The strong growth in the Brazilian economy seen in 2010, sustained by many factors, among them the heated domestic demand, with significant expansion in retail trade figures, demand for credit, the labour market and incomes among the population, with the creation of more than 2.5 million jobs, alongside the growing participation of national companies in foreign markets, all favoured Banco do Brasil' activities in the period.
Based on its objectives, BB implemented its strategy in moves which, developed in consideration of the trends in the national economy, favoured the consolidation of the basis for expansion of the businesses and leadership positions.
In this regard, the main strategic moves in 2010, which should continue to result in positive gains for BB, were the program for the transformation of the retail division, efforts on internationalization front, the completion of the restructuring process in the insurance division, and the various corporate moves involving acquisitions and strategic partnerships.
In 2010 Banco do Brasil continued with its program for the transformation of its retail businesses, begun in July 2009, reorganising and expanding its scope of operations in an integrated manner, carrying out actions in terms of planning, coordination, management and the monitoring of various initiatives with respect to the development of a new type of operation and management of the Bank in the retail market.
This move has the main objective of increasing BB's operational efficiency through modernization, with focus on client service.
To this end, initiatives were implemented to take advantage of the potential business opportunities from the Bank's customer base, while at the same time investment was made in the training and qualification of employees in the branch network.
In addition to this, restructuring was begun of the branch network environment as well as other service channels, with a view to providing more convenience and security for Banco do Brasil's customers.
The retail transformation program proposes strategic actions organised from five interrelated angles, as shown in the chart below:
• Improvement in client service, with the allocation of more than 8,600 employees in the branches, a figure which will rise to 10,500 in 2011;
• Launching of a new information technology platform to service clients, and the introduction of new Customer Relatonship Manangement tools to provide support for businesses, providing a more flexible and better quality service;
• Start of implementation of a business environment model in the branches (layout);
• Implementation of the new model for segmentation and portfolio division for clients, with the objective of standardising the service for each client segment; and
• Intensive program for the training of employees.
By carrying out these changes in the management of the businesses, there will be an effective strategic repositioning within Banco do Brasil's retail division, with the implementation of a new model with the client as the main focus, working to improve client relationships, profitability per client, and the integration of services in the various communication channels available.
In the last few years, Brazilian companies have intensified the drive to internationalize their activities, building companies and forming partnerships in other countries and regions. This move has been requiring similar behaviour from the financial industry. The model focused on financing and the stimulation of foreign trade is tending to evolve into a more far reaching and complementary phase, which requires national banks to internationalise in order to meet the specific need for banking services in the region where the companies are located.
By the same token, services for individuals, increasingly present in other countries, whether through tourism travel for work, require global financial institutions. This new reality of the market has led Banco do Brasil to initiate a number of actions and projects with the objective of taking advantage of the opportunities identified and maintaining its role as the largest protagonist of international business, among Brazil's financial institutions.
In this way, Banco do Brasil's international strategy is focused on increasing the reach of its network abroad, to cater to the wave of internationalization by Brazilian companies, private individuals and the increase in import and export flows.
With a focus on these trends, and supported by analysis of opportunities carried out by specialist consultancy companies, the development of Banco do Brasil's internationalization strategy in 2010 adopted the following regional policies:
Based on studies drawn up by a specialist consultancy, Banco do Brasil revised its operational strategy in the United States, based on prioritising inorganic growth (acquisition of local banks), with the possibility of organic expansion (establishment of branches) in areas with a concentration of target audience over the medium and long-term. For this reason, Banco do Brasil continues to be interested in the acquisition of financial institutions in the market, with a focus on small-sized banks established in regions with a high concentration of Brazilian residents.
BB's strategy for the North American market proposes to cater to all the needs, through its products and financial services, of the more than 1.5 million Brazilians resident in that country .
Based on this strategy, the Bank has redesigned its operational model, seeking to concentrate its activities in specific branches to improve productivity and reduce costs. Under the new model, BB's service in the US is organised as follows:
• BB Miami began to serve the banking and retail segment;
• BB New York started to concentrate on the wholesale segment, with the branch being restructured to better serve this type of client; and
• BB USA Servicing Center, in Orlando, will concentrate its activities on the back-office operations of the branches in the United States, including the wholly-owned subsidiaries of Banco do Brasil Securities LLC and BB Money Transfers.
This new model was possible, based on decisions by the North American government during the year:
• In April 2010 Banco do Brasil received authorization from the US Federal Reserve to acquire financial institutions in the US, and expand its operations in the local capital markets. As a Financial Holding Company (FHC) Banco do Brasil is authorised to open or relocate branches, operate with residents in the United States, acquire banking institutions and request authorization to expand its scope of operation in the United States;
• In July 2010 Banco do Brasil in Miami received authorization to transform its branch licence, which was only authorised to operate with non-residents, into a full branch, which also authorises transactions with US residents. In addition to this, seeking to implement specialization in its units, as a way of optimising its service, BB Miami absorbed the retail client base from BB New York, which is now dedicated to clients in the corporate segment; and
• In October 26, 2010, Banco do Brasil Securities, LLC received authorization to open a branch in Miami.
Banco do Brasil is continuing with its organizational restructuring in Europe, with the aim of improving its operational, administrative and financial efficiency. With this remodelling of BB's operations in the old continent, and the redistribution and centralisation of its activities, the Bank intends to generate new business.
BB Europa Servicing Center, the second international unit for administrative services, entered into service in July 2010, in Lisbon Portugal, with the objective of centralising and rationalising the back-office services for the units located in Europe.
In April 2010 BB acquired shareholder control of Banco Patagonia in Argentina, which constitutes a milestone in our internationalization process. This was the first step taken in a new model of operating in markets with potential.
The operation has the objective of expanding partnerships with Brazilian and Argentinian companies, and achieve the diversification of products and services, seeking to build on the potential of providing services to clients, the expansion of its loan portfolio, to operate along the value chain in the corporate segment, established in Argentina. Banco Patagonia has 732,000 clients, of which 12,000 are corporate, with 154 branches located principally in the provinces of Buenos Aires and Rio Negro.
Banco Patagonia is a solid institution, having a strong relationship with local companies, particularly in the management of company payrolls, as well as operating in the retail banking segment. BB contributes its experience in serving major Brazilian corporate groups. This acquisition allows the expertise of each institution to be brought together, with an initial focus on Brazilian corporate groups that have activities on Argentinean soil and the potential to cover their entire value chain, including suppliers, clients and local employees.
In South America, other priority markets in the process of international expansion are: Chile, Peru, Colombia, Uruguay and Paraguay.
In August 2010 BB began negotiations with Banco Espírito Santo (BES) of Portugal, with the aim of looking at a possible financial participation in the businesses of the Portuguese bank in the African market. A possible partnership would result in the establishment of a financial holding company to consolidate the existing operations of BES in Africa, today concentrated in the Cape Verde Islands, Angola, Egypt, Morocco, Mozambique and Algeria. In addition to controlling future investment, the new company would also seek to establish its own operations in the African continent.
BB considers a partnership to be important to support the internationalization moves by Brazilian and Portuguese companies in Africa, and to provide support for the growing interchange with the continent, facilitating investment by Brazilian companies.
The Brazilian market for insurance, supplementary pensions and saving bonds has been growing at a fast rate, and the forecast for the future is that this expansion will continue. The ratio between annual insurance premiums collected and GDP in developed countries is around 10% , while this ratio in Brazil, with an insurance premium volume of R$122.4 billion collected, is a new 3.4% of GDP, revealing the significant potential for growth in this sector.
According to forecasts by CNSeg (National Insurance Confederation), the Brazilian insurance markets should grow by 12% in 2011, rising to R$137.4 billion in premium revenue, this expansion being based on the expectation of access to the insurance sector by socio-economic classes C and D – segments in which Banco do Brasil is well-positioned – as well as expansion in the area of popular insurance, including micro-insurance.
Also part of the growth projects is the formation of a technical chamber for the production chain in the supplementary health segment, which will analyse the sustainability of the sector and the use of retirement plans for the payment of health expenses.
Other points worthy of note, that for CNSeg are essential for the strengthening of the sector in 2011, are:
• Regulation of the shielding of pension plans, and the creation of new Sustainability Platform products;
• Economic viability for the providing of insurance for old cars and permission for the use of used parts in the event of accidents;
• Expansion of guarantee insurance and reinsurance, especially for the carrying out of works under the PAC (accelerated growth program), the 2014 World Cup and the 2016 Olympic Games; and
• The creation of a Regulatory Insurance Agency, which would encompass the three bodies which currently govern the insurance and pension sector in the Country (Susep, ANS and Previc) and also integrate the scenario for 2011.
As a result of this situation, Banco do Brasil has continued with the process of restructuring its insurance division, based on the following premises:
(i) Companies in the insurance area will be under private-sector control, with BB Seguros holding the largest possible equity stake in these companies;
(ii) Partners of BB Seguros cannot be competitors; and
(iii) Insurance products will be exclusive to BB's distribution network.
Another premise in the restructuring of the insurance area is the drive for operational efficiency, so as to provide better results for the companies in this segment, and as a consequence for BB.
The evolution in this process will provide the Bank with a better dynamic in the way that it operates, in addition to maximising the generation of earnings in the businesses of the Insurance Conglomerate and obtaining better synergy gains in operations with its partners.
Banco do Brasil has made a proposal to the Federal Union, through the Finance Ministry, to begin non-binding discussions for the acquisition of a shareholding stake in IRB-Brasil, duly observing the regulations and norms covering such an operation. IRB-Brasil is the largest reinsurance group in Latin America, with assets of R$10.4 billion and premiums of R$2.9 billion. The Federal Union holds 100% of the ordinary shares, and 50% of the total capital of the company.
This operation aims to complement the activities of BB, because reinsurance is a way of passing on the insurance risk from an insurance company that has a contract higher than its financial capacity. It is a common practice for the mitigation of risk and preservation of the stability of insurance companies.
In January 2010 a non-binding Memorandum of Understanding was signed between BB and Grupo Icatu, with the objective of creating a strategic alliance for the development and sale of capitalization products in the Brazilian market, which proposes to integrate the businesses of these institutions, in such a way that there is no competition between the partners. In addition to this, it is envisaged that there will be a distribution channel of Banco do Brasil which will sell these capitalization products on an exclusive basis for a 20 years period.
In April BB Seguros and Principal Financial Group renewed their strategic partnership, to work on the development and sale of private pension products in Brazil. As a result of this agreement, Principal acquired an equity stake of 4% in the total paid-up capital of Brasilprev, held by Sebrae (Serviço Brasileiro de Apoio a Micro e Pequenas Empresas). In addition to this, the exclusivity of Brasilprev was maintained for the sale of private pension plans through BB's existing distribution channels up to October 2032. The counterparty to this is that BB Seguros increased its stake from 50% to 74.995% in the total paid-up capital of Brasilprev. With this partnership BB hopes to solidify an association between BB Seguros, a wholly-owned subsidiary of Banco do Brasil, which has the largest number of service outlets in the Country and Principal, which has vast experience in international market, serving 18.9 million clients through offices in Asia, Australia, Europe, Latin America as well as the United States.
The strategy of forming alliances with other institutions has enabled Banco do Brasil to fulfill a long-standing demand of its employees. Announced in August 2010, the partnership between BB and OdontoPrev, the operator of dental care plans associated with Bradesco, will permit the sale of plans through the branches of Banco do Brasil. In addition to this, dental plans had been made available to approximately 260,000 beneficiaries, among BB's employees and their dependents since November 2010. OdontoPrev is the leader among companies in the dental care segment, having been in existence for 23 years, covering more than 4.4 million people through the various business lines in which it operates, with a vast network of approximately 25,000 authorised agents throughout Brazil.
In July 2010 BB Seguros formalised the sale of all its shares held by BB Seguros (49.92% of the total capital) in Brasilsaúde to Sulamérica Seguro Saúde, for a total value of R$29.2 million.
In 2010 Banco do Brasil finalised the integration process with Banco Nossa Caixa which resulted in some positive advances in BB's businesses, particularly in São Paulo. Also, in this year, the strategic partnership was consolidated with Banco Votorantim. Below we show the main results of these two processes.
The acquisition of a 50% stake in Banco Votorantim (BV), consolidated in 2010, a strategic step forward for Banco do Brasil the credit market, with emphasis on the vehicle financing segment, which is passing through a period of accelerating growth in Brazil. The partnership resulted in a growth in the volume of personal loans last year of 23.2%, with particularly strong growth in the vehicle financing segment, which saw an increase of 32.1% compared to 2009.
In addition to this, this partnership allowed Banco do Brasil, among other aspects and synergies:
• To access alternative distribution channels, such as concessionaires partners and stores of BV Financeira;
• To use the successful model in the promotion of sales on a nationwide basis in the vehicle financing market;
• To deal with the payroll of approximately 7,000 employees, among who included around 5,000 employees of BV Financeira; and
• To acquire payroll loan and vehicle financing portfolios as a consequence of the operational agreement.
The transaction resulted in Banco do Brasil ending up with 50% of the total capital, and approximately 50% of the voting capital of Banco Votorantim and required an improvement in the policies and norms of BV, as well as its risk management.
The new Corporate Governance structure of BV, as set out in the terms of the Shareholders Agreement at the beginning of the partnership in September 2009, was completely implemented in 2010 and has a regulatory function, with equal status of the governing bodies among the partners, such as the Board of Directors, Board of Auditors, Audit Committee and Advisory Committees of the Board of Directors.
Every year the President and Vice-President of the Board of Directors and the Board of Auditors of the company are rotated between members nominated by BB and members nominated by Votorantim Finanças, no casting vote being attributed to any member of the Board of Directors.
The incorporation of Banco Nossa Caixa produced some important results for the businesses of Banco do Brasil, expanding its share of the country's most important market. The acquisition intensified the relationship with the government of São Paulo and the Judicial Power in that state. As part of this acquisition was the purchase of the payroll of civil servants of the municipal authority in the state capital, BB assumed a leadership position in business with the public sector in the state of São Paulo, adding a base of 12 million clients.
Among the business and synergies resulting from this incorporation move, of particular note were the following:
The negotiations for the acquisition of this São Paulo bank began in 2008. In March 2009 the transaction was approved by Central Bank and consolidated in the first half of 2010, ending with the total integration of the branch network in June. The operation included changes to the business environment of the branches, the replacement of ATM channels and the unification of systems, products and services. 952 premises, of which 566 were branches, were switched over to the BB brand, with the result that the Bank also assumed the leadership position in terms of number of service outlets in the state.
Considering the information technology standpoint – which is always one of the most critical aspects in a process such as this – the implementation of the project by the Bank was a benchmark case in the market, demonstrating notable capacity both from a technical perspective as well as the managing of an extremely complex project. The period for incorporation period (approximately 9 months) surprised observers, as did the quality of the process, which had a minimal impact for clients.
Another critical aspect present in similar operations is the integration of the employees from the company absorbed. In this case, 14,000 people were integrated into BB, coming from another corporate culture, representing a major challenge to be overcome in record time, ensuring an appropriate balance and respect for the difference in cultures.
In 2010 Banco do Brasil formalized a strategic partnership with Banco Bradesco and Caixa Econômica Federal in the card segment for the creation of a payment means chain, which comprise the issue of credit, debit, prepaid and private label cards, the payment collection network and a brand name, all referred to as Project Elo.
The project involved the creation of the Elo Group, to consist of a financial institution, which would be the promoter of sales, processor and administrator of the Elo brand, a payment collection company (Cielo), CBSS and manager of the self-service terminals, with the aim of:
(a) Creating a company of shareholdings (Elo Participações), in which would be consolidated the combined businesses related to electronic means;
(b) The launching of a Brazilian brand for credit, debit and prepaid cards, to be called Elo, which would be managed by a specific company (Elo Serviços), controlled by Elo Participações; and
(c) Integration of Companhia Brasileira de Soluções e Serviços – CBSS, directly or indirectly, into Elo Participações.
Project Elo, implemented in the first few months of 2011, should bring benefits which include:
(a) Gains in market share in the national card market, with the expectation of reaching 15% of sales within five years;
(b) An increase in customer base size, with the prospecting of new consumers;
(c) Improvement in competitiveness with the entry of a new brand name into the national card market, providing gains in synergy and economy of scale for Banco do Brasil.
Being completely Brazilian, the ELO card, in contrast to other card brands, will not require the payment of royalties for the use of international brand names. With the launch of this brand name, BB expects to capture 15% of the card market within five years. With this, the Bank's operation in this sector will be consolidated, already having a leadership position in the payment collection market through Cielo, in a partnership signed with Bradesco 14 years ago (under the name Visanet) which today has 49% of the national card market.
Currently, company clients of BB affiliated to Cielo can receive sales from credit and debit cards of the following brand names: Visa, Mastercard, Amex, Diners, Visa Vale and Aura – the Elo will complement this range. In addition to this the receivables from the sales can be collected ahead of time through Advanced Credit to Storeholders (ACL) and Card Receivables to be Realised (RCR) or they can be used as a guarantee for loan operations.
Banco do Brasil through its subsidiary, BB Banco de Investimentos S.A. (BB-BI), acquired shares held by Santander Espanha in Cielo S.A. (5.11% of the paid-up capital) and Companhia Brasileira de Soluções e Serviços – CBSS (4.65% of the paid-up capital). As a result of these transactions, BB has strengthened its participation in the capital of the companies which operate in the sector.
Banco do Brasil, Bradesco and Santander on February 11th, signed a memorandum of understanding for the consolidation of their respective external ATM machine terminals (ATM machines installed outside the branches), such as those located at airports, fuel service stations, supermarkets, shopping centers, pharmacies and bus terminals. With this, the banks intend to provide greater convenience and comfort for their clients and increase operational efficiency with a reduction in expenses. The first phase of this project, with the application of a pilot plan, was authorised by the Brazilian anti-trust authority, Cade, in March 2011.
If this sharing arrangement comes to fruition, the clients of these three banks will be able to access around 11,000 ATM terminals spread across the country.