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Santander Wins Bid for Banespa

November 20, 2000

RIO DE JANEIRO, Brazil (AP) _ Spain’s Banco Santander Central Hispano snapped up resurrected state bank Banespa on Monday for a stunning $3.6 billion in a single bid that was nearly four times the government’s minimum asking price.

As the envelopes were opened, Santander’s bid prompted gasps of disbelief in the auction room at Rio de Janeiro’s stock exchange. The government had set a minimum bid of $940 million for a 76 percent stake in Banespa, which the government brought back from near financial death to become a hotly contested prize.

Brazilian banks Unibanco and Bradesco were the only other bidders for Banespa, the country’s sixth largest bank by deposits and serving the country’s richest state, Sao Paulo. But both were far surpassed by Santander, the only foreign bank left in the running after four others dropped out.

By buying Banespa, Santander vaults past Unibanco to become Brazil’s third-largest bank and consolidates its lead as the biggest foreign bank across Latin America. Santander now has 17 banks in 12 Latin American countries and a total of 22 million clients.

Spain _ already the third-largest investor in Brazil after the United States and Germany _ also increases its economic presence here.

Central Bank President Arminio Fraga told a news conference that Banespa was ``the biggest jewel in our crown.″ That it was bought by a foreign bank was ``an unequivocal demonstration of commitment to and confidence in our country,″ he said.

Santander’s Latin America director, Marciel Portela, said the bank was ``very happy″ with the price, although it dwarfed the other bids and Santander’s share prices slid more than 6 percent on Madrid’s stock exchange, falling to 10.45 euros ($8.88).

``What was surprising was the price. The idea is not to pay your best price, but one dollar more than the competition,″ said Robert Lacoursiere, Latin American bank analyst at Lehman Brothers in New York.

``Obviously, Santander’s evaluation of the strategic benefits gained from buying Banespa is much higher than ours.″ He had predicted a premium of between 25 and 30 percent.

The sale of Banespa, formerly the Sao Paulo state bank, was Brazil’s most controversial privatization since state telecommunications giant Telebras hit the block in 1998. Telebras went for a total of $19 billion, but it was split into 12 companies.

Banespa’s privatization has provoked strong opposition from leftist politicians, some federal prosecutors and Banespa’s 21,000 workers, who fear radical job cuts.

On Saturday, the federal supreme court overturned the latest of more than 60 injunctions brought against the sale in recent years.

Fearing violence, more than 1,500 riot police with shield and truncheons guarded the downtown bourse but barely 100 protesters showed up. In Sao Paulo, hundreds of bank employees outside the bank’s headquarters listened to the auction on portable radios. Many were crying.

Maria Campos, a Banespa employee for 22 years, said workers have a better chance of keeping their jobs under an expanding Santander than if a Brazilian giant such as Bradesco had won. ``It was the lesser of the evils,″ she said.

At the news conference, Gabriel Jaramillo, Santander’s president in Brazil, tried to allay fears of layoffs.

``Nobody buys a bank like Banespa to close things. You buy a bank like Banespa to do things,″ he said.

Until the auction, Santander was seen as also-ran that had stayed in the bidding only at the request of Brazil’s Central Bank. Last week, four foreign giants suddenly dropped out.

First to jump was the Brazilian arm of Fleet Boston Financial Corp., followed by Citibank, Banco Bilbao Vizcaya Argentaria of Spain and Britain’s HSBC.

For years, unscrupulous governors drained Banespa to near collapse, using the bank to grant millions of dollars’ worth of politically-motivated loans. In 1997, federal authorities took over the bank as part of a broad renegotiation of Sao Paulo state’s debt.

Since then, the books have been cleaned up, bad loans spirited away, the most unprofitable branches closed and some 13,000 staff cut. By the end of 1997, Banespa was back in the black. Its preferred share price, which slumped to under 3 reals at the end of 1996, has bounced back to around 64 reals ($32).

On Monday, it closed up 61.90 reals ($31), up 3 percent.

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