Brazil watchdog to rule on HSBC unit sale seen key to dividend (updated)

Banco Bradesco

07/06/2016 17:43

(Adds Cade, Brazil central bank comments) 
    By Lawrence White and Guillermo Parra-Bernal 
    LONDON/SAO PAULO, June 7 (Reuters) - Brazil's antitrust 
watchdog Cade is due to reveal on Wednesday whether HSBC 
Holdings Plc  HSBA.L  can sell its Brazilian unit to Banco 
Bradesco SA, a decision with big implications for the British 
bank's Chief Executive Officer Stuart Gulliver and shareholders. 
    Gulliver is counting on the $5.2 billion sale of HSBC Bank 
Brasil Banco Múltiplo SA to boost HSBC's main capital ratio and 
ensure the bank remains the biggest dividend payer among 
European banks. Some analysts fear the bank may fail to maintain 
its payout if the unit's sale is delayed. 
 urn:newsml:reuters.com:*:nL5N17L1Y0 urn:newsml:reuters.com:*:nL1N10E1EJ urn:newsml:reuters.com:*:nL3N1800X0 
    "This deal is important because it adds 60 basis points to 
HSBC's capital strength which gets them to their target and 
means they can maintain the dividend in a weak year for 
earnings," said Ian Gordon, an analyst at Investec. 
    Brazil's central bank has already approved the deal, HSBC's 
biggest single asset sale since pledging to shrink its sprawling 
global business to cut costs and boost profits.  urn:newsml:reuters.com:*:nL1N14P1RG 
    Yet, watchdog Cade has clashed with the central bank in the 
past over their roles in supervising M&A in banking. Both said 
they have jurisdiction over the financial sector based on their 
interpretation of the law. The issue is currently being analyzed 
by Brazil's Supreme Federal Court. 
    Cade has been reviewing Bradesco's purchase since February 
and has so far failed to reach a consensus among its directors 
that competition will not be affected, a source familiar with 
the discussions told Reuters. The watchdog's scrutiny of the 
deal is taking place as Brazil wrestles with the impact of a 
harsh recession and a sweeping political crisis. 
    The source, who requested anonymity because of the 
sensitivity of the issue, said some Cade directors wanted 
Bradesco and HSBC to provide more detail on how customers will 
benefit from the combination. Cade has blocked at least four 
major non-financial industry tie-ups since Brazil's new 
antitrust law came into effect in 2012.  
    In finance, the regulator last month imposed restrictions on 
lender Itaú Unibanco Holding SA's  ITUB4.SA  joint venture with 
Mastercard Inc  MA.N , after a 233-day review into whether the 
deal would reduce competition in the credit card sector. 
    The source said some Cade directors believe the central bank 
favours deals that improve the financial strength of the banks 
being acquired at the expense of customers. 
    In a statement to Reuters, Brasilia-based Cade said that it 
will continue to analyze antitrust cases until a Supreme Court 
ruling determines otherwise and pledged to "dialogue with any 
agency regarding the construction of the best possible antitrust 
arrangement for the country." 
    In a separate statement, the central bank said banking and 
financial industry competition issues should remain exclusively 
within its jurisdiction. 
     
    STEADY DIVIDEND 
    Cade's board in April said it should grant approval for the 
deal, although the recommendation is not binding and is subject 
to approval by a separate Cade court.  urn:newsml:reuters.com:*:nL2N1770E0 
    The regulator also recommended the two banks agree on 
measures to minimise market concentration, in view of evidence 
of low competitiveness in Brazil's banking industry. 
    A spokeswoman for HSBC in London declined to comment. A 
Bradesco spokeswoman also declined to comment. 
    Shares of HSBC have fallen by nearly a third in the last 
five years, as restructuring costs and dwindling trading 
revenues have eaten into profits. Yet, steady dividend payouts,  
which are set to yield 8.6 percent this year, have lured 
investors into HSBC's stock. 
    Gulliver said in May the disposal would add just over half a 
percentage point to its key capital ratio, taking it from 11.9 
percent to 12.5 percent, the mid-point of HSBC's targeted range. 
    Fitch Ratings at the same time said the deal was crucial to 
HSBC being able to meet that goal for its capital levels, after 
retained earnings sank to their lowest levels since 2004.  urn:newsml:reuters.com:*:nFit958016 
 
 (Editing by Jane Merriman and Cynthia Osterman) 
 ((lawrence.white@thomsonreuters.com; +44 207 542 6137; Reuters 
Messaging: lawrence.white.thomsonreuters@reuters.net)) 
 
Keywords: HSBC BANK BRASIL M&A/BANCO BRADESCO