This year’s winners of the Awards for Excellence in Latin America include some surprising names. Not least, perhaps, Goldman Sachs, the region’s best investment bank for advisory.
Goldman has something of a credibility question hanging over it in Latin America. The local banks like to use Goldman as an example to clients (and journalists) of the fickleness of the bulge-bracket firms in the region. The locals over-simplified the waxing and waning of Goldman’s commitment to Latin America, but it was based on sufficient fact to make a point.
The locals were always going to be there for clients “because they had nowhere to go,” they say. The local universal banks added this line while they leveraged their balance-sheet relationships like crazy. And they were effective.
Meanwhile, the other international banks that had built bigger and more stable offices, balance sheets and presence in the core Latin America countries also used Goldman to differentiate their onshore strategy.
But in a faintly religious echo of chief executive Lloyd Blankfein’s claim that the bank is doing God’s work, Goldman has risen again. It has used judicious hires of bankers with long-standing regional relationships to blend with the usual Goldman strengths of reputation and risk taking.
Good examples of this are Facundo Vazquez for equities and Max Ritter for M&A, supplemented by strong country-specific hires such as Rodolfo Perez in Mexico. In Brazil, the firm has recently hired a former president of BNDES, Maria Silvia Bastos Marques, as a high-profile signal of the opportunities that can fall on the private sector as the development bank retrenches.
And it’s working. The bank has won a large and profitable share of deal flow in the last year in the way that it typically does best: it has created its own structures to use its own balance sheet when necessary and emphatically taken deals away from the locals, as with PagSeguro’s New York listing.
It isn’t just Goldman that has elbowed its way back onto the region’s leading mandates. Morgan Stanley has had a great year in Brazil – the biggest market by far. The bank has been successful in highlighting bookrunner differentiation with clients – for example using its market-leading success rate of pricing IPOs as a powerful marketing tool.
The locals are still on many of the deals – balance-sheet relationships demand it (quite literally in some cases) – but the Wall Street banks have seen a resurgence when looking at the truly leading deal roles (global coordinators or stabilization agents). The economics of the deals don’t lie either.
It has been an interesting year for Latin American investment banking; the qualification period for the Euromoney awards neatly captured strong growth in the three main markets of Argentina, Brazil and Mexico. Deal flow was strong across products and across countries as local and international investors caught an optimistic wave.
But next year will be even more interesting. This renascent market theme about the growth of the international firms is going to be tested early in the cycle. For while one good year is usually followed by at least a couple more, this wave is likely going to crest and crash quickly. Perhaps it already has.
Argentina has been forced by market jitters to formalize the IMF backstop.
Mexico’s neighbour to the north is doing all it can to disrupt the trade flows that have been a boon to emerging market investor optimism
Monetary policy will remain tight – if not tighter – and fiscal tightening will hit growth in time for next year’s presidential election. The chances of investment plans being executed in that kind of political and economic uncertainty is as likely as, well, the same thing happening in Brazil in the second half of this year.
As Euromoney went to press, Mexico was about to be overshadowed by its next political cloud. Andrés Manuel López Obrador’s presidential election victory and likely control of congress will give him the unfettered power to change the country’s economic and financial policies.
Also, the political cloud isn’t likely to evaporate quickly (for good or bad) as the Mexican constitution prescribes six months between the election and the start of the administration. Rumours and doubts will circle.
And although bankers are already keen to convince anyone willing to listen that the downside is fully priced-in, with the risks to the upside, there are others who are convinced the next administration will be an unmitigated disaster for Mexico.
And then, of course, Mexico’s neighbour to the north is doing all it can to disrupt the trade flows that have been a boon to emerging market investor optimism.
So it is highly likely that the international banks are going to have a swift test of their counter-cyclical commitment to the region.
They are talking a good game – Euromoney was welcomed to Goldman’s New York headquarters for the first time in years as part of the Latin American awards research process.
But then a charm offensive for their new regional strategy was always going to be the easy bit. The much harder part was building the pipeline and execution that put them back on the regional map.
Much harder still will be to remain there throughout the probable slump in capital markets activity that is coming in the next 12 months.
We will see on the other side.