First of all Bank of America, the US’s second largest bank, agreed to exchange its BostonBank operations in Brazil for a $2.2bn stake in Banco Itaú, Brazil’s top bank by Tier 1 capital.
The deal cements Bank of America’s presence in Brazil and offers growth opportunities outside the US market.
Then Swiss UBS announced its plans to acquire Brazilian investment bank Banco Pactual for up to $2.5bn. Banco Pactual’s business will be integrated into the investment banking, wealth management and asset management businesses of UBS.
Heads of UBS’s Latin American operations have already been appointed, including members of both the Brazilian and the Swiss banks’ existing management. The transaction is expected to close in the third quarter of this year.
The two deals highlight the growing appeal of the Brazilian financial market and its importance in banks’ expansion strategies. Lower inflation has brought a drop in interest rates, which is stimulating demand for loans. Analysts believe inflation will remain below the yearly target and further interest rates cuts are expected.
Brazil’s appeal is not restricted to retail and wholesale banking but also includes structured finance and derivatives. France’s BNP Paribas, also present in the region, reportedly believes that the derivatives market in Brazil is growing at an impressive 20% a year, together with the derivatives markets of Russia and China.
Both Bank of America’s and UBS’s main domestic competitors have consolidated a strong presence in Brazil and Latin America, attracted by their improving regulatory environments and growing economies.
New York-based Citigroup gained the lead in Mexico when it acquired commercial bank Banamex in 2001, while Credit Suisse has developed a presence in Brazil since the late 1990s with the acquisition of investment banking group Garantia.
Wachovia, the US’s fourth-largest bank, has agreed to buy Golden West Financial for a proposed $26bn. The acquisition will give Wachovia $62bn in deposits and 285 branches, including more than 120 in California. Run by husband and wife Herbert and Marion Sandler, Golden West Financial has been one of the best performing US companies in the past 40 years.
Greece’s EFG Eurobank announced the acquisition of 70% of Tekfenbank for about $260m. EFG Eurobank is controlled by the Switzerland-based Latsis family and is the second bank to announce an acquisition in Turkey following National Bank of Greece’s agreement last month to take over Finansbank.
Santander, Spain’s largest bank, has started negotiations with UK-based life assurance company Resolution to sell the life assurance assets of its UK-based subsidiary Abbey for about £3.68bn ($6.97bn). The operations to be sold to Resolution reportedly include Abbey National Life, Scottish Mutual and Scottish Provident. The deal would bring Resolution’s assets under management to £67bn. Resolution was formed last year following the merger of Resolution Life Group and Britannic Group for £70m.
CINA REGULATIONS
China Banking Regulatory Commission has raised the bar for its big state banks, demanding that all five maintain bad debt ratios below a 5% threshold. The banks will also have to keep their capital adequacy ratios to at least 8%. These ratios will have to be part of each bank’s individual restructuring plans. The requirements, previously only applied to the Bank of China and China Construction Bank, are now extended to Industrial and Commercial Bank of China, Agricultural Bank of China and the Bank of Communications.
Shenzhen City Commercial Bank reportedly decided to sell a 60% stake to a consortium comprising international investors for about $500m. The proceeds will strengthen the Chinese bank’s balance sheet and reduce bad loans.
Spain’s BBVA is to establish a presence in South Korea through a representative offering. BBVA plans to sell commercial management services and support Spanish companies expanding in the country.
Japan’s financial regulators have banned Sumitomo Mitsui Banking Corporation from selling derivatives for six months. SMBC was found to have forced corporate borrowers to buy financial products in violation of the Anti-monopoly Law. The Financial Services Agency has also barred it from opening new marketing outlets for corporate clients for one year. Both bans took effect from 15 May.
SAUDI FINANCE DISTRICT
Saudi Arabia has announced plans for the King Abdullah Financial District (KAFD) in Riyadh. Four times the size of London’s Canary Wharf, with 3 million square metres of office space, the KAFD aims to become an international financial centre, hosting the Saudi stock exchange. Construction is due to start in 2007 with completion in three years.
Scotiabank of Canada is reportedly looking to buy a stake in China’s Shenzhen Commercial Bank. Scotiabank already has a combined 25% stake with the International Finance Corporation in Xian City Commercial Bank and is also reportedly in discussions to buy part of Dalian City Commercial Bank.
