Fitch: HSBC Brazil Sub to Draw Larger, Locally Operating Suitor

CHICAGO--(BUSINESS WIRE)-- HSBC Holdings plc's (HSBC or HSBC Group) plan to sell its Brazilian banking operations (HSBC Brazil) is likely to attract a large private bank buyer already operating in the country, says Fitch Ratings. But we do not expect the sale to meaningfully affect the competitive landscape of the financial sector in Brazil because of HSBC Brazil's modest market share.

Fitch believes Brazil's top three private banks -- Bradesco, Santander Brasil or Itau -- are among the most likely banks to acquire HSBC Brazil. They are well established in a diverse number of products, including asset management, and can benefit from HSBC Brazil's retail and commercial franchise. The top three private banks, similar to HSBC Brazil, win and retain retail banking customers not only though checking accounts and lending, but also through investment business. Their product suites for commercial customers are also more developed than smaller domestic private banks.

In Fitch's view, foreign players likely will have limited appetite for HSBC's Brazilian operations. The concentrated profile of the Brazilian banking industry, the dominant competitive position held by the top five largest banks operating in the country, and the deteriorating economic and operating environment make the business less attractive for overseas banks. Regional players from Chile, Mexico, Peru or Colombia may lack the size to consider this acquisition opportunity. The recent economic downturn and higher capital requirements under Basel III are likely to weigh on the valuation of any deal. Additionally, competition rules would need to be assessed and regulatory approval obtained.

HSBC Brazil is the sixth-largest commercial bank in Brazil, but holds only 3% of system deposits. It is a distant competitor to the top two government-sponsored banks and the top three private banks, lagging in overall size and product diversification.

As the seventh-largest asset manager in the country, HSBC Brazil has a 3.4% market share. Brazil's asset management sector is also concentrated among the top five largest managers, which collectively hold nearly two-thirds (63%) of the country's assets under management.

A winning bidder among Itau, Bradesco or Santander Brasil would only modestly increase the concentration in the Brazilian banking and asset management industries, not raising systemic credit risks, in our view. We do not see competitive dynamics in the local market changing. HSBC would retain a presence in Brazil to support larger corporates' international activities.

HSBC Holding's Tuesday announcement to further streamline its global businesses is an effort to redeploy capital into higher-returning businesses. It aims to achieve USD4.5-USD5.0 billion in cost savings and boost ROE to above 10% on a consolidated level by year-end 2017.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150611006215/en/

Fitch Ratings
Eduardo Ribas, +55-11-4504-2213
Director
Latin American Financial Institutions
Sao Paulo
or
Alexandre Yamashiro, CAIA, +55-11-4504-2606
Director
Fund and Asset Management
or
Claudio Gallina, +55-11-4504-2216
Senior Director
Latin American Financial Institutions
or
Matthew Noll, CFA, +1-212-908-0652
Senior Director
Financial Institutions Fitch Wire
New York, NY
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
[email protected]

Source: Fitch Ratings

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