The problem with paradigm shifts is that they have to stick. For Brazil’s private banks, the once-in-a-generation transition away from high-yielding fixed income products didn’t last.
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The country’s base rate (Selic) is now back to 13.75% and all those allocations into risk assets that accompanied its precipitous fall from 14.25% at the end of 2016 to 2% in 2020 are now a distant memory – a cyclical aberration rather than a structural realignment.
The fact that Brazil’s conversion to a low interest rate economy was a mirage is important. Private banking clients have suffered from their increased exposure to risk in the past few years and have suffered the worst year’s portfolio performance in a generation. The return to the domination of fixed income products – and specifically tax-free real estate and agricultural products – cements the advantage of the large banks: those that issue debentures, those that have large corporate and asset management business; and those that were seeing their private banking clients being aggressively courted by the numerous wealth management boutiques marketing specialist risk product expertise.
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