Awards of Excellence: Best in the world
Awards for Excellence: Nordic region
Awards for Excellence: North America
Awards for Excellence: Middle East
Best bank: Citibank
Best debt underwriter: JP Morgan
Best M&A firm: JP Morgan
Best securities firm: Santander Investment
The M&A fervour that has characterized Latin American banking for several years is starting to affect Euromoney’s awards for excellence. Although institutions undertaking cross-border and domestic acquisitions deserve recognition for their strategic vision, the short-term effects are uncertainty and upheaval. The process of integrating different banking cultures, cutting costs and optimizing merged organizations takes time. As a result, recently merged banks have not done as well in the awards as those remaining independent. This may change as the benefits of merging begin to filter through.
M&A activity has affected the awards in another way. With so many foreign banks buying into the region – Santander, Banco Bilbao Vizcaya (BBV), HSBC, Bank of Nova Scotia and Bank of Montreal for example – the distinction between foreign and domestic institutions is becoming less clear. Many leading Latin America banks now have big foreign shareholdings. Santander has a stake in Banco Rio de la Plata, BBV has a holding in Argentina’s Banco Francés and HSBC has stakes in Brazil’s Banco Bamerindus and Mexico’s Serfín. We continue to distinguish between institutions that are essentially domestic in their operations and those, such as Citibank, that are clearly foreign. The category of best domestic securities house has been retained in some markets, though, to reflect the efforts of local players to compete alongside the international firms. At the regional level, however, and especially in investment banking, the foreign houses still dominate. To take account of this Euromoney has added categories to the regional awards.
The award for best regional bank again goes to Citibank. Despite the inroads made by other foreign banks into individual markets, Citibank retains its lead in terms of providing regional coverage. “Citibank is the closest thing there is to a regional Latin American bank. No other bank in the region has comparable coverage, depth of experience or breadth of relationships,” says a UBS analyst in a report issued in March.
Citibank has strong positions in loan syndication, project finance and securitization and the addition of Salomon Smith Barney will strengthen it in corporate finance. But competition is getting tougher and the bank has responded with – depending on the market – new products, reorganizations and acquisitions. Acknowledging the difficulties of providing credit in Latin America, Citibank has placed emphasis on cash management and leasing products. There are strong benefits to be derived from the merger with Travelers.
“Travelers is mainly a US-based company which doesn’t have much presence in Latin America,” says Ruben Pietropaolo, Latin American south division head. “This is why we make such an excellent combination.”
In debt underwriting and M&A Citibank trails JP Morgan, which has won new regional awards. Like Citibank, JP Morgan has a long track record in Latin America which it has exploited well. More Latin American M&A deals were completed in 1997 than in any previous year. The number of announced transactions was $70.9 billion – double the 1996 figure, according to Securities Data Company. JP Morgan was the leader among financial advisers with 37 deals of a combined value of $12.8 billion. Salomon Smith Barney came second with $9.9 billion from 23 deals and Brazilian bank Bradesco third with $8.3 billion from 13 deals.
“Our strengths are our long-term relationships, our commitment to the region throughout past crises, the value-added we can bring and our knowledge of both sides of the table, selling and buying,” says Carlos Hernández, JP Morgan’s head of Latin American M&A.
JP Morgan is also the dominant underwriter of debt for Latin American borrowers. In the Capital Data Bondware league table of bookrunners for last year’s Latin American debt issues, the firm comes top with around 15% of the market. Citicorp ranks much lower and is a long way from catching JP Morgan.
But the securities business in Latin America hasn’t only been about growth and expansion. Strong competition and thin margins in the brokerage sector have led to a shake out. ING Barings’decision to retrench a top-rated equity-research operation showed that unless broking activity leads to primary market mandates, profitability is poor. As some firms have pulled back, Santander Investment has stood out in its commitment to providing equity investors with a comprehensive service. Even in the smaller Latin American markets, Santander has good coverage, usually with on-the-ground sector analysts. In some places it’s the only show in town.
In Mexico the weakness of the banking system (see separate article in this issue) makes it impossible to pick a winner and no award was made in that country. Brian Caplen
Argentina
Best bank: Banco de Galicia y Buenos Aires
Best foreign bank: Citibank
The benefits of acquisition can take a while to come through. In Argentina, Banco Francés is experiencing some organizational problems following its purchase of Banco de Crédito Argentino which has pushed the bank’s cost-to-income ratio up from 50% to 70%.
Since the market shares of even the top three banks in Argentina – Francés, Banco de Galicia and Rio de la Plata – are quite small (between 6% and 7%), consolidation is welcomed by analysts. But reaping the benefits can be problematic.
As JP Morgan’s Brian Pearl says of the Francés-Crédito merger: “We think they can do it but it’s still a bet.”
Galicia on the other hand, “now operates the most extensive branch network in Argentina and is the best-positioned bank to benefit from expected growth in the consumer and middle markets,” as a report by Santander Investment argues.
As evidence that there is more than one way to build a distribution network, Santander comments: “[Galicia’s] participation in the Argentine post office concession should improve its penetration in underbanked regions.”
Bolivia
Best bank: Banco Santa Cruz
Best foreign bank: Citibank
The best bank award goes to Banco Santa Cruz which has been bought 67% by Banco Central Hispano. Uncertainty overshadows last year’s winner, Banco Industrial, which is said to be in merger talks with BBV. However, both Santa Cruz and Industrial are good institutions. “Bolivian banks are very strong and it’s a promising point in time,” says James McCollom, executive vice-president of Banco Santa Cruz. “Bolivia is attracting considerable foreign investment and is the logical channel between Portuguese and Spanish America.”
Brazil
Best bank: Banco Itaú
Highly recommended: Banco Bradesco
Best securities firm: Banco Bozano Simonsen
Highly recommended: Pactual
Best foreign bank: JP Morgan
Picking best banks in Brazil is difficult because the top private banks, Bradesco, Itaú and Unibanco, are all good. A feature of Brazilian banking is high capital ratios, which have been built up as a buffer against volatility. This, however, lowers return on equity. Banco Itaú has stood out as the bank that has best managed to combine the twin aims of capital strength and good returns and for this reason gets the best bank in Brazil award in addition to its award as overall best domestic bank in an emerging market. Bradesco, which won both awards last year, is highly recommended in the best bank in Brazil category.
Competition among investment banks is as fierce as that among commercial banks and the overall standard is high. As last year, the award goes to Banco Bozano Simonsen, which has strongly-held niches in asset management and corporate finance advisory. Pactual is another good investment bank. Both are notable for their attempts to remain competitive in the face of growing foreign involvement. In particular, they have tried to build up distribution networks by buying local banks.
Chile
Best bank: Banco de Chile
Best securities firm: Larrain Vial
Best foreign bank: Citibank
Last year’s best bank, Banco Santiago, has experienced difficulties in its integration with Banco O’Higgins, say analysts, even though it remains the largest in terms of loans (16.6%) and equity ($797 million). The second-largest player, Banco Santander-Chile, suffers for the same reason. “Once considered the most aggressive and fastest-growing foreign institution, the bank appears to have slowed down following its 1996 takeover of Banco Osorno,” says Armen Kouyoumdjian, a Chile-based consultant to WestMerchant. He adds that although majority foreign-owned, Banco Santander-Chile “is for all practical purposes akin to a domestic nationwide bank and its performance should be compared with that sector”.
The award for best bank in Chile goes to the third-largest player, Banco de Chile, which together with Banco de Crédito e Inversiones boast the highest returns on equity in the system, 26.8% and 28.3% respectively. Says Sabrina Rigau, an analyst with Thomson BankWatch: “Banco de Chile enjoys best asset quality among Chilean banks. It’s good at cutting costs, has a wide branch network, has spent money refurbishing branches and putting in technology and has a wide shareholder base with no-one owning more than 7%.”
The Chilean securities house Larrain Vial, which is one of the oldest firms and still retains a large market share, receives the award for best domestic securities firm.
Colombia
Best bank: BBV Ganadero
Best foreign bank: ING Barings
In Colombia the merger effect played a part in the decision to give the best bank award to BBV Ganadero, even though Ganadero lost its position as Colombia’s largest bank following the courageous takeover of Banco de Colombia by the Medellín-based wholesale bank BIC. “Looking at it in the longer term this [takeover] is a good move,” says Edward Hopperton, banking analyst with Santander Investment.
“With foreigners coming into the market and the consolidation of the system, they had to do something like this if they wanted to be a force in five to 10 years’ time. But in the short term it will cause some problems. It’s a big acquisition for BIC to digest.” Since Banco de Bogotá is regarded as somewhat staid, Ganadero, in which BBV has a 40% stake, cleans up again.
ING Barings, which established an office in Bogotá in September 1989, now employs more than 60 people. Its main focus is on offshore lending, trade and commodity finance, corporate finance and advisory services. A local subsidiary, ING Corporación Financiera, focuses on local investment banking and capital markets. The bank is the leading mergers & acquisitions house in the country, advised on the largest private-equity deal involving a Colombian company to date and is mandated to be arranger for the first Colombian listing on the New York Stock Exchange.
Ecuador
Best bank: Banco Popular
Best foreign bank: ING Barings
In Ecuador the best bank awards remain in the hands of last year’s winners. The local victor is Banco Popular, a corporate-oriented bank that has strengthened its position by buying banks in Venezuela and Colombia.
ING Barings has doubled its client base in Ecuador, has the cleanest credit portfolio of any bank in the country and is a key lender to the government. It has a local brokerage house, ING Casa de Valores, and is a leading trader of Ecuadorian Brady bonds and Eurobonds.
Peru
Best bank: Banco de Crédito del Perú
Best foreign bank: Citibank
Banco de Crédito del Perú, which wins the best bank award, has held up well in the face of foreign competition. “It still has a 25% market share and I don’t see them losing it to the Spanish banks,” says Peter Shaw, senior Latin American analyst at Thomson BankWatch. “They have proven through all sorts of ups and downs that they can adjust to competitive threats. They have a strong network in place and capable management.”
Venezuela
Best bank: Mercantil Servicios Financieros
Best foreign bank: ING Barings
In Venezuela the best bank award goes to Mercantil Servicios Financieros which was established last August as a holding company for 98.2% stakes in Banco Mercantil, the country’s second-largest retail bank, and CIMA, a holding company for insurance company Mercantil Seguros. Management at Mercantil Servicios Financieros has a good reputation and is holding its own against competition from Banco Provincial in which BBV has management control and Banco de Venezuela which is held by Santander. Among Mercantil’s other strong points are its building of a successful mortgage business, its sound asset quality and reserve coverage and its investment in new technology.
ING Barings is the fastest-growing bank in the country and has been a leader in Venezuelan loan syndications and equity issues. It was lead arranger and co-syndication manager for the $1.5 billion loan for Petrozuata; sole arranger of Cervecería Regional’s $70 million syndicated loans and was sole arranger on a $315 million Eurobond for the republic.
