Category: Brazil

Brazil’s top banks continue taking advantage of looser central bank regulation and liquidity constraints among their smaller counterparts to scoop up loan portfolios of medium-sized banks. Caixa Economica Federal last week bought six credit portfolios totaling BRL2bn from several small and medium-sized banks, and is in the process of negotiating another six. The Brazilian government-backed lender has plans to spend BRL4.5bn in each of 2009 and 2010 to buy loan packages from smaller institutions. Bradesco CEO Marcio Cypriano recently said his bank will look to buy more loan packages originated by smaller lenders, while Itau CEO Roberto Setubal echoed the remarks on over this past weekend, saying his bank would seek to acquire small banks’ portfolios in the near future. Banco do Brasil has bought BRL1.5bn in such loans in the past 18 months, with plans to spend up to BRL3bn more.

Recent Federal Reserve measures to extend $30bn worth of dollar swap lines each to Mexcio, Brazil Singapore and Korea are designed to prevent a drastic collapse of the US currency, says Jerome Booth, head of research at EM manager Ashmore. “EM countries are facing a dollar liquidity squeeze, not a solvency problem,” he says, noting providing liquidity in such a situation is an obvious response. As demand for dollars has surged, EM currencies have fallen and the dollar has risen, but the latter isn’t due to conviction in the US currency. And its sharp rise, in fact, sets it up for an equally sharp fall. “[The measures are] a recognition of the US’ self interest to have orderly dollar decline,” concludes Booth. The Fed’s nod to EM last week, made in conjunction with the IMF’s decision to make a short term liquidity facility available to countries with strong track records, marks an official recognition of the spread of the crisis into EM.

Banco Bradesco has been named LatinFinance’s Bank of the Year for the 12 month period through July 2008. The Brazilian institution earns this distinguished award at a time when the region’s, and, in fact, the world’s financial institutions seek to regain their footing in a rapidly changing operating environment. This new moment banking is seen rewarding qualities such as conservatism, prudence, and agile strategic decision-making – some of which are inherent in the homebred and sometimes peculiar Bradesco culture. The bank’s strong commitment to internal controls and sustainability, matched by its bold acquisition strategy over the past several are to date virtually unmatched. Monday’s news of Itau’s planned merger with Unibanco will strip Bradesco of its claim as the largest private sector bank by assets and market cap in Brazil. But its rock solid approach to managing its broad, deep deposits base – perhaps the single most reliable and stable funding source of any regional bank – earns Bradesco praise from analysts, sustainability experts, and its clients. Unibanco and Itau are both struggling with derivatives-related problems stemming from products the two banks sold to their clients, says Banif Ixe. Indeed, LatAm’s new private sector monolith Itau Unibanco may find itself taking cues from its now smaller competitor Bradesco on how to manage risk. For the full story on Bradesco, as well as on all of the region’s best banks, go to www.latinfinance.com.

Bradesco is unlikely to recover its number one spot in the rankings of Brazil’s and LatAm’s banks by assets and market cap any time soon, say sellside and ratings agency analysts. While more bank mergers could still happen in the wake of Itau’s purchase of Unibanco, there are few options that would give the tightly run Bradesco a chance to catch up with the merged institution to be. Bradesco is expected to be 25%-30% smaller than Itau Unibanco, according to Goldman Sachs. Medium sized banks like Votorantim, and state-owned entities like Banrisul and Nossa Caixa remain potential targets for buyers like Banco do Brasil, say equity analysts who declined to be named. But those are seen as insufficient to bridge the gap. “There’s nothing else to buy that would make a big difference,” says Moody’s banks analyst Celina Vansetti, noting one has only to run through the list of the country’s top 50 banks and pick out the ones that might be for sale to understand that. “Bradesco remains very solid as it is still among the top four or five banks,” adds Fernando Sotelino, professor at Columbia University and, until 2004, CEO of Unibanco’s wholesale banking unit. “But with Santander-ABN and now Itau-Unibanco, some banks like HSBC start to move farther away from the country’s group of top banks,” he notes.

Itau, Brazil’s second largest private sector bank, is buying its smaller competitor Unibanco for an estimated BRL20bn-BRL26bn. The deal is to be executed through share swaps into a new jointly controlled holding company called IU Participacoes and is the product of a pact between the controlling family shareholders of each bank – the Moreira Salles family on the Unibanco side and the Setubal / Vilela families on the Itau side. No third party advisers were hired for the deal. If approved, the merger creates a bank with assets of BRL575bn, deposits and debentures of BRL235bn, and a loan portfolio of BRL225bn, according to a Goldman Sachs report. That would be between 25%-30% larger, depending on the metric used, than Bradesco, today the region’s largest private sector bank. Itausa will control 66% of the shares of IU Participacoes, while Unibanco will control the remaining 33%, though voting control will be split 50-50. IU’s subsidiary Itau Unibanco Holding, in turn, is 26.0% held by IU, 18.0% held by Itausa, 5.4% held by Bank of America, and 50.6% held by public investors. Economatica estimates the merged entity will be the ninth largest bank in the Americas with $324.0bn in total assets and the sixth largest by market cap after the likes of JPMorgan, BofA and Citi, with $41.3bn. Ixe notes the new bank will be among the 20 largest in the world.

Monsanto has agreed to acquire Aly Participacoes, owner of Brazilian companies CanaVialis and Alellyx, for $290m. Monsanto will pay for the companies using its own cash on hand, says a company spokesman. The seller is Votorantim Novos Negocios and sister company of Votorantim Industrial. CanaVialis is the world’s largest sugarcane breeding company and Alelyx develops biotech traits primarily for sugarcane. Monsanto did not say when it expected to complete the deal, saying only that it would do so as soon as is practical.

Brazilian utility Eletrobras is upgrading its US depository receipt to a full blown NYSE listing, from the OTC ADR program. William Kirst, depositary receipts executive for LatAm at JPMorgan, the company’s ADR sponsor, says the upgrade to the NYSE has been in the works since 2002. “[Eletrobras] had been working on reconciling accounting standards and getting compliant [with NYSE requirements],” he says. By listing on the NYSE, says Kirst, Eletrobras will have exposure to a broader range of investors. He did not disclose the amount of shares to be listed.

Anglo American’s Brazilian subsidiary has launched an offer to acquire the 36.7% stake it doesn’t already own in Anglo Ferrous Brazil, previously known as IronX Mineracao. The offer for the stake is valued at around BRL3.3bn, or BRL28.15 per share, says an Anglo Ferrous spokesman. In August, Anglo American acquired a 63.3% share in Anglo Ferrous for about BRL5.4bn. Shareholders have until December 1 to accept the offer. Shares of the target closed the last trading session at BRL28.27, according to Economatica.

Brazil’s Grupo Votorantim’s continues to amass positions in Peruvian mining assets. On Friday, it purchased 84.54% of the voting shares of Lima-based Minera Atacocha. An executive close to the deal says Votorantim paid about $145m for the shares of the miner, which specializes in zinc, lead, copper, silver and gold. All of the voting shares combined are worth $170m. Atacocha’s total debt is $200m, which, when added to its total equity capital of $310m, gives it an enterprise value of $510m, says the person. Atacocha’s C1 shares have fallen 69% in October and closed at PES2.10. Credit Suisse advised Voto. In August Voto said it had accumulated a roughly 8% stake in Lima-based zinc, iron and copper producer Milpo for just over $200m.

Brazilian miner Vale is cutting its 2009 production of iron ore by 30m tons, its nickel output by 17,000 tons and its pellet generation by 20% to reflect lower global demand for its products. “One [of the] implications [the intensification of financial market stress] is a strong negative impact on the global steel industry, given the importance of steel for industrial production and construction,” says Vale in a statement Friday. The decision is made in response to a number of indications over the past week that demand is falling. Still, it highlights the direct effect of today’s financial and increasingly economic crisis in the developed world on commodities exporters in LatAm going forward. Vale preferred ADRs closed at $11.71 Friday, down from $11.90 in the previous session.