Another rough day for incumbent acquirers, Cielo loses CFO, Global Payments enters

Tuesday, January 4, 2011

After being hit with regulatory changes on fees in 2010, Brazil's incumbent card acquirers have received more bad news in the first days of 2011, as leading firm Cielo saw its CFO resign, and US-based Global Payments (NYSE: GPN) came out to publicize its entrance this year.

In a filing, Cielo said CFO and IR officer Marcos Grodetzky had resigned and would be replaced internally by Clovis Poggetti Junior, who had served in these roles on an interim basis previously.

"Mr Grodetzky served as CFO and IRO of Cielo for only nine months. He was well-known and well-regarded by the market (he had previously held the position of CFO at Fibria and Telemar). Thus we believe that this news could be slightly negative to the company," analyst Mario Pierry of Deutsche Bank (NYSE: DB) wrote in a note.

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"Furthermore, Mr. Grodetzky's sudden departure is likely to raise question marks as to why the company's last two CFOs have resigned in less than two years."

However, Pierry said no major changes in strategic direction should be forthcoming.


What was likely the bigger shock to the stock prices of Cielo and rival Redecard on Tuesday may have been the reminder that Global Payments is planning on making a serious entry into the acquiring business in Brazil.

In a quarterly conference call on October 22 last year, president and CEO Paul Garcia announced the move, saying that the end of Brazil's effective duopoly in this market - Cielo with Visa (NYSE: V) and Redecard with MasterCard (NYSE: MA) - had led Global Payments to review its options there.

"As there are initially no meaningful bank portfolios available, this is more of a greenfield opportunity," Garcia said during the call. "It's going to be next fiscal year till we see anything meaningful out of Brazil."

In April, Santander Brasil (NYSE: BSBR) entered the acquirer market, while Citi Brasil announced its entry last month, saying it would form a JV with US Bancorp's (NYSE: USB) Elavon. Cielo, which is jointly controlled by Banco do Brasil (BB) and Bradesco (NYSE: BBD), ended its exclusive arrangement with Visa at end-June.

"If you want to be in Brazil right now, you can wait until these banks build portfolios and try to buy them, or you can jump in and try to build your presence in. And we opted for the latter," Garcia added later on that call.

In an article this week, Garcia was quoted by Brazilian daily Valor Economico as saying the company would pour millions of US dollars into Brazil, generating short-term losses, but had already hired former Redecard executives Edson Luiz dos Santos and Danilo Zimmermann as country head and IT head, respectively.

Last month, Global Payments put together a JV with Spain's La Caixa to create that country's biggest retail acquirer, while it has worked with HSBC (NYSE: HBC) in China and in many other countries. However, Garcia was quoted as saying that no partner had been picked in Brazil, despite a near deal with Citigroup (NYSE: C), before Elavon eventually stepped in.

Global Payments will hold a conference call Thursday (Jan 6) to review its results from its fiscal second quarter, which ended November 30.

All told, Redecard, which is controlled by Itau Unibanco (NYSE: ITUB), fell 3.7% in trading Tuesday from its previous close on the Bovespa exchange, while Cielo was down 2.8%.