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Credit Suisse To Buy Up To 35% Stake In Brazil’s Digital Bank Modalmais

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Credit Suisse (CS) has entered into a strategic agreement that allows the Swiss Bank to buy preferred shares equivalent to up to 35% of the total capital of Brazil’s digital bank modalmais.

Under the terms of the agreement signed with the controlling shareholders of modalmais, the two parties will work together to explore synergies between their investment services and products. The transaction would also provide the Swiss bank with the opportunity to offer its wealth management services to modelmais’ almost 1 million clients in Brazil. Other terms of the deal regarding the timeframe weren’t disclosed.

“This announcement underlines our strong commitment to our Brazilian clients and our growth ambitions for this priority market,” said Philipp Wehle, Credit Suisse CEO of International Wealth Management. “This transaction further enhances our ability to serve our clients digitally while getting access to additional client segments in a fast growing environment."

Through its digital platform, modalmais provides access to more than 400 funds of some 140 managers, with a total of 700 products available to investors. It also offers banking services such as salary accounts, credit cards, foreign exchange, payments and leverage from financial assets held in custody.

The announcement comes as rival XP Inc. (XP) reported that it saw a preliminary 13% increase in assets under custody (AUC) this quarter with monthly inflows and client base rising as well. The Brazilian digital retail broker said that the market volatility during the coronavirus pandemic and record-low interest rates in the country attracted more client interest.

Credit Suisse shares have soared some 55% since mid-March and were trading at $10.35 as of Tuesday’s close.

HSBC analyst Piers Brown downgraded the stock to Hold from Buy with a price target of $9.5, saying that he believes that Credit Suisse is "less defensive in current environment," and prefers UBS (UBS), which he maintains a Buy rating on.

Overall, Wall Street analysts are sidelined on the stock. The Hold consensus shows 4 Holds versus 1 Buy. The $9.54 average price target implies 7.8% downside potential over the coming year. (See Credit Suisse stock analysis on TipRanks).

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