The firm has gone on a shopping spree and plucked the cream of the Latin American investment banking crop, especially in Brazil.
But as Merrill Lynch rides a positive wave, Swiss bank UBS faces tougher times ahead in the region, after losing several senior bankers to its US rival.
"We have a much longer-term view compared with the one we had eight to 10 years ago"
Andrea Orcel, Merrill Lynch
He adds: "The combination of these factors allows us to make these investments when the opportunities arise, even in difficult markets, which may arguably be the best time to make them."
A Latin banker at a European firm says: "Merrill is making a big move, maybe it is a bit too late... but [then again] in the long term I think it will pay off. Brazil will be a very important piece of the global investment banking equation in four to five years."
Merrill Lynch has announced 12 hires, mostly from UBS Pactual but also from Credit Suisse, the two firms that dominated the debt and equity underwriting league tables in the region last year, according to Dealogic. The US firm has hired four people from Itaú BBA too.
Of these hires, four arrive at managing director level. Alexandre Bettamio will join as head of investment banking, Brazil, from UBS Pactual, where he was co-head of investment banking in Brazil. Bettamio is a big coup for Merrill Lynch as he was the second most senior person at Pactual behind Andre Esteves.
Also joining from UBS Pactual is Roderick Greenlees, who was head of the bank’s Brazilian mergers and acquisitions group, and Hans Lin, who will work alongside Bettamio. Lin leaves his role as head of Brazilian industrials, investment banking.
The final senior name to join Merrill Lynch is Sebastien Chatel. He was previously head of Latin America equity capital markets at Credit Suisse (and before that at UBS), based in New York, and will now become co-head of Latin America equity capital markets.
Orcel estimates that 20% of total fees will come from emerging markets by 2010. "We are indeed looking to expand our client footprint selectively but decisively, primarily in growth markets but also in some more mature ones if there is a rational case to do so," he says. "The profitability of these investments needs to be judged over the full economic cycle and within the context of their impact on our global investment banking franchise."
Merrill expects its investment into Latin America to pay back in between three and five years, although Orcel is hopeful that it will be achieved faster through synergies between the wealth management and fixed income and equity businesses. Brazilian bankers also see growth in the local and cross-border M&A market.
UBS under pressure
As Merrill Lynch boosts its Latin American coverage, UBS is left licking its wounds. Naturally, a bank spokesman sees things differently. "UBS Pactual continues to have the leading investment banking business in Brazil because of the efforts of the current leadership on the ground. We are very comfortable with the size of our investment banking business, which remains the largest in Brazil. These changes will have no impact on our clients or our business."
Still, rumours are rife of increasing tension between employees at UBS and Pactual, the Brazilian investment bank that UBS acquired in 2006. Bonus time in particular proved to be a fraught affair, according to Brazilian sources, as Pactual bankers were upset that UBS planned to pay bonuses that reflected the bank’s awful performance globally. The move threatened to leave the Pactual bankers short-changed given their successful year. In the end, UBS did pay the appropriate amount.
Now there are rumours that certain Pactual bankers are looking to buy back the Brazilian institution from UBS. One source says: "The guys from Pactual are deeply disappointed with their marriage with UBS. In my opinion, the internal war has just started and we know that Pactual’s bankers will win."
Marcel Rohner, group chief executive at UBS, reiterated his firm’s commitment to Pactual during the fourth-quarter results conference in February. "[Pactual] is an asset which we like to own, because I think it fits very well into our strategy," he said.
Another source says: "The best way to judge whether the integration of Pactual and UBS has been smooth is to look at the business – if it’s a bad integration then it won’t be a good business; in 2007 it was a good business."
UBS is not the only firm to lose bankers in recent weeks. Itaú BBA poached four people from Deutsche Bank, Brazil, including Alexandre Aoude, who has been Brazil country head at the German bank.
Apparently, there are more moves to come. "This is just the beginning," says a banker in Brazil. In contrast to other markets, the war for talent in Brazil is heating up. Some banks are trying to position themselves in the new environment where most of the opportunities will be focused in only a few areas – M&A, debt and trading."
He adds: "Finally the US banks have realized that Brazil is the best place to invest. Morgan Stanley, Merrill and Goldman are all doubling the size of their teams in Brazil and these investments make sense in today’s environment."
But he warns: "In the past US banks have been very quick to build and destroy franchises around the globe; this could happen again."