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BBVA |
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Citi |
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Citi |
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JPMorgan |
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Bank of America Merrill Lynch |
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HSBC |
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HSBC |
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Bank of America Merrill Lynch |
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Best bank in Latin America
Latin America, as many research reports in the last 12 months have been keen to point out, is the emerging market region that is most vulnerable to today’s global economic shifts and, in particular, the following three interlinked factors: an anticipated increase in US interest rates; the slowing growth rate of China; and an end to the commodities super-cycle.
However, within Latin America there are great differences in the level of preparedness for the challenging winds that are now blowing into the continent. And these gales are not always headwinds: Mexico and some other economies toward the north of the region are set to benefit if US growth becomes robust enough to enable the Fed finally to lift rates off the floor. And while lower oil prices have clearly been an issue for Mexico, the structural reforms that include the opening of the energy industry should spur enough competition and attract sufficient foreign investment to sustain strong economic growth.
Other countries are less well positioned: from Brazil, which is suffering from a dystopian brood of chickens all coming home to roost at the same time (with a degree of synchronicity that is almost beginning to feel cruel), to Argentina and Venezuela, which are both performing so badly that they seem like opportunities simply because any more downside is hard to foresee. Peru has its specific FX challenges and Uruguay’s is inflation. Colombia is trying to maintain its progressive momentum and Chile’s outlier status has lost some of its glow. Paraguay is implementing investor-friendly reforms, while other frontier markets (Bolivia, Ecuador) are delicately poised. The Dominican Republic advances and Costa Rica wobbles. Cuba is opening up.
It is increasingly a patchwork region. Investors that take the time to understand and research the macroeconomic trends will be rewarded for their efforts. But below these macro headlines there are, of course, many further variations in the performance of national and regional players. These awards seek to highlight which banks are optimizing the opportunities offered within their markets.
But first we return to the regional perspective. Which of the banks that is active throughout the region (operating in many, if not all of the economies) is the greatest sum of its parts? The question is always important, but with the growing impact of global regulation it seems ever more pertinent: with HSBC and Citi selling retail operations throughout Latin America – and the former’s auction of HSBC Brasil shows that this isn’t merely a policy of good housekeeping and tidying away potentially worrisome liabilities from peripheral operations – only clearly successful Latin American-wide banking franchises will be sustainable.
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Francisco González, BBVA: more than the sum of its parts in Latin America |
This year BBVA, led by long-serving chairman Francisco González, has the regional retail franchise that is outperforming the competition. The bank increased its Latin America revenues – split across eight countries – to over €1 billion in 2014, a 6.3% growth from the year before. The strength of the business’s recurrent revenues offset the impact from the hyperinflation in Venezuela and allowed for growth in all margins. If Venezuela were excluded from the inter-annual comparisons, the bank’s profits would have been 13.1% greater, while default rates were held steady at 2.1% (for the third consecutive year) with a coverage ratio of 138%. Credit grew by 22%, driven by strong increases in the portfolios of credit cards and corporate loans. Deposits increased even faster – by 25%, fuelled by transaction resources, up 29%. The bank performed strongly throughout the region and particularly its franchises in Paraguay and Peru. The bank exceeded 10 million clients in the region for the first time. The success of BBVA’s broad franchise puts the bank ahead of its regional competitors.
Best investment bank and best debt house in Latin America
Meanwhile, Citi’s retreat from some Latin American markets in retail hasn’t affected its investment banking performance: the bank has achieved the difficult feat of consolidating and building upon its breakthrough last year (when it took best investment bank, best debt house and best flow house) by holding on to the first two awards. Citi’s year in the Latin American debt capital markets was particularly impressive. The bank gained market share in DCM across nearly all the asset classes’ sub-categories. Only in local DCM did Citi lose market share, which was mainly due to the bank’s difficult year in Mexico: in all Latin DCM the bank retained its number one league table ranking and increased its market share by 0.9 percentage points to 12.5% of the total. Citi also claimed the top spot for international DCM issuance (from second last year) by growing market share by 1.3 percentage points to 12.3%. Citi topped the rankings for inaugural DCM transactions, high-yield deals and corporate trades. It also increased its market share in financial transactions (up 4.5pp to 12% – a second place ranking); and sovereign and investment grade deals (by 11.3pp and 12.4pp respectively). Citi is now the only bank with a top-five ranking in all sub-classes.
However, Citi doesn’t claim this year’s best debt house award simply because of volumes. The bank has also demonstrated excellence in structuring and executing across its growing franchise. It was bookrunner on innovative transactions such as Banco do Brasil’s June 2014, Basel III-compliant capital offering. This deal was the largest AT1 offering from an EM issuer and the largest single-tranche offering from a LatAm FIG issuer – and one of the largest post-crisis Basel-complaint trades.
Citi also led on Pemex’s January 2015 jumbo, a $6 billion sale that was the largest-ever emerging-market 30-year corporate transaction. The deal drew huge demand, at over $16 billion from more than 200 investors, 2.7 times oversubscribed. Its deals for Grupo Bimbo demonstrated its high-grade capabilities (the book peaking at $10 billion for an $800 million deal), and Cemex its high-yield expertise. The €550 million deal was tightened by more than 50 basis points to achieve the lowest-ever coupon from a LatAm non-investment grade issuer in euros.
Citi led Chile’s notable liability management trade, executed in December 2014, which used a one-day switch structure that generated a 26% combined success rate – one of the highest participation rates among accelerated tender offers in Latin American history. Citi also opened new structures, such as its inaugural corporate hybrid from Colombia, a $500 million, 8.5% subordinated perpetual non-call five bond for the local indirect subsidiary of Telefónica.
The bank was also active in local currencies, such as its global peso transactions for América Móvil, and was active in infrastructure financing, such as Fermaca’s $950 million deal to finance the onshore mid-stream oil and gas sector in Mexico, which saw its price tighten by 62.5bp from initial price guidance of 7% – and syndicated loans, such as Itaú’s $1.7 billion transaction, the largest-ever syndicated loan facility from a financial institution in Latin America with a total of 26 subscribing banks. The bank’s impressive ability to maintain its momentum continues as the deals (although falling outside the qualification period for these awards) for Banco Votorantim and Itaú in May of this year show, by re-opening the Brazilian market for euros and dollars (respectively) after a lengthy absence of Brazilian issuers from the international markets.
Citi’s ECM and M&A franchises in Latin America have probably got as much momentum as the debt business and are the leading reasons why the bank wins the best investment bank award. Citi’s revamp of its capital markets structure in 2013, which turned the group away from a product-centric origination strategy into a model that approaches clients from a broader funding and financing perspective, is clearly working. The bank’s capital markets business is led in Latin America by Mariano Gaut, based in São Paulo, and Chris Gilfond, based in New York. This year Citi also claimed fourth place in the M&A rankings by volume (although M&A is managed independently within Citi), according to Dealogic. Two deals that illustrate the bank’s M&A capabilities come from April 2014: the bank was lead adviser to the MMG-led consortium on the acquisition of Las Bambas from GlencoreXstrata for $5.85 billion – the second largest Chinese mining acquisition in history. At the same time, Citi also advised Inkia Energy in its sale of 39% of Generandes Peru to Enersis.
Best equity house in Latin America
Also, in a challenging year for the region’s ECM practitioners, Citi was active in Brazil, Argentina, Chile, Mexico and Colombia and clocked up the number one ranking by volumes, according to data provided by Dealogic. As such, Citi was a strong contender for the best equity house award, but JPMorgan takes the award for an impressive array of deals during the qualification period. In a relatively inactive market, the bank managed to be bookrunner on more than half of the deals – 11 in total, of which five were IPOs. JPMorgan was lead left on six of those deals – more than any other bank, including on Grupo Aval’s IPO on the New York Stock Exchange. This was the largest LatAm IPO in 2014 and the largest NYSE offering ever by a Colombian company. The bank managed to price Aval at a 15% premium over Colombian peers Bancolombia and Davivienda. JPMorgan has now been a bookrunner on all eight $1 billion-plus IPOs from the region since 2011.
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Daniel Darahem, JPMorgan: led an impressive array of ECM deals |
JPMorgan’s Latin America equities team is headed by Daniel Darahem, and managed to secure the lead-left bookrunner mandate on the only Brazilian IPO during the year – Ourofino’s $169 million transaction in October 2014. The deal was the first IPO in Brazil since February 2013 to price at the high end of the filing range, driven by the bank’s strategy to secure an anchor order of R$200 million ($65 million), roughly 50% of the deal. While that order drew some negative comments from competitors, who sniped that the trade would be better characterized as a private placement conducted through the IPO structure, the deal was undeniably successful from the client’s perspective and enabled the company to navigate very choppy markets that had led to many other IPOs being withdrawn. Other notable deals from JPMorgan’s equity portfolio last year include being a joint global coordinator on OHL’s $288 million follow-on offering in November 2014 and being Mexican coordinator and joint international bookrunner on Macquarie’s $367 million local-currency follow-on offering for its Mexican real estate investment trust.
JPMorgan also illustrated the strength of its local capabilities in Mexico – the key ECM market in the region last year – with its role as joint bookrunner on an initial offering of Mexican L shares for Pinfra in July. The transaction raised $624 million with an implied valuation of 16.5 times estimated 2014 FV/ebitda, which represented a premium over Latin American peers.
Best M&A house in Latin America
Bank of America Merrill Lynch wins the best M&A house for its breadth of deals across industries and countries, as well as expertise in executing M&A transactions that is validated by its largest share of the fee-pool – one of the surest ways to see how clients value the advice they receive from banks. BAML’s team, which is co-led by Martin Sanchez and Marcus Silberman, was involved in a lot of the region’s largest and most transformative deals. The bank was adviser to Portugal Telecom on its merger with Oi in a Brazilian deal that was valued at $8 billion. It was adviser to Grupo Santander on the largest FIG transaction in the last two years, when it acquired an additional 13.65% stake in Santander Brasil for R$7.7 billion in stock – taking the Spanish bank’s holding to 88.7%.
The bank advised Vale on its sale of 62.4% of its stake in VLI to Mitsui (35.9%) and Brookfield Asset Management (26.5%) in the region’s largest logistics transaction last year. Bank of America Merrill Lynch was very active in that other key Latin American industry – mining – advising Lundin Mining on its acquisition of Chilean assets from Freeport McMoRan, as well as advising the MMG-led consortium on its acquisition of the Las Bambas copper project. Other important buy-side mandates include Fresnillo (mining, Mexico), Alsea (retail, Mexico), Sigma (consumer, Mexico), Banesco (financial services, Colombia). Sell-side mandates include: Enersis (utilities, Chile), discount.com (retail, Brazil), Desa (energy and utilities, Brazil), and Maestro (consumer, Peru and Chile).
Best flow house in Latin America
This year’s award for best flow house goes to HSBC. The bank has been investing heavily in its equities proposition in the region in recent years. As that product has broadened out, it has created a daunting, full-service flow platform. The bank maintains its leadership position in FX – including its commitment to provide clients with the ability to trade Asian currencies, particularly the renminbi. The bank has been active in helping regional central banks diversify currency reserves away from the US dollar.
HSBC’s team, led by Dan Silber, head of markets institutional sales for the Americas, has also been scaling up its credit trading capability: HSBC now trades over 125 issuers (corporates and sovereigns) in the secondary markets; volumes were up 175% in the past year.
HSBC has achieved a scale in terms of number of clients that reinforces its ability to take and match trading positions. The bank reports that regulatory-driven volumes continue to be a key theme for Latin America; it has been developing advisory capabilities to support the business and capture market share. Also, the bank’s leading share of primary issuance – in DCM and increasingly in ECM (as well as trades related to project finance and M&A) – helps to generate the secondary markets business that boosts flow volumes and helps differentiate the bank’s flow proposition.
Best risk adviser in Latin America
The development of the breadth and depth of its flow business has been a key part of its success in building out its risk advisory business and HSBC also takes the award in this category. Led by Martin Kessler, head of markets corporate sales for the Americas, the bank’s corporate client base distinguishes it. The bank also plays to its strengths, particularly in Latin America and Asia, to win cross-border work – with growth in south-south trade still a dominant theme. For example, HSBC was sole bookrunner, sole lead manager and sole swap provider for two formosa bonds (offshore CNH issuance listed on the Taipei exchange) for a Latin America supranational Cabei, which proves its ability to generate investor liquidity in this relatively small market. The deal opens the door for other formosa bonds from Latin American issuers in the future. HSBC swapped the deals back into US dollars inside the issuer’s funding curve.
FX also played a dominant role in corporate-related work, with the bank advising one Mexican client on the execution of more than $1 billion-equivalent in long-term hedges in sterling, euros, dollars and pesos in the last quarter of 2014 and first quarter of 2015 alone. HSBC also advised, structured and executed a three-year dollar-real hedge deriving from a cross-border loan: the index hedge matched the client’s debt profile and reduced the corporate’s final funding cost and index-market risk.
Another noteworthy example includes a platinum leasing and hedging programme for a Mexican client, where HSBC took between 20% and 30% of the deal’s fees and the remainder was split between a further 11 participating banks. This ability to provide scale is crucial for clients seeking large, complex and speedy risk management structures. HSBC says it is able to use its strong credit rating to deploy customized, cost-effective bilateral lending to clients.
Best transaction services house in Latin America
Bank of America Merrill Lynch also wins best transaction services house in Latin America after a year of innovation across its product base.
Operating in 17 countries, both directly and indirectly through its Strategic Alliance Banks network, the bank introduced several new services that have already been successfully implemented elsewhere.
As the biggest economy in the region, a number of the processes were specifically designed to benefit Brazil, including invoice reconciliation, which automates the settlement of accounts. The product links buyers and sellers to reconcile accounts and better optimise available cash flows.
Digital signature capabilities were also introduced in Brazil, enabling clients to digitally sign FX contracts. Each user is able to access the online portal and sign using the approved verification systems.
In Mexico, cash management services were given a boost with the introduction of multi-bank cash concentration capabilities. Cross-currency cash concentration enables clients to sweep funds from their BAML Mexican accounts into dollars in a US account.
BAML also expanded its cards offering in the region, introducing settlement bank services on specific accounts and services required by the pre-paid card programme managers. BAML worked with these managers to create a structure for holding customers’ funds and handling the settlement with Visa, MasterCard and the local clearing house. Clients have the ability to view balances and move funds through CashPro Online.
