Banco Bradesco SA agreed to buy HSBC Holdings Plc’s money-losing Brazil unit for $5.2 billion in cash, its biggest acquisition ever and more than some analysts had estimated. Bradesco’s shares slumped.
With the purchase, Bradesco’s assets will increase by about 16 percent to 1.19 trillion reais ($345 billion), the Osasco, Brazil-based lender said in a statement Monday. Itau Unibanco Holding SA and Banco Santander Brasil SA had also offered to buy the HSBC business.
HSBC put the unit up for sale after it lost 549.1 million reais last year and the London-based bank embarked on a plan to cut annual costs by as much as $5 billion. Bradesco will add about 850 branches with the purchase, which was set to fetch about $4 billion, people with knowledge of the deal said in May.
The purchase price, which values the unit at about 1.8 times tangible book value, is “much higher than market expectations,” Sanford C. Bernstein Ltd. analysts led by Chirantan Barua wrote in a note Monday.
Bradesco tumbled 3 percent to 26.46 reais at 11:40 a.m. in Sao Paulo, compared with a 0.8 percent gain for Santander Brasil and a 1.1 drop for Itau.
The deal will increase the lender’s geographic reach in Brazil and help it expand in insurance, credit cards and asset management, the company said.
The transaction requires regulatory approval. Bradesco said its common equity Tier 1 capital ratio, a measure of financial strength, will drop 2.8 percentage points to 10 percent with the acquisition. Bradesco said it will have 16 percent of total assets in Brazil after Banco do Brasil SA, which has 19.2 percent, and Itau with a 16.2 percent share.
Bradesco expects a “rapid integration with HSBC unit once regulators approve the transaction,” Chief Executive Officer Luiz Carlos Trabuco Cappi told journalists on a conference call. The bank won’t need to issue new shares to finance the acquisition and won’t change its payout policy, he said.
HSBC, which has operated in Brazil since 1997, has about 20,000 employees in the country and is the nation’s sixth-largest retail bank. The firm will ask the central bank for a new banking license to operate in the wholesale market in Brazil, local CEO Andre Brandao said on the conference call.
Bradesco was advised by its investment-banking unit, JPMorgan Chase & Co. and Rothschild.