Banco do Brasil Advances After Plan for Insurance IPO

Banco do Brasil SA, Latin America’s biggest bank by assets, rose 1.8 percent in Sao Paulo trading after saying it may create an insurance unit that sells shares by next year.

Banco do Brasil advanced to 21.88 reais at the close, after reaching 22.36 earlier today. The benchmark Bovespa index fell 1.5 percent.

The new division, BB Seguridade SA, would be listed on BM&FBovespa SA’s Novo Mercado exchange, and the offering would include primary and secondary shares, Banco do Brasil said today in a regulatory filing. Federally controlled Banco do Brasil and Caixa Economica Federal have been lending more and lowering borrowing costs after Brazil President Dilma Rousseff urged banks to cut profits to “civilized” levels.

“This is a way to inject capital into the bank, which was very aggressive in terms of lending after the recent government push,” Pedro Galdi, an analyst at SLW CVC Ltda in Sao Paulo, said in an interview today. “A capitalization fits well as it helps the bank to be even more aggressive on credit concessions.”

Banco do Brasil increased its book of loans 21 percent in the third quarter from a year earlier, compared with 9.3 percent for Sao Paulo-based Itau Unibanco Holding SA and 12 percent for Banco Bradesco SA.

Consolidating insurance businesses into a single company would help lower costs, according to the filing. BB Seguridade would control Banco do Brasil’s two insurance joint ventures with Madrid-based Mapfre SA. The lender said it plans to expand into dental- and health-insurance brokerages as well.

Disclosure Rules

The sale may occur in the first half of next year depending on studies the bank is conducting and on market conditions, which will also determine the size of the offering, said Alexandre Abreu, vice president of the company’s retail business. The bank will maintain a controlling stake in the Seguridade division, he said.

“The IPO may help make clear the hidden value of the insurance businesses,” Abreu said in a telephone interview. “An offering will also help to capitalize the insurance unit without taking resources from Banco do Brasil.”

The insurance businesses posted net income of 937.2 million reais ($450 million) in the nine months through September, or about 11 percent of consolidated profit, according to the bank’s Nov. 8 financial statement.

Novo Mercado has stricter requirements for disclosure and minority shareholders’ rights, and requires companies to have at least 25 percent of their shares traded publicly.

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