August 10, 2018 / 12:56 PM / 2 months ago

UPDATE 4-Brazil central bank bars Itaú from purchasing control of XP until 2026

(Adds XP CEO comments)

By Carolina Mandl and Bruno Federowski

SAO PAULO/BRASILIA, Aug 10 (Reuters) - The Brazilian central bank on Friday barred Itaú Unibanco SA, the country’s largest lender, from acquiring control of financial services firm XP Investimentos SA at least until 2026, stepping up efforts to safeguard competition in the financial sector.

The central bank, which in Brazil is charged with supervising banks, allowed Itaú to acquire a 30.1 percent stake in XP’s voting capital this month through a cash-and-shares deal totaling 6.3 billion reais ($1.6 billion).

Itaú may expand its stake to 40.0 percent starting in 2022, but that would require separate approval by the central bank.

However, the central bank revoked options included in the original deal that could allow Itaú to acquire control of XP as soon as 2024 and imposed several restrictions that would limit Itaú’s influence over the financial services firm.

The central bank’s ruling will last for eight years. In 2026, Itaú would be allowed to make a new bid for XP’s control, but any deal would still be subject to a new central bank approval.

Until then, no other buyer may acquire a controlling stake in XP under the terms of the revised deal, two sources with knowledge of the matter told Reuters.

After 2026, Itaú has the right of first refusal in case XP’s controlling shareholders receive a third-party offer, the sources said.

XP, with 170 billion reais in assets under custody, is one in a string of newcomers challenging the clout of traditional players in Brazil’s highly concentrated banking sector, often the target of criticism for its steep spreads and tariffs.

In addition to the restriction imposed on Itaú, the central bank also forbade XP from acquiring competitors. XP’s Chief Executive Guilherme Benchimol told Reuters bans on acquisitions will not hinder the company’s expansion plans.

In an interview at XP’s headquarters in Sao Paulo, he said XP intends to attract bank branch managers to work for XP as independent brokers, bringing their clientele. XP seeks to reach 850,000 clients by the end of the year, from the current 700,000, and 225 billion reais in assets under custody.

Benchimol also said the financial services firm may revive plans for an initial public offering, after the deal restrictions by the central bank. Two of its shareholders, investment firms General Atlantic LLC and Dynamo Administração de Recursos, may divest their stakes.

Itaú agreed to not appoint directors for XP’s financial and operational divisions, access its client base or influence meetings of its controlling group, the central bank said in a statement. Those conditions will be upheld for 15 years.

In a statement, Itaú said the acquisition of a 30.1 percent stake in XP will reduce its tier 1 capital ratio by 0.9 percentage point.

Preferred shares in Itaú closed down 3.63 percent, underperforming an index tracking financial shares listed on the São Paulo Stock Exchange. Brazil’s benchmark Bovespa stock index fell 2.86 percent. ($1 = 3.8479 reais) (Reporting by Carolina Mandl in São Paulo and Bruno Federowski in Brasília; Editing by Jonathan Oatis and James Dalgleish)

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