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OPINION

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.