Bloomberg News

Brazil Bank Stocks Jump Most in 15 Months on Rate Reduction

September 01, 2011

(Adds closing stock prices in second, fifth, ninth paragraphs.)

Sept. 1 (Bloomberg) -- Brazilian bank stocks rose the most in more than fifteen months on speculation the central bank’s surprise decision to cut interest rates will spark an increase in consumer and business loans and help grow the economy.

The MSCI Brazil Financial Index jumped 5.3 percent to 824.56 at 4:45 p.m. New York time, the biggest advance since May 26, 2010. Banco Santander Brasil SA, the Brazilian unit of Spain’s largest bank, reached a seven-week high. The Bovespa index rose 2.9 percent.

Brazil’s central bank cut the benchmark rate half a percentage point to 12 percent yesterday after raising it at each of its previous five meetings. The reduction was made to spur the Brazilian economy at a time when a “substantial deterioration” in the global economy may be “prolonged” and could slow trade, investment and credit flows to Brazil, the central bank said in a statement.

“Banks can make money whether rates are high or low, but this is about loan growth, and investors want to see an economy growing,” said Gustavo Schroden, analyst BES Securities Brazil, in a phone interview from Sao Paulo. “Bank stocks suffered a lot this year, so this is a big change.”

Itau Unibanco Holding SA, Latin America’s largest bank by market value, surged 6.8 percent to 30.80 reais, hitting a one- month high. Banco Santander gained 4.5 percent to 16 reais, and Banco Bradesco SA, Brazil’s third-biggest bank by assets, jumped 7.4 percent to 30.23 reais.

Growth

Growth in Brazil, the world’s second-largest developing economy after China, is expected to slow to 3.9 percent this year, according to a central bank survey published this week. The economy expanded 7.5 percent in 2010, the fastest in more than two decades.

Consumers may benefit from the benchmark rate cut as loans are re-priced, reducing interest costs, said Victor Galliano, a New York-based bank analyst at HSBC Investments. Consumers with lower debts may be more inclined to increase their purchasing on credit, he added.

“There’s been a lot of concern from investors relating to credit quality in Brazil,” Galliano said in a phone interview. “Lower benchmark rates should mean a bit of pressure off delinquencies on the consumer side.”

Consumer stocks also benefited from the rate cut as Lojas Renner SA, Brazil’s biggest publicly-traded clothing retailer, advanced 4.8 percent to 62.75 reais. B2W Cia. Global do Varejo, Brazil’s largest online retailer, led gainers on the Bovespa, surging 8.4 percent to 17.40 reais, almost a two-month high.

--Editors: Glenn Kalinoski, Marie-France Han

To contact the reporter on this story: Leon Lazaroff in New York llazaroff@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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