Portuguese Banking: Carving out a new role
Portugal first appeared on most investment banks' radar screens in the mid-1990s, when the government's privatization policy began - although a few like Deutsche have been there much longer. Despite extreme efforts, these banks are still struggling to find clients.
Lending to Portuguese corporates should, in theory, be an ideal loss-leader for foreign banks looking for relationships, particularly now they no longer have to take exposure to the escudo to do that lending.
In practice, local banking and corporates have so much liquidity of their own that demand for foreign banks' loans is next to nil. Lending margins are low. One foreign banker reckons that banks typically make only between one-eighth and three-eighths of one percent on their loans.
Currency swaps used to be a reasonable business until this January, when Portuguese corporates gratefully abandoned the escudo for an incomparably more liquid new currency. That pared down the currency swaps business to a tiny fee-earner, so foreign banks no longer care to offer a currency-swaps business in Lisbon. Most have transferred that business to Madrid or London or withdrawn it altogether.