Competition heats up in Brazilian investment banking

LEADING SWISS BANKS Credit Suisse and UBS continue to fight for the investment banking crown in Brazil. In Euromoney’s Awards for excellence 2007, UBS took the top prize in the equity and debt markets and Credit Suisse was top for M&A. The league tables tell a similar story.

But competition is increasing and it looks as if the two-bank battle will be joined by several other contenders. A walk past the skyscraper office blocks of Faria Lima and Avenida Paulista in São Paulo indicates that few international investment banks are missing. Everyone wants a piece of the Brazilian pie. "Brazil is a big market opportunity and so all the major international banks want in. The market is dominated by a few major players, with competitors only having a marginal involvement and commitment to Brazil," says Antonio Quintella, country head for Credit Suisse in Brazil. But this could be starting to change.

Falling interest rates, impressive regulatory improvements, a consumer drive, a growing middle class and stable politics have combined, along with many other factors, to make Brazil a sweet spot in emerging markets, with the perfect environment for investment banking activity. Winston Fritsch, head of Lehman Brothers in Brazil, is confident. "Nobody can hold over half of the total market for ever in Brazil," he says. "We are a competitor in this market now, and it is likely to become a lot more fragmented in coming months as the competition hots up." Other banks that have expanded their investment banking presence in recent months include Société Générale, Goldman Sachs and BNP Paribas, through its subsidiary Cetelem.

An uphill struggle

But competition for clients is stiff. "We face a dual portfolio of competitors in this market – we have the local banks with their local ties setting up investment bank branches, as well as the international banks flying in to get a piece of the action," says Alexandre Aoude, country head of Deutsche Bank in Brazil.

The local banks are also joining the game. Itaú BBA is starting to reach a reputable level in the markets and Bradesco BBI, a full subsidiary of Bradesco, the largest private bank in Brazil, is growing fast and snapping at Itaú’s heels. Bradesco BBI has Bernando Parnes, the previous head of Merrill Lynch in Brazil, at the helm of its burgeoning investment banking business.

One of Parnes’s focuses is on increasing his bank’s distribution arm as fast as possible. It has a sales and trading platform in New York already and is opening one in London soon. According to Parnes, Itaú BBA and Bradesco BBI are the only local Brazilian banks to have a true securities oriented platform in London.

But despite their valiant efforts to increase distribution, the local banks are clearly facing an uphill struggle. "Certain clients need deep global distribution, which gives to the international banks a competitive advantage. One big differentiation between us and the locals is the size of our global reach," says Ricardo Stern, the country head of JPMorgan in Brazil. The CFO of Brazilian airline Gol, Richard Lark, agrees: "We use the international banks for our financing deals because they have the wider distribution networks. They have an advantage over their local counterparties because of the depth of their contact books – for example, JPMorgan has a distribution network that is able to cope with very large deals."

Parnes only partly agrees. "It would be ignorant for me to think we could have the same global distribution network as the international banks but in this market there are only 200 to 300 investors that are dedicated to emerging markets – we can reach them," he says. "I think that the only reason that some international banks are ahead of us is because they started working in this market earlier than us."

"We use the international banks for our financing deals because they have the wider distribution networks. They have an advantage over their local counterparties because of the depth of their contact books" Richard Lark, Gol