Friday, 9 January 2009

Catching Up? Banco do Brasil Buys 49.99 Percent of Votorantim

Banco do Brasil SA, the government-controlled lender that lost top spot in the industry this year, will buy a 49.99 percent stake in Banco Votorantim SA (the lender owned by the Ermirio de Moraes family) for less than $2 billion, according to a statement to Brazil’s securities regulator. The one on the right-hand side, last line is Banco do Brasil CEO Antonio de Lima Neto. President Lula can't be seen -- he was busy pinching the ass of Lima Neto's horse!

This is with no doubt the front-page news of the day in the Latin American financial markets. But, why the Ermirio de Moraes family sold for so little? I ask this because I want to know!

We had said it might be unlikely .. but there you go. The surprising of all is the amount -- too small. Rumours of more consolidation are all around the marketplace: We heard that Bradesco may offer to purchase Parana Banco or BicBanco (two mid-sized banks specialised in consumer lending.) Bradesco also lost top spot in private bank rankings this year after the announced purchase of Unibanco by Itau. Shares of Parana Banco and BicBanco surged yesterday ... uhhmmm ... We'll see.

Check on the following links for more information on the transaction: O Estado de S. Paulo (link) -- emphasis on the core news -- boring report; Valor Econômico (link) -- emphasis on the value of the transaction, which to me is the reason to wonder why this happened; Folha de S. Paulo (link) -- emphasis on the length of negotiations, signaling that BB is struggling to find better and bigger acquisition targets. Bloomberg take is ... no surprise, late! And Reuters (link here) ... committed the same mistake Bloomie did: both newswires reported a 50 percent stake (that can´t be true otherwise the state would own exact half of Votorantim.)

1 comment:

  1. More Brazilian state-capitalism at work. In this country you don't build a fortune, you find caudillo, join his party, and when he gets elected with lots of votes, hope Brazil's loopy proportional system awards some to you. Once in congress you get to push Banco do Brasil, Caixa Economica Federal, Petrobras, Eletrobras and even state-coddle monopolies such as Tam and Vale around to send money, jobs, graft your way. I'm not saying free market capitalism is free of corruption, but at least most free market democracies make some serious or semi-serious effort to regulate. Here the regulator and the regulated are one and the same.

    As for the low price, well my dear Memo, what's the surprise. The bank is probably broke or has a lot of dicy assets on its books. Yes there are limits, 25 pecent I think, of the amount of assets that a bank like Votorantim can put in their own companies. Brazil to its credit did learn something from the fiasco of Banco Nacional. But the industries that Votorantim's Industrial units operate in, aluminum, mining, celulose, have all taken a hit because of the world economic slowdown.
    There may also have been huge room for Votorantim to weasel out of the self lending limits. Votorantim has been involved in joint ventures with Bradesco to buy or own utilities. A special purpose company here, a joint venture there, some easy capital from your partner there and bingo you leverage yourself past the limits, perhaps legally, and under the radar.
    I also have no flippin' idea what kind of positions the bank had in the dollar, interest rate futures, commodities hedging and speculation, or stock and bond markets, all of which, in a bank full of feuding family fiefdoms, may have been less than prudent. The old man Moraes has lots of offspring and if they are like many other rich-as-Croesus Brazilian families, have little of daddy, or grandaddy's guile, intelligence, will-power, or political allies and will find themselves a poor and forgotten clan within a couple of generations.
    Well, that's my take anyway.