JPMorgan launches new Latin charm offensive

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By:
Felix Salmon
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Nicolás Aguzín’s appointment as chairman of JPMorgan’s Latin American franchise heralds a new strategy in the region. Gone is the big picture approach; now the emphasis is on getting the nitty-gritty right and building long and lasting corporate relationships. Felix Salmon reports.

It’s Friday, and Nicolás Aguzín has had a long week. He spent Monday night on a plane up to New York, Wednesday night on a plane down to Argentina for a lunch meeting with a client and Thursday night on a plane back to New York. He travels a lot as head of Latin American M&A at JPMorgan, meeting clients. And for most of the past year, he’s had another job on top of that: running all of JPMorgan’s Latin America operations.

JPMorgan executives generally downplay the restructuring that happened in its Americas group last year. The message is that nothing much has changed: ‘We always were the best, and we still are.’ But JPMorgan’s Latin America business now is very different from a few years ago. And Aguzín is at the forefront of the changes.

Aguzín got the job in February, but the first that most people heard about JPMorgan’s new structure was at the annual meetings of the Inter-American Development Bank in Okinawa, in April. Gossip thrives in such an atmosphere, and the top topic of conversation at cocktail parties and investor meetings there was what had happened to JPMorgan’s Latin America chairman, Brian O’Neill.

Stumble and fold

O’Neill, a clubbable and friendly Latin America veteran who has lived all over the region, had been running JPMorgan’s operations in all of the Americas except the US, a grouping uncomfortably including both Latin America and Canada. But then JPMorgan stumbled in Latin America in 2004, just as the bank was realigning its senior management in the wake of its merger with Bank One.

Top 10 Latin America DCM bookrunners

RankBookrunner parentDeal value ($m)No of deals
2003
1JP Morgan8,22430
2CSFB6,08918
3Citigroup4,96725
4Deutsche Bank4,20317
2004
1Citigroup9,85647
2Deutsche Bank4,47015
3JP Morgan4,46614
4Casa de Bolsa Banorte 4,3666
01 Jan - 24 Nov 2005
1Citigroup9,67833
2CSFB6,16921
3JP Morgan5,43612
4Deutsche Bank4,71715

O’Neill became vice-chairman of JPMorgan for Latin America investment banking, focusing on strengthening relationships with the bank’s 15 large clients in the region. Canada was detached from Latin America, and both areas were folded into a large Americas brief, which was given to Doug Braunstein, formerly the global head of M&A.

A lot of those details were still murky in Okinawa. But the name on everybody’s lips was that of Aguzín – someone who wasn’t even in Japan for the meetings. The 36-year-old Argentine star of the M&A department had been given control of all of Latin America, and everybody was curious to see what he would do.

Six months later, just back from his meeting in Buenos Aires, Aguzín sat down with Euromoney to talk about his strategy for JPMorgan in Latin America. Aguzín has run JPMorgan’s Latin America M&A business since 2000. And although he now has responsibility for all of the bank’s operations in the region – from capital markets to treasury services – it’s clear that his vision is centered on client relationships and advisory business.

Fair returns and dirty hands

“It’s not really about making a quick profit in the short term,” says Aguzín. “We hope that by doing the right thing, we’ll end up getting a fair return over the long run. Our focus is to really create partnerships with our clients. You also need to be very careful not to look purely at league tables. Those numbers may look great this year, and not so good the next year, but we may still be very comfortable with the kind of dialogue we’re having with our clients. Our focus is to really build long term relationships with our clients, to really become their partners.”

This is the kind of speech that is easy to dismiss as something that senior executives in any bank would say. But it is different from what most of JPMorgan’s competitors are saying, and it’s also subtly different from the kind of thing that Brian O’Neill said in the past.

O’Neill, excellent with clients, tended to look at deals from the point of view of the CEO or finance minister. He would look at the big geopolitical picture, the corporate landscape in each country and the money that his professionals were bringing in.

By contrast, Aguzín is the type of banker who slowly nurtures a relationship for years before finally – and with great effort – bringing a big deal to fruition. His view is more bottom-up, as opposed to O’Neill’s top-down, and he’s much more likely to spend time not only with the men at the top, but also with their treasurers and finance secretaries. He also continues to work on the detailed substance of many deals himself, rather than simply managing a group of professionals.

Aguzín is something of a throwback to the pre-merger JPMorgan of old, having started there in 1990. O’Neill, on the other hand, came from Chase, with its enormous balance sheet and culture of managing exposures. And he did an excellent job of managing the Latin America franchise after Chase Manhattan bought JPMorgan in 2000.

Top of the league

Look at the Latin debt issuance league tables for the first four years after the merger: in 2000, Morgan Stanley came in second; in 2001, Deutsche Bank was second; in 2002, Citigroup; and in 2003, Credit Suisse First Boston. But the bank in first place never changed: for ever and always, it seemed, JPMorgan was number one, largely thanks to Chase expertise from the likes of Moctar Fall, head of emerging-market debt capital markets, and Cindy Powell, head of the emerging-market syndicate desk.

At the same time, however, Aguzín was building his own formidable M&A team. By 2002, JPMorgan was top of the Latin American M&A league tables and Aguzín was promoted to head of Latin American investment banking advisory. In 2003, for the second year running, JPMorgan came top in both debt and M&A in Latin America.

Aguzín’s strategy of building a strong local presence across the region was paying dividends. Historically, Goldman Sachs and Morgan Stanley were the big Latin M&A powerhouses, but both are very New York-based and both confined themselves only to the very biggest deals. JPMorgan involved itself in many more deals. If the league tables are ranked by number of deals rather than total size, JPMorgan comes out on top in every year since Aguzín took over, bar 2003.

Trust and money

M&A business is based much more on trust than on money. When JPMorgan had a weak year in 2004 and profits were hit, Aguzín was well placed to take over as head of a leaner, less capital-intensive shop.

“If you look historically, our approach to lending has changed over time. In the 1990s, Chase was very focused on the commercial banking side of the business, and we therefore had a significant amount of credit exposure to the region,” says Aguzín. “With the JPMorgan and Chase Manhattan merger in 2001, our lending business became more focused. As a result of this shift, between 2001 and 2004 we dramatically decreased our credit exposure to the region.”

Top 10 Latin America M&A advisors

RankAdvisor parentDeal value ($m)No of deals
2003
1JP Morgan7,28526
2CSFB5,03831
3Citigroup4,91913
4Goldman Sachs3,18411
2004
1Goldman Sachs32,71424
2Citigroup32,33026
3JP Morgan24,80536
4Lazard15,5567
01 Jan - 24 Nov 2005
1JP Morgan14,01829
2Citigroup11,60515
3Morgan Stanley10,5638
4Merrill Lynch9,40611

And when Aguzín says dramatically, he’s not exaggerating: JPMorgan’s exposure dropped at least 80% in those three years.

The reason was the Argentina crisis that spilled over into neighbouring Brazil and Uruguay, where JPMorgan had a large minority stake in the country’s biggest and most corrupt private-sector bank, Banco Comercial. JPMorgan slashed its exposure to the region, damaging its lending relationships just as companies were desperate for credit.

“In 2001, when we saw the crisis coming, we were very quick to limit our overall exposure to countries like Argentina, which was a good move at the time,” says Aguzín. The problem was what JPMorgan did next door, and afterwards. “With Brazil, perhaps we were a bit too conservative in terms of managing the exposure that we had. Investors in general were concerned about the impact that [then presidential candidate, Luiz Inacio] Lula’s election might have on the markets and the economy, but things went really well from a macro point of view, and looking back to 2002/03, I now believe that we could have been more aggressive in terms of putting money back into the country.”

Thin spreads

As JPMorgan dragged its feet, rivals, many of them relatively new to the region, barged in. The world was awash in liquidity and the market in Latin syndicated loans – historically dominated by Citibank and Chase – became much more European. “In the late 1990s, we were one of the few banks with ample capital availability in Mexico,” recalls Eduardo Cepeda, Morgan’s country head in Mexico. Today, dozens of banks are desperate to lend money into the country at razor-thin spreads.

The liquidity in the loan market made itself felt on the bond side, too. Aggressive marketing by the likes of Barclays and ABN Amro, backed up by their enormous balance sheets, meant that international bond issues started to become a commoditised business. In 2004, JPMorgan failed to top the Latin debt capital market league tables for the first time since the merger: in fact it came third, with less than half the deal value of a resurgent Citigroup.

Aguzín’s M&A group, too, did not have a great 2004, but his business had a much brighter future than the debt business. When O’Neill was nudged upstairs, it was Aguzín who was well positioned to take over.

Since then, JPMorgan has started doing better at the bond business: high-profile mandates, such as the first ever international bond from Brazil denominated in local currency and the recent warrants deal from Mexico giving holders of dollar-denominated bonds the option to swap into peso-denominated equivalents. But especially in Mexico, JPMorgan has been hard pressed to compete with a resurgent CSFB when it comes to bonds.

In derivatives, JPMorgan’s emphasis on serving big clients in the region has seen it steadily lose market share to Deutsche Bank, which concentrates on serving US and European investors, especially hedge funds. Just as in the bond and loan markets, the enormous increase in liquidity targeted at Latin America seems to have helped JPMorgan’s competitors more than the bank itself.

Behind the curve

Worst of all, JPMorgan seems to be very much behind the curve when it comes to local markets: be it in Mexico or Brazil, the company has not demonstrated any ability to help its clients raise equity domestically. Its only recent deal was a Cemex offering sold through the New York office to international investors. The story is similar with debt: JPMorgan can’t compete with the huge and very liquid domestic banks in Mexico and Brazil when it comes to arranging domestic-currency finance.

“Our capabilities are different from those of a purely domestic house,” says Cepeda in Mexico. “From the investor side, only a small portion of our business may be selling securities to Mexican clients: our main operation is to serve our international clients interested in dealing with Mexican instruments.”

So, though local markets are a priority for Aguzín, for the time being it’s the high-end advisory services where JPMorgan can most add value and distinguish itself from the pack.

Yet the JPMorgan business plan is based on being able to provide whatever product the bank’s strategic advisors recommend. “JPMorgan was the leading investment bank in Brazil in 2000/01,” says Ricardo Stern, who recently rejoined the company as head of investment banking in Brazil after a stint running the investment-banking operations of Unibanco. “From now on, to be the leader, it’s not sufficient to be only in M&A. Now we have to be good in several other areas, including domestic capital markets, which is currently a very competitive business dominated by Brazilian banks. Brazilian investors want to understand what is in the heads of international investors and vice versa. We can translate for each other.”

Country commitment

It’s not the investors, however, who will determine whether or not Aguzín’s JPMorgan will succeed. Rather, it’s the strength of the bank’s relationships with Latin America’s largest corporate clients. And after the cutbacks of a few years ago, the bank is pushing aggressively on that front. Total exposure to the region has already risen by 50% over the past 18 months, says Aguzín, and could rise significantly more if necessary.

“We don’t have a problem with country limits,” says Mexico’s Cepeda. “I have more room to lend than I ever had. I can get a $2 billion to $3 billion commitment in 24 hours.”

Aguzín himself goes even further. “If we have to write a cheque for $10 billion for the right opportunity in the region, we’d do it in a flash,” he says. “No problem.”

Aguzín has also been helping to raise both his profile in the bank and the bank’s profile in Latin America by coordinating an unprecedented series of visits to the region by JPMorgan’s most senior executives around the region. Latin America is tiny in comparison to the size of JPMorgan’s home market, but over the past few months president Jamie Dimon has visited Mexico, investment bank co-head Steve Black has been to Chile and Argentina, and CEO Bill Harrison travelled to Brazil. Doug Braunstein is planning multiple trips in 2006.

Aguzín says that while JPMorgan’s senior executives, “realize that Latin America is a small part of the bank’s overall business, they also recognize that we have a very strong leadership position in the region that we want to care for and learn from. The bank’s senior management has been reaching out to me a lot, and I’ve been gladly accepting their offers.”

So, while the visits are certainly designed to boost JPMorgan’s position in Latin America, they might well boost Aguzín’s position in JPMorgan just as much. Latin America is small: total M&A activity in the region will be $35 billion this year, compared to $1 trillion in the US. And Aguzín knows full well that he is not a big fish yet. Only when he accompanies Dimon or Harrison, does he get to use the company jet. But it seems safe to assume that the young, ambitious head of Latin America at JPMorgan doesn’t want to stay at the mercy of airline timetables forever.