For the 28 executives in the room on the 4th floor of the main building in Cidade de Deus, it was clear that losing the top ranking in the private financial market was not something circumstantial. The size difference in assets between Bradesco and Itaú Unibanco reached 234 billion reais, greater than the sum of Safra and the Brazilian operations of HSBC and Citi at the time. Bradesco's obvious reaction would be to buy a competitor and thus grow quickly. But how is that possible in a market already approaching the end of its consolidation process? And how to explain the situation to the bank's 80,000 employees after news of the merger between Itaú and Unibanco reached the front pages of portals and economy sites on the Internet? The answer was given by Lázaro Brandao, 83, chairman of the Board of Directors at Bradesco: "The message we need to transmit is the following: we did not lose the top ranking due to our defects, but rather because two competitors united." |
Fate and business circumstances wanted the person responsible for this movement to be Luiz Carlos Trabuco, of Sao Paulo, 58 years of age, 41 at Bradesco, where he began to work as a bookkeeper at an agency in Marília, state of Sao Paulo. Trabuco is not a revolutionary by option. Throughout his four decades of work, he has always strived to embody the classic model of Bradesco employees. Stuffed in invariably dark-colored suits, with his pitch black hair finely parted, he listens more than he talks and the humble spirit preached by the founder seems to be reflected in his slightly curved walk. His respect for traditions is explicit in the frequent company of Brandao and in his quoting of Aguiar's main commandments. And his identification with the bank extends into his family life. He lives in an upper middle class neighborhood just a few minutes from work. His oldest daughter works at the bank. Trabuco took over as president of Bradesco four months after it lost leadership to Itaú Unibanco knowing a reaction would be necessary, and for that to happen, some things had to change at the bank. He is obsessed with acting as if nothing was actually happening and, little by little, preparing Bradesco to grow in a new phase of the Brazilian economy. His strategy is to try and 'saturate' the market, transforming people who never entered a bank agency into customers. If there are no large banks for sale in the country, there are millions of Brazilians still along the margin of the financial market, spread about small municipalities where
Bradesco is present and none of its competitors have arrived. There are also thousands of micro, small and mid-sized companies emerging - many of which are informal - and a country whose real economy is getting more and more vigorous.
(Today, Bradesco is leader in the loan segment for small and mid-sized companies, with a 70 billion real portfolio, 24% bigger than Itaú Unibanco's.) Obviously, Trabuco is not the only one with anything to do with this. Itaú and Unibanco united, in large part, to get stronger in this scenario. Last year, Spain's Santander held a 13 billion real IPO, the largest in Brazilian stock market history. At the time, Emilio Botín, bank controller, verbalized his ambition: be the leader in Brazil. In face of such a scenario, Trabuco's management strategy is to get to this new market before his competitors - the largest, Itaú Unibanco, and the most aggressive, Santander.
"We are structuring ourselves to be one of the big winners in one of the country's best decades," he says.
THE GROUP OF 20 ECONOMISTS at Bradesco, a team led by Octavio de Barros, came up with a number to define this "golden decade" we have before us. They believe Brazil will grow on average 4.7% per annum until 2020. From that growth over the next 15 years, a class of 100 million new consumers will emerge, people who today are outside the bank market, living in a sort of financial clandestinity. If that truly does happen, the economists believe the number of account holders will grow threefold, repeating a phenomenon that already occurred last decade. At present, Bradesco has 21 million account holders. Banco do Brasil, presided over by Aldemir Bendini, has 35 million. And Itaú Unibanco, 15 million (according to 2009 data). The sum of this contingent is basically comprised of people with incomes of under 2000 reais per month. This emerging new market would be mainly comprised of members of classes C, D and E, a client profile with which Bradesco is accustomed to work. "Bradesco may have the first Brazilian business culture based on serving the masses and promoting their development. Amador Aguiar saw the strength of this sort of culture early on," says former banker Jorge Paulo Lemann, one of the biggest individual shareholders in the ABInBev brewery and one of the most admired Brazilian entrepreneurs.
"Bradesco may have the first Brazilian business culture based on serving the masses," says Jorge Paulo Lemann
IN BRAZIL IT IS IMPOSSIBLE TO KNOW, with any accuracy, the actual ranking of the strongest financial institutions in low income classes. The numbers are neither public nor audited. Bradesco claims to have 46 million clients that earn less than 2000 reais per month - which includes classes C, D and E. That number encompasses those who only have a savings account or credit card. Most do not have current accounts. Banco do Brasil, in turn, says it has 43 million. Itaú Unibanco and Santander do not disclose that information, but most specialists believe they have fewer than Bradesco. There are many ways to get to these classes. The most difficult, but perhaps inevitable way, is to take the banks to "inner Brazil", cities, settlements and communities spread around the peripheral areas of large cities and among the most secluded regions of the country. "We took the strategic objective of serving low income populations to its ultimate consequences in 2009, when we became the first private bank present in every municipality in Brazil," says Trabuco. When measured by number of agencies, branches and correspondent banks, the Bradesco network is 40% bigger than Banco do Brasil's and geographically five times bigger than Itaú Unibanco's.
Being present in this inner Brazil means, for example, being present in Heliópolis, the biggest shantytown in Sao Paulo, with 120,000 inhabitants and 350 micro and small businesses. It also means being present in Belém do Solimoes, a settlement with 5500 inhabitants, located 1400 kilometers from Manaus. A few days before Christmas, Odair Rebelato, executive director at Bradesco, was sent there with the mission of setting up a network of banking correspondents - owners of pharmacies and small markets that carry out some banking operations, such as payments of bills and withdrawals. "No one in the village had a bank account and many people didn't even know what Bradesco was," says Rebelato. With the help of the Ticuna Indian chief and the local priest - "without them, you don't get to the village" - he accredited two small merchants who earn less than 1000 reais per month to have bank terminals. According to Rebelato, from then to now, 100 accounts have been opened in Belém do Solimoes. One belongs to the merchant Juvenal Ramos Marcos, 32, who filled his first check ever in March when he bought food and beverages to be sold at his store. Now, he is negotiating a 4000 real loan with Bradesco to remodel it. (Marcos walked 1 kilometer to the nearest public phone to talk to EXAME.)
At the same time, bank executives signed an agreement with André Luiz de Araújo, owner of Voyager III, a 125 foot boat that carries about 200 passengers and 500 tons of items like beans and chicken to be sold along the banks of the Solimoes River, on a trip that takes eight days, leaving Manaus and going to the border with Colombia and Peru. Now, Voyager III also has an ATM where it is possible to pay bills, receive pension payments and Family Stipend monies, as well as an employee who speaks the Ticuna dialect. Data is transmitted to the bank by satellite. Of course, there is a clear marketing strategy behind this initiative. Ever since Trabuco took over at Bradesco, all communication has focused on the concept of presence. And putting an ATM on a boat in the middle of the Amazon could not be more symbolic. However, the fact is that in less than four months, 620 new clients were made by the bank on board Voyager III.
There are millions of Brazilians outside the market, in cities where Bradesco is and where none of its big competitors has arrived
TRABUCO'S STRATEGY SEEMS to make sense in a Brazil whose growth and development perspectives are catching the world's attention. But his critics point to the high cost. Clients earning less than 2000 reais per month are on average less profitable for banks than the elite. According to an estimate by the AT Kearney consulting firm, the profit margin for those closest to the base of the social pyramid is 3%, whereas those who earn more than 8000 reais per month generate nine times greater profitability. The low income population is profitable for banks when they consume credit cards and certain loans, such as auto loans. But to attempt to bankarize this population with traditional current accounts is a problem," says Rodolfo Spielmann, partner at the consulting firm Bain&Company. "Costs are high and average balances are low." It is quite probable that director Rabelato's trip to Belém de Solimoes will take some time to pay for itself - just like the investment made in Juvenal Marcos' market and in Voyager III.
Trabuco and his team know that, regardless of how enchanting they may be, classes C and D will not guarantee, on their own, Bradesco's growth and results into the future. Offices abroad are being expanded and resource management, private bank and foreign trade departments were created in London, New York and Tokyo. The investment bank - a fragile area because it is unable to compete in salaries with its main competitors - is hiring and moving up in the rankings, although it only made half the number of operations Santander did in 2009. Bradesco must grow in these noble areas to compensate for the poor margins from popular clients. And therein may lie the big challenges for Luiz Carlos Trabuco. These are the areas in which the need to modernize points in the bank's deeply rooted corporate culture become evident.
Changes are always traumatic at companies. There are always those who win and those who lose in these processes - and no one wants to be one of the latter. Cultural changes are even more painful, especially when you know that the traditional way of doing things helped keep the organization at the top for more than 50 years. At Bradesco, the reaction has been as predictable as possible. In recent months, the tense climate has spread through several layers of hierarchy. "We have never received this many emails from the presidency to say a director has left or that changes have been made in some area. No one knows what to expect," says an employee. Competitors say Trabuco "has created his own merger", in a reference to the insecure environment and the sense of urgency that seem to reign after two or more companies merge. "It is very common to hear the whispering in the hallways, that concern about the future," says a consultant in the loop at Cidade de Deus. "In that sense, they are not all that different from Itaú and Unibanco or Santander and Real. There is no tranquility advantage." According to those close to Trabuco, he has been planning the modernization of
Bradesco's management since even before he became president. In January 2009, when his promotion was announced, Trabuco began to hold meetings with bank leaders to discuss how to change. He reached the conclusion that the group had become less competitive and had rested on its laurels in some areas. A sign of that was the fact Bradesco had lost, in less than one year, the disputes for Unibanco and the Porto Seguro insurance company, also bought by Itaú.
A tense climate has spread about Bradesco over recent months. Competitors comment that Trabuco "has created his own merger"
Since he has taken over, Trabuco has reduced the bank's second level from 20 to 15 positions, instituted meetings between these executives and their subordinates - a heresy in an almost military command structure - to discuss strategy, changed area directors and created a training program at colleges abroad, something unprecedented at Bradesco where most executives, including at the highest ranks, do not have fluent English. His trips have been more frequent and include meeting with the 23,000 bank managers spread about Brazil. Succumbing to the Internet's new weapons, Trabuco created a blog to communicate with employees and he receives about 2000 comments per day. Talk of new changes can be heard in the hallways of Cidade de Deus, with another round of second level cuts. With the first restructuring of directorates, 15 executives began to report directly to the president, almost twice as many as the preceding president, Márcio Cypriano. "That's a lot of people, too much to manage," says a professional close to Trabuco. Who else should leave? Trabuco will most probably opt for a less painful approach. Seven executive directors at the bank will have to retire by 2014 after reaching the 65 year old age limit. It is speculated that not all will be replaced.
Some changes began to produce at least part of the results expected by Trabuco. The new weekly directorate meetings, for example, which no longer only involve second level management as in the past, and now include department directors, have become an open space to demand results. "I need something new to present every week. The demands are much greater," says a director. In January, without advising anyone beforehand, Trabuco asked his secretaries to call the directors to a meeting two days from then in the room on the bank's fifth floor, where the traditional big table is located. "I didn't know what to expect," says Nilton Pelegrino, director of loans and financing. Like most of his peers, he had been in his new position less than one year when Trabuco rotated function in almost every area. "I thought I was going to be tested. I asked my people to prepare a pile of more than 100 pages with everything going on in my area," he said. But Trabuco wanted ideas. In a way, what is happening at Bradesco today bears some similarity to IBM's restructuring in the 1990s. Not from a financial and market aspect. IBM was an obsolete company with quickly declining revenues. Bradesco is still one of the largest Brazilian banks and it profited 8 billion reais in 2009, third in the domestic financial market. The coincidences are in the culture. In such situations, the first big doubt is what to keep and what to change. The second is how to change. IBM needed an outsider, former director of McKinsey Lou Gerstner, to lead it to a new era in its history. Bradesco is trying to do that with a legitimate defender of its culture.
The new Board meetings have become and an open space to demand results, something uncommon in the past
In general, leaders can be divided into two large groups. Those who like to exercise power using a whip and carrot policy. And those who trust more in their power of seduction. Graduated in philosophy, Trabuco seems to be part of the latter. Since he likes to lead by consensus, he rarely makes a decision without discussing it with close executives. "He knows how to listen. Even when the discussion gets heated, he doesn't alter his voice or pound the table," said a professional who worked with the president for years at Bradesco. But when the decision has been made, he wants quick results. That is how he commanded the in-depth restructuring at Bradesco Seguros between 2003 and 2009. There were layoffs, strategy changes and restructuring of areas. At the end of his period at the company, Bradesco Seguros had become more profitable and was responsible for more than one-third of the bank's revenues. Internally, he is seen as a strategist, resembling Amador Aguiar, the first of Bradesco's four presidents thus far. "He is a planner and he has the bank's DNA, like Aguiar," says Dorival Bianchi, a former vice-president who worked with Trabuco for several years.
Despite the changes promoted over recent months, no one believes in a revolution at Cidade de Deus, and whenever he can, Trabuco makes a point of saying that is not the objective. "There are very few companies with truly strong cultures. Many companies seem to have bought ready-made definitions of values they are so artificial," says Professor Sigal Barsade, of the Wharton School of Business, at the University of Pennsylvania. Even its competitors recognize Bradesco is different. In order to valorize career employees, there is a tacit rule to never rehire someone who quit and not to search for executives on the market. (The exception was Bernardo Parnes, who came from Safra to run the investment bank and stayed for two years.) "In a way, the bank resembles the Catholic Church. You have to follow the rules and be an altar boy to become Pope," says Liliana Segnini, professor at Unicamp and author of a book about Bradesco. Most professionals arrive at the bank at 7 in the morning, could remain in the same position for more than a decade and have high regard for hierarchy. Even today, individual bonuses are not paid, only a participation in results proportional to one's position. The idea is that the best employees should be recognized by promotions. At the limit, everyone can become president of executive director - most in second level management have made their career there, starting from below. One must struggle - obstinate work and below market salaries - to get to paradise. But those who comply are awarded. Bonuses can reach 7 million reais per year per executive.
Despite their cultures and the management they employ, the large Brazilian private banks have very similar performances. They are present throughout the country and offer everything from insurance to financial applications to millions of clients. What differentiates them is the emphasis they give to certain segments. Itaú Unibanco is strong in managing fortunes, investment banking and some types of credit, like auto loans and cards. Santander stands out in personal loans, real estate credit and more recently investment banking. Banco do Brasil, which after four consecutive acquisitions began to be watched up close by the large private banks, has an expressive participation in the market for loans to large companies and payroll credit. Which of them will be able to make the most of the economic growth projected for the next ten years? Hard to say. Bradesco's plan is clear. Trabuco says: "If in ten years, Brazil is not among the six biggest economies in the world, if classes C, D and E have yet to emerge, if credit has not been disseminated, this will all indicate the country didn't make it." Not Brazil, nor Bradesco's strategy.