Latin America: Brazilian brokers wave the offside flag
Since demutualization, Brazil’s stock exchange, the BM&F Bovespa, has become hugely profitable and powerful but the majority of its brokers are struggling for survival. Doubts remain as to whether their mutual interests can be realigned but there is little sympathy for the brokers.
"The Bovespa is like the CBF [Brazilian Football Confederation] and the brokers are like the clubs: the former is very rich and very powerful, while the latter do all the work and are going broke.”
Ricardo Lacerda, founder and CEO of BR Partners, uses this simile in an interview with Euromoney about the development of his business model. He is explaining why he closed down his nascent equities desk shortly after launch. Essentially, he says, he soon realised that the ECM business was not going to make a profit, and rather than have the other areas of the bank subsidise it for the sake of being able to claim a full-service capital markets platform, he shut it down.
“It was a tactical move; we couldn’t afford it,” says Lacerda. “We looked at the capital we would need to invest, somewhere between one third and one quarter of all capital, and with no certainty of return. It was an easy decision to make.”
Part of the problem is clearly macro – equities in Brazil are an underdeveloped asset class for a variety of reasons, but largely because the risk-free rate is so high (assuming overnight sovereign credit is such).