Central Bank of Brazil fluffs its lines

Itaú’s absorption of Citi Brazil certainly isn’t a game changer – neither for the market, nor the bank itself. The deal, which will add 71 branches, will be a footnote in history for the Brazilian bank’s 2017 accounts, explaining slight tremors in its force.

Central Bank of Brazil HQ, Brasilia

At best, the transaction will add talented bankers and some assets under management to Itaú’s private bank. More likely, the Itaú integration machine, honed after hoovering up multiple smaller competitors in the past two decades, will automatically break down the juicy parts and expel the bones. At worst, Itaú’s ROE will be dented from the beyond-comfortable levels it is (still) recording (despite) Brazil’s longest and deepest recession. 

There is a good chance that many of the HNW account holders that the Citi deal will add already have an account at Itaú – Citi would have been an international bank diversification and so the value-added is hard to predict.

But much more important than the specifics of the individual deal is the resounding silence from regulators. Much talk about their concerns at concentration in the banking system appears to be just that. Action thereof: nil. 

The damaging impact of Brazilian banking’s rush towards a powerful duopoly – a trend running through all the country’s financial services – is now a clear negative for Brazil. It hurts companies of all sizes. It hurts the stock exchange. It hurts the government. It hurts the smaller banks and the public banks. It hurts the consumer and so it hurts the retailers. The only two organizations it doesn’t hurt are the (coincidentally politically powerful) Itaú Unibanco and Bradesco.

The needs of Brazil’s large economy stand in sharp contrast to Georgia’s.

Here was a clear, clean and easy opportunity for Ilan Goldfajn, president of the central bank, to mark a shift from the permissive regimes of the past; a chance for the ex-chief economist of Itaú to say that Brazil would be better served with a more competitive banking system and he, as responsible, would start to offer more than just thoughts to redress the balance that has long-since tilted out of balance for the wider economy. 

Maybe the action will come at a later date. But, having fluffed his first chance, no one will be surprised if it doesn’t.