Hybrid debt: Brazilians stock up on subordinated debt
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Hybrid debt: Brazilians stock up on subordinated debt

More tier 2 issues expected; Capital-raising to support loan growth


average capital adequacy ratio of Brazil’s banks

Subordinated debt is falling out of favour in the US and Europe but in Brazil several banks have recently tapped the market, taking advantage of investors’ search for yield. The country’s second-biggest private bank, Bradesco, and mid-tier player Banco BMG have both issued tier 2 debt this quarter. State-owned Banco do Brasil sold a tier 1 perpetual bond.

Investment bankers expect further transactions, especially from mid-tier institutions as much for fundraising reasons as to bolster their balance sheets, which are relatively strong anyway.

"I believe that we will see other mid-sized banks tapping the tier 2 market," says Pedro Guimarães, head of fixed income at BTG Pactual. "A series of mid-tier banks made initial public offerings in 2007/08, which gave them BIS ratios of 30% plus. [The ratio gives an indication of the solvency of a bank.] Now these banks want to raise more money. Without access to retail deposits they need to issue debt in the market."

Secondary struggle
Banco BMG sold $300 million in tier 2 bonds in late October during challenging market conditions.

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