Banco do Brasil and Bradesco are set to merge their
cards businesses to create ‘Elo’ to meet the demands of thems of
unbanked Brazilians. Marcelo de Araújo Noronha, general director of
Bradesco’s card division, says the new venture can capture 15% of
Brazil’s card market, writes Douglas Blakey.

Bar chart showing Brazil – credit card numbers and volumes, 2005-2009 Public sector lender
Banco do Brasil, Latin America’s largest bank by assets, and
private sector rival Banco Bradesco are merging parts of their
cards businesses to create a new venture called ‘Elo’.

The agreement provides further
evidence of Brazilian lenders ramping up their efforts to meet the
banking demands of thems of Brazilians coming out of poverty and
into the mainstream banking system (see RBI 620).

News of the Elo joint venture (JV)
came within days of deals agreed on 23 April, with Banco do Brasil
and Bradesco assuming joint control of Cielo, a local credit card
processor, with both Brazilian banks acquiring stakes from
Santander.

Banco do Brasil said it would
acquire a 5.11% stake in Cielo for BRL1.04bn ($593m) while Bradesco
will take a 2.09% stake in a deal worth BRL429m. Once the deals are
concluded – both are subject to regulatory approval – each
Brazilian lender will hold a 28.65% stake in Cielo.

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In a separate deal, Santander
agreed to sell the Brazilian lenders its 15.33% stake in rival
Brazilian processor Compania Brasileira de Solucoes e Servicos
(CBSS), which issues Visa Vale’s social benefit card products, for
around BRL200m.

According to Banco do Brasil, Elo
will be up and running within six months and will aim to capture
15% of Brazil’s card market in the next five years.

“Most of the growth in market share
is expected to come from new clients,” said Marcelo de Araújo
Noronha, general director of Bradesco’s cards division.

“It is based on the growth we have
been observing in cards in the lower and middle income bracket. We
intend to capture part of this growth with the new brand. The
growth will also come from competition between our new brand and
the traditional brands.”

The JV partners believe they can
achieve cost synergies of around BRL1bn within a five year period;
total card numbers in the country are estimated to hit 800m by 2015
an increase of around one half from 2009 levels.

Between them, Bradesco and Banco do
Brasil currently have a total of around 220m credit and debit card
customers.

New regulation
looming

Establishment of the joint venture
comes as Brazilian regulators consider stricter rules for credit
card operators unless they agree on a code of self regulation.

In particular, concern has been
expressed by Brazilian politicians about the level of card fees and
their impact on low income card holders.

On 27 April, the country’s justice
ministry said the national monetary council may start regulating
credit card fees in an effort to reduce cardholder costs.

Noronha said Elo will become a
national brand to compete with international card schemes Visa and
MasterCard. Customers of the two banks will be offered the choice
of either Elo or Visanet-branded cards when they open new
accounts.

For Banco do Brasil, catering for
the emerging customer base is also about maintaining its lead in
the Brazilian retail banking market. Albani da Silva Mendonça, a
retail executive at the bank told RBI last October that
around half of the bank’s 26m clients belong to the group that is
internally called “emerging markets”.

While Banco do Brasil’s retail
business has not historically focused on the bottom of the income
pyramid, a segment that has traditionally presented very low levels
of bancarisation, it has restructured its retail banking operations
across the country to target the unbanked segment.

Helping customers find
their banking feet

Bar chart showing Brazil – dedit card numbers and volumes, 2005-2009 The new Elo brand
will be used across debit, credit and prepaid products in an effort
to improve consumer’s understanding of where certain products can
be used. This will tie in with the bank’s Cielo processing and
merchant acquiring business, with consumers able to make purchases
on their Elo cards anywhere the Cielo brand is displayed.

The new business structure will
have three main elements. The first will be Elo Banco, a banking
business which will focus on private label, debit and credit cards.
The second is an administration and services unit – effectively the
current CBBS business – which will focus on prepaid card solutions
and services. The prepaid business will be branded Elo Vale. The
third business unit will be the Cielo processing and acquiring
business, which will keep its current brand.

“We want the new brand to be
simple, uncomplicated and have a strong national identity as a
Brazilian brand,” he said.

Credit card use in Brazil was
initially slow to take off, due to the dominance of Brazilian
retailers offering their own in-store financing to low-income
consumers.

But in recent years Brazilian banks
teamed up with retailers to launch co-branded or private-label
hybrid card programmes. These have been the foundation for the
development of stand-alone credit card products, which have enjoyed
rapid uptake over the past few years.

Bradesco remains upbeat about
expanding its credit portfolio in 2010. At the end of the first
quarter, its total credit portfolio was BRL235bn, up 10% from the
corresponding quarter a year ago with retail lending accounting for
BRL86bn of the total.

The bank expects to grow retail
lending by around 20% in 2010.

In the first quarter, Bradesco
reported net income of BRL2.1bn, up 22% from the
year-ago-quarter.

Bradesco’s total assets grew 10.5%
year-on-year to BRL532.6bn.

In fiscal 2009, rival Banco do Brasil posted a record annual
profit for a Brazilian lender of BRL10.1bn.

RBI DealWatch
RBI DealWatch tracks global financial services mergers and acquisitions, privatisations and demutualisations, flotations, divestments, share stakes, strategic alliances and joint ventures
Country	Participants	Type/value	Description	Date
Europe, Middle East, Africa
Europe	OTP Bank	Strategy update	Hungary’s largest lender OTP is eyeing up possible acquisitions in country’s where its existing presence is “too small”, according to OTP Chairman Sandor Csanyi. Potential acquisitions are likely to be focused on Slovakia, Serbia and Romania.	27 Apr
UK	Royal Bank of Scotland	Branch sales update	Four bidders remain in the running – Santander, BBVA, National Australia Bank and Virgin Money – for the 318 branches Royal Bank of Scotland is selling as a condition of its receipt of state aid.	27 Apr
UK	Royal Bank of Scotland	Sale of business unit	Canada’s largest card processor, Moneris Solutions, and private equity groups CVC, TPG Warburg Pincus and a joint venture involving Advent International and Bain Capital remain in the running for RBS’s Global Merchant Services unit. The division is expected to be sold for a sum in excess of £2.5bn ($3.8bn).	20 Apr
Ireland	Bank of Ireland	Sale of business units	Bank of Ireland is preparing its New Ireland Assurance life and pensions business unit, investments arm Bank of Ireland Asset Management and ICS Building Society – which has a mortgage loans book of about €7bn ($9.3bn) – to secure an agreement with European Union regulators over the terms of its bailout. According to the bank, the three business divisions comprise around €7bn of loans and €4bn of deposits.	16 Apr
Europe	GMAC, Fortress Investment Group	Sale of business unit	GMAC has agreed a deal to sell its $12bn European mortgage business to US-based hedge fund Fortress Investment Group. The deal includes around 40% of the assets of GMAC’s troubled mortgage finance unit Residential Capital. GMAC retains around $18bn of US-based mortgage assets that it is looking to sell.	12 Apr
Latvia	Parex Banka	Possible privatisation	Latvia’s government may sell part of nationalised lender Parex Banka according to a report by newswire Bloomberg. Nordea, DnB Nord, PKO Bank Polski, Alfa Bank and Raiffeisen have all been linked as potential bidders.	12 Apr
UK	Virgin Money, WL Ross	Stake acquisition	USbnaire Wilbur Ross has paid £100m ($153m) for a 21% stake in Virgin Money, the financial service unit of entrepreneur Richard Branson’s Virgin Group. In addition, Ross will invest up to a further £500m to support Virgin’s bid for the 318 branches being sold by Royal Bank of Scotland in the UK.	05 Apr
United Arab Emirates	Royal Bank of Scotland	Possible sale of business unit	Emirates NBD, Mashreq and Abu Dhabi Commercial Bank remain in the running to snap up Royal Bank of Scotland’s (RBS) retail operations in the United Arab Emirates (UAE). RBS is expected to retain its investment and private banking in the UAE.	25 Mar
The Americas
Brazil	UBS, Link Investimentos	Acquisition	UBS has agreed a deal to acquire Brazilian brokerage Link Investimentos for BRL195m ($112m).	29 Apr
US	Wheatland Bank	Bank failure	The closure of Illinois-based Wheatland Bank brought to 57 the number of bank failures in the US in the year to date. In 2009, 140 US banks failed following the collapse of 25 lenders in 2008. The two largest bank failures of 2010, La Jolla Bank of California and Riverside National Bank of Florida had $3.8bn and $3.4bn in assets respectively. According to the Federal Deposit Insurance Corporation (FDIC) chairman Sheila Bair, US bank failures in 2010 will “peak toward the end of this year” and fall below the FDIC’s earlier estimate of more than 140.	23 Apr
US	Bank of Montreal, Amcore	Acquisition	Bank of Montreal has acquired $2.5bn in assets and $2.1bn in deposits of US lender Amcore from the Federal Deposit Insurance Corporation. The deal also included 52 branches in Illinois and Wisconsin to be rebranded as Harris, boosting the existing 288-branch-strong network by almost one-fifth.	23 Apr
Argentina	Banco do Brasil, Banco Patagonia	Acquisition	Brazil’s largest public sector lender Banco do Brasil is to pay $479.6m to acquire a 51% stake in Argentina’s Banco Patagonia. Banco Patagonia has 750,000 customers and 154 branches across the country. Banco do Brasil said the deal would be followed by further international expansion and said it planned to acquire a US-based lender to target Brazilian and Latin American immigrants.	22 Apr
Brazil	Commerzbank	Strategy update	Commerzbank is eyeing up a possible sale of its Dresdner Brazil unit. Possible bidders are likely to include Canada’s Scotiabank and Royal Bank of Canada.	19 Apr
US	GMAC	Strategy update	GMAC has denied press reports it is struggling to sell the US assets of troubled mortgage unit Residential Capital.	14 Apr
Canada	Royal Bank of Canada	Strategy update	Royal Bank of Canada is reportedly looking to grow its asset management business outside Canada through acquisitions.	30 Mar
US	Hudson City Bancorp	Strategy update	New Jersey-based Hudson City Bancorp, one of the least affected lenders during the economic crisis, is eyeing up possible acquisitions in Florida. Hudson City had 131 branches at the end of 2009 based in New Jersey, New York and Connecticut. Last February, Hudson City chairman, president and CEO Ronald Hermance told RBI, “This is our year to shine,” (see RBI 607). In fiscal 2009, the bank reported net profits of $527.2m, up 18.3% on the previous year while first quarter earnings for fiscal 2010 of $148.9m were 16.6% ahead of the year-ago quarter.	30 Mar
US	Wells Fargo, GMAC	Purchase of business unit	Wells Fargo is to acquire the North American factoring business of a unit of GMAC. Financial terms of the deal were not disclosed.	30 Mar
Asia-Pacific
Thailand	TMB, ING	Possible stake sale	The Thai government’s finance ministry, owner of a 22.6% stake in the country’s sixth-largest bank by assets, TMB, is reportedly planning to dispose of its holding and will offer first refusal to ING. The Netherlands-based lender acquired an initial stake of 25.1% in TMB for around €460m ($613m) in late 2007 after the then loss-making Thai bank rejected a rival bid from Singapore’s DBS Group. ING subsequently raised its stake to 30% and retains a right to raise its holding to 35%. TMB’s current market capitalisation is around $2.3bn. But following a harsher than expected restructuring plan foisted on ING by the European Commission as a result of receiving state aid during the financial crisis, ING has said that its future retail banking ambitions will be focused on its core markets in Western Europe (see RBI 621).	29 Apr
Korea	KEB, HSBC, ANZ	Strategy update	HSBC has ruled itself out of the running for Lone Star’s 51% stake in Korea Exchange Bank, the nation’s fifth-largest lender, but ANZ has said it is eyeing up a possible bid. Attempts to sell the US private equity firm’s stake, currently worth around $4bn, to Kookmin and HSBC in 2006 and 2007, respectively, collapsed.	29 Apr
Thailand	Industrial and Commercial Bank of China, ACL Bank	Acquisition	Industrial and Commercial Bank of China has received regulatory approval for its $545m acquisition of Thailand’s ACL Bank, the first cross-border acquisition transaction conducted by a Chinese bank in Thailand.	22 Apr
Vietnam	Commonwealth Bank of Australia, Vietnam International Bank	Stake acquisition	Commonwealth Bank of Australia (CBA) is to acquire a 15% stake in Vietnam International Bank (VIB) and has the option to increase its shareholding to 20% by the end of 2011. VIB currently has 117 branches and 400,000 customers and had a market capitalisation of around $235m before announcing the CBA deal.	22 Apr
Australia	National Australia Bank, AXA Asia Pacific Holdings	Sale update	The Australian Competition and Consumer Commission has blocked National Australia Bank’s (NAB) $13bn bid for AXA Asia Pacific Holdings, having concluded that an NAB takeover would damage competition for retail customers.	19 Apr
China	Agricultural Bank of China	IPO update	The long-awaited IPO of Agricultural Bank of China remains on schedule for the third quarter, with analysts now forecasting that the proceeds may approach $30bn.	15 Apr
China	Sumitomo Mitsui Banking Corporation, Chinatrust Financial	Stake acquisition	Sumitomo Mitsui Banking is to invest around ¥7bn ($75m) to ¥8bn for a stake of around 1% in Chinatrust Financial, Taiwan’s largest private-sector lender. Chinatrust will use the proceeds from the sale of the shares to expand its presence in mainland China.	01 Apr
Japan	Credit Suisse	Strategy update	Credit Suisse is planning to significantly expand its Japanese operations according to local press reports, in particular its investment banking and asset management operations with a target of double-digit annual growth.	22 Mar
Source: RBI