Over the past three years, several leading international banks, including HSBC (LON: HSBA), Citibank (NYSE: C), Credit Suisse (VTX: CSGN), Barclays (LON: BARC) and RBC (TSE: RY) have withdrawn from the region, closing or selling their businesses or considerably reducing their activities.
There has been retrenchment in regional investment banking due to a decline in capital market activities as a result. Investment banking revenue totaled US$919 million in the first ten months of 2016, compared with US$1.2 billion a year earlier.
Among the recent closures was Itau Unibanco’s agreement in October 2016 to acquire Citibank’s retail business in Brazil for R$710 million (US$207 million). The deal includes loans, deposits, credit cards, branches, asset management and insurance brokerage. It also includes Citibank’s 5.64% stake in automated teller machine operator Tecnologia Bancaria SA (TecBan) and 3.60% of consumer structured finance firm Cia Brasileira de Securitizacao SA (Cibrasec).
The deal strengthens Itau’s leading position as Latin America’s top bank by market value and will allow it to increase its assets to R$1.404 trillion (US$410.1 billion), making it Brazil’s second biggest bank. The deal is subject to approval by Brazil’s Central Bank and the country’s antitrust agency Cade. There could also be more scrutiny of the acquisition due to the high concentration of the local market.
Earlier Bradesco paid R$16.0 billion (US$4.67 billion) to acquire HSBC Bank Brasil SA, Banco Múltiplo and HSBC Serviços e Participações Ltda (collectively known as HSBC Brasil) from HSBC Latin America Holdings Ltd in July 2016. The value is subject to adjustment post-closing based on the balance sheet of HSBC Brasil.
The as-yet unknown policies of US President Elect Trump might involve further financial risk to the region, as could an interest rate rise by the US Federal Reserve. There are signs that monetary policy in developed economies could become less accommodative and if the conditions to deteriorate, more global banks can be expected to close up shop.
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