[August 31, 2007]

Report: Govt gives Bradesco until year-end for new Postal agreement

(BNamericas.com Via Thomson Dialog NewsEdge) Brazil's federal government has given private sector bank Bradesco (NYSE: BBD) until the end of the year to renegotiate terms of the Banco Postal joint venture with national postal service Correios or have the contract annulled, local financial daily Valor Econmico reported.

"We don't have to break [the contract]. What we need to do is find a solution. We want to see a new business plan by December but if that's not possible, we'll exercise our options," the daily quoted communications minister Hlio Costa as saying.

Costa first said in December last year the government wanted to review the contract with Bradesco, claiming Brazil's largest private sector bank made too much money from the government's distribution network.

Postal generates around 500mn reais (US$255mn) in revenues a year, with 180mn reais going to the government.

Bradesco formed the JV with Correios in 2001 after bidding 200mn reais for the 10-year contract and beating Ita (NYSE: ITU) and federal savings bank Caixa Econmica Federal (CEF) in an auction. Bradesco then invested 250mn reais to get Postal up and running.

According to Valor, the government wants to create a new financial institution at the national postal service offering microcredit, private pension plans and cut-price insurance policies to low-income earners.

The government would control 51% of the new bank and auction off 49% for as much as 2bn reais. Ita, ABN Amro Real and Bradesco itself are reportedly interested in taking part in the auction.

Bradesco headed to court in July to challenge the decision by the Maranho state government to hand over the rights of the state payroll to federal Banco do Brasil (BB).

Governor Jackson Lago argued the supreme court had ruled in 2005 that federal, state and city payrolls be managed by state-run banks.

Bradesco took over payroll duties when it acquired former Maranho state bank BEM in February 2004 for 78mn reais. Bradesco had a contract to handle the payroll until end-2010.

In December last year, Bradesco was blocked from handling the state payroll accounts in Santa Catarina after the supreme court ruled the transfer would considerably reduce the sale price of federal bank Besc, which handled the payroll accounts at the time.

BB subsequently paid the Santa Catarina state government 210mn reais to handle the state payroll, part of the BB-Besc incorporation plans.

Copyright 2006 BNamericas.com

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