HSBC Deal Drags Down Bradesco as Ibovespa Leads World Declines

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Banco Bradesco SA’s plan to pay $5.2 billion for HSBC Holdings Plc’s money-losing Brazil unit sent its shares tumbling to a two-month low, propelling the Ibovespa to the biggest decline in the world.

“It was an expensive deal, especially because we don’t know yet how Bradesco will really benefit from it,” Luis Gustavo Pereira, an analyst at brokerage firm Guide Investimentos, said by phone from Sao Paulo. “That’s another turnoff for investors at a time when the Brazilian economy is already going from bad to worse.”

The Ibovespa extended a plunge from this year’s peak in May to 14 percent as economists surveyed by the central bank predicted an even bigger recession for 2015 amid a widening corruption probe into the state-run oil company. Latin America’s second-biggest bank by market value contributed the most to the slide after agreeing to acquire HSBC’s business for 1.8 times its tangible book value, according to Sanford C Bernstein.

The equity benchmark retreated 1.4 percent to 50,138.05 at the close of trading in Sao Paulo. Bradesco fell 3.1 percent. The real led losses among global major currencies.

The MSCI Brazil Index sank to the lowest since 2008 as banks and energy companies slumped at least 2.2 percent. Still, the measure is trading at 20.2 times earnings, or 59 percent above the valuation for emerging-market shares, according to data compiled by Bloomberg.

Economic Forecasts

Financial companies in the MSCI gauge have plunged 26 percent this year amid speculation that President Dilma Rousseff’s decision to boost taxes on the industry’s profits will erode earnings. The rout has accelerated on concern borrowing costs will climb should Brazil lose its investment-grade status as the government struggles to shore up the budget amid forecasts for the worst recession in 25 years.

Latin America’s largest economy will show a contraction of 1.8 percent this year, according to a central bank survey with analysts published Monday. Policy makers have lifted interest rates for seven straight times as above-target inflation slows down consumer purchases.

While the economic woes intensify, Brazilian police expanded their investigation into the nation’s largest-ever corruption scandal. Jose Dirceu, who served as chief of staff under former President Luiz Inacio Lula da Silva, was arrested amid allegations he helped put into place a system of kickbacks at oil producer Petroleo Brasileiro SA. Standard & Poor’s cited “political uncertainties” among reasons for cutting Brazil’s credit outlook to negative last week.

‘Even Worse’

“This year is already lost, and to make things even worse, the corruption investigation is causing more volatility,” Alvaro Bandeira, an economist at Banco Modal, said in a phone interview from Rio de Janeiro.

Petrobras slumped 4.6 percent, also following a slide in commodities amid speculation that demand from China will weaken further. A gauge of consumer shares sank to the lowest level since 2009, led by clothing retailer Lojas Renner SA.

Planemaker Embraer SA, which gets most of its revenue from exports, rose as the real sank to a 12-year low.

Trading volume of equities in Sao Paulo was 5.37 billion reais ($1.55 billion), according to data compiled by Bloomberg. That compares with a daily average of 6.71 billion reais this year, exchange data show.

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