Bradesco's US$603mn bid for Banco Carrefour a "win-win" at right price - Moody's

Monday, March 28, 2011

The recent announcement by Brazil's second largest private sector bank, Bradesco (NYSE: BBD) of its intention to acquire a 49% stake in French retailer Carrefour's consumer finance operation Banco Carrefour for 1bn reais (US$603mn) could be a "win-win" situation for both companies, according to ratings agency Moody's.

Moody's sees Bradesco's bid as the leading one to date, but other banks are considering entering the race, including Itaú Unibanco (NYSE: ITUB) and Santander Brasil (NYSE: BSBR), local arm of Spanish giant Santander (NYSE: STD), the agency said in a report.

"For a Brazilian bank acquirer, becoming Carrefour's strategic banking partner in Brazil would give it access to a new consumer base through Carrefour's existing 170 large retail chain stores and hundreds of additional, smaller satellites* (about 900 selling points in total)," Moody's Ceres Lisboa and Jean-François Tremblay wrote.

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However, such move is not without risk for the potential buyer, "given the recent years of high credit growth at Banco Carrefour and in the relatively nascent Brazilian consumer finance segment, which could sometimes be an indication of too much credit extension and potential increases in delinquencies down the road."

Despite the potential risks, the ratings agency considers the partnership "net credit positive" for the acquiring bank, since it could use Banco Carrefour's consumer base to promote its products.

However, Moody's warned that "the higher the price paid by an acquirer, the more difficult it will be to extract a reasonable return, especially if credit quality was to deteriorate."

Banco Carrefour is controlled by Cetelem, a consumer finance company owned by French bank BNP Paribas.