- The Washington Times - Monday, January 13, 2003

RIO DE JANEIRO, Brazil, Jan. 13 (UPI) — Banco Bilbao Vizcaya Argentaria, Spain's second-largest bank, abandoned its push in Latin America's biggest economy Monday, opting to sell its Brazilian subsidiary to Bradesco, Brazil's largest private bank.

BBVA will sell its Brazilian affiliate BBV Banco — Brazil's 14th-largest retail bank — for about $606 million in cash plus a 4.5 percent stake in Bradesco, BBVA said in a statement.

That amounts to about 1.1 times book value.

"We see the acquisition as positive for Bradesco, given the attractive valuation paid for BBV," the Rio de Janeiro-based investment bank Pactual wrote in a Monday report.

"Although the bank will be challenged to raise BBV's returns to more attractive levels in order to materialize the perceived accretion of the deal."

BBV Banco's 438 branches will be absorbed into Bradesco, which represents a growth of 10 percent in Bradesco's customer base.

With the acquisition, Bradesco will have about $19 billion in total deposits.

"What we saw (in BBV) was a large number of clients, but with little overlap in relation to Bradesco," said Marcio Cypriano, Bradesco's president. "We won from all sides."

The exit of BBVA, which has invested some $1 billion in Brazil since 1998, winning it just 1 percent market share, comes on the heels of Spain's biggest bank — Santander Central Hispano — agreeing last month to sell a fourth of its subsidiary in Mexico to Bank of America Corp. for $1.6 billion in cash.

In November, Santander sold its retail bank and mutual fund in Peru and to a local competitor.

Additionally, Germany's HVB Group — that country's No. 2 bank — in November ended its 14-year investment in Brazil, selling its 48-percent share of BBA-Creditanstalt for about $1 billion to Banco Itau, Brazil's fourth-largest bank.

Like other industries that have taken hits in Latin America in the past year, plummeting currencies across the region are widely blamed for BBVA's withdrawal from Brazil.

BBVA and Santander themselves blamed the falling currencies in Brazil and Argentina when they forecast 10 percent declines in profit for 2002.

While the currencies have shored up of late, Argentina's peso dropped about 70 percent in the past year, and Brazil's real is down more than 30 percent.

Despite this, Bradesco remains bullish on Brazil, if only because all of its eggs are in that basket.

"Bradesco regards this transaction as a major demonstration of confidence in the strengthening of the Brazilian economy," Luiz Carlos Trabuco Cappi, Bradesco's executive vice president, said in a prepared statement.

Latin American economies have withered in the past year, first with Argentina's default, then with the crash of Brazil's markets as the leftist President Luiz Inacio Lula da Silva made his successful campaign for the presidency, spooking investors.

Those issues, combined with a worldwide downturn that drove foreign investors from emerging economies, made it difficult for even the most robust companies in Latin America to thrive in the past year.

According to Standard & Poor's, nearly 60 Latin American companies rated by the agency defaulted on more than $9 billion in debt in 2002.

The majority of those companies were in Argentina, where strict capital controls made it difficult — if not impossible — for companies to stay current on foreign debt. But the fallout was felt across the region.

Most analysts expect 2003 to be a slightly more stable year, if only because Latin American companies are likely to take out even less loans than they did in 2002, when $8.6 billion was borrowed from overseas, according to S&P.;

For BBVA, it was either aggressively push further into Latin America — not highly recommended at this point — or cut its losses and run. Analysts say it was simply not big enough to ride out the economic storm and gain a foothold in the market dominated by Brazil's domestic banks.

As part of the deal, BBVA can name one director to Bradesco's board. BBVA also said it plans to develop a corporate banking business with Bradesco, and left the door open to future collaborative projects.

The deal, which must be approved by regulators in both Spain and Brazil, should be finalized, Bradesco said, when it makes the cash payment to BBVA in April.

BBVA's shares rose 4.5 percent in Spain on Monday, while Bradesco had fallen 0.6 percent late in the day.

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