Financial centres - Miami spice

One of the standing jokes about Miami is that, as the northernmost point of Latin America, it's the region's closest city to the US. In fact, it's becoming more important politically, being the venue for recent negotiations between Honduras and Nicaragua.

As far as legitimate business was concerned, this was hardly a bonus until the late 1980s at the very earliest. Trade finance was conducted in Miami, and private banking took off towards the end of the 1970s, but not much else. And shaking off the image that even these businesses might not be wholly above board was very difficult. "Twenty years ago money-laundering was big beer for the banks here," says one banker based in Miami. "But you just can't do that now."

Oddly, what began the change was the debt crisis of the 1980s. New York- and London-based banks, which had extended their balance sheets to Latin American governments and institutions with abandon, very quickly pulled out. But banks in Miami stuck it out, and gained a lot of kudos for doing so.

Gathering momentum, Miami as a business and financial centre is now really making itself felt. A quick tour of the city confirms that. There are buildings going up all over the place. The one everyone talks about is the new Barclays building just off Brickell Avenue, the downtown financial district with views over the bay.

In truth, Barclays doesn't own it. The UK bank has simply negotiated the name, as well as occupying the most space so far ­ four floors in all. Barclays had outgrown its offices on Brickell Avenue. The development should be completed within the next two months, and will have not just offices, but also shops, restaurants, apartments and even a hotel. A resident might never have to leave the building.

In the same area, five different hotels are being built, all by the major chains. It's the first time since the 1970s that there has been building activity on such a scale. Present office space is over 90% occupied, and the hotels fill up quickly.

Why? Because, despite the nervousness around emerging markets in the last couple of years, Latin America has taken off economically and politically, and Miami has become the de facto regional centre. "The real reason Miami took off is because of Dadeland Mall back in the 1980s," jokes Federico Sacasa, managing director and group head of Latin America for Bank of America. "For many Latinos who came here, that was their first experience of what the US had to offer. They could buy almost anything they want."

This is Sacasa's third stint in Miami ­ he first came here in the mid-1970s, then the mid-1980s, and then again in 1998. "The region [Latin America] simply wasn't ready for much back in the 1970s," he says. "And in the 1980s, although coming out of the debt crisis, it was still fragmented. But now it's so different, there's a lot more confidence." Sacasa had run Bank of America's Latin American operations before, but out of San Francisco. When he was offered the post again in 1998, he accepted it on the condition that the centre of operations would be moved to Miami.

Several other banks have made similar moves in the last couple of years, especially the European banks. ABN Amro, Dresdner Bank, Standard Chartered and Lloyds TSB have each been beefing up their presence in the city.

"You'll get the same reasons for Miami's growing popularity no matter who you talk to," predicts Enrique Arias de Para, managing director for Latin America at Barclays in Miami. "And those are communications, language, cultural affinity, ease of travel and cost." Miami serves as the major hub to all Latin American countries: each major city is a direct flight away. It's also the major port for shipping goods to and from the region. 82% of what Florida exports goes there, mostly through Miami, and of the 20% of US exports which go to countries in south America, Miami handles roughly half.

Unlike its European peers, Barclays has been here in force for some time. Its office opened in 1981, at a time when the bank had no major office in New York competing for the same business. For all the bank's Latin American business, whether loans, commercial paper, or bonds, all structuring and origination takes place near Miami Beach, although London and New York deal with the syndication.

And the strategy has brought Barclays a great deal of success. Of the $8 billion in US commercial paper investment extended each year to Latin American financial institutions, Arias de Para says that Barclays is responsible for $5 billion. "We have three characteristics which have made us number one," he says. "We have the ability to front it, as we have the highest ratings possible for CP issues, we have excellent penetration in the markets, and we have the distribution channels."

It has also made a name as a well-respected underwriter of bond issues for sovereigns and financial institutions for the region, even if it's not the biggest.

The mainstay of finance in Miami has always been private banking. And so it remains. The most telling comment on how Miami's role and importance is changing comes from Camilo Patino at Coutts, NatWest's private banking division. "I'm head of the Miami service centre, and also head Coutts' wealth management business in Latin America. Ten years ago that job would have stayed in Zurich or London."

Down the road is Manuel Diaz. He set up the Latin American private banking business for Republic National Bank in 1981. Luckily there was no clash with HSBC, which bought Republic last year. Despite its extensive presence in emerging markets, and increasingly Latin America, HSBC hadn't got around to setting up in Miami, although it had been thinking about buying a retail bank, apparently. There are 89 employees in Miami, and Diaz plans to double the size within five years. By 11am the place is busy: most of the private meeting rooms are full, as is the reception area, so he may well manage it.

How has the business changed? Quite simply, it's got more complex. "The big question back when we started here was for how many months should we renew our deposits," says Diaz. "But now it's completely different. So many of our clients want more services, and are fully invested in both fixed income and equity products."

Back at Coutts, senior vice-president and head of investments Leonel Narea picks up on the same theme. "Clients no longer look simply to have their financial assets invested in three or four banks making the standard deposit rate. They are looking for performance, yield and diversification.

"They are overwhelmed with research and investment ideas from major banks and brokers, just as if they were small institutional managers, and they look to us to guide them through the investment decision process."

New economy hits the beach

Let's not forget the attraction of Miami itself: a great climate, aside from two stifling months in the summer, less hectic and in-your-face than New York, and much cheaper. For a four-bedroom house in New York you might pay $1.2 million; in Miami, less than $200,000.

Taxes are lower, too. No wonder that, as the role of the city as a business centre picks up, so many more bankers and business people are happy to move here, such as Narea, who moved at the end of last year after spending over a decade in New York working for investment banks, most recently ING Barings.

"We're trying to brand Miami, Palm Beach and Broward Counties as the internet coast," says John Cordrey, vice-president in research and strategic planning at the Beacon Council, the economic development council for Miami and Dade County. "And we've been targeting the message to European companies, promoting Miami as the gateway to Latin America." Most recently, the council has been talking to Spanish banks and telecoms companies.

Last year Softbank, one of the major venture capitalist firms specializing in e-commerce, opened an office in Miami. Many if the internet companies targeting a Latin American audience are relocating to Miami, or, as start-ups, are beginning there. Starmedia, which is pushing itself as the Yahoo! of Latin America, has a big presence, even if its headquarters are still in New York. Yahoo! itself announced at the end of February that it is moving its Latin American operations down to Miami.

Other dot coms which have announced plans to relocate there include Latinstocks.com, Mercado Libre, and Decidir. El Citio, Patagon.com and Zona Financiera are examples of ones which already have.

And who is to be found wherever there are dot coms and e-commerce venture capitalists? The developers of hardware and software: IBM moved its Latin American operations to Miami last year, as did Lucent Technologies. "The dot coms have real input," says Sacasa. "They've quickly become part of the landscape."

It's easy to get carried away with all these developments. Miami is never going to rival New York for providing capital markets services to Latin America. Some, such as Barclays, might base a portion of their business there, but US banks such as Citigroup, JP Morgan, Merrill Lynch and others with a big presence in the region still run things out of New York or London.

But it has become the hub for Latin America in all manner of ways, and not just for ease of access. There is such a mix of cultures there now.

The Cubans may still be the dominant force but virtually all the countries are well represented, including Brazil, whose citizens have been the latest to discover the city's possibilities. They've been buying real estate, setting up restaurants and shops and, with over 200,000 living there now. Portuguese has become the city's third language.

It's the Latin Americans who perhaps have noticed the changes most. "When I got here in 1993, it was when the major US institutions were just beginning to lend to the region again," says Marcos Pereira, general manager of Brazil's Unibanco and also first vice-president of Fiba ­ the Florida International Bankers' Association.

Pereira recalls: "We were being asked the most basic questions, such as who is the president or finance minister, or what sort of political system do we have. Now we have much more in-depth discussions about internal politics."