SAO PAULO (Reuters) - Banco Bradesco SA, Brazil’s second-largest private-sector lender, would face a capital shortfall should a reported bid for the local unit of HSBC Holdings Plc succeed, UBS Securities analysts said on Monday.
In separate reports, O Estado de S. Paulo newspaper’s online service and Bloomberg News said Bradesco placed the highest bid among the potential buyers of HSBC Bank Brasil Banco Múltiplo SA, as the unit is known. Bloomberg, citing sources, on Monday said Bradesco could pay up to 14 billion reais ($4.5 billion) in an all-cash deal for HSBC Brasil.
Bradesco and HSBC declined to comment.
Should Bradesco pay in cash for HSBC Brasil and regulators approve the deal immediately, Bradesco’s so-called Tier 1 capital ratio could fall to 10.1 percent from 12.1 percent in March, analysts led by Philip Finch wrote in a client note. The minimum Tier 1 ratio - a gauge of financial strength that compares the core equity and the risk-weighted assets of a bank - in Brazil is 11 percent.
For Osasco, Brazil-based Bradesco to maintain that minimum ratio, Finch estimated a potential shortfall of 6.7 billion reais. If approval took more time, which is the most likely scenario, Bradesco would be able to further accumulate retained earnings that would help cover much of that shortfall, he added.
If the acquisition was approved by year-end, the capital shortfall would decline to 5.4 billion reais. Bradesco is seen paying out 1.6 billion reais in quarterly dividends this year, the analysts said.
HSBC is expected to pick a preferred bidder for the unit as early as this month, with the sale expected to be finalized by August, three sources with knowledge of the process told Reuters in May. Bids for the unit are unlikely to surpass book value, which is estimated at around 10 billion reais as of now, the same sources noted. [ID:nL1N0Y3376]
News of an imminent sale comes after HSBC Chief Executive Officer Stuart Gulliver has targeted Brazil, Mexico, Turkey and the Unites States as potential markets for unit disposals. Last year, HSBC Brasil reported a net loss of 441 million reais, equating to negative return on equity of 4.2 percent.
Itaú Unibanco Holding SA, Bradesco and Banco Santander Brasil SA - the nation’s three largest non-government lenders, had access to the sale’s preliminary documents and made bids. Both Itaú and Santander Brasil placed a bid below Bradesco’s, Estado said.
($1 = 3.1271 Brazilian reais)
Additional reporting by Paula Arend Laier in São Paulo; Editing by W Simon and Lisa Shumaker