ECONOMY-BRAZIL: Santander Pays ‘Exorbitant’ Price for Banespa

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 20 2000 (IPS) - Spain’s Santander bank took the market by surprise by paying an “excessive” price — according to some analysts — for the Sao Paulo State Bank (Banespa), one of Brazil’s biggest financial institutions.

Santander’s offer, termed “exorbitant” by a competitor, was 7.05 billion reals (around 3.65 billion dollars) — 281 percent higher than the minium price set by the government and 235 percent higher than the second-largest bid.

With the unexpected outcome of Monday’s bidding on the Rio de Janeiro stock market, Santander has become the third largest private financial group in Brazil — the world’s eighth largest economy — holding 6.9 percent of the country’s banking assets.

Through the privatisation of Banespa, the Spanish bank will now enjoy a dominant presence in Brazil’s richest and most populous state: Sao Paulo, which is home to 36 million of the country’s 168 million people, and which alone accounts for 11.2 percent of Latin America’s combined Gross Domestic Product (GDP).

The result was especially surprising because of the Spanish group’s tactic of concealing its keen desire to purchase Banespa, Brazil’s largest state-owned bank, which underwent a severe crisis before being taken over by the federal government.

The bidding for the bank had been postponed several times since 1998.

Four foreign banks decided to pull out of the bidding last week, and one of Brazil’s two largest private banks, Bradesco and Itaú, which are vying for leadership of the national financial system, was expected to win Monday’s bidding for Banespa.

Meanwhile, Spanish monetary authorities expressed concern over the exposure of Spanish financial groups in Latin America at a time of crisis in Argentina.

It will not be easy for Santander to account to its share- holders for the excessive price it paid for Banespa, said Erivelto Rodrigues, director of Austin Asis, a financial consultancy.

The Brazilian government owes Banespa 4.2 billion reals (2.2 billion dollars) in tax credits — a fact that could justify Santander’s inflated bid. But the Sao Paulo bank will only receive those tax credits in the long-term, and furthermore, it owes almost that much in back wages and pensions.

Whatever the case, Santander’s decision pleased all of the parties involved. The government was satisfied because the bid was higher than expected, even in hard currency terms.

Rodrigues estimated that Brazil’s foreign reserves would grow by at least three billion dollars as a result of Monday’s bidding, which led to a rise of the real against the dollar, after weeks of sliding.

The outcome was excellent for Banespa, which had been the target of a 25 billion dollar bail-out, said Central Bank president Arminio Fraga. The overprice obtained “confirms the confidence in the Brazilian economy,” he remarked.

Local authorities in the state of Sao Paulo used Banespa to finance their projects with little or no regard to the state budget. That strategy led to the accumulation of an unpayable debt, which ended up pulling the bank under in 1994.

After a lengthy negotiation process, the bank was taken over by the federal government in 1997, according to the terms of an agreement for a restructuring of the state of Sao Paulo’s debt.

But unclarified doubts regarding the accumulated debt discouraged other foreign groups interested in expanding their presence in Brazil, and made it seem likely that the winning bid would be smaller.

“We would not pay more than 30 percent over the minimum price set,” said Sergio de Oliveira, executive director of Bradesco, Brazil’s largest private bank.

The outcome was also satisfactory to the Bradesco and Itaú banks, because it will not influence their fight for leadership of the national banking system.

Labour leaders, meanwhile, announced that they would attempt to have the results of the auction overturned in court, but that they would simultaneously negotiate a deal with the new owners to ensure the jobs of all of Banespa’s 22,500 employees.

Santander is known for the massive dismissals it carries out, said the president of the Sao Paulo Union of Bank Employees, Joao Vaccari Neto, who pointed out that the Spanish group has sacked a total of 6,500 employees in the four small banks it has purchased in Brazil in the past few years.

The Association of Banespa Functionaries announced a strike for Nov 28 which is to last an indefinite period of time. The strikers will demand guarantees that they will be kept on, and will protest the privatisation of the bank, as they have done in mobilisations staged in the past few weeks.

But analysts say the outcome of the auction was the best thing that could have happened for Banespa’s employees. In the hands of a national bank even more people would be laid off, because branches of Banespa operating in towns and cities where the new owner already had its own banks would have been closed.

The director of Santander for Latin America, Manuel Portela, said the price paid was not excessive, but fair. He added that his bank would continue to expand its presence in Brazil.

Santander is already present in 12 countries of Latin America, making it the leader in the region, with total assets of 113 billion dollars and 91.7 billion dollars in savings accounts, 10.4 percent of the regional total.

Banespa will remain an independent bank, although Santander will incorporate innovations, announced the president of the Spanish bank in Brazil, Gabriel Jaramillo.