Latin Finance - November 2008 - 19

of the 2008 entering new markets. For example, it Big in All the Right Places only began to build up investment “Bradesco is big in every niche it attacks,” banking in earnest in 2007, five years says Peter Shaw, managing director for after its main competitor Itaú. LatAm financial institutions at Fitch. He Competitors and analysts see lack of points to Bradesco Seguros e Previdência, diversification as the bank’s Achilles LatAm’s biggest insurance company by heel, though not an incurable one. number of premiums, as an example. Bradesco executives dismiss this as “The insurance business is less exposed short-sighted, pointing to the to credit risk, which is important to institution’s dominance of virtually consider if asset quality deteriorates in this every niche it has chosen to enter. This environment,” says Jason Mollin, analyst includes insurance, credit cards, and for financials at Goldman Sachs in São online banking. And the strategic Paulo. This multiplicity of strong business acquisition record also speaks lines also allows the bank to cross sell to a volumes. Since inception in 1943, Brazil Bank Stocks Bradesco has expanded Itaú and Bradesco neck and neck through more than 45 purchases. With a goal of 45 being the leading brand name in every segment it occupies, the 40 institution has in the past three years made formidable progress 35 in filling gaps. A typical example of this bold 30 strategy is the March 2008 25 acquisition of Agora, Brazil’s largest brokerage, for 830 million 20 reais. That followed a $375 million purchase of Banco BMC. Bradesco PN BBDC4 Banco do Brasil ON BBAS3 15 Over the past four years these ItauSA PN ITSA4 Unibanco ON UBBR3 have become a major source of 10 Oct-2007 Nov-2007 Jan-2008 Feb-2008 Mar-2008 May-2008 Jun-2008 Aug-2008 interest income for Brazilian lenders from captive customers Source: Economatica in the public sector. captive base of loyal customers, be they Critics may characterize the bank’s salaried employees or corporates. culture as antiquated and too slow This approach appears to be paying off. moving. But the shopping spree shows “Helbor only works with Bradesco,” says how Bradesco reacts quickly to Henrique Boristin, CEO of the small, changing markets, says Cypriano. “Our publicly traded Brazilian homebuilder strategy has been to accompany Helbor Empreendimentos. “We have more Brazil’s growth by filling in the missing than 120 accounts with Bradesco and all of spaces as well as growing organically. our clients and customers use Bradesco For example, when we realized the accounts,” says Boristin, also lauding the [online retail brokerage] market was bank’s fast service. important we went and bought Agora,” “If I need a bank guarantee letter, Cypriano adds. which usually takes 20 days at most places, “We were the first bank to buy a I can get it from them within three days,” payroll deductions company,” he adds, says Boristin. The CEO relies on Bradesco referring to the BMC acquisition. “It was for financing land acquisitions, building a market we weren’t in and one in which construction and providing mortgages to you needed to have expertise to do well homebuyers. BBI, the bank’s investment in because you rely heavily on banking banking unit, underwrote its IPO in correspondents to sell the product,” he October 2007. adds. “So we bought BMC, which had Often referred to by clients and over 8,000 correspondents selling credit members of the banking sector as the around the entire country.” reais “bank of the people,” Bradesco has succeeded in developing a loyal base of clients over the years which it can easily rely on for a variety of revenue streams, says Standard & Poor’s analyst Celina Vansetti. Some of Bradesco’s competitors, including Itaú, still seek to secure new client bases by descending the income chain. Beating Itaú with Lower Earners Bradesco posted strong results in the first half of 2008, including ROA of 2.0% and ROE of 26.0%. While these fell short of chief private sector competitor Itaú’s metrics for the same period of 2.6% and 28.1%, respectively, analysts say the difference in the numbers is less important than the growth trajectory. In both cases, the numbers tapered off from the bubbly results posted in the first half of 2007. In the 12 months through June 2008, Bradesco boosted its asset base by 38.8% while Itaú’s asset base rose 34.6% – both impressive numbers that overshadow the growth seen in other countries in Latin America. Sep-2008 The most obvious difference between Itaú and Bradesco is the segment of the population each targets. Analysts invariably point to Itaú’s better access and understanding of higher income retail clients, which it services through its Personalité brand. This encompasses services ranging from checking to brokerage and asset management, as well as private and investment banking. While Bradesco also targets such higher earners with arguably less of a track record, its national ubiquity and entrenchment in the lower and middle income classes is undeniable, and seen as a major strength going forward. The bank grew its total deposits by an impressive 48.6% in the 12 months ended June 2008 while Itaú’s deposits rose 22% in 12-month period ended March 2008. Deposits of Banco do Brasil, which Bradesco considers its main rival, rose 19% in the same period. Brazil’s two leading banks also November 2008 LATINFINANCE 19

Latin Finance - November 2008

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