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Brazil’s central bank draws a line

Restricting Itaú’s purchase of XP is good for competition.

The Brazil central bank’s decision to prevent Itaú from taking a majority of the voting shares of online stockbroker XP Holding Investimentos sets an important precedent.

According to the terms of the staggered transaction, Itaú acquired a 49% stake (30% of voting shares) of XP for R$5.7 billion ($1.5 billion), plus a R$600 million capital increase. The central bank has allowed the next phase of the deal – to come in 2020 – when Itaú will then buy a further 12.5%, creating a 62.4% stake (40% of voting shares), at 19-times price/earnings.

However, the deal’s next timetabled steps – with Itaú purchasing a further 12.5% in 2022, reaching a 74.9% stake (49.9% of voting shares), as well as options allowing for Itaú’s 100% control, either through a 2024 XP put option or a call for Itaú in 2033 – will not be allowed.

The banking system in Brazil is one of the most consolidated in the world – certainly for a big country. The top five largest banks hold around 85% of all assets. The sale of HSBC’s and Citi’s retail businesses to Bradesco and Itaú respectively is symptomatic of this process.

'Lack of competition'

However, under the leadership of governor Ilan Goldfajn, the central bank has since been vocal about the need to target the high so-called ‘spread bancario’ in the country.

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