Strategy and Allocation of funds

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Strategy and Allocation of funds

G4-2

Operating as a holding company, the corporate object of Itaúsa is, in accordance with its Bylaws, to hold ownership interest in other companies and support them with analyses and suggestions that may contribute to the development of their activities and operations, preserving the management autonomy of the subsidiaries. The investments made aim at optimizing the allocation of funds and the generation of value for stockholders in the long term, based on business expansion and sustainability.

In this context, Itaúsa continuously analyzes the opportunities to increase its portfolio and optimize the return on investment to stockholders. In the end of 2015, the holding company hired a specialized consulting company to support the study scenarios and potential interest sectors in which new investments may be made. These evaluations will support the decision-making to diversify the portfolio, considering the strategic objectives and the maturity of the companies that will receive the investments.

One of Itaúsa’s distinctive edges is its financial soundness and investment capacity. With R$47.7 billion in stockholders’ equity and low indebtedness ratio, the holding company is able to take advantage of existing opportunities in the current Brazilian economic scenario. In the last year, as announced to the market and the stockholders, the company joined the competitive bidding process for the acquisition of an interest

in BR Distribuidora (Petrobras Distribuidora S.A.), along with Brasil Warrant Administração de Bens e Empresas S.A. and Cambuhy Investimentos Ltda. By the end of 2016, no offer was made and no contract was executed with the controlling company.

In 2016, Itaúsa carried out studies about scenarios and evaluations of potential sectors in which new investments may be made

Subsidiaries

The assessment of the portfolio is a continuous process in the companies of the Conglomerate and is in line with the strategy of maximizing the generation of value and return for stockholders. The investment decisions in the companies are made by their own Boards of Directors and carried out in accordance with the reality and opportunities of each market.

Itaú Unibanco

In the financial sector, Itaú Unibanco has leveraged its internationalization strategy and increased its market share in Latin America. In 2016, the bank completed the merger of operations with CorpBanca in Chile and increased its ownership interest in the resulting company – Itaú CorpBanca – to approximately 35.71%.

With these investments, Itaú Unibanco now ranks fourth from seventh in the ranking of the largest private banks in Chile in terms of loans, and entered in the retail market in Colombia through Banco CorpBanca Colômbia S.A., the fifth largest bank in terms of loans, which will also operate under the brand “Itaú”.

In Brazil, the bank completed the operation for the acquisition of 89.08% interest in the capital stock of Recovery do Brasil Consultoria S.A., and of approximately 70% of a R$38 billion portfolio of credit rights owned by Banco BTG Pactual S.A. Another highlight in the period was the acquisition of the total ownership interest of Banco BMG in the capital stock of Itaú BMG Consignado, an investment of R$1.46 billion. Itaú Unibanco is the leading bank in the payroll loan segment among private banks, with a R$44.6 billion portfolio.

The company also entered into an agreement for the acquisition of the retail business of Citibank in Brazil, including loans, deposits, credit cards, branches, asset management and insurance brokerage, as well as ownership interests. With 71 branches, the retail operation of Citibank has a client base of approximately 315,000 current account holders, R$35 billion in deposits and managed assets, 1.1 million credit cards and a loan portfolio of R$ 6 billion.

In 2016, the bank sold the totality of the group life insurance operations with Prudential do Brasil. This operation reaffirms the strategy of focusing on mass-market insurance products, which are typically related to retail banking.

With the merger of operations in Chile, Itaú Unibanco consolidates its strategy of expanding its share in relevant markets in South America

Duratex

In 2016, Duratex carried out a plan for selling non-essential assets of the company, which included the sale of farms that are far away from the industrial units and of high value to other economic activities. The result of this operation and other businesses, accounted for as extraordinary events, totaled R$59.3 million.

The company also strengthened its sales of wood to third parties in the form of processed wood (chips), logs and standing forest. In 2016, the highlight was the sale of standing forest, which totaled R$87.6 million. It is important to note that the volume of wood produced is still sufficient to ensure the full supply of the plants and to meet the demands of customers and other segments.

Elekeiroz

In the last year, the company invested R$15 million in the acquisition of 50% interest in the capital of Nexoleum Bioderivados Ltda., a pioneer company in the production of plasticizers from vegetable oils. This acquisition is aligned with the strategy of growing and complementing the portfolio for the plastificizers market, meeting customers’ needs and creating value for stockholders.

In the recoverability review, carried out in 2016, Elekeiroz recorded impairment of certain assets and other accounting adjustments, which negatively impacted the company’s income by R$276.9 million, as detailed: impairment in the amount of R$154.8 million; asset write-offs and recognition of provisions for the plastificizers and phthalic anhydride units located at Camaçari (State of Bahia), the operations of which were permanently discontinued, totaling R$ 51.3 million; asset write-offs related to tax credits in the total amount of R$50.5 million; and increase in the allowance for loan losses of R$20.3 million.