A wave of mergers and acquisitions activity has taken place in
Brazil in the past six months and now Bradesco has joined in,
snapping up rival card issuer Banco ibi as it looks to grow its
cards portfolio. The deal is the bank’s first since losing its
crown as the country’s largest private sector bank. Douglas Blakey
reports.
Bradesco, Brazil’s second-largest private sector lender, is to
acquire consumer finance-focused rival Banco ibi for BRL1.4 billion
($717.9 million) from Swiss-based clothing retailer C&A. The
bank is funding the deal with its own stock, representing
approximately 1.6 percent of its capital.
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The agreement, which also includes ibi’s
insurance brokerage, gives Bradesco a 20-year distribution
partnership to offer its products and services to C&A’s
customers across a 303-store network in Brazil.
But it is the ibi card portfolio which
particularly appealed to Bradesco, at a stroke almost doubling its
card portfolio. At the end of last year, Bradesco had 13.3 million
private-label cards and 22 million branded cards in issue while ibi
had 20.8 million and 9.8 million, respectively (see table
below).
In 2008, Bradesco’s card unit reported revenue
of BRL46.6 billion, while ibi posted revenue of BRL9.9 billion.
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By GlobalDataFirst deal from Bradesco
The purchase represents Bradesco’s
first acquisition since it lost its place as Brazil’s biggest
private sector bank when Banco Itaú and Unibanco merged in November
last year, a deal which, as RBI forecast at the time,
started a new round of consolidation in the country (see RBI
602).
Together, Itaú Unibanco will have an estimated
36 percent share of the total revenues of Brazil’s credit card
business.
Also in November, government-controlled Banco
do Brasil agreed a BRL5.39 billion deal to acquire Sao Paulo
state-owned Nossa Caixa, while in January Banco do Brasil agreed to
take a 50 percent stake in rival player Banco Votorantim for around
BRL4.2 billion. The bank says that the two deals will bring its
total assets up to BRL611 billion, deposits to BRL315 billion,
checking accounts to 56 million and branches to 5,018.
In February, US banking group Citi, looking
for cash to support it capital base, agreed to sell a 17 percent
stake in card processor and acquirer Redecard for about BRL 2.73
billion to a group of investors that included Itaú Unibanco.
Spending on cards up 24%
Total card numbers and transaction
volumes have skyrocketed in Brazil in recent years. Spending on
plastic cards in 2008 amounted to BRL388.7 billion, up 24 percent
compared to 2007. Most of the growth came from credit cards, which
accounted for BRL223.5 billion of spending, an increase of 22
percent compared to the previous year.
The continued growth in merchant-issued
private-label card numbers – a product Brazilian consumers in
Brazil, particularly those on low-income customers, are familiar
and comfortable with – was another driver of Bradesco’s deal to
snap up ibi.
The emergence of retailer cards, such as the
ibi card unit, has also helped to shape another characteristic of
the Brazilian payment market – the usage of instalment loans,
whereby consumers can make a large-value purchase on a card and
split the cost over several monthly instalment payments.
According to a recent report in RBI’s
sister publication Cards International, half of all credit
card purchases in Brazil are made with instalments, with the
average number of instalments falling to around four from eight
since the onset of the current economic downturn.
Potential for growth remains
strong
Alberto Borges Matias, an expert in
the banking sector at INEPAaD, a business school in Ribeirão Preto,
told RBI in March that the total volume of loans still
stands at 42 percent of Brazilian GDP, a fraction of the ratios in
developed countries. In some segments the potential for growth
remains strong, he said: consumer finance amounts to 12.5 percent
of GDP; mortgage loans, 5 percent.
In its 2008 annual report, Bradesco said it
would put extra focus on its credit card portfolio, as well as
targeting pensions and insurance revenue growth, as it looks to
increase its cross-sell ratio from 4.7 products per checking
account customer to 5.0 by the end of 2009 (see Brazil country
survey, RBI 609).
|
Combined |
|||
|
Bradesco, ibi – cards portfolios, |
|||
|
Bradesco |
ibi |
Bradesco + ibi |
|
|
Private label cards (m) |
13.3 |
20.8 |
34.1 |
|
Branded cards (m) |
22 |
9.8 |
31.8 |
|
Total revenue (BRLbn)(1) |
46.6 |
9.9 |
56.5 |
|
(1) private label cards and branded cards |
|||
|
Country snapshot |
|||
|
Brazil – payment card |
|||
|
2008 |
2007 |
% chg y-o-y |
|
|
Number of credit cards (m) |
124 |
104 |
19 |
|
Value of transactions (BRLbn) |
223.5 |
183.2 |
22 |
|
Number of debit cards (m) |
217 |
201 |
8 |
|
Value of transactions (BRLbn) |
112.3 |
84.9 |
32 |
|
Number of retailer cards (m) |
173 |
147 |
18 |
|
Value of transactions (BRLbn) |
53 |
45.2 |
17 |
|
Source: Cards International |
|||
