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Itaú’s winning bid for Banco Carrefour, 11.6 times 2010 earnings |
The Brazilian government’s attempt to dampen consumer spending and slow inflation didn’t appear to lessen the attraction to Itaú Unibanco of 49% of Banco Carrefour. Itaú outbid its rivals for the large and established retail finance operation, providing Itaú with the credit services offered in Carrefour’s Brazilian stores. These encompass a total of 7.7 million accounts, 11 million issued cards and a loan portfolio of $1.42 billion. Banco Carrefour posted a net income of R$155 million ($99 million) in 2010.
In early April the government had responded to rising inflation and fears about a credit bubble by doubling the tax that applies to goods bought in instalments over more than one year, excluding mortgages, to 3%.
Twelve-month inflation in Brazil reached 6.3% in March, close to breaking through the central bank’s target of 4.5% plus or minus 2%, as the government tries implementing measures other than raising interest rates, fearing further currency appreciation.
While the impact of this specific move is unclear it indicates government concerns about the level of credit growth to Brazil’s providers of consumer loans. Total outstanding credit in Brazil’s economy rose 21% year on year in February, to R$1.74 trillion.
In March, shortly before the consumer tax was raised, Brazilian central bank president Alexandre Tombini told parliament that growth in consumer credit above 15% needs to be monitored “very carefully” to avoid “excessive risks”.
Despite government fears of a credit bubble the sector remains extremely lucrative: central bank data show the average rate charged on consumer loans was unchanged at 43.8% in February, although the default rate rose for a third straight month to 5.84%.
Domestic victory
Itaú beat its domestic rivals Bradesco, Banco do Brasil and Santander Brasil with a bid of R$725 million, implying a valuation of 11.6 times 2010 earnings and 2.6 times its last reported book value. In June 2009 Bradesco acquired 100% of Banco Ibi, the financial arm of Dutch retailer C&A, for R$1.4 billion, implying a valuation of 1.5 times book value. Although the Carrefour acquisition is higher than this reference deal, analysts generally reported it as positive for Itaú. Barclays Capital released an equity report stating that it believed this acquisition was an important step in “solidifying its leadership in retail consumer credit”, and one that gives Itaú greater exposure to the lower-income segments of Brazil’s population: “We believe the competition in the banking industry is likely to be significant in the coming years and think that banks with: a broader footprint; strategies based on the more effective use of different channels to tap different segments of the population; and ability to bank to the lower-income segments of the population are likely to be the ones with the greatest ability to deliver structurally higher growth.”
