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.)

Brazil Inflation Rate Rose Most in Four Years Last Year -- Implications of This ...

Inflation in Brazil quickened to 5.9 percent in 2008 (it could have turned worse unless oil and commodities dropped in the last quarter of the year.) The IPCA index had its highest annual readings since 2004 -- 7.6 percent. The number remained within the central bank's tolerance target range of 4.5 percent plus/minus 2 percentage points. (Click here for the complete report on inflation released by the Brazilian stats institute, IBGE.)

Interest rate futures fell for a second day in Brazil, indicating that investors are betting that reduction in the Selic will come quicker than expected. The contract for the start of the year dropped to 11.81 percent. The number was, therefore, benign. With the Selic currently at 13.75 percent, the most likely scenario for the rate is a reduction of 50 basis points: strength in the job markets is somehow losing it, manufacturing is losing momentum, the president will somehow lose support at some point ... the reasons are many. Now, will it be possible that prices resume their upward trend? No at this point.

So, you might be thinking of a recessive scenario, right? Yes. Bonds, up. Stocks? Wait a little longer until the release of fourth-quarter earning results.

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Earlybird (Jan. 09, 2008)

News headlines for Jan. 9:

  • U.S. -- Labour Market Data Points to Deepening of Recession; Result May Spark Losses in Markets (Reuters): U.S. employers probably cut the most jobs in at least 34 years last month, according to a Reuters survey. The non-farm payrolls report for December, due later today, may show that 2008 produced the biggest job losses since WWII. Investors in Asia cautiously dumped shares and snapped government bonds -- mainly due to mounting concerns over the data results.
  • COLOMBIA -- Isagen Desperately Seeks for Investors for Dam Project (Portafolio): This is one of the many reasons why a country needs to have a development bank (obviously exempt from the typical vices of cronism and bureaucracy.) Colombian infrastructure projects might face a deart of funding unless there is an instance such as a lender of last resort. that secures money for companies participating in them. In that sense, the Brazilian BNDES, in spite of all its capital sins, is helping the government fund ongoing and future projects as private financing disappears.
  • COLOMBIA -- Government, Private TV Channels Reach Accord on License Extension (Tiempo) -- After days of legal uncertainty, the National TV Commission and the owners of two private channels agreed upon basic terms to extend the current concession for another 10 years. Along the entire process, the government position coundln't have been more detrimental to the most basic principles of business stability. Remember that, no matter the political orientation of any president, whether he/she comes from the right or the left, their real commitment to the country is to respect the rules of the game and ensure employment and judicial security to citizens. Uribe, whose platform is to reinforce security and encourage investment, had a slippage in this issue.
  • MARKETS -- Hedge Funds Posted Record Loss in 2008 (Bloomberg): Rich customers must be fumming. Hedge funds lost more than 18 percent last year. Investment losses and client withdrawals reduced industry assets to $1.1 trillion last month from its peak of $1.9 trillion in June.
  • BRAZIL -- Labour Minister Wants to Extend Job Stability in Layoff Cases (Estado): This is what you get from naming union leaders as cabinet ministers. The labour rights issue has become worthy of discussion in Brazil, and the sooner, the better. What the country needs is labour flexibilisation, not the opposite -- which is what politicians want. In the end Lupi is trying to do anything he can to prevent joblessness numbers from looking awful just as the electoral cycle (2010 election) is beginning to take shape.
  • BRAZIL -- Dollar Outflows in 2008 Was Biggest in 26 Years (Folha): Brazil's external accounts posted a deficit for the first time since 2002. But the dollar shortages seem to be easing at this point. The situation, some strategists say, will revert slowly during the first quarter.
  • ARGENTINA -- Real Estate Activity Declines 23 Percent in November (Nacion): Another indication that Argentina, as much as the presidential couple wanted to deny, is also suffering the imapct of the global crisis. The problem, I believe, is not that the number of real estate transactions drop, but that the value of homes tumble. Once the crisis translates into lower home values, then another means of savings is lost.
  • BRAZIL -- Petrobras to Tap Bond Markets Within Days (Bloomberg): I disagree. But it may be possible that they do. I think they will try first with loans, although the recent sale of bonds by the sovereign opened them space to raise funds in international bond markets.
  • MARKETS -- Morgan Stanley Recommends Yuan, Won, Peso Against Dollar (Bloomberg): Morgan Stanley recommended buying the Chinese yuan, the South Korean won and the Mexican peso as an easing in the global shortage of dollars causes the U.S. currency to weaken.
  • VENEZUELA -- Devaluation Won't Be Ruled Out, Says Finance Minister (Bloomberg): As the government refuses to slow fiscal spending, a devaluation is inevitable. The timing is the real question. Bets are open.