Tag Archives: oligopoly

Itaú to buy Citibank Brazil for US$ 220 million 

Itaú has agreed to pay R$ 710 million (approximately US$ 220 million) for the retail operations of Citibank in Brazil. The transaction was announced this morning. Citi primarily serves high-income customers and has 315,000 account holders in the country.
In the acquisition, Itaú acquired loan portfolio, credit cards, deposits, asset management, insurance brokerage and the 71 branches that Citi has today in the main regions of the country. That is R$ 35 billion in deposits and assets under management, 1.1 million credit cards issued and a credit portfolio of R$ 6 billion reais. After the acquisition, Itaú Unibanco will have R$ 1.404 trillion in assets.

The acquisition still needs to receive the approval of the Central Bank and CADE (Administrative Council for Economic Defense)

Citibank joins HSBC in retreating from Brazil. HSBC announced at the end of 2015 that it sold its Brazilian operations to Bradesco. In a deal already approved by anti-trust authorities,  Bradesco acquired HSBC and brought their assets closer to Itaú, largest private-controlled bank in Brazil, by that metric. HSBC was a lot bigger than Citi in Brazil, but today’s acquisition shows Itaú is not willing to let this largest label go.

Itaú has a 5-star rating from Easy Brazil Investing and continues to be a great way to play the Brazilian economic recovery.

CADE Approves Bradesco’s HSBC Brazil Acquisition with Restricticions

Brazilian anti-trust council (CADE) has approved the acquisition of HSBC Brazil by Bradesco with restrictions.

One immediate consequence of the of the restrictions imposed by CADE is that Bradesco is definitely out of the dispute to acquire Citi in brazil, since no new acquisition will be allowed to the bank for 30 months. On top of that, the bank has to lower the portability costs for HSBC customers that do not want to come under Bradesco.

With the acquisition, Bradesco gets closer to the largest private bank in Brazil (Itaú Unibanco). HSBC has around 2 to 3% of the banking system market share and now Bradesco should reach around 17%.

The EPS should have neutral impact for the first year, since the bank does not plan on issuing new stocks to finance the acquisition and the multiples of the acquisition are in line with Bradesco’s itself. The acquiring bank’s expectation is that the transaction starts to generate value a year after its closure.

Europe’s Top Banks Are Cutting Losses Throughout Latin America

European banks are on the retreat all across Latin America.Societe Generale SA announced in February that it’s dismissing more than 1,000 workers while exiting the consumer-finance business in Brazil. In August, HSBC Holdings Plc sold its unprofitable Brazilian unit, with more than 20,000 employees. Two months later, it was Deutsche Bank AG’s turn. The German lender said it’s closing offices in Argentina, Mexico, Chile, Peru and Uruguay and moving Brazilian trading activities elsewhere. Barclays Plc is shrinking its operations in Brazil too.
The exodus threatens to deepen Latin America’s turmoil, making it harder for companies and consumers to obtain financing. The region already is out of favor as sinking commodity prices drive it toward the worst recession since the late 1990s. European banks, meanwhile, are looking to cull weak businesses as they struggle to generate profits and meet tougher capital requirements back home.
“All large European banks are under great pressure from regulatory changes and low stock prices to change their business models,” Roy Smith, a finance professor at New York University’s Stern School of Business, said in an e-mail. “These changes have to be quite significant to make enough difference.”

Spain, Switzerland

The exits are opening opportunities for local rivals and global banks from the U.S., Spain and Switzerland willing to wait out the economic slump.
Latin America’s economy will probably contract 0.5 percent this year, squeezed by falling commodity prices and a slowdown in Brazil that’s predicted to be the longest since the Great Depression, estimates compiled by Bloomberg show. That would make it the first recession in the region since 2009 and the biggest since 1999. Demand for investment-banking services is tumbling, with fees plunging 45 percent this year through Oct. 15 to a 10-year low of $817 million, Dealogic said.
“European banks have fairly weak profits right now and in some cases low capital levels,” Erin Davis, an analyst from Morningstar Inc., said in an e-mail. That leaves “little wiggle room” to absorb losses or low profits from Latin America, even if they believe in its long-term potential, Davis said.
Deutsche Bank, which started operating in Latin America in 1887 with a unit in Argentina, has about 269 jobs in the five countries it’s leaving, according to its 2014 financial statements. In Brazil, it has about 334 employees.
“The region is attracting fewer investments, and that reduces the need for investment banking,” Ricardo Mollo, a professor at Insper business school in Sao Paulo. At the same time, demand for loans is waning and late payments are rising.
Brazil, Latin America’s biggest economy, is also the place cuts pay off the most for some European banks. In addition to Societe Generale dropping its consumer-finance unit there, HSBC sold its Brazilian subsidiary to Banco Bradesco SA in a $5.2 billion deal announced in August. Barclays, which had about 150 people in 2013 in Brazil, has reduced the team to 80, people familiar with the matter said.
Societe Generale “remains committed to Brazil and will continue to serve its institutional and corporate clients through its local entities,” the bank said in a statement. Barclays declined to comment.

As for HSBC, Chief Executive Officer Stuart Gulliver has said the pullback was needed as part of a plan to reduce expenses by as much as $5 billion by 2017. Elsewhere in Latin America, Gulliver said in June in an interview with Mexican newspaper Reforma that HSBC would stay in Mexico, after previously saying the country was one of four potential markets the bank would leave.

HSBC Scrutiny

Complicating HSBC’s decisions about the region are money-laundering and tax-evasion scandals linked to Swiss accounts in Brazil. It’s also been under scrutiny in the U.S. since 2012 after it reached a $1.9 billion deferred-prosecution deal to resolve claims it helped Latin American drug cartels launder money.
Global banks with sizable Latin American subsidiaries that operate trading and investment-banking businesses could pick up some of the business European banks are leaving behind, Fitch said in a report, singling out Citigroup Inc., Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co. and Bank of America Corp. Local players in the region, such as Itau Unibanco Holding SA and BTG Pactual Group, might also benefit, Fitch said.
JPMorgan says it doesn’t plan to make changes to its team in the region, while Bank of America, which has about 1,000 employees in Latin America, added 150 people this year. Citigroup sold its consumer and commercial units in Peru, Costa Rica, Panama, Nicaragua and Guatemala, and is maintaining its corporate and investment-banking businesses.

U.S. Improvement

“The U.S. economy is doing better, so it’s normal that U.S. banks are also doing better and being more aggressive in taking risks in Latin America,” Mollo at Insper said.
Argentina is the country where perceptions are shifting the most, 10 days before a presidential election where the two main candidates have promised change from a dozen years of populism led by the Kirchner family. Hedge funds and other investors say the departure of President Cristina Fernandez de Kirchner could bring a more market-friendly government and a profit windfall.
Many Swiss firms are still bullish on the region as well. Julius Baer Group Ltd., the third-largest wealth manager in Switzerland, announced in July it would acquire a stake in Mexican firm NSC Asesores after boosting its interest in GPS Investimentos Financeiros e Participacoes SA to 80 percent in Brazil last year. Credit Suisse Group AG is keeping its team in Latin America, and its Brazilian unit hired 15 people this year for private banking. UBS AG, the biggest wealth manager in the world, is also hiring in the region. Chinese banks including China Construction Bank Corp. and Bank of Communications Co. are buying local lenders and increasing their presence.

Santander’s Confidence

And Spain’s Banco Santander, which withstood Brazil’s 1999 currency devaluation and financial crisis in 2002, remains confident about the country’s prospects. Chairman Ana Botin said in September that reforms under way could mean a return to growth as soon as next year.
For many of her competitors, time has run out for that kind of optimism.
“Going back a few years, global banks were trying to offer all products to all people in all locations, said Richard Barnes, an analyst at Standard & Poor’s in London. “With tightened regulatory requirements, you just can’t really do that anymore.”

Barclays considering sale of investment banking business in Brazil

After disposing off its non-core assets in Portugal for €175m (£128m, $189m) in early September, Barclays is now considering the sale of its investment banking business in Brazil and is open to talks with potential buyers. The move is part of the bank’s restructuring programme led by new chairman John McFarlane.

According to Sky News, some executives at the bank have started exploring options to exit from part of its remaining investment banking operations in Latin America and discussions are at a preliminary stage.

Barclays decision follows HSBC’s sale of its Brazilian unit to Bradesco, a Brazilian banking and financial services company, for £3.34bn ($5.07bn) in an all-cash acquisition. However, the businesses of HSBC and Barclays are different in Brazil.

Company officials told Sky News that Barclays had reduced its presence in Brazil around two years ago, with the Brazilian arm being managed by teams in London, Mexico City and New York. But, it continued to offer services such as fixed-income advisory and risk solutions in the South American country and is expected to maintain a limited presence there even post the expected assets sale.

However, when an official comment was sought, a Barclays spokesman said, “We are constantly monitoring our opportunities in different geographies and businesses over the cycle. If any firm decisions are made, we will provide an update.”

The restructuring process was implemented by McFarlane to accelerate the process of letting go of its non-core division, after former chief executive Antony Jenkins was fired by the bank. Later, Barclays announced that it had disposed of its non-core assets that included its insurance, wealth and investment management business in Portugal to Spanish bank Bankinter SA.

Further, reports said that Britain’s second largest bank was exploring a similar exit in Italy and is in advanced talks to sell its Italian retail network and a portfolio of Italian mortgages worth $4.46bn in two separate auctions.

The moves have stepped-up the bank’s retrenchment from eurozone economies at a time when the Greek debt crisis had raised fresh investor concerns about the exposure of British lenders.

Bradesco confirms favoritism and acquires HSBC Brazil for US$ 5.2 Billion

Bradesco has confirmed its favoritism and, in the early hours of Monday, has formalized the acquisition of HSBC’s Brazilian operations, as highlighted by HSBC in its earnings report. The purchase was made for US$ 5.2 billion, or R$ 17.6 billion. The Brazilian central bank was notified last night of the transaction outcome. Thus, the amount to be paid by the national operation of the bank was well above the already rumored, US$ 4 billion. In recent weeks, the estimates for the business ranged between R$ 10 and R$ 12 billion.

Bradesco shares were down up to 3% on the São Paulo stock exchange today on the news.

Read More:

HSBC Brazil is the last bank acquisition opportunity in the country

Race for HSBC Brazil: Bradesco is ahead with an offer of US$ 3.4 Billion

Brazilian Antitrust Council Investigates 15 Foreign Financial Institutions for FOREX Manipulation

Brazilian antitrust council, CADE (Administrative Council for Economic Defense), opened an administrative process to investigate alleged cartel consisting of 15 foreign financial institutions in order to manipulate the foreign exchange market. It is the first antitrust case in Brazil for manipulating rates in the financial market.

Financial InstitutionSome of these banks have been investigated for the same practice in the UK, Switzerland and the United States, in cases that came to light in 2013 and which totaled over US$ 5.8 billion in settlements and fines. The Brazilian investigation started from a leniency agreement signed by a cartel participant with CADE and the federal prosecutors. The bank in question, whose name is kept confidential, requested full immunity after cooperating. The institutions investigated in the Brazilian process are: Standard Investment Bank, Bank Tokyo Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Nomura, Royal Bank of Canada, Royal Bank of Scotland, Standard Chartered and UBS, as well as 30 individuals.

Read More:

Brazilian Banking
Brazilian Antitrust Council
Brazilian Exchange Rate

HSBC Brazil will be the last bank acquisition opportunity in the country

The purchase of HSBC by one of the three largest private banks in the country will probably represent the last large bank acquisition opportunity in Brazil. In terms of concentration, the union of HSBC mainly with Itaú Unibanco or Bradesco will make the banking concentration reach levels that are already considered a yellow sign by the Central Bank (BC). Today, the four largest banks – Itaú Unibanco, Banco do Brasil, Bradesco and Caixa – hold 70.25% of assets, 76.01% of deposits and 76.06% of the financial credit system. If Itaú or Bradesco buys HSBC, this level will rise to 72.94%, 79.12% and 78.26%, respectively.

Read More: Race for HSBC Brazil: Bradesco is ahead with an offer of US$ 3.4 Billion

Race for HSBC Brazil: Bradesco is ahead with an offer of US$ 3.4 Billion

HSBC confirmed on Tuesday that will leave Brazil and Turkey, in a restructuring plan that will eliminate 50,000 jobs worldwide. In the dispute by the British bank business portfolio in Brazil, Bradesco took the lead with an offer of $ 3.4 billion by the British bank, ahead of Santander and Itaú Unibanco.

HSBC is one of the ten largest players in Brazil, the seventh largest bank in operations in the country with 2.2% stake in the asset market and 1.9% of loans and 853 branches, corresponding to 3.7% of system. The bank also has R$ 57 billion in deposits for a market share of 2.9%. The bank’s loan portfolio consists mainly of commercial loans (70%), while loans to individuals account for 22% and 8% are mortgages. Analysts estimate a potential valuation of the bank’s assets from R$10 billion to R$ 14 billion (US $ 3.5 billion to $ 4.6 billion).

For Bradesco, in addition to having an opportunity to get closer to Itaú Unibanco in terms of assets, the purchase is of particular importance in terms of synergies that it can bring to the bank. Bradesco is particularly interested in the portfolio of high-income customers and HSBC’s micro credit company, Losango.

Read more:

HSBC Brazil will be the last bank acquisition opportunity in the country

More about Brazilian Banking Companies

Itaú Unibanco: Largest Private-Controlled Bank in Latin America

Itaú is the second largest bank in Brazil. Only behind Banco do Brasil, which is a government-controlled bank, even though part of its equity is traded at Bovespa. We do not recommend exposure to government-controlled companies in Brazil so Itaú is the largest bank we cover in LATAM.

Itau

Itaú Unibanco was formed as the merge of two of Brazil’s largest banks: Itaú and Unibanco. When they merged, they were the 2nd and 3rd private-controlled banks respectively, created a huge institution and left Bradesco in second place.

There is a joke in Brazil that goes: “The three best businesses for you to have in Brazil are: 1st a well-managed bank, 2nd a bank and 3rd a badly-managed bank ”.

Ok. The joke may be an exaggeration. But the banking industry does have a lot going for it in Brazil. Unlike in most developed countries, where small banks and credit unions are always present and relatively strong, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have together around 70% of the market share. This oligopoly along with the high switching-cost in the banking industry gives them a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Itaú Unibanco has over R$1.4 Trillion in assets (Approximately US$ 500 Billion). It provides retail banking, investment banking, real estate financing, leasing, consumer credit card, foreign exchange and foreign trade financing services.

Itau Unibanco Holding

ADR Ticker ITUB
Website https://www.itau.com.br/investor-relations
Industry* Banking, Insurance, Card Processing
Bovespa Ticker ITUB3, ITUB4
EBI Rating 5-star

Investing in Bradesco: building on its presence

Bradesco is the third-largest bank in Brazil. Unlike in most developed countries where small banks and credit unions are always present, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have around 70% of the market share together. This oligopoly along with the high switching-cost in the bank industry gives these 4 banks a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Bradesco has over $800 Billion in assets. Its main two segments are banking and insurance, with each contributing almost equally to the company’s bottom-line.

With 4600 branches throughout the country, Bradesco is the only of the major banks to be present in every city in Brazil. This strong presence will allow Bradesco to take advantage of Brazil’sgrowth over the next decades.

Easy Brazil Investing Rating

Bradesco’s competitive advantage is built on its presence, brand, scale, high switching-cost and the oligopoly in the industry. These factors along with the exposure to a fast-growing market, grant Bradesco the highest EBI Rating: 5 stars.

Banco Bradesco S.A.

ADR Ticker BBD
Bovespa Ticker BBDC3, BBDC4
Latibex Ticker XBBDC
Website http://www.bradescori.com.br/site/conteudo/home/default.aspx?idiomaId=2
Industry* Banks, Insurance
EBI Rating 5-star