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Firms take advantage of new Brazilian bank approval through acquisitions

Brazil’s central bank strategy to focus on the orderly consolidation of its banking industry has pushed companies to merge or acquire rather than establish institutions

Brazil’s central bank core strategy of overseeing an orderly consolidation of the banking system’s weaker small banks has pushed many firms to merge or acquire existing institutions – instead of setting up new investment banks – to gain quicker approval.

BR Partners is set to become Brazil’s newest investment bank before the end of the year, after it announced it was buying Banco Porto Seguro. Since BR Partners was launched in 2009, the financial advisory firm planned to begin capital market transactions in Brazil and had applied to the Brazilian central bank in 2010.

However, with the central bank prioritising its time to oversee a consolidation of the banking system’s weaker small banks, BR Partners had to buy another bank to get its licence and avoid a long wait to begin the next stage of its development plans.

The motivation behind the acquisition of Banco Porto Seguro, which is in liquidation, is simply to get a banking licence; no personnel, or sizeable assets or liabilities, are part of the deal.

“The central bank informed us that it is focusing on [bank] acquisitions rather than approving new institutions,” says Andrea Pinheiro, partner and COO of BR Partners. “The line to get a new institution is very long and very lengthy, so [this acquisition enables us to] jump-start our underwriting business. Because the bank is in liquidation, the central bank wanted this deal to be done so looked at it with good eyes – that’s why we are getting it approved so fast.”

The central bank is in effect requiring new banks to obtain licences through acquisition as part of its strategy to promote consolidation in the sector to remove weak banks.

Plural Capital, a financial advisory firm led by former BTG Partners Rodolfo Riechart and André Schwarz, is also looking to buy a bank to obtain a licence, after its acquisition negotiations with Rio de Janeiro-based Banco Modal broke down. Plural would not comment on the collapse of these talks, but it is believed the parties disagreed on a valuation and there was also concern on the part of Plural that outstanding litigation against Modal could delay the approval of the deal, and therefore delay its plans to begin its equities underwriting business.

Pinheiro says BR Partners will also be focusing on equities capital markets in January, when it begins to operate as a bank, and will then consider entering into the domestic debt capital markets in the second half of 2012.

For the full story, check out the December issue of Euromoney magazine.

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