Two of Brazil largest banks, state-run Banco do Brasil SA (BBAS3.BR) and Banco Bradesco (BBD, BBDC4.BR), Tuesday agreed to create a new credit card company to compete with Visa and Mastercard locally.

Each bank will contribute existing credit card assets to the new firm, to be called Elo, which will start off being worth 15 billion Brazilian reals ($8.5 billion).

The banks hope to wrestle 15% of the credit card market away from Visa, Mastercard and other competitors over the next five years, said Marcelo Noronha, Bradesco's card's department director. He sees the local card market growing around 60% over the next five years to 800 million cards.

Bradesco, Brazil's No. 3 bank, will have a 50.01% stake in the joint venture, while Banco do Brasil, Brazil's No. 2 bank, will have a 49.99% share.

Over the weekend, two banks agreed to assume joint control of Cielo SA (CIEL3.BR), Brazil's No. 2 credit card networking company. As a result, the banks will have few problems getting its cards accepted by stores and companies, said Link Investimentos in a report.

Visa International also has a stake in Cielo.

Elo will construct a new platform and the partial merger of card operations will generate synergies of BRL1 billion, forecast Bradesco's Noronha.

The central bank has been pushing for the creation of a new locally owned credit card company.

Between them, Banco do Brasil and Bradesco have a debit and credit card portfolio of approximately 220 million cards.

-By Rogerio Jelmayer, Dow Jones Newswires; 55-11-3544-7071; rogerio.jelmayer@dowjones.com
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