(New throughout, adds GetNet talks, comments, updates share performance)
By Guillermo Parra-Bernal
SAO PAULO, March 19 (Reuters) - Banco Santander Brasil SA expects to conclude the buyout of card payment processor GetNet Tecnologia SA in the second quarter, a senior executive said on Wednesday, a move that should boost the footprint of Brazil's largest foreign lender in a fast-growing sector.
The São Paulo-based lender and Ernesto Corrêa da Silva, GetNet's controlling shareholder, are finalizing details of the deal, with the most important aspects already agreed upon, said Conrado Engel, Santander Brasil's executive president for retail banking. He declined to elaborate on the value and other terms of the deal.
Both parties began discussions in July over the purchase of Corrêa's stake in GetNet, a financial institution known as a merchant acquirer in Brazil, which processes credit or debit card payments for merchants and also deals with receivables and payments from card-issuing banks.
GetNet controls about 6 percent of Brazil's $300 billion card payment processing industry. Larger rivals Banco do Brasil SA, Itaú Unibanco Holding SA and Banco Bradesco SA control a combined 90 percent of the market directly or indirectly through their merchant acquiring units.
"Certainly that deal will be concluded during the second quarter, I have no doubt about it," Engel said on the sidelines of a Santander Brasil event with shareholders. "All this is happening - the timetable, the talks - as expected."
Santander Brasil recently divested fee income-earnings business lines such as insurance and asset management, and the decision to integrate GetNet into its platform marks a step back from this strategy. It also underscores the bank's goal to win market share in merchant acquiring, which has grown at compounded average growth rates close to 20 percent in the past five years.
Analysts have said that Santander Brasil is likely to pay a fat premium to buy out Corrêa, since GetNet's contribution to the lender's earnings is larger than the stake Santander Brasil owns in the unit. GetNet is also a key tool in Santander Brasil's intention to grow in retail banking, which has struggled in the wake of aggressive competition from state-run banks and a jump in defaults in recent years.
Units of Santander Brasil rose 2.1 percent to 11.67 reais on Wednesday. The units, a blend of Santander Brasil's common and preferred shares, are down 11.2 percent in the past 12 months.
This year, the outlook for the bank's retail segment business looks more promising than in 2013 because lending spreads are unlikely to narrow significantly and delinquencies will remain stable at the very least, Chief Financial Officer Carlos Galán said at the event.
Santander Brasil's plan to increase debt and reduce excess capital will eventually help the lender deliver higher levels of profitability, Galán added. The program, which was announced in October and allowed the bank to distribute 6 billion reais ($2.6 billion) in dividends by taking on an exact amount of debt, will gradually yield the expected results, he noted.
Capital regulatory ratios at Santander Brasil remain above the average of Brazil's banking system, allowing the bank to expand organically or through other means, including mergers and acquisitions, Galán added. The bank still has about 9 billion reais to book from goodwill amortizations stemming from prior acquisitions, Galán said.
"This capital optimization plan that we concluded in January ... will help us tackle our bank's biggest Achilles' heel, profitability readings," Galán told investors.
Santander Brasil's return on equity, a gauge of how well the bank spends shareholders' equity, is the lowest among Brazil's four largest listed banks. Analyst Carlos Macedo of Goldman Sachs Group Inc said one reason is that Santander Brasil did not reinvest proceeds from the divestment of the insurance and asset management units in activities that produced a higher return.
The strategy of integrating non-bank businesses such as GetNet into the mix is more attractive from a return and risk perspective, Goldman's Macedo said in a recent client note.
$1 = 2.33 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Jeffrey Benkoe and David Gregorio