14.52Bn) and more interestingly, the debit card side rising in step by 17% to BR$12.2Bn ($7.13Bn).
Although there is general negativity on global credit card companies, particularly in Western economies, Brazil’s nascent credit sector has benefitted from a wave of bank consolidation over the last 18 months, the strength of the real versus the US dollar and one of the strongest economies to exit the finiancial crisis. Earlier this year, Visa (NYSE:V) affiliate VisaNet was the star IPO on the BOVESPA, with the launch being hugely oversubscribed by both retail and institutional investors, raising a record of $4.5Bn.
“We think the results were solid and highlight the strength of the credit and debit card markets,” reported Deutsche Bank which keeps a buy rating on Redecard. “While regulation remains a key risk, we think that it is already priced in.”
For Redecard, it is also very much a case of being seen as a Brazilian brand, which seems to be helping its positioning against VisaNet, which although no longer owned by Visa, retains the association. Redecard has the benefit of being able to position itself as a multi-brand entity and is more popular with Brazilian retail customers, especially in the growing debit card sector, whilst VisaNet is to some extent still regarded as a premium brand.
So, short term one-up for ITUB and we expect to see shares taking a ride higher over the next few days. VisaNet reports later this week (October 28th), so it will be interesting to see if Bradesco (NYSE:BBD) will be able to catch the same sentiment wave.
Disclosure: Author holds positions in ITUB & BBD