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UPDATE 1-Banco do Brasil sinks on plans to raise Votorantim stake
January 18, 2013 / 5:11 PM / in 5 years

UPDATE 1-Banco do Brasil sinks on plans to raise Votorantim stake

* Shares sink as much as 4.5 pct in Friday trading

* Banco do Brasil gauging options to increase stake

SAO PAULO, Jan 18 (Reuters) - Shares in state-run Banco do Brasil SA posted their biggest slump in two months on Friday after Brazil’s largest bank by assets unveiled plans to boost its stake in troubled lender Banco Votorantim SA.

Shares of the Brasilia-based lender fell 2.4 percent to 26.15 reais in early afternoon trading in São Paulo after earlier sinking as much as 4.5 percent. The decline was the steepest since Nov. 8, according to Thomson Reuters data.

According to a securities filing, any transaction between the parties would only involve the purchase of preferred shares of Banco Votorantim. Banco do Brasil is currently negotiating terms of an accord with Banco Votorantim’s majority shareholder, investment holding firm Votorantim Finanças, the filing added.

Any attempt to become a majority shareholder of Votorantim could be seen by markets as a plan to shore up a lender that has suffered intensely with a decline in interest rates to record lows, a spike in loan defaults and an economic downturn, analysts said. Banco Votorantim, in which Banco do Brasil bought a 49.9 percent stake four years ago, has posted about 2 billion reais ($980 million) in losses over four straight quarters.

“It’s one more chapter in a story that began in 2008 when Banco do Brasil rescued Votorantim in the wake of the global crisis of that year - the rationale is, maybe if we buy control of it, the problems will stop,” said José Miguel Santacreu, an analyst at credit ratings company Austin Rating. “The move could make sense for Banco do Brasil but markets seem skeptical about it.”

Votorantim specializes in auto and corporate loans. Lending in those two segments went through a serious downturn last year as borrowers increasingly fell behind on their payments as a result of an economic slowdown.

Banco do Brasil could use Votorantim’s units, including a fully fledged trading desk and treasury unit as well as an investment banking arm, to grow in areas where its presence remains incipient, like financial and capital markets advisory as well as brokerage and other financial services, Santacreu added.

“There is not at this moment any agreement between the two parties in terms of materializing that transaction,” the filing quoted Banco do Brasil Chief Financial Officer Iván Monteiro as saying.

Recently, both Votorantim Finanças, controlled by the Ermirio de Moraes family, and Banco do Brasil pumped each 1 billion reais into the bank, to help it stave off its credit-related losses.

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