Brazil's Bradesco Deal Not Enough to Eclipse Itau -- Update

By Rogerio Jelmayer and Luciana Magalhaes 

SÃO PAULO--Banco Bradesco SA's acquisition of the Brazilian unit of HSBC Holdings PLC is its biggest deal ever, but the bank will continue to focus on "organic growth" to expand in Brazil, according to Bradesco President Luiz Carlos Trabuco Cappi.

Bradesco on Monday said it would pay a total of $5.2 billion for HSBC assets in Brazil. Mr. Trabuco said the deal presented the institution with a unique opportunity to grow in Brazil, but he said it doesn't signal that Bradesco is looking to bulk up through other acquisitions or move outside its home market.

"Our strategy going forward will be concentrated in organic growth and in the domestic market. We have no interest to expand for others nations, " said Mr. Trabuco in a conference call with reporters.

Combined, Bradesco and HSBC have total assets worth 1.05 trillion Brazilian reais ($314 billion). Bradesco will remain Brazil's second-largest private-sector bank behind Itau Unibanco Holdings SA, with total assets of nearly 1.12 trillion reais, according to central bank figures for the first quarter, the latest data available.

Banco Bradesco ended the first quarter with total assets worth 883.4 billion reais, while HSBC ended the quarter with 167.9 billion reais in assets.

Brazil's banking industry is highly concentrated and dominated mainly by five players: state run peers Banco do Brasil SA and Caixa Economica Federal; and private sector banks Itau, Bradesco and the local unit of Spain giant Banco Santander.

Brazil's five largest banks account for 80% of total assets of the banking industry, according to the central bank.

However, as the major private sector banks in Brazil, Bradesco and Itau are particularly competitive.

Monday's acquisition marked a return of Banco Bradesco into the merger and acquisition arena after years of organic expansion, with an aggressive campaign to open branches across the nation.

The last acquisition by Bradesco took place in 2009, when the bank acquired IBI Mexico, for an undisclosed amount. It also marked the bank's biggest acquisition, surpassing the previous largest deal in 2003, when it bought BBV for 2.63 billion reais.

With Monday's acquisition, Bradesco will take over all operations of HSBC in Brazil, including retail, insurance and asset management, as well as all its branches and clients. HSBC has a total of 5 million clients across Brazil.

According to Mr. Trabuco, HSBC has a total of 1 million high-income clients.

"The acquisition allows Bradesco to gain in scale and optimization of platforms, with an increase in national coverage, consolidating the leadership in the number of branches in several states, besides strengthening its presence in the high-income segment," the bank said.

Historically, Bradesco has been better positioned with low- and middle-income clients, while Itau has been more focused on high-income clients. Itau has expanded aggressively in recent years, via mergers and acquisitions across South America.

After years of dominance by Bradesco, at the end of 2008 Itau surpassed its local rival, after merging its operations with local player Unibanco.

Write to Rogerio Jelmayer at [e-mail] and Luciana Magalhaes at [e-mail]

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