CADE authorizes HSBC’s acquisition by Bradesco

In a decision given on its trial session this Wednesday 08 June CADE’s Tribunal approved the merger concerning the acquisition of HSBC by Bradesco (AC 08700.010790/2015-41). The decision was conditioned to the signature of a Merger Control Agreement (ACC, for its acronym in Portuguese).

When pronouncing his vote, Reporting Commissioner João Paulo Resende proceeded both to an assessment of the specific operation and of the Brazilian banking market, pointing that HSBC’s acquisition by Bradesco leads to an increase of the market concentration levels, especially within the specific markets directed to a large amount of consumers, such as the cash deposit market (current accounts) and the free credit to natural or legal persons market.

According the Reporting Commissioner, the banking sector is characterized by low competition levels, not only in Brazil, but also in other parts of the world, due to the information asymmetry and transaction costs to which the consumers are subject. In addition, the instruction within the proceeding demonstrated the existence of a minimum scale required to enable the entrance of new competitors in the market, mainly commercial banks.

With the purpose of achieving a solution for the competition issues that were raised, the Tribunal required remedies, foreseen in the ACC signed between the antitrust agency and Bradesco. The agreement negotiation began within CADE’s General Superintendence’s scope and was concluded in the reporting Commissioner’s office.

By means of the ACC, Bradesco is required to implement behavioral measures organized in six different lines, namely, communication and transparency, credit portability incentives, training, quality indicators; compliance and restrictions regarding the acquisition of financial institutions for 30 months.

Bradesco’s Commitments

CADE’s Tribunal determined that Bradesco must abstain from mergers and acquisitions of financial and consortium administration institutions acting in Brazil for a 30 months term, beginning at the publication date of the Tribunal’s decision on the Federal Official Journal.

“This measure fulfills the objective of containing, in the short term, the expansion of what will be the third largest commercial bank operating in the Brazilian market, and sends a strong message to the banking sector regarding the concerns of the competition authority about the concentration degree that the sector has been experiencing”, explained the Reporting Commissioner.

The agreement also determines the improvement and/or implementation of specific competition conduct norms and policies through a Compliance program. The execution of such program shall be delegated to an external agent and the requirements for its appointment are known reputation within the market as well as CADE’s approval. Bradesco shall have 30 consecutive days, beginning with the publication of the decision in the Federal Official Journal, to present the name of the chosen company to the antitrust agency.

The ACC also foresees that the Bradesco offers incentives to former HSBC clients from 106 municipalities to transfer their credit operations (consumer credit modalities) into other financial institutions, with the exception of Caixa Econômica Federal, Banco do Brasil and Itaú, which are among the largest banks in the country.

The aforementioned duty is Bradesco’s incentive to credit portability through letters forwarded to the target costumers, setting of posters in HSBC agencies at the municipalities previously mentioned and the publication of the content of the letter in the internet banking system.  It is worth noting that such measures do not imply any obligations to former HSBC clients, such as the transfer of credit operations, and do not constrain the companies sought by the clients to offer a proposal in order to receive the operation.

“The clients shall have more visibility regarding the possibility of transferring their credit to other financial institutions, thus favoring the awareness of the alternatives that might be beneficial for them”, stated Commissioner Resende.

Finally, Bradesco undertook the responsibility, among other measures, to improve the proceedings applied in the credit and wages portability procedures, to implement measures that enhance the transparency and the quality of the services provided to their clients and to conduct training sessions to its personnel aiming at improving the services provided to its clients.