Latin Finance - November/December 2010 - 38

2008. Its closest competitors are Itaú (651.6 billion reais) and Bradesco (547.9 billion reais), according to those banks’ financial statements. Most of BdB’s power comes from a large edge in deposits. At 343.0 billion reais, it towers over Brasesco (178.5 billion reais), and Itaú (66.6 billion reais). Profitability also compares well to private leaders, with return on assets (ROA) of 1.4% at mid-year, and return on equity (ROE) of 28.7% in March. Itaú posted ROE of 23.4% and ROA of 2.0% as of June. In May, BdB’s insurance arm, BB Seguros Participacoes, acquired a 60% stake it did not yet own in car insurance company Brasilveiculos from peer SulAmerica for 340 million reais. August saw a strategic partnership with dental insurer OdontoPrev to accommodate clients generated by BdB.

as the Spanish banks have done. Instead, Toldeo explains, it wishes to replicate what it has done in Japan: attend to the Brazilian community. Patagonia only accounts for about 2% of Argentina’s market share by assets, he notes. A small to mid-size US purchase should follow in the near-term, after receiving appropriate licenses this year. BdB hired RBC in August to advise on the acquisition of small banks in the US. Again the target is the diaspora, with the bank eyeing communities where 1.4 million Brazilians cluster in the US. To support Brazilian companies in Africa, the bank is joint venturing with

make small acquisitions to leverage on businesses with entities with business outside of Brazil,” says Milena Zaniboni, S&P’s lead analytical manager for Brazil. The agency does not see big risks with the type of expansion that has so far been outlined.

M&A Funding

Entering Argentina

In April, BdB raised eyebrows when it agreed to acquire a 51% stake in Argentina’s Banco Patagonia for $479.7 million, following five months of discussion. It was the bank’s first international acquisition, and marked the beginning of a plan to offer services to Brazilians and Brazilian Banco do Brasil is following customers into new markets companies in other LatAm countries, as well as the US and Africa. domestic rival Bradesco and Portugal’s “What we have seen in the past five Espírito Santo. The JV contemplates years is a bigger presence of Brazilian acquisitions and organic growth. In companies abroad, and this is what addition to a primary goal of supporting motivates us to have a bigger presence Brazilian activity in the continent, Toledo overseas,” Toledo says. He adds that the explains, there may also be opportunity bank has been operating abroad for 40 for retail expansion in Africa’s vastly years, focused on capturing flows to and underbanked market, unlike in other from Brazil. regions. This is mainly due to its partner This is still the motive, especially Espírito Santo, which has a 100 year as Brazilian companies become global presence and retail experience in Africa. powers. Toledo says 260 Brazilian Toledo says BdB is looking at companies, with 200,000 employees, are buying opportunities in every other in Argentina, with needs such as cash country in South America. He stresses management, receivables and localthat international investment is small currency loans. compared to what BdB does each year in BdB’s aim is not to go after a large Brazil. retail base and become a regional power, “It makes sense for Banco do Brasil to

With GDP growth back at pre-crisis levels, Brazil’s banks compete for accompanying credit growth, particularly in regions with lower banking penetration. With lending that represents 45% of GDP, credit in Brazil falls short of other developing nations, such as Chile’s 60%. Toledo is optimistic, pointing to BdB’s 30% market share in Brazil’s Northeast, or the “Brazilian China” as the bank’s leadership has taken to calling it. BdB sees a brick-andmortar presence in the region as an advantage as the population demands more banking services as Brazil’s economy improves. In all parts of the country, the bank plans to grow organically in the near term following a series of acquisitions in recent years. “We don’t have plans in terms of [domestic] acquisitions, we have a plan for organic growth,” Toledo says. “An opportunity could arise, but we’re not looking for it.” Growth will require new funds. The bank has traditionally enjoyed a lower cost of funds thanks to government accounts that only government banks can hold, and has also made use of international capital markets. In June, it raised 9.6 billion reais in a follow-on equity offering that was the year’s biggest after Petrobras. Skeptics say it should have raised more. “The bank will have its capital a little under pressure due to very strong growth, but I don’t think that’s worrisome for the credit,” Zaniboni says. BdB has other financing options, including subordinated debt or equity. S&P spots BdB’s total equity to assets ratio at 4.7, with other large banks in the region typically at 6.0. LF

38 LatinFinance

November/December 2010

Latin Finance - November/December 2010

Table of Contents for the Digital Edition of Latin Finance - November/December 2010