Banco Bradesco SA, Brazil’s No. 2 private-sector bank, agreed to buy HSBC Holdings Plc’s Brazilian unit for BRL 17.6 billion (US$ 5.2 billion), narrowing the gap with larger rivals while boosting its base of affluent customers in Latin America’s largest economy, according to Reuters.
The deal between Bradesco and Europe’s largest banks includes the latter’s Brazilian retail banking and insurance units. The agreement, which still requires regulatory approval and was sealed on July 31, could close by June.
The purchase price, which could change to reflect the net asset value of both businesses, is equivalent to 1.8 times book value, way above what analysts expected and above Bradesco’s own valuation. On July 20th, it was reported that Bradesco had entered exclusive talks with HSBC after offering to pay about BRL 12 billion, or 1.2 times book value. Shares of Bradesco posted their steepest drop since July 23, shedding 4 percent.
The all-cash acquisition will allow Bradesco to close the asset gap with larger rivals Itaú Unibanco Holding SA and state-controlled banks Banco do Brasil SA and Caixa Econômica Federal.
HSBC Brasil’s focus on high-income customers fits well into Bradesco’s plan to ramp up sales of specialized financial services for the wealthy and larger corporations.
The takeover, Bradesco’s first since the 2009 purchase of Banco Ibi SA, will increase its assets by 16%, number of branches by 18% and staff by 23%. Bradesco expects the purchase to contribute to earnings starting in 2017.
Bradesco paid BRL 10.4 billion for HSBC Bank Brasil, BRL 4.7 billion for the HSBC Serviços insurance unit and BRL 2.5 billion for a measure of future additional revenues or scale gains, it said in a presentation.
Following the acquisition, Bradesco’s capital regulatory ratio, a measure of solvency strength, will decline to 9.9% from 12.8% currently. Analysts estimated that Bradesco could deduct as much as BRL 6.5 billion in goodwill from the HSBC acquisition.
On the other hand, HSBC’s sale of its Brazilian business represents a retreat from the second-largest emerging market economy after years of disappointing performance.
HSBC, which arrived in Brazil late in the 1990s, never gained enough size to pose a real threat to Itaú, Bradesco or Banco do Brasil, the nation’s top lender by assets. HSBC Brasil has 854 branches and 21,000 employees. Its assets of about BRL 170 billion represent about 2.3 percent of the total for Brazil’s banking system.
HSBC was advised on the deal by its own investment banking unit and Goldman Sachs Group Inc. Bradesco was advised by its own investment banking unit Bradesco BBI, as well as JPMorgan Chase & Co and NM Rothschild & Sons Ltd.
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