Latin America: MBA looks to graduate with regional honours

IT’S A SCORCHING February afternoon in Buenos Aires’ Plaza de Mayo, and even the protesters seem exhausted. Evita and the Peronists once gathered here; the place has seen bombings, riots and countless rallies, but today’s demonstration against unemployment is tempered by the oppressive heat. It has been five years since Argentina defaulted. Although today’s weary flag-wavers and drum-beaters are correct in proclaiming that poverty is still rife, it is also true that president Néstor Kirchner has just overseen four consecutive years of 8%-plus growth. The debt to the IMF has been repaid, and as Argentina renegotiates its relationship with the international capital markets there are signs that its domestic markets are awakening from their own torpor. In the huge open-plan office at the heart of MBA Inversiones, an Argentine investment bank partnered with Lazard, teams of bankers loosen their ties and work the phones furiously: ignore the heat, there’s money to be made.

"Our aim is to be the best investment bank in south and central America," says Santiago Alsina, the bank’s director of corporate finance. Brazil is excluded from this ambition: Lazard operates on its own there, and, Alsina says, it is a "tough market, the tax structure’s a nightmare and it’s hard to get results. We prefer to focus on other countries for now: we’ve opened offices in Chile and Panama, and in the next 18 months we’ll open in Colombia and Peru. The corporate finance business comes first, then we open our asset management and treasury services once we’re established in a new country."

Alsina is energetic and charming, breezing into the meeting room, apologizing about the heat, illustrating his explanation of the bank’s ambitions with sudden sweeping hand movements. As a local house with international ambitions, MBA had no choice but to remain in Argentina in 2001 when many of the foreign banks were pulling their teams out in response to the default. According to Juan Martín Molinari, manager of sales and trading: "In the crisis many of the local banks with retail operations had to concentrate on their own problems. MBA capitalized on the situation: we spent a year visiting three or four companies a day, most of which were grateful to hear from a bank during such a tough time."

Now the foreign banks are back, and winning mandates: a glance at the league tables for Argentina’s recuperating M&A, debt and equity league tables shows usual suspects such as Citigroup, Goldman Sachs and JPMorgan occupying the top positions. M&A boutiques have proliferated, as Alsina ruefully acknowledges. "Other Argentine investment banks don’t really compete for the big M&A mandates, but there are at least 30 boutiques that target the mid-size deals aggressively and are a serious threat to us because they are often happy to work without a retainer, or for lower fees than we would ask," he says.

Argentina’s capital markets are reawakening as foreign companies reinvest in Argentina and a handful of local firms seek to expand abroad. However, there are still relatively few deals. "The credit market in Argentina is just 11% of GDP," says Martin Castellano, chief adviser to the governor of the Central Bank of Argentina. "Before the crisis it reached over 25%, so there is still a lot of room for the financial system to develop now that the fundamentals are in place." Still, Citi was able to top Dealogic’s league tables for M&A transactions with Argentine involvement in 2005 and 2006 with just six and four deals respectively.

With an increasing number of banks and boutiques chasing these few deals, the market is becoming more competitive. Although some of MBA’s deals might not have been eligible for inclusion, it is still noticeable that the bank doesn’t appear in Dealogic’s top 10 M&A houses for Argentina in 2006. Its tally of clients and mandates for 2005 lists a solid total of 19 transactions. However, they are almost all M&A related despite the bank’s aspirations towards being the complete investment bank with debt and equity services. How, then, can Alsina justify the claims made for the bank in our interview and in MBA’s promotional literature, that it is "the best investment bank in Argentina"?

"Well," he says, "I think our corporate finance team is the largest in Argentina. We have 10 professionals working on the restructuring business, and 10 working on M&A. I’d say we were in eight or so of the year’s top 10 M&A deals. I think that some of our rivals tend to have much smaller teams, and since they haven’t been in Argentina for 20 years, as we have, they have to pull bankers from elsewhere to handle the larger deals."

Innovation

Of course it could be argued that it’s not the size of your team so much as what you do with it that counts, and Alsina is quick to rebut the suggestion that foreign banks might be able to leverage their international talent pool’s expertise to offer a more sophisticated service. "We like to think of ourselves as innovators," he says, going on to describe the execution in just 15 days of the $375 million sale of Banco Frances’s shareholders’ 30% stake to BBV in 1996 as an example. A lack of speed is a key problem in Argentine M&A, Alsina says: "Unless a hedge fund is involved, it can take one to two years to complete a transaction."