BEST BANK
Citigroup
BEST DEBT HOUSE
Citigroup
BEST M&A HOUSE
JPMorgan
BEST EQUITY HOUSE
UBS
BEST AT RISK MANAGEMENT
Deutsche Bank
BEST AT TREASURY SERVICES
Santander
BEST AT CASH MANAGEMENT
Citigroup
BEST AT PROJECT FINANCE
BBVA
The past year has been generally excellent for banks in Latin America. Utopia, for any bank, is a region with strong growth and high interest rates – and that’s exactly what Latin America was in 2004. Region-wide growth reached a stunning 5.7% in 2004, the highest level in 24 years, even as high interest rates and lending spreads kept banking operations hugely profitable.
The most profitable bank in the region is Citigroup, by an enormous margin. It was the first bank to claim annual profits of more than $2 billion, in 2003; in 2004 it hit an eye-popping $2.89 billion. The new figure is actually an increase of more than $1 billion on 2003, since the bank restated its 2003 profits this year, bringing them down to $1.86 billion.
Citi’s flagship Mexico franchise had an excellent year, increasing its profits by 37% to $1.69 billion, but it was the rest of Latin America where the bank really shone. Citi barely has a retail presence outside Mexico, but still managed to increase profits in Latin America, excluding Mexico, to $1.2 billion – up 94% on 2003. Citigroup made no money at all from non-Mexico Latin markets in 2002, which means that it has gone from zero to more than $1 billion in just two years, without any acquisitions.
Citi’s perennial rival, Grupo Santander, also broke the $2 billion barrier for the first time in 2004, with profits of $2.06 billion, up 9%. Latin America also helped to generate profits for Santander’s trading desk in New York, which is not included in that number.
Santander has best-in-class franchises across Latin America, including the best bank in Chile, the best bank in Argentina, and extremely impressive operations in Brazil, Mexico and Venezuela. It finished a three-year, $1.5 billion technology investment programme in 2005, bringing all of its Latin American operations under one banking system and significantly reducing regional IT expenses.
But Santander is in an extremely competitive market. It goes head to head with Citigroup in Mexico, and faces tougher competition still in Brazil, home to the legendary Banco Itaú. It has to fight for every client, and its profits increase in small increments from relationships with thousands of corporate clients and more than 18 million banking customers. In such an environment, growth in profitability can only come through acquisitions or slowly and organically.
Citigroup, on the other hand, has a very different client base and much greater potential, which is now being realized. Citi knows retail banking very well – and wins the best bank in Mexico award again this year for precisely that reason. But Citi can also do things that rival retail banks can’t. For one thing, it has a genuinely global franchise, which makes it the obvious banking partner for any multinational companies in the region – and most global companies, from Coca-Cola to GE, are very serious about having a strong presence in Latin America.
Citigroup is also a huge lender in the region. Its cross-border exposure to Brazil, for instance, rose by 11% to $6.1 billion at the end of 2004. In comparison, the bank had an exposure of $6.4 billion to Japan, $2.4 billion to Australia, and $1.2 billion to Russia.
In Mexico, even excluding Citi’s corporate clients, the bank’s exposure to the Mexican government and government agencies rose to $23.8 billion at the end of 2004, from $21.9 billion at the end of 2003 – an increase of almost $2 billion. No other country, bar the US, owes Citigroup more money.
Citigroup has total assets globally of $1.5 trillion, which puts the Mexico exposure into some sort of context. But when a bank of Citi’s size starts to stir in Latin America, it can corral sums of money that dwarf the most ambitious targets of its rivals. If you’re running a medium-size family-owned business in Chile, say, you might well never have any occasion to come into contact with Citibank. You’ll be right in the heart of Santander’s target market, and you’ll be well served by them. But Citi, through dint of its enormous balance sheet, can and does make itself invaluable to anybody doing significant amounts of cross-border business in the region – which means all of the biggest companies in Latin America.
The breadth of Citi’s abilities in the region can be seen by looking at its list of project finance deals. Project finance is at its most active in strong, stable, investment-grade countries: few investors want to tie up their money for decades if there’s a substantial risk that political or economic upheaval could ruin the whole project. And so it’s not surprising that top of Citi’s list of project finance deals is a Chilean toll road.
But look what else the firm did. There was $340 million for a gold mine in Peru, $350 million for telecommunications in the Caribbean, $550 million for a power plant in Brazil, and another $185 million for a power plant in Honduras. When large amounts of private-sector money needs to be mobilized in junk-rated Latin American nations, Citibank will always receive a phone call.
Citigroup is also the only leading lender in the region to have a first-rate investment bank. It still has a little way to go in M&A, and it’s not the very best at derivatives or equities, but it can do pretty much anything it puts its mind to. When Chase Manhattan – a huge lender in its own right with a long and impressive history in Latin America – bought JPMorgan, the combined bank was stronger than Citigroup in both lending and investment banking in Latin America. Now, however, JPMorgan’s deep investment-banking bench is increasingly competing without back-up from Chase’s balance sheet.
The general impression among Latin America’s corporate elite is that JPMorgan’s president, Jamie Dimon, his Citigroup background notwithstanding, is not particularly committed to emerging markets. This has hurt the bank’s franchise in the region. Companies don’t generally take it well when a bank cuts their credit lines, and will generally be less inclined to give that bank a bond mandate, say, than they would be had that bank never lent them any money at all.
JPMorgan’s debt capital markets business is having a good 2005 after a pretty dismal 2004; its M&A franchise is newly resurgent. But the bank as a whole has clearly conceded to Citigroup the role it once took upon itself – of being the biggest and best banker to the biggest and best companies in Latin America.
For the first time since 2001, then, Citigroup wins our award for the best bank in Latin America. Citi has had a turbulent few years in the interim, losing billions in Argentina – and all of its senior Latin America management as a consequence – but 2004 was the year when it finally realized its long-dormant potential.
The scary thing, for its competitors, is that Citi is not done yet. The bank still has room for improvement in investment banking, and continues to assert that it is very interested in making a big acquisition in Brazil. Santander won the award for the past three years because its scope, ambition and abilities were unrivalled in the region. Citi wins this year because it is beginning to achieve its potential. If its present rate of improvement continues, and especially if it buys one of the big-three private-sector banks in Brazil, there will soon be no contest.
After all, Citi knows dominance in the region. It wins the award for best cash management again this year, after winning mandates in 2004 from such companies as Shell, IBM, Cemex and Coca-Cola, and creating a regional support hub in Chile.
Santander, on the other hand, is having huge success at the other end of the spectrum. It is aggressively and successfully targeting small and medium-size enterprises to buy cash management products, to the benefit of all concerned. Cash management is now a key profit centre for Santander – both in its own right and in terms of what Santander calls bancarización – bringing new clients into the broader corporate banking system.
Once they are there, the idea is to start selling them the full range of Santander’s treasury services. Santander generally sticks to its multi-local strategy in Latin America: its banks in each country are run at arm’s length from Madrid, have a lot of autonomy, and often answer to domestic minority shareholders. The bank’s treasury department, however, has a unified team across the region, with 350 professionals in Latin America who work alongside another 250 in New York and Madrid.
These individuals provide Santander’s thousands of corporate clients in each country with a full menu of risk management tools, from interest rate futures to foreign exchange. In doing so, they generate a lot of volume, and Santander can hold its own with the biggest investment banks. It is ranked first in Mexican fixed income and Chilean foreign exchange, and does very well in Argentine local debt, for instance.
What Santander doesn’t try to do is compete with the huge Wall Street houses in structuring sophisticated risk-management products for the biggest companies in Latin America. And the bank with the most momentum there is undoubtedly Deutsche Bank.
Deutsche competes strongly in relatively plain-vanilla local markets, to be sure. It has strong local-debt franchises in Argentina, Chile, and Mexico, and captures 50% of the market in Brazilian interest-rate options. But its real specialization is in credit derivatives, where it has about 35% of the total Latin market. With the hedging abilities it draws from its credit derivatives franchise, it has also become a market leader in buying illiquid Latin debt such as vendor finance paper and leases, and repackaging it for its international hedge fund clients.
In Brazil, Deutsche has proved adept at creating products that give its US and European clients access to local markets without the legal and regulatory headaches normally associated with Brazilian local bonds. Its close ties to hedge funds and its abilities to deliver them the highly structured products they require also garners Deutsche the risk management house of the year award.
Deutsche is also now solidly entrenched at the top of the bond league table, fighting hard for every mandate with the two other houses that need a lot of volume to justify their manpower: JPMorgan and Citigroup. It’s clearly the market leader in euro deals, bringing hugely successful euro-denominated bonds for both Venezuela and Pemex.
Deutsche hasn’t quite made it to the top of the league table yet, however. Over the past 12 months, JPMorgan still beats it in the Latin debt league tables. JPMorgan is also much more than purely a debt capital markets house: it was involved in a series of Argentine restructurings, and provided ratings advisory services to Peru and Brazil.
Inevitably, however, the best debt house in Latin America is Citigroup. Citi’s debt capital markets team has been extremely active over the past year, lead managing bonds or loans for issuers from 11 different countries. It was involved in the largest corporate bond ever out of Latin America, for Pemex, and the largest syndicated loan ever out of Latin America, for Cemex. It issued bonds denominated in Brazilian reais, and in Colombian and Uruguayan pesos. It topped the league table for bonds, syndicated loans, domestic bonds, and Latin high-yield issuers. It was out in force, showed a lot of imagination, and showed a lot of aggression where necessary. In a highly competitive market, it ended up clearly on top, getting involved in more than twice as many deals as its nearest competitor.
Two other banks are also worth singling out. CSFB had an excellent year in the corporate sector, aggressively chasing issuers with less-than-stellar name recognition, such as Mexican glass maker Vena and telecoms provider Axtel. And ABN Amro made its presence felt as well, showing an impressive appetite for venturing into uncharted territory. It was the first bank to bring a Venezuelan corporate to market in eight years; it brought a whole series of local-currency bonds to market for Uruguay and Colombia; and it even lead managed a loan out of Bolivia. In fact, ABN managed to beat Citigroup to lead the league table for Latin American loans excluding Mexico – a very impressive achievement, given Citi’s dominance of the Latin loan market.
It’s in the area of project finance, however, that there is a real upset. The award for best bank at project finance should be Citigroup’s almost by right, and indeed Citi had an impressive run of deals over the past 12 months. But the award goes to BBVA, for a series of deals in Mexico that put the bank at the top of the regional project finance league tables. Foremost among them was a $210 million deal for a Mexican toll road, denominated in both pesos and dollars, and which went out as far as 16 years.
This is a good year for BBVA, which most people don’t think of as an investment bank: it also wins the award for best equities house in Mexico, thanks to its work on the Urbi IPO. But the best equities house in Latin America is, once again, UBS. The field is becoming much more competitive, however, and UBS will have to do extremely well to hold on to this award for one more year.
It is actually Brazil’s Pactual that tops the league tables, because it was involved in almost every deal out of the country, good or bad. CSFB also makes a very strong showing, and wins the best equities house award in Brazil. And many of UBS’s equity capital markets bankers have either left for Itaú, in Brazil, or, in the case of veteran banker Nic Millward, retired. Yet over the past year, only UBS has shown both consistency and geographic breadth in bringing equity issuers to market. It even managed an Argentine deal for brewer Quilmes. No-one else had deals in three different countries.
The most fought-over award of all this year is that for best M&A house in Latin America. Goldman Sachs won it last year, and tops the league tables this year as well; it also wins best M&A house in both Brazil and Mexico. But this year it was up against a great performance by JPMorgan.
The biggest deal of the year was undoubtedly the $5.8 billion acquisition of UK company RMC by Mexican cement company Cemex. Goldman was on the Latin buy side; JPMorgan had the European sell-side mandate. Then, in April, Argentina’s Loma Negra, advised by JPMorgan, announced that it was being bought by Brazil’s Camargo Correa – advised by Goldman Sachs – for $1.2 billion. Both banks were also involved in the sale of Mexico’s Copamex to Sweden’s SCA. Sometimes it seemed that whenever one bank would turn up on one side of a deal, the other would inevitably appear on the other.
But there were deals where only one of the two banks was involved. Goldman, in general, took a series of difficult mandates that involved no change of control. Grupo México wanted to merge its subsidiaries Southern Peru Copper and Minera México; Goldman advised the Southern Peru Copper minority shareholders, who were largely in the US. Energias de Portugal wanted to merge its four Brazilian subsidiaries; Goldman was there. Interbrew didn’t want to sell its stake in Mexican brewer Femsa back to Femsa, but it had to, and Goldman advised it. None of these were spectacular deals, but they were large and often extremely complicated.
JPMorgan, on the other hand, was out selling buying-and-selling companies in an enormous number of transactions – it had 37 completed deals over the course of the 12 months compared with Goldman’s 21, and also had 37 announced deals, compared with Goldman’s 19.
It was huge in Chile, with a massive biscuit deal merging the Chile, Argentina and Brazil operations of Arcor and Danone. It was big in El Salvador, representing Cemento de El Salvador in its sale to Holcim. And, above all, it finally completed the sale of Mexican railway Grupo TMM to Kansas City Southern of the US for $1.6 billion, after three years’ work.
JPMorgan does have something of a Brazil-shaped hole in its M&A business. But even without the strength that it ought to have in Brazil, the M&A group, led by Nicolas Aguzin, was clearly the force that kept JPMorgan’s Latin franchise afloat in 2004.
As a result, Aguzin was elevated to become head of all Latin America at the beginning of 2005: a vote of confidence from a bank that likes to reward performance. His ability to keep the mandates coming even in the face of questions about the direction his employer is taking gives him the best M&A house in Latin America award for 2005.
