The Brazilian banking battle has begun. After a flurry of merger announcements last month, more acquisitions are expected in the next few months.
For some time, there have been rumours of Banco do Brasil mopping up smaller, regional state-owned banks. There have also been rumours that the big privately owned banks, such as Bradesco and Itaú, would buy some of the mid-tier banks that have been struggling with funding shortages. But few predicted a merger of two top names – Itaú and Unibanco – to create the largest bank in Latin America and biggest non-Chinese bank in the MSCI Emerging Markets index. The renamed Itaú Unibanco Holdings will have about $265 billion in assets.
Questions now linger over Bradesco, which before the Itaú Unibanco deal was Brazil’s biggest private bank and which is not entering into any acquisitions. Initial speculation suggested that the bank had opened talks with HSBC, Banco Safra and Citi Brazil. But Marcio Cypriano, chief executive of Bradesco, puts an end to these rumours in an interview with Euromoney. "We are always looking at the market and negotiating but there is nothing new at the moment," he says.
"A merger would only be interesting for us and be worth the effort if it was good for the shareholders and in line with our values and culture"
Marcio Cypriano, Bradesco
Local bankers agree that Bradesco has a big enough market share and does not need to buy. "I don’t think Bradesco should act now as they could do something crazy," says one. "For Bradesco to catch up with Itaú Unibanco it would have to buy several mid-tier banks. The merger costs would make this strategy a very difficult route back to the top."
Euromoney has learnt that both Bradesco and Itaú were in the running to buy Unibanco a year ago. A source close to Itaú says that two deals were on the table, with draft contracts drawn up between Bradesco and Unibanco as well as between Itaú and Unibanco. However, Unibanco’s controlling family could not agree on a power-sharing structure with either bank and the deals fell through.
"I understand that after Unibanco bought back more than R$200 million [$83.4 million] in shares at the end of October it then rang Itaú and capitulated on some of the power-sharing clauses. As the rest of the contract was already drawn up a year ago, once this final clause was sorted out the deal completed very quickly," says the source.
In the family
Pedro Moreira Salles, president of Unibanco, will chair the new bank. Roberto Setubal, shareholder and member of the controlling family of Banco Itaú, will be the chief executive. Itaú’s holding company, Investimentos Itaú, will have a 66% stake of Itaú Unibanco Holding.
"I think they called Itaú and not Bradesco because of the family set-up," adds the source. "The controlling family culture of Unibanco is closer to Itaú than Bradesco. This is the main reason Itaú won Unibanco over Bradesco."
There are also suggestions that the Unibanco model, which focuses on higher-end clients, was something Bradesco was worried about. "A merger would only be interesting for us and be worth the effort if it was good for the shareholders and in line with our values and culture... Any association would have to fit in with the bank we have built up... it would have to be a bank that was open to all income groups and be accessible to the entire population in every part of Brazil," says Cypriano.
The Itaú-Unibanco transaction aside, Brazil’s banking industry is fast evolving through mergers in the past month. After finalizing the acquisition of São Paulo’s state-owned bank, Nossa Caixa, for R$5.4 billion, Banco do Brasil is rumoured to have opened talks with Banco Votorantim and might spend up to R$7 billion on a 49% stake. It is also rumoured to be in talks with Banco do Estado do Piauí and Banco de Brasilia.