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UPDATE 1-Santander Brasil, Bonsucesso to form lending joint venture
July 31, 2014 / 12:05 PM / 3 years ago

UPDATE 1-Santander Brasil, Bonsucesso to form lending joint venture

(Adds background, data on Santander Brasil results)

By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO, July 31 (Reuters) - Banco Santander Brasil SA agreed to pay 460 million reais ($204 million) to get a 60 percent stake in a payroll loan joint venture with smaller peer Banco Bonsucesso SA, the latest step by the nation’s No. 1 foreign lender to ramp up its consumer finance division.

Terms of the transaction, which were outlined on a securities filing on Thursday, call for Santander Brasil’s Aymoré Credito consumer finance unit to join Bonsucesso, which agreed to transfer all of its payroll and payroll credit card lending business in exchange for a 40 percent stake in the venture.

Also on Thursday, Santander Brasil reported second-quarter earnings.

Chief Executive Officer Jesús Zabalza said this week that Santander Brasil wanted to grow in payroll lending and credit to smaller businesses. The Pentagna Guimarães family, which founded Bonsucesso in 1992, has spearheaded its expansion in both segments, which are less risky than other consumer and corporate lending like auto and working capital loans.

The creation of the venture comes the day Banco Santander SA , Santander Brasil’s parent, said profit from its Brazilian operations was no longer the largest contributor to earnings. In recent years, Santander Brasil has underperformed its peers, which have grown rapidly through acquisitions and by cutting exposure to less-creditworthy borrowers.

The Santander Brasil-Bonsucesso deal remains subject to regulatory approval.

The venture’s structure is similar to that of one signed in 2012 between private-sector rival Itaú Unibanco Holding SA and payroll lender Banco BMG SA. BMG was founded three decades ago by close relatives of the Pentagna Guimarães family.

At the time, the Itaú-BMG deal called for a new company to get 1 billion reais in capital, with Itaú contributing 70 percent and BMG supplying the rest. Itaú also agreed to provide unlimited funding to the joint venture and 300 million reais a month directly to BMG over five years to fund origination.

PROFIT BEAT

Santander Brasil said an increase in fee income, expense controls and a smaller-than-expected rise in loan-loss provisions offset a sharp drop in interest income in the second quarter.

Excluding one-time items, net income reached 1.44 billion reais ($641 million), well above the average estimate of 1.28 billion reais in a Reuters poll of four analysts.

Interest income fell 4.5 percent from the prior quarter as net interest margin, the average interest rate charged on loans, dropped by 0.1 percentage point. Santander Brasil’s loan book grew a meager 1 percent, well below the 2.2 percent forecast in the poll.

Recurring return on equity was 11.6 percent in the second quarter, compared with the poll’s 9.7 percent estimate.

Management plans to discuss second-quarter results with investors at a conference call later on Thursday. (Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn)

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