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.
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.
Santander Brasil announced yesterday (3) that it won a cause of R$ 4.8 billion in court that will provide an extraordinary profit in the second quarter. With all that money positively affecting its balance sheet, the bank took the opportunity to announce an extra provision of R $ 1.6 billion. Much of this additional provision should be used to insure against defaults amid the crisis generated by Lava Jato and the growing number of judicial recovery.
While the other Brazilian big banks announced significant increases in provisions in the first quarter, Santander was the only one not to have any impact in this regard. With the victory in court, it may make this increase without having to lose the profit line. The bank did not explain what the R$ 1.6 billion on its balance sheet is for. According to a spokesperson, the new provision will serve to a number of issues, including bad debt.
According to the material fact disclosed by the institution last night (3), the bank had a win on a decision of the Supreme Court on the charge of Cofins tax levied on financial institutions since the enactment of Law 9718 of 1998. The They claimed that banks should not pay a higher rate, as previously understood by the taxman.
The bank had already won the case in the District Court, but federal prosecutors appealed to the Supreme who unanimously denied this appeal. That way the bank can now reverse a provision that had been doing for this case in the amount of R $ 4.8 billion. Just like when you make a provision, profit is negatively affected, the reverse is true. Ie to reverse this provision of R$ 4.8 billion, Santander can register directly on its bottom line.
As already announced they will take advantage of this extraordinary event to strengthen its balance sheet at $1.6 billion, the net impact should be less than the total won to the cause. Even so it will be around R $ 3 billion, quadrupling earnings in the quarter. But this number will depend on the tax incidence on the results.
According to the notes of the first quarter balance sheet, there are still issues to be evaluated on the PIS tax, for the same law 1998. At the end of the first quarter, the bank reserved R$ 10 billion for if they lost these causes.