Top Brazil Broker XP Buys Credit Suisse-Backed Bank Modal

08 Jan 2022, 09:00 PM IST

(Bloomberg) -- XP Inc., Brazil’s largest brokerage, is buying lender Banco Modal SA, as the country’s surging interest rates and plummeting stock market push upstart financial firms to consolidate.

XP signed an agreement to acquire as much as 100% of Modal in a transaction that will be paid with up to 19.5 million newly issued XP Class A shares, the firms said in a filing Friday. The deal values the bank at about $528 million, a premium of about 53% based on stock’s Thursday closing price.

Banco Modal climbed as much as 48% in Sao Paulo Friday on the announcement.

Credit Suisse Group AG owns 15.8% of Banco Modal, according to filings. If Modal’s minority holders don’t green-light the deal, XP will seek to buy 55.7% of Modal from its controlling holders, the Friday filing says.

XP, founded in 2001 by Guilherme Benchimol, started off by selling investment products to Brazil’s mom-and-pops that were once only available to the rich. It spurred several copycats, including modalmais, a similar investment platform owned by Banco Modal and its main business.

Both firms have branched out to credit cards, consumer lending and even investment banking in a push to diversify revenues. XP brought in former JPMorgan Chase & Co.’s top boss in Brazil, Jose Berenguer, to oversee its banking unit in 2020.

Combined, XP and Banco Modal had a total of 3.8 million active clients and 11.8 billion reais ($2.1 billion) in net revenues over the 12-month period ended last September.

Modal’s strong presence in some products, including mini-futures contracts, could benefit XP, according to Bradesco BBI analyst Otavio Tanganelli. “We see the announcement as positive for both parties,” he wrote in a note.

Modal was down 58% since it went public last April in the Sao Paulo stock exchange through Thursday, compared to a 15% drop for the benchmark Ibovespa index in the same period. Though surging inflation hurt Brazilian stocks across the board, the increase on interest rates that followed has hurt firms relying on investors embracing riskier products the most, like Modal.