Latin American Awards for Excellence 2012: By country

Argentina

Best Bank: Santander Rio
Best M&A house: Credit Suisse

Despite strong recent GDP growth (8% in 2011) the Argentine financial system is under increasing pressure. Since president Cristina Kirchner introduced new capital controls in October 2010, $3.5 billion in foreign-currency deposits – mostly US dollars – has left the banking system. Argentines, remembering the forced conversion of dollar deposits into pesos in 2002, and seeing a widening gap between the official and unofficial dollar conversion rates, are shunning the banks in favour of hard assets, such as real estate, or storage under the mattress. However, the outflows are unlikely to pose a systemic risk to the banking system as foreign-currency deposits account for about 20%, with the rest – peso deposits – totalling Ps484 billion ($107.8 billion).

In this mixed operating environment Santander Río defended its position as the leading – and the best – private-sector bank. It is the market leader in loans to the private sector, deposits from the private sector and mutual funds, with market shares of 8.8%, 9.7% and 12.7% respectively. It is the second-largest provider of mortgage loans (with a 7.6% share), credit cards (14.9%) and personal loans (7.8%). The bank, which is ready and willing to come to the market with an IPO should market conditions ever become favourable for an Argentine-based financial institution, increased revenues by 20% and net income by 5% to $406 million. It has a healthy tier 1 capital ratio of 19%. Its return on equity is 43.4%, its cost-income ratio is 46% and its fees-expenses ratio is 87%, all of which are the best of the top-five private-sector banks’ figures.

The government’s unorthodox approach to the economy – most notably its expropriation of YPF in March this year – had a big impact on the demand for investment banking services. In the awards period no bank underwrote more than $1 billion in DCM or $500 million in ECM. With such thin volumes it is impossible to establish a market leader. However, in M&A Credit Suisse narrowly beats JPMorgan. Although JPMorgan had higher volumes in the country’s M&A league tables Credit Suisse acted as sole lead for either the target or the acquirer in four of the five largest deals, including advising Grupo Petersen in its acquisition of 10% of YPF SA, and acting for the target in Ternium’s acquisition of 27.7% of Usiminas. Credit Suisse also advised Argentine airport retailer Interbaires in its acquisition by Swiss travel retailer Dufry.

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Bolivia

Best bank: Banco Mercantil Santa Cruz

Bolivia’s financial system enjoyed a profitable year, improving as a whole its performance ratios in terms of asset quality, profitability, liquidity and solvency.

The most profitable bank is Banco Mercantil Santa Cruz, which marked two Bolivian milestones in the past year: the bank’s loan portfolio exceeded more than $1 billion in the first semester (a growth of 22.8%) and the bank also accumulated more than $2 billion in assets by the end of 2011. Net profit rose 5.7% and return on equity rose to 23.4%

The bank continues to improve its previous weakness in NPLs. NPLs are now 3.42% of the bank’s total loan portfolio, having been above 6% two years ago. Furthermore, loan-loss provisions cover 100% of the NPL portfolio.

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Brazil’s banks have entered a new operating environment in recent months, with slowing credit growth and falling interest rates adversely affecting what has been a fantastic banking market in recent years. The full effects will not hit the banks’ balance sheets until next year and it will be interesting to see which banks adapt best to the tougher operating environment. Bradesco is entering this brave new world in best shape, having outperformed the rest, and therefore wins this year’s award for excellence for best bank in Brazil.

For the 12 months ending March 31 2012 the bank’s net interest income stood at $22.3 billion, 17.1% up on the previous 12 months. Bradesco’s total assets were $433.3 billion, 16.9% up on the previous year, and adjusted net income climbed by 8.8%, from $5.7 billion to $6.2 billion, fuelling an increase in earnings per share from $1.49 to $1.62. Bradesco’s return on average equity was more than 21%, underlining the extent of its value generation during this period. Seventy percent of net income came from banking while the bank also enjoys a diversification of revenues from its insurance division, which contributed the remaining 30%. The insurance arm gives the bank plenty of opportunity for growth and cross-selling opportunities. In the past year this division grew by 23.7% to reach revenues of $21.5 billion.

The bank met its biggest challenge with success: it invested heavily to increase its network following the loss of its right to operate Banco Postal – adding 11,782 points of service and 8,353 employees – while at the same time maintaining its efficiency (IEO) ratio at 42.7%.

The bank is also leading the market in the increasingly important task of managing the quality of its loan portfolio: Bradesco’s NPL ratio (for loans over 90 days) in the fourth quarter of 2011 was 3.9%, with Banco do Brasil, Itaú Unibanco and Santander Brazil reporting ratios of more than 4%. And analysts believe Bradesco is likely to retain its leadership in this area. A recent equity research report from Espírito Santo Investment Bank says: “In relative terms, asset quality may bring good news in 2012. Bradesco’s loan portfolio is well diversified and, as a consequence, we think it has the lowest risk in comparison with its peers. The fact that large companies represented 38% of Bradesco’s total portfolio, individuals 31% and small and mid-sized companies (SMEs) 30% as of December 2011 has led us to estimate the lowest increase in loan-loss expenses (19.7%) in 2012 of the banks in our coverage universe.”

Bradesco BBI is also making strong progress in investment banking but is playing catch-up to its domestic rivals, BTG Pactual and Itaú BBA, the latter of which wins the award for best investment bank in Brazil. Itaú has beaten domestic and fierce international rivals across the board during the qualification period. In terms of numbers it dominates: it can claim top ranking in league tables for Brazilian ECM, M&A, local fixed income, international fixed income (in terms of number of deals) and project finance. Its one weakness is in secondary equities volume where it is ranked fifth (Credit Suisse is ranked first by CBLCnet).

In an admittedly quiet year for ECM Itaú participated in four of the five largest deals, including Gerdau, TIM, Magazine Luiza and EDP. The only missing mandate was Qualicorp’s $680 million IPO. The bank also bookran 85% of the total volume, working on 10 transactions, two more than Bradesco BBI and four more than BTG Pactual. Itaú also continues to strengthen its research division and the bank had 13 of its equities analysts ranked by Euromoney’s sister publication, Institutional Investor, more than any other investment bank operating in Brazil.

Itaú was also very active in M&A, working on 43 transactions with a combined volume of $27.8 billion – more than any other – including high-profile deals such as advising Droga Raia in its merger with Drogasil. It also advised Grupo EBX in the sale of a 5.63% stake to Mubadala, and Brasil Warrants, controller of CBMM, in the sale of 15% to a group of investors.

Itaú also continued to win DCM mandates – both local and international. The bank led 48 local deals, worth R$10.4 billion ($5 billion), a 29% market share – almost double that of second-placed BTG Pactual – and bookran 11 international deals worth a combined R$2.7 billion – a market share of 31% just below that of top-ranked JPMorgan, which won 34% market share.

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In December 31 2011 Banco de Chile posted net income of Ch$429 billion ($853.8 million), 13% more than the year before, and it is the most profitable bank in the financial system, with a return on average equity of 23.7%. The bank was also the leader in total loans, with a market share of 19.8% – growing its total loans by Ch$3 trillion, up 21%. The retail segment grew by 23.3% in mortgage loans and 19.2% in consumer loans.

The bank demonstrated its financing ease with a registered debt shelf of $750 million and placed $110 million in the Mexican capital markets in the fourth quarter of 2011. Banco de Chile also entered the MSCI Emerging Market Index in December 2011 – a result of its free float, performance and trading volumes.

Banco de Chile’s investment banking division also had a good year – as did local independent Larrain Vial – and both came into close consideration for the best investment bank in Chile award. However, the winner, JPMorgan, claims the award for its continued strength across all investment bank categories and leadership in quality of international capital market transactions and cross-border M&A. So while the locals are becoming increasingly competitive JPMorgan was a lead debt underwriter for four Chilean issuers that tapped the local markets – equivalent to $1.5 billion – including Arauco and Enap’s benchmark international bond offerings at their respective lowest-ever coupons and Automotores Gildemeister’s debut offering of high-yield paper.

In ECM, JPMorgan led CFR Pharmaceutical’s $375 million IPO, the largest Chilean IPO during the awards period. The 144A/ RegS deal had the highest percentage of participation of foreign investors in a Chilean offering and was the first international equity offering by a pure pharmaceuticals company in Latin America.

The bank also maintained its leadership in M&A in Chile, having executed more transactions than any other bank. Examples of JPMorgan’s deals include its role in advising Grupo Sura in its acquisition of ING’s pension fund assets in Latin America for $3.6 billion – a transformational deal in the Chilean financial services market. The bank also advised Embotelladora Andina in its merger with Embotelladoras Polar for $1 billion and Marubeni Corporation’s 30% acquisition of Antofagasta’s Antucoya project for $350 million.

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Colombia, with GDP growth last year of 5.7%, is one of the hottest markets in Latin America. Whereas Brazil’s GDP growth has been seesawing between bouts of boom and slowdown, Colombia’s sound macroeconomic management has helped the economy purr along at an average growth rate of 3% to 4% for most of the past decade. As a result, the banking market has become increasingly attractive to new entrants and valuation multiples – especially of financial institutions – have been higher than anywhere else in the region. The domestic banking market is set to grow strongly but will be an interesting and competitive arena in coming years. Last year, though, the leading bank in the sector, Bancolombia, extended its market leadership.

Bancolombia’s results show why these multiples are so high: its deposits grew by 21% in the past year (its market share is now 19.8%) and its loans rose 27% (to a 23% market share) while the NPL ratio is 2.2%. Total revenues grew 14.3% and operating profit rose 15.8%. Return on equity stands at 20.2% and return on assets is 2.2%

The bank also made advances in its investment banking activities, bookrunning large volumes of DCM and ECM transactions and advising in M&As. However, JPMorgan did enough to hold off its challenge – and a strong year from another independent local, Corredores Asociados – to take the award for best investment bank. While the locals demonstrated their strength in the ECM category none can yet match JPMorgan’s strength across all three areas of activity. In M&A JPMorgan achieved a 38.4% market share, with volumes of $5.8 billion, including acting as exclusive adviser to Correval’s shareholders on the sale of a 51% stake to Banco de Crédito del Perú for an implied total equity valuation of $150 million.

In DCM the bank also topped the league tables, with six deals worth a gross $4.3 billion (a 19.9% market share). Deals included Grupo Aval’s debut, a $600 million, five-year offering. The initial price discussion was at 5.5% to 5.75% but strong investor demand led to official guidance of 5.5% before finally pricing at the tight end of the curve at 5.375%. JPMorgan also brought to market Banco de Bogotá, another debut issuer, and with strong demand the deal was upsized and still priced below initial guidance. The bank was also joint bookrunner and joint deal manager in the Republic of Colombia’s $1.5 billion issuance of 6.125% bonds due 2041.

The locals dominated in ECM and will be tough competitors for the international banks in the future but JPMorgan demonstrated active market participation with its role as joint lead structuring agent on the $1.35 billion local follow-on offering of EcoPetrol – Colombia’s second-largest equity offering and the year’s largest offering by a Latin American oil exploration and development company.

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Ecuador

Best bank: Banco Pichincha

During 2011 Banco Pichincha continued to bolster its presence in Ecuador by acquiring the assets and liabilities of GMAC in Ecuador, a leader in automobile financing. The bank is now a big player in the car loans segment and helped the bank report a 54.9% increase in loans to $1.5 billion while the non-performing loan ratio rose just 10 basis points to 2.4%. The banks total assets rose by 17.2%, to $6.8 billion, a market share of 28.4%.

Annual earnings reached $96.5 million and return on equity and return on assets were 17.1% (14% in 2010) and 1.5% (1.5% in 2010) respectively. During the past 12 months the ratio of cost to income fell to 65.6% from 69% the year before.

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Mexico

Best Bank: Santander Mexico
Best Debt House: HSBC
Best Equity House: Citi
Best M&A House: Citi

In recent years Mexico’s economy has grown more slowly than those in the south of Latin America, held back by its orientation to the US rather than the commodity-driven economies that increasingly rely on Asian emerging markets. However, as the US recovers and Mexico has refound a competitive edge in its manufacturing sector, the country has performed well. In 2011 GDP growth was 3.8% and the financial services sector performed strongly. Santander México performed particularly well, implementing an aggressive commercial strategy that led its loan portfolio to grow by 37.4% while the sector as a whole grew by 15.75% and the bank’s nearest competitor registered growth of 22.6%, without weakening the bank’s NPL ratio, which is stable at 1.7%. Santander grew mortgage loans by 82.4% (primarily through its acquisition of GE Mortgage Company) and consumer loans by 34.2%. Its credit cards business grew by 14.1% and the bank also increased deposits by 11.6%. In total, the bank managed to grow revenues by 9.3%, operating profits by 6.1% and return on equity rose 451 basis points to 21.7%. Return on assets grew by 41 basis points to 2.5%. Santander México is now the fourth-biggest profit earner for the Santander Group – up from sixth place the year before.

In investment banking Citi posted strong performance. In a quiet year for ECM the bank ran the only two IPOs in the qualification period. In April 2011 it was global coordinator and joint bookrunner in Aeroméxico’s IPO – the first of the year. The $287 million transaction was two times oversubscribed. In July Citi led BanRegio’s $173 million IPO, which was 2.3 times oversubscribed despite challenging market conditions. The deal was to be the last IPO in Latin America in 2011.

In M&A Citi also beat the competition, with $7.8 billion in league table volumes. The bank advised AMX on its tender for all remaining capital stock of TMX, the largest M&A deal in the period, and included shares owned by AT&T and outstanding ADS. Citi also advised Mexichem on its unsolicited, cross-border $1.2 billion takeover of Wavin, which created the global leader in its sector, and advised Axa on its $494 million acquisition of HSBC’s insurance portfolio.

HSBC prevented Citi from claiming a clean sweep of awards in investment banking in Mexico. HSBC had strong volumes in both local and international DCM issuance but wins the best debt house award for its range of financing structures and the excellence of execution that it delivered to Mexican issuers during the period. It was bookrunner on the $2 billion UMS 2044 bond. The deal achieved the lowest yield (4.839%) and coupon (4.750%) in the long-end section of the US dollar credit curve for UMS and any other Latin American issuer. HSBC also acted as sole bookrunner in América Móvil’s inaugural offshore renminbi (CNH) transaction, the first ever from a Latin American issuer and the first ever executed under an SEC-registered shelf. The bank also conducted the first MXN global depositary notes in Mexico for Pemex, combining the local and international markets, ran the first bond placed in the local markets by a Chilean issuer (BCI), and ran Empresas ICA’s project bond, the first in the local Mexican market.

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Paraguay

Best bank: Banco Regional

The fiscal and monetary stimulus package that the Paraguayan government employed in 2009, following the global economic crisis and a local drought, shot growth up to 15% in 2010. However, that pace slowed in 2011, with GDP increasing by 6.4%. The landlocked country is still vulnerable to commodity price shocks and despite the good run of commodities in recent years per capita real income hasn’t changed much on a relative basis since the 1980s.

The financial sector is dominated by the international banks, which all recorded weak results last year. Instead, the Euromoney award for excellence goes to a growing local champion, albeit one that is being backed financially and strategically by Rabobank, since the Dutch bank bought 40% of the bank in 2008. The following year Banco Regional bought the Paraguayan business of ABN Amro, becoming the country’s largest local bank and diversifying its business away from its agricultural origins. This year the bank continued its impressive growth. Assets have increased by 18%, loans by 28.6% and deposits by 11.2% and the bank has gained market shares of 15.8%, 18.2% and 15.9% respectively. Profits rose by 85.7% and should continue to grow as the bank targets a broadening its commercial and retail business throughout the country.

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Peru

Best Bank: Banco Crédito Del Perú
Best Investment Bank: JPMorgan

Peru’s strong macroeconomic performance has intensified the interest – and competition – in the country. Citibank and last year’s winner, BBVA Continental, reported strong financial results for the past 12 months but the domestic champion, Credicorp’s Banco Crédito del Perú, wins the best bank award for its ability to best capitalize on its domestic market’s momentum. In dollar terms the bank increased its total revenues by 15.7% and net income by 21.3%, increasing earnings per share by 21.5% and driving market capitalization up by 21.7%.

The bank now has a 31.8% share of deposits and a 30.1% share of loans. The NPL ratio is 2.09%, up just 10 basis points from the previous year, and return on average equity rose 50bp to 27.6%, with a return on average assets of 2.21%.

As well as making money, the bank made headlines with its acquisition of investment banks in Chile and Colombia. The new pan-Andean investment banking arm of BCP will be a likely candidate in the best investment banking category in Peru in the future (and elsewhere in the Andean region) but this year’s winner is the more established JPMorgan. In a market that struggled to establish fluency of issuance because of the volatility in the financial markets – as well as the relatively small pool of Peruvian entities that are able to tap the international capital markets – the bank was the clear winner. JPMorgan was bookrunner on five of the eight international DCM deals, a market share of 28.9%, and was the sole bookrunner and stabilization agent on the February 2012 IPO by Pacasmayo. The deal was the first IPO by a Peruvian company since 2008, the first with a US listing since 1996 and the first time a bank has been sole bookrunner on a Latin American company’s IPO with global distribution since May 2008. The bank also advised Yura, a cement company based in the south of the country, on its 47% stake in Soboce, a Bolivian cement manufacturer.

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Uruguay

Best Bank: Banco República

It is perhaps fitting that in the year that Uruguay became the latest member of the investment-grade group of Latin American nations the award goes to a state-owned bank. It is unusual for a state-owned bank such as Banco República to win the best bank award but it has outperformed those in the private sector, taking greater advantage of the country’s sound macroeconomic environment (GDP rose 6% in 2011).

The bank’s total revenues grew by 19% in the past year, while net income grew by 22% and return on equity hit 20.2%. Tier 1 capital is 19.5%. The bank’s total assets rose by 16%, with total deposits growing by 18% and total loans by 19%. Banco República now has a 45.6% share of all deposits in the country and total loans grew by 19% while the NPL ratio stayed steady at 1.6% (up from 1.3% the year before).

The bank improved its efficiency ratio for the 2011 fiscal year to 55%, which is comparable to the leading international banks present in Uruguay, while outpacing their growth. The state-owned bank has shown by its progress in the past year that it will be a real competitor to the private banks operating in Uruguay. 

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Venezuela

Best bank: BBVA Banco Provincial

With Venezuela’s economy being pumped up for this year’s October election it is little surprise that the country’s leading bank, BBVA Banco Provincial, recorded strong results. There is, however, still surely some surprise at the level of the bank’s progress. While the economy grew by 4.2% and after two years of negative results, BBVA Banco Provincial grew total revenues by 47.5% and net income by 84.8%. Some statistics read like those from a fantasy banking game: return on equity reached 47.8% and return on assets was 5.29%, keeping a clear lead over its peer group and expanding the gaps by 507 basis points and 133bp respectively. Total assets grew by 47.5% and total deposits by 49%. The non-performing loan ratio was 0.9%. Concerning capital adequacy, the equity ratio reached 20.32%, exceeding by 8.32 percentage points the minimum level required by law and enabling, the bank says, future growth plans. As ever, however, in Venezuela, the key concern for future growth is how the political environment affects the economy. This year’s election is potentially important for all banks in the country.

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