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Brazil: Investment banks play the retail card

Brazil's investment banks are engaged in their own distribution build-up ­ a mini-version of the Morgan Stanley Dean Witter and Salomon Smith Barney megamergers in the US. Banco Bozano Simonsen has purchased the retail bank Meridional in a privatization auction and Banco Pactual has bought Sistema, a Sao Paulo commercial bank which ran into trouble. Both banks say they are looking to make further purchases.

"The origin of our strategy is that the investment banks were losing ground. What the mergers in the US show is that the banks with the clients will be the winners," says Luiz Cezar Fernandes, president of the Pactual partnership. In a comparison with Goldman Sachs, Fernandes says the focus of discussions at the US investment-banking partnership is whether to go into retail or to sell out. "At Pactual we have already decided on our strategy ­ to go into retail," he says.

But the decision was not reached without argument between the 20 partners, and outside observers say the move may be premature in the Brazilian context. "The idea is that they will distribute fund-management and insurance products, what is being called the virtual bank in Brazil. But I am not sure the timing is right," says Celso Boin, banking analyst at Deutsche Morgan Grenfell in Sao Paulo.

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