Latin American Regional Awards of Excellence

The banking industry in Latin America is in a state of flux. As the credit crunch took hold a series of mergers and acquisitions led to new competitors rising up the food chain, while old names quietly shrank their operations and laid off staff.

It began in September 2008. Lehman Brothers collapsed and within weeks the vultures landed on its old operations in Brazil. BTG, the new investment firm set up by André Esteves, a former partner at Pactual, bought the unit at a distressed price, stripped down what he wanted for his new firm and then sold the buildings and unwanted staff to Standard Chartered. For Standard Chartered the acquisition helps it tap into the strong trade flows between Brazil and Asia, especially China.

Next feared to be on the chopping block was Merrill Lynch. Despite hiring some of the best names in the Brazilian and regional market at great expense in 2007, Merrill’s new parent, Bank of America, had shown little interest in the region for several years. Bank of America left the market in 2006 when it sold its Brazil, Uruguay and Chilean BankBoston operations to Banco Itaú. The sale gave Bank of America $2.2 billion in Banco Itaú shares and also marked the end of its local presence in the region. As a cloud hung over Merrill’s Latin operations, key names left. However, despite the continued rumours about Bank of America’s intentions, Jim Quigley, the bank’s chairman of Latin America, told Euromoney in May that the newly merged institution is committed to grow in the region. Time will tell.

A cloud hangs over UBS too. In April 2009, the troubled Swiss bank sold its prized Brazilian business, Pactual, to Esteves for $2.5 billion just three years after buying it. The move leaves UBS nowhere in Latin America.

In contrast to UBS, other international banks that are suffering thanks to their exposures to bad US assets have remained committed to the region. Despite needing US government Tarp funds, Citi continues to reiterate that Latin America is in its DNA. In the fourth quarter of 2008, it was the only region in Citi’s franchise to make a net profit. With the US government giving Citi a lifeline through its capital injections, there is an argument that the best way for US taxpayers to realize their money again is to make sure that the bank’s most profitable businesses continue to be supported. Latin America will be important to Citi’s recovery.

But irrespective of the names that have come and gone in Latin America this year, there is one rivalry that hasn’t changed. The Spanish banks Santander and BBVA continue to impress throughout the region.

The two banks have had a regional focus for years. Latin America is of paramount importance to their fortunes. This year it is BBVA that takes the honours for best bank.

“It’s not business as usual but after our first-quarter results we are optimistic that we are on track to have 2009 results similar to last year” Vicente Rodero, BBVA

Between the first quarter of 2008 and the first quarter of 2009, profits at BBVA’s South American operations excluding Mexico increased by 24.3%. By contrast Santander’s profits dropped for each of its three main countries, Brazil, Mexico and Chile, by 13.1%, 41% and 11.9% respectively. BBVA’s biggest market in Latin America is Mexico. Even though profits at its Mexican unit fell by 27.5%, the decline was less severe than Santander’s 41%. As 2009 progresses, Vicente Rodero, chief executive of Latin America at BBVA, is determined that results for the year will be strong: “It’s not business as usual but after our first-quarter results we are optimistic that we are on track to have 2009 results similar to last year,” he says. He plans to cautiously take greater market shares in all the countries where BBVA operates. Despite BBVA’s excellent performance it has one big weakness that means Santander could blow it out of the water in the future. BBVA only has a small corporate banking presence in Brazil, the largest Latin market. In contrast, Santander is the now the third-largest privately owned bank in Brazil.

This weak spot is a growing issue for BBVA. “I take my hat off to the executives at BBVA,” says a senior banker. “They had a vision to [enter markets] early at low prices. Now they have a very strong foothold in Latin America… if they had a strong presence in Brazil then they would be untouchable.” By next year, Santander plans to have completed creating its new bank following the merger of its acquisitions Banco Real and Banespa, and become a serious competitor in Brazil.

In investment banking, JPMorgan takes the title by maintaining a strong presence across the equity, debt and M&A markets.

Despite quiet equity markets this year, JPMorgan managed to work on several of the deals that did succeed. In Brazil this included Vale’s $12 billion follow-on and Gerdau’s $1.1 billion follow-on. The US bank also worked with Fresnillo, a Mexican silver company, when it made its debut in May on London’s AIM exchange.

In M&A, JPMorgan’s name appeared on several blockbuster deals. In Argentina it advised the Dolphin Group, a company that specializes in strategic public affairs, in its acquisition of Origenes Seguros de Retiro, an annuity insurance fund, from ING Groep.

In Chile, JPMorgan advised D&S, Chile’s leading grocer, when Wal-Mart acquired it in December for $3.5 billion. In Mexico, the US bank worked with commercial and investment bank Grupo Financiero Banorte when it bought the final 30% stake in Inter National Bank, a US commercial bank, for $150 million.

In Brazil, even though JPMorgan missed out on playing a role in the merger of Banco Itaú and Unibanco, it advised CSN, a Brazilian steel manufacturer, when the company sold its iron ore mining unit, Nacional Minerios, for $3.1 billion to a Japanese and Korean consortium.

Its wide spread of deals also earns JPMorgan the best M&A house award. Overall the US bank completed the largest number of deals in the region, although in terms of deal volume it came second this year.

“We have the most active and consistent team. There has been little change in our M&A team over the past 15 years,” says Nicholas Aguzin, head of Latin America at JPMorgan. “What I think is most impressive is that for all the deals we did this year, except for the one with Magnesita, we have no credit relationship with any clients. Going forward we will use our strong balance sheet but so far we have won deals based on our experience and expertise in the Latin M&A arena.”

In the debt markets, although activity slowed dramatically this year, JPMorgan featured in many of the key deals, including a $1.5 billion, 10-year from Mexico’s Pemex, a $600 million, 10-year from Chile’s Codelco and a $1.5 billion, 10-year from Brazil’s Petrobras. JPMorgan also helped the Peruvian sovereign to raise $995 million through a 10-year bond and reopened the Latin American high-yield market with a $300 million, five-year deal from Caribbean telecom Digicel. Despite this impressive array of international debt deals, the US bank is light on local-market deals. In contrast, HSBC has capitalized on a growing trend towards local markets this year at the same time as maintaining a strong presence on key international deals. For this complete offering, HSBC wins the best debt house award.

While the international debt markets were closed to Latin issuers, HSBC stepped up and completed local-market deals for clients in Argentina, Brazil and Mexico. The one bank that probably satisfied this local-market demand better than HSBC was Citi. As a long-standing Latin player, Citi has a well-established presence in smaller markets, including Peru and Colombia.

But as well as standing out in the key local markets in the region, HSBC was also on several key international quasi-sovereign and corporate deals: Pemex, Petrobras, Codelco, Cemex, Cabei and Telmex. Some competitors claim these deals were won purely because HSBC has a big balance sheet. However, as all the banks say, their task is to provide what their clients want. This year issuers in Latin America wanted strong relationships with banks that have relatively strong balance sheets.

Credit Suisse takes the best equity house award. Although behind Banco Itaú BBA in volumes, Credit Suisse can boast a more pan-regional franchise, as well as more deals than Itaú BBA. Of the few deals that made it out in the region, Credit Suisse worked on many, including Vale’s follow-on in Brazil, the IPO from Argentine real estate company Consultatio, and another follow-on from Wilson Sons, a Bermuda-listed company.

The award for best project finance house in the region was easy to decide. Santander is top of the league tables with 12 deals to its name and 10% of the market. Despite the deteriorating global environment, Santander has maintained its project financing commitment in the past 12 months. It worked on several of the key transactions including the Madeira renewable energy project in Brazil, a liquefied natural gas transaction in Chile and the Nuevo Necaxa road deal in Mexico.

The best cash management house is Citi. Despite the bank’s woes, there is no denying Citi’s strong pan-regional presence and trusted brand name. The cash management team provides for 7,000 corporate clients and processes 1.7 million transactions a month throughout the 23 countries in which it is present.

Citi’s clients still recognize it as the leading bank for cash management and treasury solutions while its e-banking solutions emphasize security, analytics and knowledge management.