UPDATE 1-Brazil watchdog to rule on HSBC unit sale seen key to dividend

(Adds Cade, Brazil central bank comments)

LONDON/SAO PAULO, June 7 (Reuters) - Brazil’s antitrust watchdog Cade is due to reveal on Wednesday whether HSBC Holdings Plc can sell its Brazilian unit to Banco Bradesco SA, a decision with big implications for the British bank’s Chief Executive Officer Stuart Gulliver and shareholders.

Gulliver is counting on the $5.2 billion sale of HSBC Bank Brasil Banco Múltiplo SA to boost HSBC’s main capital ratio and ensure the bank remains the biggest dividend payer among European banks. Some analysts fear the bank may fail to maintain its payout if the unit’s sale is delayed.

“This deal is important because it adds 60 basis points to HSBC’s capital strength which gets them to their target and means they can maintain the dividend in a weak year for earnings,” said Ian Gordon, an analyst at Investec.

Brazil’s central bank has already approved the deal, HSBC’s biggest single asset sale since pledging to shrink its sprawling global business to cut costs and boost profits.

Yet, watchdog Cade has clashed with the central bank in the past over their roles in supervising M&A in banking. Both said they have jurisdiction over the financial sector based on their interpretation of the law. The issue is currently being analyzed by Brazil’s Supreme Federal Court.

Cade has been reviewing Bradesco’s purchase since February and has so far failed to reach a consensus among its directors that competition will not be affected, a source familiar with the discussions told Reuters. The watchdog’s scrutiny of the deal is taking place as Brazil wrestles with the impact of a harsh recession and a sweeping political crisis.

The source, who requested anonymity because of the sensitivity of the issue, said some Cade directors wanted Bradesco and HSBC to provide more detail on how customers will benefit from the combination. Cade has blocked at least four major non-financial industry tie-ups since Brazil’s new antitrust law came into effect in 2012.

In finance, the regulator last month imposed restrictions on lender Itaú Unibanco Holding SA’s joint venture with Mastercard Inc, after a 233-day review into whether the deal would reduce competition in the credit card sector.

The source said some Cade directors believe the central bank favours deals that improve the financial strength of the banks being acquired at the expense of customers.

In a statement to Reuters, Brasilia-based Cade said that it will continue to analyze antitrust cases until a Supreme Court ruling determines otherwise and pledged to “dialogue with any agency regarding the construction of the best possible antitrust arrangement for the country.”

In a separate statement, the central bank said banking and financial industry competition issues should remain exclusively within its jurisdiction.


Cade’s board in April said it should grant approval for the deal, although the recommendation is not binding and is subject to approval by a separate Cade court.

The regulator also recommended the two banks agree on measures to minimise market concentration, in view of evidence of low competitiveness in Brazil’s banking industry.

A spokeswoman for HSBC in London declined to comment. A Bradesco spokeswoman also declined to comment.

Shares of HSBC have fallen by nearly a third in the last five years, as restructuring costs and dwindling trading revenues have eaten into profits. Yet, steady dividend payouts, which are set to yield 8.6 percent this year, have lured investors into HSBC’s stock.

Gulliver said in May the disposal would add just over half a percentage point to its key capital ratio, taking it from 11.9 percent to 12.5 percent, the mid-point of HSBC’s targeted range.

Fitch Ratings at the same time said the deal was crucial to HSBC being able to meet that goal for its capital levels, after retained earnings sank to their lowest levels since 2004. (Editing by Jane Merriman and Cynthia Osterman)