Standard Bank Cuts Brazil Unit in Emerging Market Pullback

Standard Bank Group Ltd. (SBK), Africa’s largest lender, is scaling back operations in Brazil as it dismantles a strategy to expand in emerging markets.

The Johannesburg-based lender is cutting costs in the country and will focus on Brazil-related work with Africa and China instead of building up a local banking business, spokesman Ross Linstrom said in an e-mailed response to questions.

Banco Standard de Investimentos SA, as the Brazilian unit is known, has $1.46 billion in assets in the country, according to central bank data. The lender first established an office in Sao Paulo in 1998 and boosted its presence to over 100 staff, according to Standard’s website. The Brazilian bank has been involved in structured finance, metals trading, commodity finance, foreign exchange transactions and derivatives trading.

“We have reduced the cost base in this entity and have simplified the business model in Brazil,” Linstrom said. “This simplified model should consume less capital and reducing our capital utilization over time will remain a key focus.”

In 2011, Standard began unwinding its expansion strategy in emerging markets and announced asset sales in Russia, Turkey and Argentina to raise cash for investment in Africa.

In December it completed the sale of 80 percent of its Argentine division for about $400 million to Industrial & Commercial Bank of China Ltd. ICBC, which owns 20 percent of Standard, is expanding in Latin America. It opened in Peru in November and received authorization to open a bank in Brazil a month later.

Declined Comment

Linstrom declined to comment on which units had been reduced and how many staff are now employed in Brazil. “No decision” had been taken to close the business, he said.

The bank announced in April it was naming Andrea Menezes as chief executive of the Brazilian unit, to replace Fernando Negri, who would move to a different position.

Closing the Brazilian operations wouldn’t be “ideal” for the lender or its investors, Greg Saffy, a Johannesburg-based banks analyst for RMB Morgan Stanley, said in an e-mailed response to questions today.

The bank’s first-half operating expenses for the six months through June climbed to 19.2 billion rand, from 16.3 billion a year earlier, outstripping the 15 percent rise in income from banking activities. Standard said in November it may be forced to cut as many as 135 jobs in its corporate and investment bank in London to reduce costs amid “challenging” economic conditions and increased regulation.

Banking in Brazil

“I doubt Standard will be cutting headcount further as it’s more about getting the right people into the right countries and I expect the headcount in Africa will be going up,” said Neville Chester, who helps oversee the equivalent of $42 billion at Coronation Fund Managers Ltd. (CML) in Cape Town including Standard Bank stock. “As a bank is a trust business, it’s incredibly important that they behave in all stakeholders’ interests in entering and exiting countries.”

The Brazilian government has cut taxes on payrolls, consumer goods and electricity, allowed the real to strengthen by 4 percent, the most among major currencies this year, and lowered the benchmark interest rate to 7.25 percent. With global banks under pressure to boost profit and pare costs, UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group AG have expanded in Brazil while lenders like the National Bank of Abu Dhabi say they also want to open offices in the country.

Standard is the worst-performing stock on the six-member FTSE/JSE Africa Banks Index (JBNKS) over the past 12 months after Absa Group Ltd. (ASA), having gained 5.9 percent compared with the index’s 13 percent increase. Today it dropped 1.6 percent to close at 115.25 rand in Johannesburg trading.

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Dale Crofts at dcrofts@bloomberg.net

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