As the equity market continues to struggle in Brazil, the local debt market is growing in importance. The challenge is to find enough bankers to fill the demand.
"Over the past three years the banks have focused on the equity markets," says one banker. "They have hired and trained equity bankers. Now the equity market has taken a turn for the worse and we need to deliver more sophisticated debt solutions. But there aren’t enough experienced and trained debt bankers. It’s becoming a serious problem."
Brazil’s primary equity issuance has fallen from 64 IPOs in 2007 to only four so far this year. Equity pricing remains difficult and even the follow-on trades that have come to market have struggled. The debt market has suffered too – which is not surprising given the turmoil globally – but, as non-investment grade corporates struggle to raise funds in the stock market, they are turning to the local debenture and securitization markets instead.
"We are doing a lot of ABS deals now. Last year I pitched ABS deals to corporates and banks and they all said ‘no’. Now they are calling me asking for help to release more cash," adds the banker. One bank has increased its debt-related fees 10-fold this year, compared with 2007.
There is also growing demand for new credit derivatives. "Finally, new products are being developed with a local perspective, so I think now is the time to go to the market and get in the good debt guys. These investments might take a year to pay off but by then it will be a huge advantage to have trained and experienced debt bankers in our team," says a senior banker in Brazil.
HSBC is a classic example. In August, the bank was in talks with more than 25 corporates about a possible deal but had only two people dedicated to the local debt markets in Brazil, and another two Latin bankers in New York. To rectify this shortage, at the end of the month HSBC hired three of the six senior debt bankers that Citi has in Brazil. They joined Antonio Neto, who arrived from Société Générale earlier in the year.
The few experienced debt bankers available in the market are being lured with large pay packets. One banker estimates that debt bankers’ remuneration has increased by at least 50% more than that of their equity peers this year. This is making it difficult for banks seeking to grow their debt capital markets business in Brazil. RBS, for example, is trying to establish an investment bank but has apparently found it tricky to fill its debt team with locals.
"The market in Brazil for talent is very hot," says Antonio Quintella, country head of Brazil and the chief executive of southern cone countries at Credit Suisse. "It’s not just debt bankers that are in high demand – there is a shortage of bankers across all businesses at the moment."
One solution to the shortage of fixed-income bankers has been to relocate individuals and, sometimes, even entire teams from New York to São Paulo. It is rumoured that Citi is considering sending Sandy Severino, managing director for Brazil debt capital markets, to São Paulo. JPMorgan has relocated six debt capital markets people to Brazil in the past three to five months.