The history of Latin America has been riddled with strife. Unstable governments, populist revolutions and despotic tyrants have been par for the course. The region is the very source of the term banana republic, evoking images of a white-clad general adorned with garish ribbons and medals – the incarnate image of the rule of law’s antithesis.
One linchpin in this somewhat sordid past has been the uniquely Latin American version of the monopoly. Companies such as International Telephone and Telegraph, the United Fruit Company and modern-day Telmex have played an outsize role in the recent history of the region. However, despite the fact that these monopolistic firms often controlled a good portion of the economies in which they operated and often directly supported or enabled the regimes of brutal dictators, they also were frequently responsible for bringing economic prosperity and high levels of development to the areas in which they were to be found.
Mexico has been particularly prone to monopolistic businesses. Yet it currently enjoys one of the highest levels of development of any Latin American country. When compared to its neighbors, like Guatemala or Honduras, Mexico seems a veritable shining light of social capital and development. It might be easy to conclude, therefore, that Latin America’s special proclivity towards allowing hard monopolies might not, in the end, be entirely negative.
It is in this context that we turn to the state of banking in Brazil today. Throughout the last few decades, the Brazilian banking sector has consolidated to an extent that would make even the most treacle apologist for the North American banks blush in embarrassment. Today, there are only two meaningful players left. These are Bradesco and Itau Unibanco.
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The former bank is led by a man who is widely acknowledged to be one of the foremost banking experts in all of Latin America. His name is Luiz Carlos Trabuco, and he has spent his entire nearly 50-year career with Bradesco. Recently, Trabuco was able to pull off a major coup. The acquisition of HSBC Brazil rocketed Bradesco from a distant second place to become the leader in Brazilian banking across many different measures. Today, Bradesco is positioned favorably relative to its arch rival, Itau Unibanco.
Although Trabuco has been coy about his true intentions, many astute industry observers point out that he has spent an entire career creating virtual monopolies out of the business units he ran. When he was in charge of the financial planning division of Bradesco, Trabuco nearly cornered the market on high-net-worth personal financial advisory. When he, in turn, became the head of Bradesco Seguros, the firm’s insurance underwriting arm, he, once again, grew the unit into the single largest underwriter of retail insurance policies in the country. Many argue that this track record is the clearest indication of what Trabuco has in store for his firm and those of his rivals.
If Trabuco does, in fact, intend to make a play at total supremacy in the Brazilian banking sector, we can expect the future to get very good for retail banking customers. Some experts are predicting that Trabuco will leverage his firm’s economies of scale, tremendous cash reserves and over $400 billion in assets to undercut Itau Unibanco in all of the markets where the two banks compete. This may drive prices down in the short term.
But if Trabuco succeeds at either pounding Itau Unibanco into a state of oblivion, where it could either be easily acquired or would even face insolvency, the long-term prospects for everyday Brazilian banking customers may look considerably bleaker.
But the prizes for Trabuco, Bradesco and its shareholders for creating a genuine monopoly over Brazilian banking may prove to be irresistible.
Search more about Luiz Carlos Trabuco: http://www.infomoney.com.br/mercados/noticia/6024599/frases-luiz-carlos-trabuco-sobre-economia-brasileira-davos