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M&A: BTG looking to enter Brazilian retail banking

Celfin tie-up will provide HNWI expertise; Will create a regional investment bank

president of Chilean-based financial institution Celfin Capital. Juan Andrés Camus Camus

"[BTG Pactual] currently doesn’t have any retail activity. They have a kind of hyper-net-worth client business but nothing like our private banking business"

Juan Andrés Camus Camus, Celfin Capital

BTG Pactual is considering entering the high-net-worth retail banking market in Brazil, according to the president of Chilean-based financial institution Celfin Capital. Juan Andrés Camus Camus tells Euromoney that BTG Pactual’s acquisition of Celfin should be complete by the end of the year, and he says that during the negotiations BTG Pactual has been particularly interested in Celfin’s high-net-worth banking business.

"[BTG Pactual] currently doesn’t have any retail activity. They have a kind of hyper-net-worth client business but nothing like our private banking business which is very important to us and focused on a different segment," says Camus, who notes that BTG Pactual’s management team has been looking at Celfin’s retail systems. "What they have found out is that there is an enormous segment between $1 million and $20 million and they want to understand [our] methodology and how we manage that. Interestingly, what they have found is the main restriction they [currently] have is basically software and technology problems."

Camus says Chile’s free trade agreement with Brazil has enabled the bank to have access to banking software at "convenient" prices.

Physical presence

Camus also says BTG is planning to expand its physical presence in Brazil. "What they have is lack of people and they want to expand and open perhaps three new offices in Brazil – and in Brazil talent is very difficult to find," he says, adding that he doesn’t expect any reduction in Celfin headcount. "We do not have any overlapping and [the HR issue] will be very simple."

BTG Pactual approached Celfin with the idea of merging to become a regional investment bank, although in practice BTG Pactual, with assets under management of $64.5 billion compared with Celfin’s $5.5 billion, is buying the Chilean partner. However, Camus says beyond the geographical presence in Chile, Colombia and Peru, Celfin also brings other new products to the table that interest BTG, particularly in the asset management business. "We have Latin American equities, Latin American fixed income and we have Latin American small caps and several funds that are very attractive to be distributed overseas and that will be part of our plan for the asset management side," he says.

Camus is also looking to introduce BTG Pactual products into Celfin’s markets. "They are very active in energy trading and there is none in Chile," he says. "It’s a very interesting concept but to introduce that we would need several changes to the regulations." He also notes that BTG Pactual has private equity and hedge funds, which Celfin does not have, although he declines to comment on whether there are plans to add these to the Celfin business.

Camus says negotiations are proceeding well and he expects the final contracts to be signed this year. He says the enlarged organization will retain the Celfin brand in Chile, Colombia and Peru.

The banks had previously had a cooperation agreement in place in 2004 for the joint distribution of research but BTG Pactual’s subsequent confidentiality agreement with Goldman Sachs and then its purchase by UBS ended their working relationship. Meanwhile, Celfin entered into an agreement with Merrill Lynch, and Camus says both organizations had similar experiences of working with North American banks.

"I would say that we had good and bad experiences with Merrill Lynch but the main problem was the cultural one," says Camus. "In general, American firms have a culture of working more like in the army – it’s very structured, very vertical. We have a different culture, more of a horizontal type of organization where everybody is treated equally and there is very easy access to people; all doors are open. So I would say that from that point of view we had differences about how to manage the business."

Geographic proposition

However, despite the cultural similarities and the synergies offered by new products and services each offers the other, the geographical proposition is the compelling logic behind the BTG-Celfin deal. "I would say that in general investors that do Latin America are the same group but Brazil has always been like a different continent because of the size of the capital markets that they have. They are very deep," says Camus. "Latin America [as a whole] is not well covered by any bank and since the crisis of 2008 our strategy was for Latin America ex-Brazil because Brazil is too big – and in our view Brazil is for Brazilians and it’s very difficult for any foreign bank to have success there."

Becoming part of BTG Pactual is part of the objective of becoming a truly regional investment bank. "When you have one institution that can cover all Latin American countries it’s really a beauty for investors because they try to have as few counterparties as possible," says Camus. "When they came to us with the idea of merging and having a regional investment bank it made a lot of sense to us because the fit was almost perfect – we didn’t have any overlap for distribution products for the same products. And also synergies will be very important from the cross-border point of view. Brazilian companies are coming to countries like Chile, Peru and Colombia and so from a cross-border point of view there will be a lot of M&A."

A senior Santiago-based banker at an international firm says the combined BTG Pactual and Celfin will be a fierce competitor. "Celfin made a brilliant move," he says. "Even when you put the other Andean countries together they are small compared with the Brazilian economy. No bank from here will go on to play a role in Brazil and Pactual has also made a smart move. They have found a well-established name in Chile and it is also growing in Colombia and Peru."

He argues that initially the tie-up’s main impact for the international banks will be in asset management rather than investment banking. "It is going to change the dynamics of the local market, with more capital involved and an international component. I don’t think it poses a big threat to our core business; it affects the local banks more than us."

He even thinks the deal could have a positive impact on his business: "It might be positive in terms of fees. I imagine BTG will pursue the same type of profitability and staffing on deals that we do and if so they won’t be able to continue to do deals on lower fees."

New rhythms

However, another banker who works at an international bank is less optimistic and thinks local firms, of which BTG Pactual and Celfin will be the leaders, are becoming hard to compete against. "There is a big difference in the way local banks are interacting relative to the international banks. They are more flexible – lighter – they can decide quickly and that’s making a difference. The larger firms have the talent and resources but the whole rhythm is different and it is creating a lot of challenges for the large firms and I think we will have to compete more and more with the locals."

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