Itau in Wage Fight as Rousseff Targets Brazil Bank Profit

Itau in Wage Fight as Rousseff Targets Profits: Corporate Brazil
Workers at Itau Unibanco Holding SA and Banco Bradesco SA , Brazil’s biggest banks by market value, are preparing for the longest strike in almost a decade as lenders rebuff demands for raises twice the rate of inflation. Photographer: Andrew Harrer/Bloomberg News

Workers at Itau Unibanco Holding SA and Banco Bradesco SA, Brazil’s biggest banks by market value, are preparing for the longest strike in almost a decade as lenders rebuff demands for raises twice the rate of inflation.

Bank workers nationwide walked off their jobs yesterday after the banking federation rejected a request for a 10.25 percent salary increase, offering instead 6 percent. Inflation was 5.24 percent through August.

The wage battle, which shut banks for three weeks in 2011, may last even longer this year as lenders seek to contain expenses amid pressure from President Dilma Rousseff to cut consumer loan rates. Record-low unemployment and rising profit at banks are bolstering union demands for pay increases that top inflation.

“The strike this year will be tougher than last year,” said Juvandia Moreira, president of the union representing bank workers in the Sao Paulo metropolitan area. “Banks are offering us much less than the average pay raise that workers were granted” in other industries.

Itau rose 1 percent to 34.01 reais ($16.80) in Sao Paulo at 11:45 a.m. and Bradesco advanced 0.8 percent to 35.70 reais. The Bovespa benchmark index gained 1 percent. Itau fell 0.9 percent this year before today, compared with a 15 percent gain for Bradesco and an 8.9 percent increase in the Bovespa index.

‘Won’t Rest’

Bradesco, based in Osasco, declined to comment, according to an e-mailed statement. Itau, based in Sao Paulo, didn’t return e-mails and a phone call for comment.

Rousseff is pushing lenders to lower loan costs for consumers after the central bank reduced the benchmark interest rate by 5 percentage points since August 2011, the most of any Group of 20 nation. She used a Sept. 6 Independence Day speech to step up her criticism of the banks, saying they’re making too much money.

“Banks, lenders and especially credit cards can cut rates charged to the final consumer even more, reducing their profits to civil levels,” Rousseff said. “I won’t rest until I see that happen.”

Itau’s second-quarter profit excluding extraordinary items rose 8.1 percent from a year earlier to 3.6 billion reais. Bradesco posted a profit of 2.87 billion reais, up 1.5 percent.

Banks probably won’t raise their proposal much higher because their return on equity is falling as the government pushes for lower spreads, Karina Freitas, an analyst at brokerage Concordia Corretora in Sao Paulo, said in a telephone interview.

Declining Returns

Return on equity for Itau fell to 18 percent at the end of the second quarter from 21 percent a year earlier, according to data compiled by Bloomberg. Bradesco’s return dropped to 19 percent from 23 percent.

Fenaban, the nation’s banking association, has faith that banks and workers will reach an agreement, said Magnus Apostolico, the group’s director of labor relations. Clients can still use ATM machines, internet and mobile banking services during the strike.

“We made an initial proposal that was an improvement relative to the previous years, so we believe an agreement can be reached very fast,” Apostolico said in a telephone interview. “We continue to ask them to show us where they think our proposal can be improved so the banks can work on it.”

Bank workers have gone on strike every year for the past eight, and 2011’s work stoppage shut branches for 21 days, the most since a 30-day stoppage in 2004. Last year, bank workers won a 9 percent raise.

Outpacing Inflation

In the first half of this year, 97 percent of employees covered by collective-bargaining agreements won pay raises that outpaced consumer-price increases, the most since at least 1996, according to a survey published last month by Dieese, a trade union research institute.

The labor dispute probably won’t affect banking shares, Fausto Gouveia, who helps manage 380 million reais at Legan Administracao de Recursos in Sao Paulo. Investors are already factoring in any impact on operations because strikes in Brazil are so widespread, he said.

Interest rates on consumer loans have fallen to the lowest in five years relative to what banks pay on savings and deposits. The difference, or spread, between deposit and lending rates narrowed to 23 percent in July from 28 percent in February, according to the central bank.

“It’s impossible to reach an accord with what the banks have so far put on the table,” said Clemente Ganz Lucio, Dieese’s technical director. “A real wage increase of half a percent is very low for a sector that has such high profits.”

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