News

Banks stick with Brazil

Despite their mounting woes, several US and European banks claim that they remain committed to Latin America, especially Brazil, according to their regional heads, although some are paring down their presence.
"Any thoughtful observer should see that Brazil is one of the most important core economies in the world and we need to get it right. We are deeply committed to Brazil," says Chris Harland, vice-chairman and head of Latin America at Morgan Stanley.
Despite a slowdown in consumer spending in Brazil and a record 650,000 job losses in December, bankers remain optimistic about Latin America’s biggest economy. Brazil’s predominantly locally owned banks are mostly solvent, with a capital adequacy ratio of about 14%, above its Basle benchmark of 11%. In addition, quick government action, including that taken by state development bank BNDES, has helped inject liquidity into the financial system. Policymakers are still confident that the economy will grow this year at a rate of between 0.8% and 2%, despite the deepening global recession.

Outstanding candidates
Deutsche Bank and HSBC are also confident about Brazil and plan to put their money where their mouth is by making new local hires. "We believe this is a very good time to be speaking to people who we could add to our growing platform in Brazil – we are seeing some outstanding candidates," says Stephen Cunningham, head of corporate finance and M&A for Latin America at Deutsche Bank. "We are in a couple of serious conversations with bankers in Brazil at the moment." The bank has already hired a former Credit Suisse banker. In August, the German bank wooed Bernardo Parnes from Bradesco BBI, which he headed.
 
"I think those that have not invested in Latin America yet will see it as a good value opportunity now and will want to make sure they are able to participate in the coming regional rebound," says Cunningham.
Standard Chartered too is making moves in the region in an attempt to grasp opportunities from the trade flows between Latin America and the bank’s core markets of Asia, the Middle East and Africa. At the end of 2008 it bought Lehman’s former Brazilian offices and last month it hired four senior traders. The new hires will report to Mohammed Grimeh, the former head of emerging markets at Lehman Brothers, who joined Standard Chartered at the beginning of the year to head trading and be deputy head of global markets, Americas.
In contrast, certain banks are selectively paring back their Latin teams. Merrill Lynch’s Latin America chairman, Carlos Gutierrez, left the firm last month. The loss of such a senior veteran banker raises further questions over what will happen at the bank’s Latin franchise after its takeover by Bank of America.
Credit Suisse and UBS have reduced their numbers covering the region, although key senior personnel at both banks remain. JPMorgan lost two senior regional bankers as well as Cynthia Powell, head of emerging market syndicate in New York, at the end of 2008.
The bank is now pushing ahead with its plans to increase its local presence. "We sent four bankers to Brazil at the end of last year, and one to Mexico last month. Overall, we have trimmed down the headcount to be in line with new market realities," says Nicolas Aguzin, chief executive for Latin America at JPMorgan.

Citi continues to feel the heat. Many senior bankers in New York doubt that the US government will support Citi in using any of the $45 billion of Tarp funds for large loans in Latin America, although officials at the bank say the region is intrinsic to its future.
"Despite the issues within the industry, I think something noteworthy is the fact we have stayed the course – we haven’t upped stakes," says Chris Gilfond, head of debt capital markets for the region at the bank.
"Latin America as a region is in good shape and we are very committed. The whole street is refocusing on their core businesses and at Citi, Latin America is in our DNA, having been in some countries for over a decade. Latin America is our roots – it’s one of our core businesses. In times of stress you protect the businesses that are doing well."
Latin America was the only region to make a profit for Citi in the fourth quarter, albeit just $6 million, while it accounted for 48% of the bank’s total revenues. With the US government throwing Citi a lifeline through its capital injections, there is an argument that the best way for US taxpayers to realize any of their investment is by making sure that the bank’s most profitable businesses, including Latin America, continue to be supported.
All of Citi’s Latin American businesses are held in CitiCorp, the unit that includes the bank’s core assets, although some bankers believe that Vikram Pandit, the bank’s chief executive, will have to sell some of these assets to raise more capital. The whole of Citi’s Latin franchise, including its Mexican operation, Banamex, is worth up to $50 billion, according to a senior banker at a rival firm. Other bankers think that a deal to sell Banamex could present other problems for Citi as it is too woven into the fabric of what the bank is in Latin America. Citi told Euromoney at the end of last year that it remained committed to Banamex. If the US government stake in Citi rises above 40%, the Mexican government will force it to sell Banamex.
Balance sheets
Despite the banks’ bravado, the way they can prove their commitment to the region is by deploying capital. HSBC is now frequently named as the one bank using its balance sheet at all aggressively, although other banks continue to make their presence felt.
"We continue to support our clients with capital in many ways," says Charles Stewart, head of investment banking, Latin America, at Morgan Stanley. "It might be event-driven like bridge loans or in the form of extending credit as a derivatives counterparty. We realize that credit is very important to a lot of clients. While we do not always lead with our balance sheet, we are very open to use it in the right situations."
Gilfond adds: "We are going to focus on the core clients. The landscape is less competitive, we do have firepower and we are still able to write big cheques. Where there is a key client that needs capital for a transaction that makes sense, we will absolutely support them."

 

Euromoney - 01 Mar 2009