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Private banking survey 2013: Brazil’s wealthy say goodbye to risk-free investment

The collapse in interest rates means that rich Brazilians will have to grapple with riskier investments offering less liquidity if they are to maintain investment returns. Private bankers are up for the challenge of providing them.

João Albino Winkelmann, the head of Bradesco Private Bank, frames the challenge presented to Brazil’s private banking market by the demise of high interest rates. "What we did before wasn’t consultative private banking," he says. "It was so easy; we would just leave the money in a CD [certificate of deposit] – a liquid asset with no risk and which paid 12.5%. Was that a consulting service? Suddenly you have a 525 basis point interest rate cut and now it’s a completely different game..."

Since the middle of 2011, the Brazilian central bank has cut the country’s base rate, the Selic, from 12.5% to 7.25%. Although in the past few years a new, lower interest rate environment had looked likely, it has been put in place in the past 12 months. For the first time in memory, real interest rates have fallen below 2%, as inflation pushes 6%. Many bankers argue that private banking clients are facing negative real interest rates for the first time because as a segment they are more exposed to service-sector inflation, which is pushing into double digits. The days when private bankers and clients met briefly to confirm the continuation of the almost total domination of government bonds – high-paying, highly liquid, virtually risk-free investments – are over.

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