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Cade Approves Itaú’s Purchase of Non-Controlling Stake in XP Investimentos

14 March 2018

Brazil’s antitrust authority CADE has approved the purchase of a minority stake in financial services broker XP Investimentos SA by Itaú Unibanco Holding SA. General Atlantic and Brazilian investment firm Dynamo were backers of XP Investimentos since 2012.  

(Reuters) Brazil’s antitrust watchdog Cade on Wednesday approved the purchase of a non-controlling stake in financial services firm XP Investimentos SA by Itaú Unibanco Holding SA (ITUB4.SA), the nation’s largest bank, demanding no additional asset sales.

Five of seven members of Cade’s board voted in favor of the transaction, in which Itaú will take on a 74.9 percent stake in XP and a 49.9 percent stake in its voting capital by 2022 for 5.7 billion reais ($1.8 billion).

The transaction, which is subject to approval by the central bank, would grant Itaú a standing in the fast-growing market of financial services for retail clients, where new players threaten the dominant foothold of large banks.

Brazilian banks have typically allowed clients to invest only in products managed by themselves. In contrast, XP grants access to several independent managers and charges smaller fees.

Under the terms of the deal, Itaú could take on a controlling stake in XP’s voting capital as soon as 2024, which would require separate regulatory approval.

XP controlled between 40 and 50 percent of transaction volumes among open investment platforms last year, Cade estimated.

To avoid stifling competition in the sector, XP has agreed to give up exclusivity rights to the investment products in its platform, as well as so-called autonomous investment agents who deal with clients but are not formally on its books.

XP agreed not to discriminate against investment products that compete with those supplied by Itaú, which, in turn, will withhold from interfering in commercial decisions by XP’s management.

Conversely, should Itaú begin to distribute its investment offerings through open platforms, it must not discriminate against XP’s rivals, Cade said.

“The fundamental point is that XP will remain independent and autonomously managed,” said Paulo Burnier Silveira, the rapporteur in charge of the deal at Cade.

Two board members, Cristiane Alkmin and João Paulo de Resende, voted to bar the transaction. The deal would greatly strengthen the banking sector, Alkmin said, which has been criticized by consumer rights organizations for bad service and high fees.

“Approving this deal would mean giving the green light for other banks to acquire open platforms, which despite all hardships managed to enter this market by copying XP’s technology,” she said.

Preferred shares in Itaú (ITUB4.SA) slid 2.27 percent in afternoon trading on Wednesday, surpassing a 1.36 percent decrease of an index tracking financial shares listed on the São Paulo Stock Exchange. .IFNC

($1 = 3.26 reais)