Spanish bank BBVA has announced plans to open a new platform in Brazil, following the sale of its 5.01% stake in Banco Bradesco.
BBVA booked a gain of €740 million for the stake in Bradesco it took on in 2003. These new funds are now earmarked for investment in the new business in Brazil. BBVA has declined to comment further on the details but market rumours suggest it will focus on specialized trade financing rather than try to roll out a new retail or complete investment banking platform in Brazil’s already highly competitive market.
A New York banker says: "BBVA is not even a relevant commercial bank in Brazil and so it is unlikely it will try to build an investment banking franchise around a strong lending capacity like [local investment banks] Itaú BBA and Bradesco BBI are trying to. I guess unless they are prepared to make a bold move and hire an existing team of bankers, research analysts, equity sales people and so on it’s going to be a long old road to the top for them."
Carmen Munoz, senior director at Fitch Ratings, thinks the new operation will be specialized. "When [in November 2006] BBVA bought a 5% stake in China Citic Bank and a 15% stake in Citic International Financial Holdings – the latter is headquartered in Hong Kong – they made it clear that they thought trade flows between Asia and Latin America, most notably Brazil, represent a growing opportunity that BBVA plans to take advantage of," she says. "This new platform is likely to focus on these growing trade flows."
Munoz also discounts a retail focus for BBVA’s new business in Brazil. "BBVA was present in the retail arena before but only managed to get a 1% market share. That is why it sold to Bradesco in the first place and so I can’t see it trying to go down the retail route again." In 2003, BBVA sold its retail business to Bradesco in return for €976 million-worth of Bradesco shares.
A senior Brazilian banker reckons now is an opportune moment to be opening for business in Brazil. "In my opinion, BBVA is returning at a very good time. They will make a lot of money by using their offshore balance sheet. There is huge demand from the corporates for syndicated loans as the capital markets continue to be closed to most issuers. In Brazil, few international banks will be able to attend to this demand, as the sub-prime crisis reduced their capacity to lend, but BBVA’s balance sheet remains intact and will be further enhanced by the sale of its equity interest in Bradesco."
In addition, BBVA has always maintained an M&A team in São Paulo. "If BBVA stays focused on M&A and the loan market, for sure it will see great returns in Brazil," says the banker.
BBVA’s emphasis on organic growth in Brazil is in stark contrast to that of its great Spanish rival, Santander, which recently bought Banco Real from ABN Amro. Santander is pursuing opportunities across all products.