Pedro Guimaraes had no time to revel in Brazil’s wild Carnival celebrations this year.
Instead, Caixa Economica Federal’s newly minted chief executive officer spent the holiday week — including his birthday — courting investors at more than 70 meetings in Boston and New York. The 48-year-old head of Brazil’s biggest state-owned bank is pitching an overhaul for the company that includes selling distressed real estate and stakes in subsidiaries. The moves would generate revenue to pay back perpetual bonds from the government totaling as much as 40 billion reais ($11 billion).
It’s a lot to tackle. With 1.3 trillion reais in assets, Caixa is a behemoth that’s suffered from low returns in recent years as well as controversies that include accusations of taking bribes in exchange for loans. The bank has no publicly traded shares and a reputation for being something of a black box for investors.
Guimaraes, a finance-industry veteran who’s never had a public-sector job before, is trying to lift the veil. In a wide-ranging interview, he said he’s working to improve accounting practices and balance-sheet transparency. To avoid political influences, the CEO hired Russell Reynolds Associates to help hire executives and board members with market experience. The company has already replaced 90 percent of its highest-ranking officers.
“Our priority is to brutally shrink expenses and make some strategic moves, even before we move on to doing IPOs of our subsidiaries,” said Guimaraes, who took over as CEO on Jan. 7. He plans dual listings in Brazil and New York to sell minority stakes in its insurance and card units this year. The asset-management and lottery subsidiaries will go public in 2020, he said. The four sales could yield 15 billion reais.
During Carnival, the executive approached distressed real estate investors about Caixa’s seized-assets portfolio, which is comprised mostly of defaulted mortgages and totaled almost 8 billion reais as of September, the most among Brazilian banks.
Caixa has already lined up several assets it wants to sell, including an almost 9 billion-real stake in oil producer Petrobras, which Guimaraes is hoping to shed before the middle of the year.
Other plans include a cost-cutting effort aimed at saving 3 billion reais in two years, and auctioning the right to use the bank’s network of 26,000 branches and outlets — the biggest in the nation — to sell insurance and card-processing products that generate fees for Caixa.
The plans to save capital to pay back the government will also affect the bank’s 694 billion-real loan book, which Guimaraes intends to reduce mostly by cutting credit to big companies. The portfolio surged almost 10-fold over the past decade amid a push by previous governments to offer cheaper credit through state-owned banks. To support that effort, the Treasury loaned the bank 40 billion reais through perpetual debt instruments that are being used as capital.
“Every cent of extraordinary gains we have in coming years will be used to repay that debt,” he said.
To spearhead the asset sales, Guimaraes brought in former UBS Group AG investment-banking executive Andre Laloni as chief financial officer. Since his arrival, a fund managed by Caixa sold its 2.5 billion-real stake in IRB Brasil Resseguros SA, Latin America’s biggest reinsurer. The deal, the new government’s first privatization, gave Caixa a gain of more than 800 percent from when it bought the shares in 2015.
“We’ve been at Caixa for less than 90 days, but the amount of things we’ve already done is enormous,” Laloni said.
The bank has more than 100 million clients, most of them low-income, who rely on its network to get social benefits, and manages cash disbursements for several infrastructure projects around Brazil.
“Caixa has a creditor relationship with clients, but that’s it — they don’t buy anything else,” he said, adding that only about 15 million clients use other products. More cross-selling may bring in an additional 2 billion reais in revenue annually. The strategy is also helping the bank score investment-banking deals — something it had never done before.
Among the non-distressed real estate deals are possible sales of all or part of the seven buildings it owns on Paulista Avenue in Sao Paulo and 15 in Brasilia, where its headquarters are located. Guimaraes is renegotiating contracts with suppliers and plans to move the bank’s Rio de Janeiro offices to a building where it’s a creditor.
Overseeing all the elements of Caixa’s turnaround effort means sacrificing family time.
“My birthday was during Carnival time, I was working in the U.S., away from my children,” Guimaraes said, adding that his kids had to travel to Amapa state in the north of Brazil to see him one weekend. But visiting far-flung regions has been an invaluable part of his new job, he said. “We are identifying real problems, gaining efficiency and selling more services and products.”
Source: BloombergRead less