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* HSBC sells Brazil unit at higher-than-expected price
* Deal helps Bradesco boost presence in high-end segment
* Bradesco preferred shares fall 4 percent
* HSBC struggled with competition, high costs in Brazil (Adds Breakingviews link)
By Guillermo Parra-Bernal and AluÃsio Alves
SAO PAULO, Aug 3 (Reuters) - Banco Bradesco SA agreed to buy HSBC Holdings Plc's Brazilian unit for asurprisingly high 17.6 billion reais ($5.2 billion), narrowingthe gap with larger rivals while boosting its base of affluentcustomers in Latin America's largest economy.
The deal between Bradesco and Europe's largest bank includesthe latter's Brazilian retail banking and insurance units. Theagreement, which still requires regulatory approval and wassealed on July 31, could close by June.
The all-cash acquisition will allow Bradesco to close theasset gap with larger rivals Itaú Unibanco Holding SA and state-controlled banks Banco do Brasil SA and Caixa Econômica Federal. HSBC Brasil's focus onhigh-income customers fits well into Bradesco's plan to ramp upsales of specialized financial services for the wealthy andlarger corporations.
The purchase price, which could change to reflect the netasset value of both businesses, is equivalent to 1.8 times bookvalue, far above what analysts expected and above Bradesco's ownvaluation. Reuters reported on July 20 that Bradesco had enteredexclusive talks with HSBC after offering to pay about 12 billionreais, or 1.2 times book value.
Shares of Bradesco posted their steepest drop since July 23,shedding as much as 4.4 percent in São Paulo on Monday. Thebank's American depositary receipt lost 3.5 percent inNew York.
"Too expensive," said Frederico Mesnik, a partner withHumaita Investimentos in São Paulo. "They bought the bank inorder to keep the competition from taking it and they are payinga high price for it."
The takeover, Bradesco's first since the 2009 purchase ofBanco Ibi SA, will increase its assets by 16 percent, number ofbranches by 18 percent and staff by 23 percent. Bradesco expectsthe purchase to contribute to earnings starting in 2017.
"The transaction makes strategic and financial sense forBradesco and represents an opportunity to deploy moreeffectively the excess capital it was prone to accumulate inlight of Brazil's poor credit growth outlook in the years tocome," said Marcelo Telles, an analyst with Credit SuisseSecurities.
STRATEGY MISSTEPS
Bradesco paid 10.4 billion reais for HSBC Bank Brasil, 4.7billion reais for the HSBC Serviços insurance unit and 2.5billion reais for a measure of future additional revenues orscale gains, it said in a presentation.
Following the acquisition, Bradesco's capital regulatoryratio, a measure of solvency strength, will decline to 9.9percent from 12.8 percent currently.
Chief Executive Officer Luiz Carlos Trabuco, speaking on aconference call, promised to integrate HSBC Brasil fully intoBradesco's retail banking insurance platform within the nextthree to four years.
Analysts, who estimated that Bradesco could deduct as muchas 6.5 billion reais in goodwill from the HSBC acquisition, wereskeptical of the goal. Francisco Kops, an analyst with J SafraCorretora, said it will take at least five years for HSBC assetsto be fully integrated into Bradesco.
On the other hand, HSBC's sale of its Brazilian businessrepresents a retreat from the second-largest emerging marketeconomy after years of disappointing performance.
HSBC, which arrived in Brazil late in the 1990s, nevergained enough size to pose a real threat to Itaú, Bradesco orBanco do Brasil, the nation's top lender by assets. HSBC Brasilhas 854 branches and 21,000 employees. Its assets of about 170billion reais represent about 2.3 percent of the total forBrazil's banking system.
HSBC, Europe's largest bank by market value, was advised onthe deal by its own investment banking unit and Goldman SachsGroup Inc. Bradesco was advised by its Bradesco BBIinvestment banking unit, as well as JPMorgan Chase & Co and NM Rothschild & Sons Ltd.
(Additional reporting by Asher Levine in São Paulo; Editing byChristian Plumb, Lisa Von Ahn and Mary Milliken)
