HSBC sweats over getting green light for Brazil deal

Banco Bradesco

07/06/2016 15:16

By Lawrence White and Guillermo Parra-Bernal 
    LONDON/SAO PAULO, June 7 (Reuters) - Brazil's competition 
watchdog is due to reveal on Wednesday whether HSBC  HSBA.L  can 
sell its Brazilian business to Banco Bradesco, a decision with 
big implications for the British bank's Chief Executive Stuart 
Gulliver and its shareholders. 
    Gulliver is relying on the $5.2 billion sale of HSBC Bank 
Brasil to boost HSBC's main capital ratio and ensure the bank 
can keep its status as the biggest dividend payer in European 
banking.  urn:newsml:reuters.com:*:nL1N10E1EJ  urn:newsml:reuters.com:*:nL3N1800X0 
    Some analysts fear the bank could find it harder to maintain 
that payout, if the sale of its Brazilian division is delayed. 
 urn:newsml:reuters.com:*:nL5N17L1Y0 
    "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," Ian Gordon, analyst at Investec, said. 
    Brazil's central bank has already approved the deal, which 
is 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 
    But the antitrust 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. 
    Cade has been reviewing Bradesco's purchase since February 
and has so far failed to reach a consensus that competition will 
not be affected, a source familiar with the discussions told 
Reuters. 
    The watchdog's scrutiny of the deal is taking place while 
Brazil is in the grip of a political crisis and its economy has 
suffered its worst economic contraction since 1990. 
    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 deals outside the 
financial sector since Brazil's new competition law came into 
effect in 2012.  
    In finance, the regulator last month imposed restrictions on 
lender Itau Unibanco's  ITUPU.UL  joint venture with 
Mastercard MA.N , after a 233 day review into whether the deal 
would reduce competition in the credit card sector, according to 
information on Cade's website. 
    The source, who has knowledge of the discussions, 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. 
    Brazil's central bank and Cade did not respond to requests 
for comment. 
    Cade's board in April said it should grant approval for the 
deal, but 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. 
    HSBC's shares have fallen by nearly a third in the last 5 
years, as restructuring costs and dwindling trading revenues 
have eaten into profits. But the bank's steady dividend payout 
has remained an attraction for investors. HSBC's shares are set 
to yield 8.6 percent in dividends this year. 
    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, inside the 12-13 percent range targeted 
by the bank. 
    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 Sinead Cruise and Jane Merriman) 
 ((lawrence.white@thomsonreuters.com; +44 207 542 6137; Reuters 
Messaging: lawrence.white.thomsonreuters@reuters.net)) 
 
Keywords: HSBC BANK BRASIL M&A/BRADESCO