* BB Seguridade unit could be listed next year
* Plan comes as banks build insurance business
* Insurance to grow as household income climbs
* Executive says IPO could bolster share price
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, Nov 26 Banco do Brasil SA, the
nation's largest lender by assets, will sell shares in a newly
formed insurance and pension unit as early as next year, seeking
to tap growth in an industry where rivals are building up
State-controlled Banco do Brasil grouped all its
assets in the pension, insurance and retirement industries into
a unit named BB Seguridade. The unit will manage Banco do
Brasil's insurance brokerage and insurance services units as
well as assets it owns jointly with Spain's Mapfre SA
and other partners.
The decision underscores the growing relevance of insurance
within the business model of Brazilian banks as record low
interest rates, stable household income and a strong job market
boost demand for retirement packages and health and auto
insurance. Currently, only three out of Brazil's 25 largest
insurance companies are listed on the São Paulo stock exchange.
"With the creation of BB Seguridade, Banco do Brasil wants
to consolidate all the bank's assets in the segment and run any
future expansion inside or outside Brazil, gain scale in that
market and attain operational efficiency," Chief Financial
Officer Ivan Monteiro said in a statement. "BB Seguridade has to
stick to the highest corporate governance standards."
Executives said the move should also help prop up Banco do
Brasil's shares, which have shed 4.3 percent this year amid
growing concern that government pressure on lenders to boost
access to credit and cut borrowing costs will erode profits.
"Our reading is that the company is seen as too much focused
in credit-related activities," said Alexandre Abreu, Banco do
Brasil's senior vice president for retail banking, in a phone
interview. "We believe that a spin-off of the insurance unit
will boost value - we think the company is undervalued."
Shares of the Brasilia-based lender jumped as much as 3.5
percent, bucking a 1.2 percent decline in Brazil's benchmark
Bovespa stock index on Monday.
The listing of BB Seguridade will also help Banco do Brasil
reduce its fundraising needs. Under new regulatory rules for
banks that will be implemented in coming years, financial
conglomerates must deduct the minimum regulatory capital of an
insurance subsidiary to calculate their so called core Tier 1
The listing means such deduction will be lower and, in the
case that BB Seguridade sell shares at a price above book value,
Banco do Brasil would be able to lock up capital gains that
could also prop up its capital.
Abreu added that the IPO should help Banco do Brasil gain
more operational agility and efficiency, and added that, should
the transaction succeeds, other units could be spun off.
"An important development for the bank's organizational
structure, with potential impact to the bank's capital
structure," Carlos Macedo, a senior analyst with Goldman Sachs
Group Inc, said in a note to clients. "Overall, we view this as
Premiums underwritten, at $60 billion last year, represent
only 3 percent of Brazil's gross domestic product -- well below
the 14 percent and 12 percent share in Britain and the United
States, respectively. Bradesco Seguros, a unit of Banco Bradesco
SA, is the country's biggest insurer.
Brazilians spend less than a tenth of what Britons or
Americans do on insurance products and, as the middle class
grows, insurers and banks are looking to lure new clients by
splitting up traditional, costlier policies into separate
The move also comes as the insurance industry is the target
of increased mergers and acquisitions activity, and growing
appeal for healthcare providers is repricing a sector that was
chiefly ignored by investors for years.
In October, UnitedHealth Group Inc agreed to pay
$4.9 billion to buy control of Amil Participacoes SA,
Brazil's largest health insurer and hospital operator.
Private-equity firm KKR & Co LP is in preliminary talks
to buy Brazilian health insurer Golden Cross Planos de Saúde SA,
Valor Econômico newspaper reported on Monday.
Usually an unit IPO allows a controlling shareholder like
Banco do Brasil to raise cash from investors while unlocking
value from assets that could be run separately from the core
Under the plan, BB Seguridade will manage Banco do Brasil's
74.9 percent stake in a personal insurance joint venture with
Mapfre, as well as a 74.9 percent stake in a worker retirement
venture with Principal Financial Group. BB Seguridade will also
add a 66.7 percent stake in a retirement company jointly owned
with Icatu Seguros SA and Cia de Seguros Aliança da Bahia SA.
In addition to the consolidation of the insurance business
into BB Seguridade, Banco do Brasil also announced that a
proposed joint-venture with dental insurer Odontoprev SA
and the bank's stake in reinsurer IRB Brasil Re SA
would also be consolidated into the unit.
The transaction creating BB Seguridade still depends upon
regulatory approval. Abreu said that there is no decision
whether the IPO of BB Seguridade would have a primary offer -
when the company being listed raises funds that go directly to
The secondary portion of an IPO usually helps controlling
shareholders raise money from the sale of a part of or all their
stake in the company being listed.