Latin America

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The Spanish banks have emerged as worthy contenders. Banco Galicia can mix it with the best. Lloyds TSB continues to expand in Guatemala. Brian Caplen, Michael Peterson

Argentina
Best domestic bank: Banco Galicia

Best foreign bank: Banco Frances

Best domestic bond house: Banco Galicia

Best foreign bond house: Deutsche Bank

Best domestic equity house: Provincia

Best foreign equity house: Banco Rio

Best foreign M&A house: Merrill Lynch

Banco Galicia has responded well to the invasion of its market by foreigners - in particular to the threat from BBVA, which took over Frances, and BSCH which owns Banco Rio de la Plata. Even with the extra competition it has been able to grow its market share.

Galicia has always been an innovator in areas such as the internet and the building up of the branch network when most banks were still focused on corporate lending. A concession to use the Argentine post office counters gives it extensive reach.

However, the bank is nothing if not flexible and in the first quarter of 2000 increased its corporate portfolio by 23% and decreased exposure to consumer loans as a hedge against a worsening economic situation. Its return on equity has improved from 13.06% to 14.36% for the third quarter of financial year 1999/2000 compared with 1998/1999 and Financial income amounted to Ps371.1 million ($371 million), 25% up.

The bank is also active as an underwriter of corporate bonds and last July placed a $275 million five-year floating-rate note for Argentine food retailer Supermercados Norte.

Galicia wins the award for the best domestic bond house and the bank that worked together with it on that deal, Banco Frances, wins the best foreign bank award.

The challenge for Frances has been to improve the bank while at the same time coping with mergers: Banco de Crédito Argentina in 1997 and Corpbanca last December. Now the gains are starting to come through .

The bank's efficiency ratio has come down from 70.6% in First quarter 1999 to 58.3% in First quarter 2000. Frances has also been aggressive in the Argentine market in expanding its deposit base and the ratio of deposits to liabilities has increased from 76% to 79% in the year to March.

The bank also has lower funding costs than either Galicia or Rio. An aggressive charge-off policy has brought the non-performing loan ratio down by a full percentage point over the period and the coverage ratio increased Five percentage points. In addition, Frances is a major player in the growing Argentine pension business.

In Argentine equities Banco Rio, which now contains the former Santander Investment, dominates. A number of small-fry Argentine traders survive purely by watching what Rio does and riding on its coat-tails. In the six months to April, Rio held a 12.06% market share comfortably ahead of Raymond James with 8.12% and Merrill Lynch with 7.29%. Provincia, the broking arm of Banco de la Provincia de Buenos Aires, is the most active Argentine broker, with a 5.10% market share.

The Argentine government is one of the most active issuers in the international capital markets but recently has been trying to raise increasing amounts of money locally and reduce its foreign-currency exposure, which adds to the country's risk premium. Deutsche Bank has been an active player in assisting this process. It is a primary dealer, the largest underwriter and trader of T-bills and the second largest underwriter and trader of all government domestic bonds.

One of the most fascinating corporate finance deals of the year was the controversial restructuring of Argentina's largest non-state owned energy company, Perez Companc, strengthening the control of its majority shareholder, the Perez Companc family. The idea was to resist takeovers at a time when many Argentine corporates had fallen into the hands of foreigners.

Initially minorities complained about their treatment but in the end 98% accepted the required share swap, a remarkable feat for both Perez and its advisers Merrill Lynch. The Perez restructuring set the tone for Galicia to restructure in a similar fashion some months later.





Bolivia
Best domestic bank: Banco Bisa

Best foreign bank: Banco Santa Cruz

Bisa, the strongest among Bolivian domestic banks, has been responding well to increasing foreign competition. Traditionally a corporate bank, it has been moving carefully and selectively into other activities such as residential mortgages, life insurance and asset management. It has an 11% share of total banking system deposits and 13.4% of loans.

While the bank is broadening its scope it is not attacking the mass market and much of the asset management business is aimed at high net worth individuals - a prudent strategy.

In letters of credit Bisa is the leader, with a 25% market share ahead of either Citibank or Banco Santa Cruz.

Santa Cruz, which is majority owned by BSCH, is starting to feel the benefits of foreign management. There has been a recapitalization and a cleaning up of the balance sheet. Santa Cruz is the biggest bank in Bolivia with a 24% share of deposits and 22.6% share of loans.

In the Santa Cruz area, which often acts as the engine of growth for the Bolivian economy, the bank's market share is around 35%. BSCH is introducing its standard product range to the bank including high-paying deposit accounts to attract funds.





Brazil
Best domestic bank: Banco Itaú

Best foreign bank: Banco Real

Best domestic bond house: Bradesco

Best foreign bond house: Merrill Lynch

Best domestic equity house: Banco Itaú

Best foreign equity house: CSFB Garantia

Best domestic M&A house: Unibanco

Best foreign M&A house: Morgan Stanley

Pick almost any measure of a bank's performance and Itaú tends to come out on top.

Take return on average equity: Itaú's is 31.5% while the other leading private Brazilian banks Bradesco and Unibanco clock up 16.0% and 15.4% respectively. Mexico's best bank Banamex manages only 21.3% while Argentina's Galicia has 14.4%.

With return on average assets the story is the same: Itaú's figure is 3.5% while Unibanco's is 1.6% and Bradesco's is 1.4%; with past-due loans to total loans Itaú comes out at 1.1%, Bradesco 2.1%, Unibanco 1.3%; coverage of past-due loans is 593% at Itaú, 435% at Unibanco and 371% at Bradesco.

The secret of Itaú's success has been its ability to operate profitably and safely in Brazil's often volatile environment. It has been a cautious lender, maintained strong capital ratios and played major upheavals, such as last year's real devaluation, to its advantage. Itaú is noted for its transparency in accounting and its good relationship with investors and analysts.

But as Brazil's economy becomes more stable, interest rates fall and banks start to lend more, Itaú will have to focus to stay in front. Its rival, Bradesco, has a better reach into the mass market where much of the growth will come, and may be able to exploit this advantage. Bradesco also has the world's third-largest e-banking portal with 1.3 million users and Itaú is taking a minority stake in America Online Brazil as part of its efforts to capture the internet banking market.

In capital markets all three of Brazil's leading private banks have their niche. In equities one of the strongest players for many years has been Garantia and its dominance continues now the bank is owned by CSFB. CSFB Garantia, with an 8.66% share of secondary market trading in First-quarter 2000, wins the best foreign equities house award. This leaves the way free for Itaú to pick up the domestic award with its 5.62% share of the market putting it in second place in the league table. In bonds, Bradesco is the domestic winner. Bradesco is noted for its portfolio of industrial holdings that translate into considerable underwriting work for the bank.

In M&A Unibanco has been involved in some of the most interesting deals, acting, for example, as adviser to Cataguazes in its purchase of CELB in the utilities sector.

However, the most exciting M&A deal in Brazil over the past 12 months - the merger between beverage giants Antartica and Brahma - involved the services of a foreign bank, Morgan Stanley Dean Witter, acting for both parties.

Morgan Stanley wins the best foreign M&A house award. Brazil's largest ever merger was a share-for-share exchange between the companies to form AmBev - American Beverage Company - with a total market capitalization of $4.1 billion, assets of $4.5 billion and annual sales of $6.7 billion.

AmBev is the world's third-largest beer company and fifth-largest beverage company.

Announced in July last year it took until April of this year before gaining final approval from the regulators. Morgan Stanley is also a strong player in Brazilian bond issues but Merrill Lynch used to be a more modest player.

Merrill wins the best foreign bond house award for magnificently improving its position. In the past year Merrill has topped the bookrunner's league table with a 17.74% market share. Merrill worked together with Morgan on the sovereign's $1 billion 20-year and 30-year issues launched in January .

Foreign banks that acquired Brazilian banks struggled for the First few years no matter how generous the terms on which they got them.

But things are starting to come right for Banco Real, the bank acquired by ABN Amro.

Putting together the loan market shares of both ABN and Real in Brazil gives it 4.1%, the highest among foreign banks. HSBC Bamerindus has 1.8%, Sudameris 2.8%, Noroeste (owned by BSCH) 2.3%, Bank Boston 1.0% and Excel Economico (owned by BBVA) 0.9%.

With deposits Real has 2.6% market share, again the largest share among the foreign banks. With trade Finance Real and ABN added together (usually they are listed separately in league tables) take the bank up to a 6.4% share of exports (sixth place) and 10.5% of imports (third place).





Chile
Best domestic bank: Banco Santiago

Best foreign bank: Banco Santander

Best domestic bond house: IM Trust

Best foreign bond house: JP Morgan

Best domestic equity house: Larrain Vial

Best foreign equity house: Deutsche Bank

Best domestic M&A house: Larrain Vial

Best foreign M&A house: JP Morgan

Chilean banking is an interesting story because BSCH-owned banks manage to win both domestic and foreign bank categories. BSCH has been in Chile for decades with Banco Santander but the BSCH merger also brought it - from the Central Hispano side - a holding in Banco Santiago. This holding has now reached 43% which gives it control but does not make it a foreign bank under Euromoney's definition. The central bank has a 35% stake and the rest is free Floating.

Both Santander and Santiago are good banks.

Together they have a 27% market share, which causes some concern to the authorities, and it is not clear exactly how things will play out.

Santander and Santiago are ahead of the game when it comes to return on equity in Chile, with 23% and 20% respectively in 2000, efficiency ratios are 53% and 58%, market shares in assets 11.7% and 12.1% and in deposits 12.9% and 14.3%.

Although the authorities are concerned that the current ownership structure is too concentrated, the reality is that BSCH's stake in Santiago is promoting competition. Since neither bank can focus on increasing market share, both are aiming at improving the quality of their business, looking closely at returns and selling more products to existing clients rather than searching for new ones.

One big difference between Santiago and Santander used to be the latter's increased efficiency but now Santiago is trying hard to bridge the gap.

In M&A the most significant deal of the past year in Chile was the Angelini group's $1.3 billion acquisition of New Zealand-based forestry company Carter Holt Harvey's 30% stake in Compañia de Petróleos de Chile (Copec). Copec was started in 1991 as a partnership between the two groups but the relationship was dogged by legal bickering. JP Morgan advised AntarChile, an Angelini controlled company, on the acquisition.

JP Morgan also wins the best foreign bond house award - significant deals have included a debut $160 million yankee for Embotelladora Arica and as lead for CTC's e200 million debut Eurobond. IMTrust, a Chilean boutique, wins the best domestic bond house award.

In equities, long-established house Larrain Vial wins the domestic accolade while Deutsche Bank, which gained a strong local franchise through its acquisition of Bankers Trust, puts them ahead of the other foreign players.





Colombia
Best domestic bank: Banco de Bogotá

Best foreign bank: Citibank

Banks in Colombia are struggling with difficult economic conditions and in 1999 lost Ps1,661 billion ($830,000) compared with losses of Ps625 billion in 1998. Analysts now believe the worst is over but the sector is littered with negative returns on equity and high past-due loans to total loan ratios.

In this harsh environment Banco de Bogotá stands out with the highest return on average equity in the sector of 14.7%, according to Salomon Smith Barney calculations based on data from Asociación Bancaria y de Entidades Financieras de Colombia.

Santander has a negative 13.6% and Ganadero (in which BBVA has 61.11% share) a negative 2.8% in the year to December 1999. Bogotá's return on average assets is also the highest in the sector at 2.6% while its efficiency ratio is 46.1%, the second lowest.

In troubled markets depositors look for safety and this has favoured Citibank, which has been in Colombia for 70 years. It's target market is the richer segments of the population in the main cities such as Bogotá, Cali, Medellín, Bucaramanga, Barranquilla and Cartagena. Though total system assets increased a meagre 0.6% from 1998 to 1999, Citibank's assets increased 29%, the system's total net loans decreased by 6.32% whereas Citibanks' increased 30%. Citibank claims to be the fourth most profitable bank in Colombia.





Ecuador
Best domestic bank: Not awarded

Best foreign bank: Citibank

With the Ecuadorian default and economic collapse no domestic bank is considered suitable for a Euromoney award but Citibank again found itself in a position to act as a refuge for worried depositors and a source of credit for the soundest of Ecuadorean institutions.

Over the past year Citibank's average volume in demand deposit accounts increased by 125% and it became the leading bank in terms of trade Finance with 70% growth and in cash management. The bank's share of the wholesale market increased from 3.6% to 5.64%. Citi is the largest foreign bank in Ecuador in terms of assets, the largest custodian and has coverage in the Five most important cities in the country.

Through Salomon Smith Barney the group acquired an advisory mandate on the privatization of the power sector and the restructuring mandate for the country's $6 billion Brady bonds.





Mexico
Best domestic bank: Banamex

Best foreign bank: Santander Mexicano

Best foreign bond house: Chase

Best domestic equity house: Accival

Best foreign equity house: Deutsche Bank

Best foreign M&A house: JP Morgan

The unsuccessful bid by Banamex for Bancomer (the two banks together account for 40% of the Mexican market) tells you something about Banamex: it is highly active. The bank has been a leader in most Financial operations in Mexico from internet banking to reducing its bad assets following the 1995 banking crisis.

Deputy president Jorge Hierro said at a banking conference in April: "One of the most important developments of last year is that the bank finally solved the asset-quality problems brought on by the crisis, which has been the main challenge of the Mexican banking system for the past few years."

That means that Banamex can grow and in 1999 transactions increased 25%, demand deposits increased by 10% and expenses fell by 3%.

Return on average equity and average assets were the highest in the system at 21.3% and 2.8%, according to Salomon Smith Barney calculations based on numbers from the national banking and securities commission CNBV.

Banamex's sister company, Accival, is the most significant player in the local brokerage business and wins the award for the best domestic equities house.

Santander Mexicano, which is majority owned by BSCH, is a bank that has experienced immense problems in the past. Finally there is some light at the end of the tunnel and the management deserves credit for the turnaround.

In the year to December 1999 the bank had a 13.3% return on equity, a 1% return on assets and an overhead ratio of 62.9%.

This gives the bank the best foreign bank award but management's tranquillity may be short-lived. With the acquisition of Serfín BSCH has taken on one of the country's most problematic banks. Serfín's return on equity in December was a negative 45.7%, return on assets was minus 2.3% and the overhead ratio was 269.9%. It will take quite a while to sort things out.

Chase has a stronger role in Mexican capital markets than it enjoys in most other Latin American countries and wins the best foreign bond house award.

Chase has been particularly active in peso deals, culminating in February with its lead managing of the World Bank's Ps1 billion ($106 million) three-year fixed-rate bond.

Strong investor demand enabled Chase to execute this transaction in three hours.

Another notable deal was the lead-arranging of a Ps3 billion medium-term note programme for Ford Credit de México that was the First of its kind in the Mexican capital markets. Chase together with JP Morgan advised Banamex on its hostile but ultimately unsuccessful bid for Bancomer. JP Morgan wins the best foreign M&A house award.





Paraguay
Best domestic bank: Not awarded

Best foreign bank: Citibank

Citibank is not exaggerating when it describes itself as "the absolute leader in the Paraguayan market". As of last December it had a 19.4% share of system assets and 18.25% of deposits, and it claims a 41.6% share of sector earnings.

In the past year Citi has served as Financial adviser and structuring agent for the concessionaire of Paraguay's First private toll road; was co-leader on a $55 million syndicated loan for cellular phone operator Nucleo and structured a deal that involved securitizing receivables arising from a contract between multinational telco CITSA and Antelco the local government-owned Fixed-line company.

There is little chance of competitors catching up with Citibank in Paraguay in the near future.





Peru
Best domestic bank: Continental

Best foreign bank: Citibank

Although BBVA has management control of Continental its shareholding is only 38.77% so the bank counts as a domestic bank.

Continental has managed to maintain market share and improve the quality of its client base even in the very tough conditions that prevail in Peru.

Continental is much smaller than Credicorp, which has 28% of deposits and 23% of loans compared with Continental's 16% and 12%, but Continental is more efficient. Continental's return on equity is 8% compared with Credicorp's 6.4% and its efficiency ratio is 55% compared with 59%.

Santander is much smaller than either bank and is involved in a merger with Banco Sur, which is occupying management time.

Once again Citibank benefits from its long presence in the country. The bank started in Peru in 1920, the sixth Citi franchise in Latin America to be established after those in Argentina, Brazil, Chile, Cuba and Uruguay.

Citibank has withstood the arrival of competition which as well as the Spanish banks has included Sudameris in 1995, BankBoston in 1996 and Standard Chartered in 1998. Citi's share of wholesale banking in revenue terms has increased from 3.7% in 1998 to 5.9% last year. Citi is financing the Antamina mining project worth $1.32 billion.





Uruguay
Best domestic bank: Banco Comercial

Best foreign bank: ABN Amro

Banco Comercial's modernization efforts are continuing and the bank has expanded giving it roughly a 20% share of the market. Comercial offers consumers the full range of products and its breadth and depth in Uruguay makes it unique.

The bank was privatized in the early 1990s after being taken into state ownership in the 1980s when it got into financial difficulties.

Those days are now well behind Comercial and it is looking forward to much stronger growth.

ABN Amro has also seen expansion in its operation with the absorption of Banco Real's seven branches in Uruguay giving it a total of 25. Its market share is put at about 9%. It is strong in private banking, is the sole custodian for the local stock exchange and is active in capital markets.





Venezuela
Best domestic bank: Banco Mercantil

Best foreign bank: Provincial

Latin American banks are excited about the internet but as they open up electronic banking facilities they must not lose sight of the fact that many of their customers do not have computers.

So it is that Banco Mercantil, which launched internet banking for individuals in December 1997 and for corporates last August, deserves recognition for its broad-based approach to persuading customers to reduce their reliance on branches.

The promotion of automated teller machines, a call centre that now has voice recognition and the development of internet banking are all part of this strategy. As a result cash transactions are down from 51% of the total in 1997 to 41%. Mercantil has a 16% return on average equity and a 2.2% return on average assets.

Provincial, which is majority owned by Spanish bank BBVA, has one of the best franchises of any bank in the whole of Latin America.

Provincial is Venezuela's largest bank with a 13% share of loans and a 14.1% share of deposits making it significantly larger than BSCH's Banco de Venezuela which has 9.2% of loans and 10.5% of deposits. Return on average equity is 27% and return on average assets is 3.3%. Provincial's risk weighted capital ratio is 14%.





Central America
Costa Rica Best domestic bank: Banco Interfin

Best foreign bank: Banco del Istmo

Even though the state's monopoly on banking was relaxed in 1996, Costa Rica's state-owned banks maintain an iron grip on the country's banking sector. They account for nearly three-quarters of banking assets. But none could remotely be described as excellent. Banco de Costa Rica is reckoned to be the best run of the three big state-owned banks, and its privatization has been mooted in the past. A sharp increase in profits in 1999 may tempt the government to revive plans for selling this institution. But popular opposition to any form of privatization remains strong in this relatively prosperous Central American country and privatizing any of the big state-owned banks seems politically impossible at present.

Along with the other two big state-owned banks, Banco Nacional de Costa Rica and Banco de Crédito Agrícola de Cartago, Banco de Costa Rica provides a mediocre service and is inefficient by international standards.

All Costa Rica's private banks are small, and the number owned by locals is dwindling. Last year Banex, the biggest private bank in Costa Rica according to official figures, became the latest to fall prey to foreign takeover when it was bought by a much larger bank from neighbouring Panama. That leaves Banco Interfin as the biggest local champion, and the bank is generally regarded as well run and innovative in its strategy.

Calculating the market share of Costa Rican banks is a difficult exercise. Assets booked in the country and notified to the regulator make up only a small proportion of the true market, since each Costa Rican bank runs an offshore banking service for clients that are keen to avoid the country's punitive tax rates.

Following its acquisition of Banex in 1999, Banco del Istmo, based in Panama, has become Costa Rica's largest foreign bank by far.

Banex, long regarded as one of the best private banks in Costa Rica, has been quickly merged with del Istmo's own banking operation in the country to form a bank with a dominant market share among privately owned banks and a particularly strong presence in corporate lending.

Michael Peterson





El Salvador
Best domestic bank: Banco Agrícola Comercial

Best foreign bank: Citibank

With the expected completion of Banco Agrícola Comercial's takeover of Banco de Desarollo next month, Agrícola will not only become El Salvador's undisputed market leader - a position it has long vied for with second-placed Banco Cuscatlán - but also the number one bank in Central America as a whole. The merger puts Agrícola ahead of Banco Nacional de Costa Rica, the sluggish state-owned giant of the Costa Rican banking sector, to become the largest bank in the isthmus by both assets and capital. It is even larger than either of Panama's two leading private banks, Banco del Istmo and Banco General, although the proposed merger of Banco del Istmo and Pribanco will create a larger institution in Panama, a country with a much more developed banking system than any in Central America proper.

The merger puts Agrícola well ahead of its great rival Banco Cuscatlán in terms of share of the local banking market. The new institution has a share of close to 40% of the country's banking assets and a strong presence in both consumer banking and commercial lending. "In a way this is positive for Agrícola," says Thomson Bankwatch analyst Agatha Pontiki. "But at the same time, there is not much further it can expand in the domestic market."

Cuscatlán's strategy, by contrast, is to focus on regional expansion, and the bank is not expected to respond to Agrícola's move with a big purchase of its own. It has stayed aloof from the recent frenzy of dealmaking within El Salvador and has concentrated instead on consolidating its recent purchases in Guatemala and Costa Rica. It is now working to create a single regional identity for its business through Central America.

Citibank remains the best foreign bank in El Salvador. Not only does Citibank have a strong and established position in the wholesale market, but its investment-banking arm Salomon Smith Barney has a growing presence. The group acted as bookrunner on the country's debut Eurobond last year.

The only other foreign bank present is Scotiabank, which bought local bank Ahorromet in 1998. Since then, Scotiabank has been working hard to turn around its acquisition.

This is proving an expensive task: Scotiabank Ahorromet reported a loss of $5 million in 1999 on assets of some $420 million.

Michael Peterson





Guatemala
Best domestic bank: Banco de Occidente

Best foreign bank: Lloyds TSB

Guatemala's banking sector, still one of the weakest in Central America, is rapidly separating into a top tier of reasonably well-run, decently capitalized banks and bottom tier of extremely shaky institutions. The emergence of a top tier has gained pace with a number of mergers among top and middle-ranking banks in recent months.

Banco de Occidente is the biggest bank in terms of capital and achieved the highest profits in 1999. By most estimates it is the market leader in providing banking services to local individuals and companies, but in a fragmented market, relative market shares are difficult to pinpoint with any accuracy.

Banex is another well regarded local bank, although it took a hit last year as a result of its exposure to a number of trade finance companies. Some observers believe Banco Reformador to be the most promising of Guatemala's banks. It has posted good results recently and has just completed a merger with Banco de la Construcción that brings it firmly into the top tier of Guatemalan banks.

Lloyds TSB, which changed its name last year from Lloyds Bank in line with the bank's global identity, is the biggest player among foreign banks in terms of business booked locally. It has also expanded the scope of its operations recently, and is in the process of opening a number of new agencies. Citibank, however, has another strong claim to be Guatemala's leading foreign bank on the basis of the work it carries out with international companies operating locally and on advising the government.

Michael Peterson





Panama
Best domestic bank: Banco General

Best foreign bank: HSBC

Panama's two biggest banks, Banco General and Banco del Istmo, have been locked in bitter battle in recent months. Both want to buy the country's third-largest private bank, Pribanco, which put itself in play earlier this year. At the time of writing del Istmo looks most likely to win. That would catapult the new institution, which plans to call itself Primer Banco del Istmo, into a clear first place by local market share. However, the competition between the two has prompted the suspicion that the winner may be goaded into overpaying for Pribanco, and the real winner could well be the bank that loses the auction.

For the moment, Banco General remains the market leader in Panama. It is the dominant player in retail banking and has a large share of the market in providing loans to local companies. Its position was bolstered by the takeover of smaller Bancomer, a deal that was announced last November.

Chase was for many years the biggest foreign bank in Panama among those institutions that serve the local market as well as using Panama as an offshore centre. However, Chase decided to sell this business in early 1999. It took the US bank until May of this year to find a buyer for the business when HSBC offered an undisclosed sum.

HSBC itself has an established niche in Panama, serving companies in the Canal Zone which typically import goods from Asia and re-export them to the rest of Latin America.

Chase had some corporate business in Panama, but its focus was consumer banking. That franchise was damaged by the long period of uncertainty surrounding its ownership, but in recent months Chase had been carrying out a marketing campaign to shore up its retail business.

HSBC's purchase of Chase will make it the dominant foreign player in Panama, both in terms of retail banking and corporate business. But unlike other Latin American countries, Panama is a market with no shortage of foreign players. Scotiabank, BankBoston, Citibank, Lloyds TSB and ABN Amro are all active in the domestic Panamanian banking market.

Michael Peterson





Best domestic bank: Banco Itaú

Best foreign bank: BSCH

Best regional bond house: Morgan Stanley

Best regional equity house: Santander Central Hispano Investment

Best regional M&A house: Goldman Sachs

The struggle of the Spanish banks to establish themselves in Latin America is finally paying off in terms of profits and performance. This year's awards reflect their gradual winning of the battle to turn the assets they have acquired into names that attract admiration and make a major contribution to the bottom line. With BSCH set to earn $800 million from its Latin banks in 2000, around 40% of total earnings, the Latin strategy can be properly regarded as a success. For this reason BSCH wins the award for the best foreign bank in the region. It also wins individual country awards in Bolivia, Chile and Mexico as well as picking up the best regional equities house award for Santander Central Hispano Investment, its investment bank.

Previously Citibank was the only foreign bank with a continental network and a sufficiently diverse product base to be a contender for the best foreign bank award. Citibank retains a powerful position and, as the positive effects of the merger with Salomon Smith Barney start to come through, may well regain the number one spot in years to come. In some markets Citi is still the natural safe haven for depositors in times of turmoil and the bank picked up country awards in Paraguay, Peru, Colombia and Ecuador. But even though Citi has talked of serving a broader cross-section of customers than its traditional large corporates and wealthier clients, progress has been limited.

Spanish banks BSCH and BBVA, by contrast, as well as other investors in Latin America, such as HSBC and ABN Amro, have received on a plate franchises with significant market share and product depth even if at the outset things looked a little shabby. After several years hard work cleaning out non-performing loans, reducing head count and introducing new technology the wisdom of this approach is becoming clear.

These banks have also benefited from a change in the way Euromoney categorizes banks for the awards. Before, where a mainstream Latin bank was bought by a foreign bank, the institution was still counted as a domestic bank because it was a local franchise. This meant that the foreign banks were competing against the very best Latin banks such as Galicia in Argentina, Banamex in Mexico and Itaú and Bradesco in Brazil. Running against these names, with institutions that were newly acquired and previously less well managed, meant losing out in many cases over the past few years.

This year, however, any bank with a more than 50% stake held by foreign shareholders has been classified as foreign and the acquired banks are competing against each other. One measure of the foreign bank award then is which foreign bank has achieved the best turnaround. BBVA wins country awards for best foreign bank in Argentina and Venezuela and Banco Real, owned by ABN Amro, in Brazil.

Foreign-acquired banks are still counted as local if the foreign shareholding is below 50% which makes it possible for BSCH to win both domestic and foreign bank awards in Chile, with Santiago, in which it has a 43% stake, and Banco Santander, in which it holds the majority. Continental, in which BBVA has 38.77%, gets the best domestic bank award in Peru. At the same time the new classification system makes life tougher for such banks as Citibank, Chase and Bank of Boston, which have long-established operations in Latin America but often focus on specific sectors rather than taking a broader approach. It's now much more difficult for these banks to win foreign bank awards competing against the large-scale acquisitions that have taken place over the past few years.

The winning of the best regional M&A house award by Goldman Sachs represents another shift in the traditional rankings. Goldman's dominance of M&A advisory in US and European markets has not always been replicated in Latin America where JP Morgan has historical strengths. But over the past 18 months Goldman has excelled in Latin M&A and tops the regional league table put together by Thomson Financial Services with a 39.7% market share.

Goldman advised on 19 deals during this period with a value of $51.3 billion. This puts it way out ahead. All the other major players - Morgan Stanley, Merrill Lynch, CSFB and Salomon Smith Barney - gained a share of around 20% to 25% over the same period with JP Morgan in sixth place with a 10.1% share but the highest number of deals, 47.

What has bolstered Goldman's position is its involvement in most of the major Latin American deals over the past year. It advised Mexican bank Serfín on its acquisition by BSCH and Brazil's largest privately owned food producer, Arisco, on its purchase by Bestfoods of the US (now itself taken over over by Unilever). Goldman, together with Morgan Stanley, is also advising Telefónica of Spain on its acquisition of the minority stakes in its four subsidiaries in Argentina, Brazil and Venezuela. Together, the estimated transaction value is $21 billion, making it Latin America's largest M&A deal ever.

Although not winning regionally, Morgan Stanley does receive the award for the best foreign M&A house in Brazil where it advised both sides in the merger of the beer companies Brahma and Antartica. Brazil's largest merger ever, the resulting entity AmBev is the world's third-largest beer company.

Consolidation on this scale is the shape of things to come in Latin America.

Brazilian bond deals, such as the $1 billion 20-year and 30-year issues launched in January, helped Morgan Stanley retain its title as best regional bond house. According to Capital Data Bondware, Morgan Stanley had an 18.59% share of the market last year with 19 deals worth $6.3 billion - almost $2 billion more than Goldman in second position.

In the First five months of this year, Morgan was marginally ahead of second-placed JP Morgan with a 13.81% share consisting of Five deals valued at $2.25 billion. Morgan is also notable for its ingenuity and innovation in bringing deals to market. Notable deals have been Argentina's e400 million Five-year issue in January making it the First sovereign to sell over the internet. About 41% of the total book was placed this way. A 10-year $1 billion bond issue done for Argentina in March was done in Morgan's classic style, seizing on a window of opportunity: the whole deal was wrapped up in six hours. Equity deals were scarce but Santander Central Hispano Investment keeps the regional equity house award for its research coverage that takes in second- and third-tier Latin corporates (most houses stick to the top tier) and for its strong trading position in markets such as Argentina.

Brian Caplen