A surge in Brazilian banking M&As may mark the end of a sector consolidation drive begun in 1994. Recent deals leave few major banks up for grabs, at a time when lower interest rates are boosting lending activity. Bank lending rose by 1.4% in March, to $294 billion, with mortgage loans taking the lead.
In April Bank of America sold its local BankBoston retail operations to Banco Itaú, Brazil’s second-largest private bank, for $7 billion. Itaú will also be able to bid on the sale of BankBoston assets in Chile and Uruguay as part of Bank of America’s strategy to divest itself of most Latin American operations. BankBoston Brazil had $8.8 billion in assets and more than 140 offices. Credit Suisse and Merrill Lynch advised Itaú on the transaction.
In May UBS acquired Banco Pactual, Brazil’s largest investment bank, for $2.6 billion. UBS hopes to use the acquisition as a launching pad into the Chilean and Argentine markets. It also expects to expand Pactual into Mexico, where UBS currently operates a securities firm. Pactual has $18.6 billion in assets under management, while its wealth management unit manages another $4.6 billion. Goldman Sachs made a failed attempt to acquire the investment bank last year.
Falling interest rates sparked a larger-than-expected rise in industrial production in March, as consumers shopped for electronics and appliances. Output rose by 5.2% year-on-year. Increased consumer demand has fostered inflationary concerns, though the CPI dropped to 4.6% in the 12 months through April—a seven-year low—from March’s 5.3%. Local economists have cut their 2006 CPI forecasts to 4.33%, while the government maintains its 4.5% target for 2006 and 2007, compared with 2005’s 5.7% result.
Mexican telecom giant Telmex announced plans to make an estimated $900 million offer for the remaining 27.7% stake in local telecom provider Embratel. Telmex bought a 51.79% stake in Embratel from MCI in 2004 and later increased the holding to 72.4%. Meanwhile, Russian businessman Boris Berezovsky has made an offer to acquire Varig, Brazil’s bankrupt international airline, which also received a $400 million bid from VarigLog, its former cargo subsidiary. Varig’s debt totals nearly $4 billion.