CADE’s General Superintendence concludes opinion on the acquisition of HSBC by Bradesco

The General Superintendence of the Administrative Council for Economic Defense – CADE, in a decision published in the Official Journal of April 4 2016, sent the merger proceeding related to the acquisition of HSBC by Bradesco (Merger File No. 08700.010790/2015-41) for analysis by CADE’s Tribunal. The General Superintendence’s opinion recommends the merger’s approval conditioned to the signature of a Merger Control Agreement (ACC for its acronym in Portuguese) between Bradesco and CADE.

The ACC was elaborated after the General Superintendence analyzed in detail the Brazilian banking market, verifying the existence of competition concerns, which indicate low competition among banks. In this context, the Superintendence sought to assess if HSBC’s acquisition would aggravate the anticompetitive concerns found, resulting in lower competition in the sector.

The Superintendence considered different scenarios of bank services, such as cash and term deposits, consumer credit, credit card, among others. In those segments, HSBC holds a small market share, thus limiting the possibilities of increasing in Bradesco’s market power.

In a more broad analysis, it was observed that Bradesco is the fourth largest bank in total assets and HSBC is the sixth. With the acquisition, Bradesco remains on the same position, holding less than 20% of the market share, behind Banco do Brasil, Caixa Econômica Federal and Itaú, which remain rivals in all the markets analyzed.

However, the opinion verified that several problems of the sector, such as low portability and the high number of complaints related to the quality of bank services, were also verified in Bradesco. Additionally, Bradesco’s market share in number of bank agencies on several Brazilian cities is high.

In order to prevent HSBC’s clients from being harmed by the transaction, as well as to benefit Bradesco’s clients, including the ones located in cities with higher concentration of agencies, Bradesco agreed to sign an agreement with CADE, as a condition to the approval of the merger.

The ACC encompasses four areas: communication and transparency, training, and quality and compliance indicators. Such topics envisage a series of measures to be applied by Bradesco, such as the improvement of indicators related to the portability of salary accounts, operations of credit, quality, disclosure of information regarding positive credit registry, training and creation of a competition compliance program. All the actions have quantifiable indicators and will be monitored. In case the ACC is signed, the non-fulfilment of the obligations may result in fines.

CADE’s Tribunal, which is responsible for the final decision, may undertake the recommendation of the General Superintendence, or adopt other measures foreseen in Law No. 12.529/11 – approval, blocking or the adoption of other competition remedies that avoid the problems identified.

The merger was notified in October 2015, totaling 159 days until now. The legal deadline for CADE’s final decision is of 240 days, extensible for 90 days.