Itau Unibanco to Curb Costs with New $1.5B Data Center - Analyst Blog
Brazil’s largest bank, Itaú Unibanco Holding S.A. ITUB invested nearly $1.5 billion (BRL 3.3 billion) to set up a new data center in the south-eastern city of Mogi Mirim. The new facility, equipped to process significantly higher volumes, will help control the company’s expense level.
Notably, the data center comes as part of the company’s broader plan to invest approximately $3.5 billion in technology for achieving improved long-term operational efficiencies.
Inaugurated last Friday, the facility is spread across a sprawling area of 151,000 square meters and has been set up to meet the ever-increasing demand for financial transactions through 2050. Moreover, the data center is capable of handling 25 times the present transaction volume of Itaú Unibanco.
Itaú Unibanco strongly believes that prudent cost control is the key to ensure profitability in the backdrop of a sluggish economy. Hence, the data center is a step toward checking the company’s general and administrative expenditure, so as to keep it below the annual inflation level in the subsequent years. Reportedly, Itaú Unibanco’s general and administrative expenses grew at a 4-year CAGR of 4.9% in 2013, and surged 10% year over year in 2014.
Moreover, as the company operates in economically active regions, both domestically (Southeast Brazil) and internationally (Argentina, Chile, Paraguay and Uruguay), heavy volumes call for technology-intensive data processing.
The company expects the new facility to reduce processing time as well as lower expenses by Jun 2016; and projects the transaction volume to rise to 35 billion in 2015 compared with 31 billion in 2014.
We believe the data center represents a meaningful investment for the company; which will not only relieve the burden of escalating expenses, but also help Itaú Unibanco to effectively handle transactions, as the bank looks forward to internationalize itself in Latin America. Moreover, an intensive use of technology has always been a major competitive advantage of the company.
Currently, Itaú Unibanco carries a Zacks Rank #3 (Hold). Some better-ranked players in the banking space are Chemical Financial Corporation CHFC, Pinnacle Financial Partners Inc. PNFP and MidWest One Financial Group, Inc. MOFG. All these stocks sport a Zacks Rank #1 (Strong Buy).
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