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A Partnership that Resulted in a $1 billion Bank


In 2012, the BMG Bank was looking for a partner. However, all the offers they got were proposing to buy the banks operational activities hence having full control of the bank. They were on the verge of accepting one of these offers when Roberto Setubal, the CEO of Itau Unibaco called Marcio Alaor, the vice president and executive of BMG Bank.

 

 

Compelling Offer

 

 

Roberto presented Marcio with a compelling offer that surpassed all the others. Itau’s offer was sweetened by the fact that they would also fund BMG. The partnership agreement was to be ready in three months, and within this period, Itau offered to avail R $ 300 million, and after the association signing was complete, they would avail $3.5 billion over a period of 5 years of the partnership.

 

 

BMG was to use its resources to become a buy 30%shareholder of the new venture. This percentage amounted to $300 million, while Itau funded $700 million. This was a fair deal considering BMG would continue having full control of their normal operations. The new joint venture, Itau BMG Consignados, was born with an equity capital of $1 billion, which had 11 times leverage.

 

 

Services of the Itau BMG Consignados

 

 

The new joint venture was built on a foundation of great experience and especially in the payroll deductible loans. The venture was started with the aim of offering payroll deductible loans to employees in the private sector.

 

 

BMG oversee the overall payroll concession at a discount while still operating its regular operations. Itau BMG started giving loans at an interest of 105% while BMG did the same at 130%. According to Marcio, this was a good deal an opportunity for the latter to grow.

 

 

Benefits of the Joint Venture to BMG Bank

 

 

Marcio commenting the benefit BMG would realize from the joint venture association said they had a plan of making at least $1 billion monthly. This amount was to add to the bank’s initial total capital of $29 billion. The partnership agreement of the new venture was very concise not to act as a completion for the BMG bank.

 

 

In addition to adapting to the new partnership, BMG Bank planned to invest in other assets way before the partnership between them and Itau happened. Their overall cost of funding dropped incredibly even before the partnership was signed. This drop was a good deal for the clients who started applying for the CBD.

 

 

Prior the partnership, BMG Bank had experienced difficulties from the cash crisis happening which lead to stagnancy in growth. However, with the partnership venture inception, BMG started to realize positive changes in their portfolio of receivables growing incredibly. Despite this good news, Marcio was not leaving anything to chance and all along was conscious of the crisis happening in the bank industry.

 

 

 

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