Amid all the noise and speculation surrounding Barclays’ bid for ABN Amro, one name has been noticeably absent: Banco Real. That’s odd.
Banco Real is in many ways the jewel in ABN Amro’s crown. It single-handedly accounted for more than 70% of ABN Amro’s income growth in 2006, contributing €3.7 billion to the Dutch bank’s bottom line. And the Brazilian outfit is also the only retail bank in the ABN Amro stable that is located in a fast-growing market.
Of course, ABN Amro hardly springs to mind as a big player in emerging market retail banking, and neither does Barclays. For that reason, the takeover speculation that has surrounded Banco Real for years is very unlikely to go away even if and when a Barclays deal is done.
There are certainly reasons why Barclays might not want to sell Banco Real. For one, it doesn’t need the money: it’s effectively getting $21 billion from selling La Salle to Bank of America, which solves a lot of its cash issues. And for another, Barclays has demonstrated for decades, with its South African operations, that it is perfectly comfortable with the odd far-flung outpost. Barclays owns a majority stake in Absa, South Africa’s largest retail bank, although South Africa’s central bank governor has criticized Barclays’s stewardship of Absa.
Mainly, however, Barclays is likely to want to hold on to Banco Real precisely because Brazil is very hot right now, and selling the bank would mean giving up on a country where the banking sector is not only growing fast but is also still in its infancy.
Yet if Barclays does end up in control of Banco Real, the suitors will certainly be at its door. The only way to get market share in Brazil is by acquisition, and Banco Real is the largest foreign-owned bank there. Although persuading Barclays to part with the asset won’t be easy, it’s likely to be easier than attempting to buy a big domestic bank such as Itaú or Bradesco.
Brazil, indeed, is unique among the big Latin American countries in that most of its banking system remains domestically owned. The only other leading foreign-owned bank is Banespa, which is owned by Santander, and the Spanish bank would love to add Banco Real to its Brazilian holdings. It still might do just that, of course, if Barclays fails in its bid for ABN Amro and instead the Dutch bank ends up in the hands of RBS, the other official contender. The chances are that the UK bank would seek to sell Real, most probably to Santander, which was initially part of a three-party consortium, together with RBS and Fortis, trying to buy ABN.
Even if the RBS bid fails, Santander might still try to buy Banco Real from Barclays. In doing so, however, Santander would almost certainly be opening itself up to a bidding contest for the Brazilian asset.
Who else would be bidding in such a war? The first name on everybody’s list is Citi, which has been publicly looking for a significant presence in Brazil for years. HSBC would love Banco Real as well, and there’s a chance that even BBVA might be interested. And then there are the wild cards – the domestic Brazilian banks, which could generate much more in the way of cost savings than any foreigner bar perhaps Santander.
With so much potential interest, Barclays might find it impossible to hold on to Banco Real for long. CEO John Varley knows all too well the pressure on banks to pay through the nose for a rare and special prize. He might like being on the other side of the table this time around.
