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Portugal’s BES Doubles Brazil Profit Share Amid Europe Crisis

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Jan. 24 (Bloomberg) -- Banco Espirito Santo SA, Portugal’s biggest bank by market value, said profit from Brazil doubled as a percent of the total for the first nine months of last year, helping to ease the decline in earnings from Europe caused by the region’s debt crisis.

Brazil contributed more than 13 percent of Banco Espirito Santo’s 137.8 million euros ($179.5 million) in profit through the third quarter of last year, Ricardo Espirito Santo, president of Banco Espirito Santo Investimento do Brasil SA, said in an interview in Sao Paulo. Brazil’s profits were 6.3 percent of the total as of Dec. 31, 2010, he said.

Most of the Brazilian earnings came from merger-and-acquisition advisory work, project finance, local capital-markets business and proprietary trading, Espirito Santo said. The bank advised drugstore chain Drogarias Pacheco SA in its acquisition last year of Drogaria Sao Paulo SA and helped Bunge Ltd. in the purchase of three tomato-product brands from Hypermarcas SA in December.

“Brazil has been a very positive bet for us,” said Espirito Santo, who is a member of Banco Espirito Santo’s controlling shareholder family in Portugal and the grandson of the Lisbon-based bank’s founder, Jose Maria do Espirito Santo e Silva. “The bank’s results in Portugal were not brilliant, and here in Brazil we managed to maintain our profits in 2011 at about the same level they were the year before.”

Bad Loans

Banco Espirito Santo’s global profits dropped 66 percent in the first nine months of 2011 compared with the same period of 2010 as provisions for bad loans increased 88 percent. In Brazil, profits were 71 million reais ($40.5 million) in 2010, Espirito Santo said, adding that full-year 2011 results, which haven’t yet been announced, would be about the same.

The company plans to continue investing in wealth management and commodities futures in Brazil, according to Espirito Santo.

“With only two years of activity, our asset-management business here already has 1 billion reais under management,” he said. The plan is to hire 20 people, an increase of about 10 percent, after no boost in the workforce in 2011.

Capital markets are also a priority, he said. Last year, Banco Espirito Santo brought Miguel Guiomar, the Portuguese managing director responsible for international capital markets, to Brazil after the departure of Marcio Pepino, the former capital-markets director.

“Miguel is still responsible for the rest of the world’s capital-markets area, but he stays here because Brazil is where the activity is,” Espirito Santo said.

‘Drop’ in Ocean

Still, Brazil can’t solve all of the company’s problems, Espirito Santo said, because earnings represent a “drop in the ocean” for a bank with 5 billion euros in equity.

“I help Portugal, I generate dividends, but our activity here needs capital,” he said. “If we had the availability, we would put more capital in Brazil.” Banco Espirito Santo de Investimento has capital of 508 million reais, an increase from about 468 million reais in 2010.

Banco Espirito Santo sold international loans, including for Brazilian companies, and also sold its stake in Brazil’s Banco Bradesco SA last year for about $1 billion to raise funds. Portugal’s financial crisis has made access to wholesale funding more difficult for banks based in the country. Portugal sought a bailout from the European Union in April.

“We have sold 3 billion euros in credit assets for the deleveraging we need, and we even sold some loans from Brazilian companies that were on our books, but without losing money,” Espirito Santo said. “We made that before this crisis and before the French banks had to do the same thing,” he said.

Bradesco Shares

Banco Espirito Santo kept a little more than 1 percent of Bradesco voting shares and Ricardo Espirito Santo is still a member of the board of the Brazilian bank, he said.

“We had to sell Bradesco shares because in more difficult situations you have to give up the rings to not lose the fingers,” he said.

The bank still has a partnership with Bradesco in Brazil in a private-equity fund, called 2bCapital, he said. Bradesco has a 50 percent stake in Europ Assistance in Brazil, in which Banco Espirito Santo has a 24 percent stake. Bradesco has 20 percent of Banco Espirito Santo Investimento do Brasil and a 5 percent stake in Banco Espirito Santo SA, according to Espirito Santo.

The bank’s strategy will be to advise buyers of assets the Portuguese government is selling to meet its fiscal goals, and to keep expanding abroad, including opening a branch of the commercial bank in Caracas and a unit of the investment bank in Hong Kong, he said.

Three Gorges

Banco Espirito Santo advised China Three Gorges Corp. in the buying of a 2.7 billion euro stake in Energias de Portugal SA, and last year got a $300 million loan from China Development Bank.

“In the past nobody would care for a $300 million loan,” Espirito Santo said. “But now, the way the world is, to get this money for three years without guarantees, for sure it is relevant to us.”

Banco Espirito Santo said earlier this month that it sold 1 billion euros of three-year debt guaranteed by the Portuguese state.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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