Bradesco to acquire HSBC Brazil unit, biggest-ever buy

Mon Aug 3, 2015 3:50pm EDT
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By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO (Reuters) - Banco Bradesco SA (BBDC4.SA: Quote) agreed to buy HSBC Holdings Plc's (HSBA.L: Quote) Brazilian unit for a surprisingly high 17.6 billion reais ($5.2 billion), narrowing the gap with larger rivals while boosting its base of affluent customers in Latin America's largest economy.

The deal between Bradesco and Europe's largest bank 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 all-cash acquisition will allow Bradesco to close the asset gap with larger rivals Itaú Unibanco Holding SA (ITUB4.SA: Quote) and state-controlled banks Banco do Brasil SA (BBAS3.SA: Quote) 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 purchase price, which could change to reflect the net asset value of both businesses, is equivalent to 1.8 times book value, far above what analysts expected and above Bradesco's own valuation. Reuters reported on July 20 that Bradesco had entered exclusive talks with HSBC after offering to pay about 12 billion reais, or 1.2 times book value.

Shares of Bradesco posted their steepest drop since July 23, shedding as much as 4.4 percent in São Paulo on Monday. The bank's American depositary receipt BBD.N lost 3.5 percent in New York.

"Too expensive," said Frederico Mesnik, a partner with Humaita Investimentos in São Paulo. "They bought the bank in order to keep the competition from taking it and they are paying a high price for it."

The takeover, Bradesco's first since the 2009 purchase of Banco Ibi SA, will increase its assets by 16 percent, number of branches by 18 percent and staff by 23 percent. Bradesco expects the purchase to contribute to earnings starting in 2017.

"The transaction makes strategic and financial sense for Bradesco and represents an opportunity to deploy more effectively the excess capital it was prone to accumulate in light of Brazil's poor credit growth outlook in the years to come," said Marcelo Telles, an analyst with Credit Suisse Securities.   Continued...

A man walks past a Banco Bradesco branch in downtown Rio de Janeiro August 14, 2014. REUTERS/Pilar Olivares