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By Bill Buhr | 10-05-2009 10:23 AM

Santander Brasil Is Primed for Growth

The Brazilian banking oligopoly gives IPO Santander Brasil impressive pricing power, but risks of government intervention remain.

Bill Buhr: Hi, I'm Bill Buhr, IPO Strategist with Morningstar. While the IPO market has been in full swing here in the US, we wanted to take a step back and shift our focus to Brazil, where a gigantic offering is set to make its debut next week. Banco Santander Brazil will offer $7 billion in its IPO. Here to talk with me about the company is Morningstar Equity Analyst Mac Pina. Mac, thanks for joining me.

Maclovio Pina: It's a pleasure.

Buhr: Let's talk a little bit about Brazil's banking market. What are some of the factors that make it so lucrative?

Pina: First of all, it's an oligopoly. So, as any oligopoly, you know that you have a pretty aggressive pricing power. Four banks, only, control about 60 or 70 percent of assets and deposits of the whole system. It's in their best interest to control pricing. The slight caveat here is that there is one of those four banks, Banco do Brasil, who is pretty much government-controlled. So, as has happened in the first half of '09, you have, depending on the political winds, sometimes they'll float the market with below-market interest rates, and things like that tend to happen. But, overall, it's very lucrative because of that.

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