Brazil private banking debate: Brazil’s private banks adapt to a changing economy

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Wealthy Brazilians’ traditional dependence on positive real interest rates for investment returns has been undermined. Euromoney’s roundtable of private bankers discusses how wealth managers are developing new investment opportunities for their clients and how those clients are responding.

Brazil private banking debate participants

EXECUTIVE SUMMARY

• In 2013 to date growth of assets under management has slackened compared with 2012

• Clients are nervous about returns in view of falling real interest rates resulting from lower rates and rising inflation

• Clients are therefore showing greater interest in equities, including investment abroad

• However, volatility makes them cautious about switching investments

• But a growing proportion of allocations are to assets other than fixed-income funds

• Investors are still keen to maintain relatively high levels of liquidity

• Capacity limits in Brazil are a spur to overseas investment

• Inside Brazil, most wealth management houses are expanding organically – via opening regional offices – rather than through acquisitions



Rob Dwyer, Euromoney Let’s start with a quick review of the past 12 months and projections for the next year. Flavio, I know last year Itaú was projecting 20% growth for the past 12 months. Was that accurate?

FS, Itaú No, it was a bit lower than that. The local market in Brazil, based on the official statistics from Anbima [the Brazilian Financial and Capital Markets Association] grew by 16% and Itaú is in line with that. For the next 12 months we are projecting growth in the range of 12% to 18%. The mid-point of that projection – 15% – is in our view a good reference and our budget is based on 15% growth.

Euromoney João, you were most optimistic last year, with a budget of 30%. Did you achieve that?

JAW, Bradesco Last year, yes. In the past few years, as we all know, the private banking industry in Brazil grew about 22% a year and we managed to be a bit above that. We revised our numbers for 2013 and it is pretty much the same as Itaú – 15%. If we achieve 15%, we will be happy. In the first quarter the industry grew by only 1.56%. I believe it was the lowest quarter ever, since Anbima started to measure the numbers.

In the past three years there were a lot of M&As, which drove wealth generation, but we haven’t seen this in 2013.

EF, UBS Our case is different. Since we came back to the Brazilian market only two years ago, our base is much lower. Our growth was almost 40% last year, and this year we are expecting 20% to 30% growth. In the first two quarters of the year growth was around 25%. Our projection is that the next few months will be a bit more difficult since clients are in a wait-and-see mode at the moment, but we will still have good growth this year.

MA, CSHG We had a strong 2012 and grew more than 35% last year. In the past 12 months we have grown 28%, but looking ahead we see more normal growth, by which I mean there won’t be the same drivers of growth that we saw in the past, such as stock-picking opportunities and a booming real estate market. The pipeline for net new assets is still good, and we expect to grow about 20% in 2013.

RP, BTG Pactual Last year, BTG Pactual’s assets under management grew 30%. In the past three years our compound annual growth rate was about 27%, which is about the average for the past three years. As everybody has said, this year things will be a bit different. It is a tough market, so we are projecting 15% to 20% figures for 2013. It has been a very tough first quarter for the industry as a whole; it became flat basically. We are projecting higher growth in revenues than AUM as we have had much higher compounded annual growth in revenues in the past few years.

Euromoney How are clients reacting to the macroeconomic environment? Brazil has had falling yields, a falling Bovespa, falling investment, GDP being revised down and a negative ratings outlook. Is there a new normal in expectations for portfolio return?

JAW, Bradesco Our clients are nervous like never before. Of course, in the past we have had decades with high inflation, but in the recent past inflation was normal by global standards and yet interest rates were still very high in Brazil and people became used to having high returns. Clients are now concerned that the money they have today will not be enough for them if they live to 75, 80 or 90 years of age. People are living longer. So it is a huge, new education process, and in my opinion the education starts at the bank, with our bankers. We also got used to the environment of high interest rates, liquidity and low risk, but this is over.