Few industries are as competitive as the Brazilian banking industry has become. Since the global financial collapse of 2008, the trend towards increasing consolidation has only accelerated. Today, the Brazilian banking sector is dominated by two major players, Itau Unibanco and arch rival Grupo Bradesco. The latter, headed by inveterate banker Luiz Carlos Trabuco, has struggled to make progress over the last 8 years. But with the acquisition of HSBC Brazil, the slumping firm is back in first place, with great momentum behind them.
Over the coming years, Itau Unibanco will have to stay in the race or confront the possibility of being crushed by a larger rival, who can make tactical use of its economies of scale and weaponize its size advantage to wage economic warfare on its competitor. For whoever becomes number one, the potential prize is huge. The last bank standing in this showdown of corporate giants will have de facto monopolistic reign over the entire Brazilian banking industry. Like Carlos Slim was able to do with his monopolies in Mexico, the winner may well take all.
Mixed results from a CEO many considered a savior
But even though he has positioned his company to have a clear shot at becoming the TelMex of the Brazilian banking industry, Trabuco’s first few years at the helm of Grupo Bradesco were largely a disappointment to most industry observers. Many had enormous expectations for his tenure, brought about for his formidable reputation as someone who could turn to gold nearly anything he touched. But the larger market forces proved to be more than Trabuco could counter. For the first six years of his reign as CEO and president, the stock price declined by more than 50 percent and Bradesco slipped to a distant second in the rankings of Brazilian financial services companies.
Like Luiz Carlos Trabuco on Facebook
This disappointment was, in large part, a result of unrealistic expectations that the market and analysts had of Trabuco’s abilities. He had been responsible for enormous growth in two departments of the bank that he had overseen. In one case, while heading up the financial planning division of Bradesco, Trabuco had grown the unit from an insignificant business line into a division representing more than 25 percent of the corporation’s total profits. He against repeated the feat as the head of the insurance division, where he grew Bradesco’s underwriting operation into the largest of its kind in the country. It was results like these that had many analysts’ expectations for his tenure as CEO placed somewhere between the stratosphere and outer space.
But the stock price did not cooperate, nor did the bank’s growth prospects. By 2009, the year that Trabuco’s predecessor, Mario Cypriano, stepped down from the company’s top slot, the Brazilian banking industry was largely stripped of all viable acquisition targets. The tremendous organic growth that occurred during Cypriano’s time as CEO, which saw the company’s assets grow from just $5 billion into the hundreds of billions, had largely dissipated. Trabuco, instead, inherited a company in a slumping industry, amid a macroeconomic picture that did not bode well for any prospects of future organic growth. With no opportunities for acquisitions, Trabuco was stranding mid-ocean, with no wind in the sails.
But then, in 2015, rumors began swirling that HSBC was looking to dump its Brazilian assets. Luiz Carlos Trabuco immediately pounced on the opportunity, drawing up a letter of intent and contacting the HSBC brass to feel out the price range. By the end of 2015, Trabuco had announced that he had struck an agreement to buy all of HSBC Brazil’s holdings in a $5.2 billion, all-cash deal.
This represented the largest single transaction in Brazilian history. But more importantly, it put Bradesco back in the running for monopoly status over the Brazilian banking market, a goal that many industry observers long contended was the centerpiece of Trabuco’s long-term strategy.
Today, the stock price is back up and Trabuco’s patience those six years of inactivity looks vindicated.
Find more about Luiz Carlos Trabuco: http://epocanegocios.globo.com/Empresa/noticia/2017/08/trabuco-retomada-do-credito-depende-de-volta-do-pib-e-da-taxa-de-investimento.html