Banco do Brasil buys bank, spurs consolidation

By Alberto Alerigi and Ana Nicolaci da Costa

SAO PAULO/BRASILIA (Reuters) - Brazil's state-run Banco do Brasil (BBAS3.SA) agreed to buy a large public bank on Thursday, spurring further consolidation in the banking sector of Latin America's largest economy.

Banco do Brasil said it would buy Nossa Caixa (BNCA3.SA), a commercial bank owned by the state of Sao Paulo, for 5.39 billion reais ($2.25 billion).

Banco do Brasil expects year-end approval from the Sao Paulo state assembly for a deal it hopes will generate between 2 billion and 4 billion reais in synergies over five years.

It will pay 18 cash installments from March 2009 and make a public offer to buy minority shares in the first half of 2009.

Financial markets were closed Thursday for a public holiday, but on Wednesday, Banco do Brasil shares closed down 0.6 percent at 13.32 reais and Nossa Caixa shed 0.37 percent to 51.30 reais.

Brazilian newspapers said this week Nossa Caixa's market value was around 7 billion reais.

Central bank chief Henrique Meirelles said the deal helped strengthen Brazil's banking sector during the current turmoil in the international financial market.

Brazil's second-largest private sector bank, Itau (ITAU4.SA), agreed to buy smaller rival Unibanco (UBBR11.SA) earlier this month, creating a Latin American financial giant.

Brazilian state-run banks have played a key role in recent government measures to ease a credit crunch that resulted from the global financial crisis and which has begun to diminish domestic consumer demand.

"This acquisition is positive because private banks are growing in Brazil," Finance Minister Guido Mantega told reporters in Brasilia.

"The deal balances the game between Brazil's big banks and that increases competition," Mantega said.

President Luiz Inacio Lula da Silva said on Tuesday he wanted Banco do Brasil to be Brazil's largest bank. Despite the acquisition it remains No. 2 in terms of assets, based on corporate data filed with authorities.

Lula's main political rival, Sao Paulo state Gov. Jose Serra, will get an important financial boost from the deal for public works projects he could showcase for his likely 2010 presidential bid.

Some analysts see room for more mergers and acquisitions in Brazil.

"The consolidation doesn't end here," said Joao Augusto Frota Salles, senior analyst at RiskBank consultancy.