Best bank in Latin America
Strength through diversity is driving many of Latin America’s banks to grow regionally; the policy is working well for those becoming too dominant in their home market and for those following their large corporate clients into lucrative new markets. The growth of banking ‘multi-Latinas’ is set to continue, and it will be interesting to see which, and how quickly, of the local regional players can build scale to challenge the current duopoly of BBVA and Santander.
This year, however, BBVA retains its award for best bank in Latin America after posting very strong results in a region showing some signs that the fast pace of credit expansion is tiring. BBVA South America’s (the seven BBVA operations in the region excluding Mexico) healthy growth continued unabated: the net margin grew by 27% to €3.24 billion and delivered €1.24 billion to the group – 22.6% higher than the year before (at constant exchange rates). Meanwhile its leading Mexican bank. BBVA Bancomer, headed by CEO Ignacio Deschamps, posted similarly impressive double-digit results: net income grew by 34.3%.
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| Ignacio Deschamps posted impressive net income growth at BBVA Bancomer |
Credit card growth drove a lot of the growth in the south America group of banks, with a 49.1% increase in revenues in this area, followed by a 34.1% increase in consumer loans, a 28.5% growth in its corporate loan portfolio. The bank also grew auto loans by 15%, while its portfolio of loans to global business grew by 13.7%. As well as growing credit expansion (which has been achieved despite lowering NPLs to 2.1% and providing coverage of 141%) the bank is focusing strongly on operations. BBVA announced a $2.5 billion, three-year investment programme to improve efficiency and profitability. This programme doubles the bank’s level of investment over the past three years; 40% of this investment is being allocated to IT investment and developing new digital banking channels, the rest will go to expanding the bank’s physical network. The focus on technology is already paying off: the bank exceeded its targets for active internet and mobile customers for 2013, which should drive continued improvements in efficiency and profitability in the coming year.
Best investment bank in Latin America
Citi’s revival in Latin America is a compelling story. The bank has worked out how to unlock the benefits of its geographic reach (it is present in 24 countries in the region) and build on this base of contacts, expertise and distribution to grow its international investment bank business. The bank has also re-organized its capital markets team away from a product-centric origination strategy, which is co-headed by Mariano Gaut, based in São Paulo, and Chris Gilfond, based in New York. The mix seems to be working: the bank is a particularly strong competitor in DCM, which was again the strongest segment in the region, but has also heavyweight presence in ECM and M&A that justifies the bank’s selection as winner of Latin America’s best investment bank.
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Chris Gilfond, Citi. The bank has worked hard on its revival in LatAm |
Latin America’s ECM business has been suffering, with monthly outflows from emerging market funds only slowing recently. In this environment the jumbo transactions – those that portfolio managers couldn’t afford to miss out on – had the best chance of success. Citi came second to JPMorgan as leader on deals worth more than $750 million – including BB Seguridade’s $5.1 billion IPO in Brazil, Inbursa’s $824 million follow-on in Mexico and Banco de Chile’s $830 million follow-on offering in Chile. The bank says its ability to use its local presence to build demand in local markets has been particularly compelling with clients, who see the value that international investors place on equity transactions with strong local demand. This local demand validates the appeal of the business, but more importantly gives international investors comfort that there will be a local bid in times of stress. A good example was Citi’s ability to generate local demand on the IPO of Mexico’s Hosteles City Express, which priced at 12.2x estimated 2014 ebitda because of the price tension that large local demand brought to the deal: more than Ps1 billion ($76.4 million) of orders represented 82% of the total demand for the offering. Similar dynamics were at play in Banco de Chile’s follow-on in January, which priced at a premium to peers. Despite the fact that the issue was concentrated in international institutional accounts (the top 10 accounts received roughly 85% of the deal), local demand was crucial, according to the client, to create pricing tension that enabled the follow-on to price at a small discount amid a volatile environment (the EM VIX index had increased by 50% during the weeks before execution). Citi also led on Avianca airlines’ ‘re-IPO’ in Colombia, demonstrating its geographical reach.
The firm also led in Latin American FIG issuance, with financial institutions one of the most important and busiest sectors in the region during the qualification period. Dealflow also suggests Citi’s strong ECM share (ranked fourth by Dealogic, with 17 deals worth $2.5 billion or a 7.8% share) will continue or improve. Citi is leading recent league tables and has a host of mandates throughout the region that prove it has momentum. Citi argues that the volatility of the region’s equity markets provides an advantage to those banks that have regional breadth and are constantly talking to investors about trades. Citi is also winning some important and prestigious mandates in M&A, using its strong Asian network to position itself on growing south-south trades. While from a league table position, the bank isn’t one of the leading shops, it can justifiably point to an impressive array of recent deals and strong client relationships. Citi was exclusive adviser to Petrobras (and rendered a fairness opinion) on the oil company’s divestment of 100% of its E&P assets in Peru to China National Petroleum in November 2012 – the second largest Peruvian upstream transaction in 2013.
Staying in the oil industry, Citi is lead advisor in the MMG-led consortium’s acquisition of Las Bambas from GlencoreXstrata, which will be the second-largest ever Chinese mining acquisition ($5.9 billion) when it closes.
Other notable deals include advising BicBano on its sale of a 74% stake to China Construction Bank, as well as advising Braskem on its acquisition of 71% of Solvay Indupa in December 2013 for $290 million.
Best debt house in Latin America
Despite Citi’s undeniable progress and momentum in ECM and M&A the bank’s core investment banking strength remains its DCM franchise, which also takes the award for best debt house. The bank’s range of coverage throughout the region and product areas has put the bank top of the league tables, with 119 transactions, worth a total $19.4 billion, a 10.6% market share. This ranking is the accumulation of its leadership of many sub-sectors, including international high-yield and international investment-grade corporates. The bank is also very strong in FIG and local markets.
The bank also argues that its lower ranking for sovereigns (fourth) is a reflection of the way some competitors aggressively prioritize market share. Citi says it tries to distinguish its public-sector strategy from a purely price-driven commoditized model. The bank can also point to deals for sovereigns that were more strategic than some of the deals from repeat issuers, such as for the Republic of Paraguay in January this year, when the bank was sole global coordinator on the country’s debut international $500 million.
Citi also led impressive deals for the Republic of Brazil and the Republic of Trinidad and Tobago, with Citi the sole lead on the latter, generating a book of $4.9 billion for a $500 million deal that was the sovereign’s first return to the markets since 2007. Citi was also appointed the sole global coordinator by the Republic of Ecuador for its first bond issue in nearly a decade.
Citi’s 10% market share of international bonds is surpassed by its 12% share of domestic bonds. The growth in the size and importance of the local debt capital markets in the region has been overshadowed a little by the sheer size of international volumes, but the shift to local markets is secular and it is important for international banks to have local market capability if they are to present themselves to local companies as client-focused advisers, rather than sellers of products.
Citi is one of those banks that can genuinely present itself as agnostic on corporate finance products and markets. However, international capital markets are clearly a very attractive product to Latin American issuers given current market conditions and Citi brought 11 inaugural issuers to the international markets – more than any other issuer.
Citi’s deals include: Latin America’s first ever corporate hybrid for AES Gener; Femsa’s $1 billion high-grade bond, which achieved the lowest spread for a 30-year offering in the past 15 years; a corporate high-yield deal for Colombus International in which Citi was able to tighten price from an original target of 7.750% to 7.735% and Citi claims the transaction led to an unprecedented ratings move from Moody’s (from B3 review for downgrade to an upgrade to B2); a local currency financing for Falabella, which spurred global CLP issuance for corporates; a liability management transaction for Arcos Dorados, which achieved a participation rate of 68%; and a $950 million structured financing for ODH.
Best equity house in Latin America
JPMorgan has been the clear, standout performer in a tough year for Latin America equities. The bank topped the rankings in terms of volumes and was bookrunner on five of the 10 largest transactions from the region during the qualification period – more than any other bank.
JPMorgan was the global coordinator and stabilization agent for the BB Seguridade flotation, which was the world’s largest IPO last year. JPMorgan’s real strength comes from its breadth: it was the only bank to lead on transactions in Brazil (such as IPOs for CVC, Via Vireo and Biosev – as well as BB Seguridade); Mexico (IPO for Grupo Lala and follow-ons for Banorte, OHL México and FibraHotel); Colombia (a re-IPO for Avianca and a follow-on for Cementos Argos); Chile (a re-IPO for Geopark and follow-ons for Latam Airlines and CCU); and Peru (a ‘re-IPO’ for Grana y Montero).
However, as well as scale and breadth, the performance of JPMorgan’s deals attests to the excellence of its platform. Amid challenging markets, the bank’s deals rose by an average of 9.7% (offer-to-current at time of submission) compared with an average of 7.8% for all deals.
Best M&A house in Latin America
In a competitive and crowded field, Credit Suisse wins the award for excellence in Latin American M&A by leading its rivals in terms of the region’s share of wallet. This fee-based ranking isn’t always precise, and yet Credit Suisse’s reported share, according to Dealogic, of 17.7% is clearly ahead of second-place Morgan Stanley, with 9.5%. Credit Suisse performed strongly in the traditional volume league tables, and, perhaps more importantly, can point to a portfolio of truly transformative, complex and innovative M&A transactions from the past year.
The bank’s deal highlights include advising a consortium of Odebrecht TransPort and Changi Airport that won the right to operate the Galeão International Airport in Brazil’s Rio de Janeiro. It was the largest airport privatization (worth $8.2 billion) in Brazil and fraught with political and logistical complexities, multiplied by intense public interest in the privatization.
Also in Brazil, Credit Suisse advised Bunge on its cross-border sale of its fertilizer business to Yara International – the largest deal of the year in an industry that is currently the focus for a lot of consolidation. The bank also advised MMX in its hugely complex cross-border sale of a 65% stake in the company to Trafigura and Mubadala Development Company. The bank also advised FibraUno in Mexico on its $1.8 billion acquisition of real-estate portfolio from MRP Group. And in Colombia, Credit Suisse was sole adviser to Cementos Argos’s $720 million acquisition of assets of Vulcan Materials, which was the second-largest ever US acquisition by a Colombian company.
Best flow house in Latin America
Citi’s regional presence makes it hard to look beyond the bank for the best flow award. The bank has 22 local trading desks for fixed income, FX and money markets in the region to service client flows throughout the Americas. That breadth is backed up with depth: Citi employs over 400 people in the region to cover more than 12,000 institutional clients. Citi also has local trading desks for equities in Brazil, Mexico and Colombia.
Citi is one of the top three dealers in all flow products regionally and it continues to grow aggressively: volumes in Latin America have grown by 30%, according to internal metrics. The bank’s leadership is validated by external sources as well: for example, for the past seven years Citi has been ranked the number-one private FX bank by the Brazilian Central Bank.
The bank also provides clients with a wide range of derivatives products, including corporate derivatives and structured products for every MSCI EM market in Latin America (Brazil, Mexico, Chile, Colombia and Peru). Citi also offers forwards and highly customized exotic options on all asset classes: FX, local and G10 rates, commodities, credit and equities.
Best risk adviser in Latin America
HSBC has been investing in broadening its trading presence in the region, while at the same time playing to its strengths in growing south-south flows. The bank’s strength in all things renminbi is also helping it carve out a reputation for leading coverage in emerging products. In the past year the bank wrote $200 million-equivalent in 70 renminbi contracts (up from $50 million-equivalent the year before) and it expects these volumes to grow and to provide contacts and access to grow other volumes within the region. During the awards’ qualification period HSBC has participated in $3 billion of hedged notionals across rates and FX.
HSBC’s risk professionals also work very closely with their extremely active DCM and project finance teams, giving the bank an edge when it comes to structuring large, bespoke risk trades in Latin America. The bank has also been successful in customizing financial solutions that enable clients to access lower cost of funding through use of HSBC’s strong credit rating. HSBC also conducts large, complex risk trades for other asset classes, for example by structuring and being one of the largest counterparties for a large precious metals hedging transaction for a big Mexican corporate.
Best transaction services house in Latin America
Latin America has not been HSBC’s strongest region in recent years but it is a core part of its global banking strategy, particularly in payments and cash management, as well as global trade and receivables finance.
In the past year, the bank’s PCM and GTRF businesses have grown from strength to strength, helping to generate total combined revenues of $826 million during 2013.
A large part of its strength is being present in the markets that really matter: Argentina, Brazil, Chile and Mexico. Together they compose 78% of Latin America’s GDP and approximately 70% of the bankable wallet share that a global bank such as HSBC can hope to access.
In addition, HSBC has long-held competitive strength built around its capability to finance trade and channel capital flows to and from Argentina, Brazil and Mexico, with Chile acting as a network market supporting large corporates with global products, platforms and solutions.
Continued investment in these markets has been important to support HSBC’s franchise and growth in the region, and in the past year the bank has invested heavily, including $1 billion in a growth fund for international SMEs in Mexico and $1 billion of capital into Brazil.
HSBC has also continued to deliver global solutions to corporate and financial institutions, strengthened its presence in its four key markets, connected them to their trading partners throughout the world, and innovated in areas such as renminbi accounts and liquidity management.
Much of the work around solutions for its clients has focused on ensuring they use standardized systems and services that align with those used across the HSBC group, including XMLv3, which was rolled out during 2013, and its global internet platforms HSBCnet, host-to-host solution HSBC Connect and SwiftNet (LatAm was the first region outside of Europe to implement this with XMLv3).
In addition, HSBC continued the roll-out of new products, such as its global billing system launched in Mexico, and offers customers increased visibility and systematic monitoring and reconciliation of account activities against a consolidated billing statement, as well as simplified cash forecasting.
