SAO PAULO (Reuters) - Brazilian state-controlled bank Banrisul (BRSR6.SA) is in talks to sell its card business, as its controlling shareholder, the state of Rio Grande do Sul, struggles with a sharp drop in tax revenue, two sources with knowledge of the matter said.
The lender is expected to hire JPMorgan Chase & Co (JPM.N) over the next days to sell the business, added the sources, who asked for anonymity to disclose private discussions.
JPMorgan and Banrisul did not immediately reply to requests for comment.
The bank had filed for an initial public offering of its card unit two years ago, but gave up on the transaction in November 2018. At the time, the bank expected to reach a 2.5 billion-real ($432 million) valuation.
There is no clear indication so far of how exactly Banrisul plans to use the proceeds of the sale. Immediately after the Reuters report, shares of Banrisul extended gains to up to 3%. But they soon reversed course and were down 3.2%, at 11.96 reais, near market close.
Banrisul Cartoes SA, the subsidiary that the bank plans to sell, had net income of 272 million reais ($47 million) last year, a 5% increase over 2018. To be able to get the same amount expected for the IPO, Banrisul would have to find an investor that would pay 10 times earnings, a difficult task amid the coronavirus pandemic.
Last year, Banrisul Cartoes’ credentialed retailers had 29.5 billion reais in transactions with debit and credit cards, 10% above the previous year.
Due to a sharp drop in tax revenue, the state of Rio Grande do Sul is delaying payments to its civil servants. Tax revenue dropped 15% in March and is expected to fall 30% in April. State employees receive their salaries up to 45 days late.
Reporting by Tatiana Bautzer and Carolina Mandl in Sao Paulo; Editing by Matthew Lewis