“They have found the appetite for 10-year regulatory-driven debt deals in the local markets, and with rates where they are it is much cheaper to tap that liquidity than issue abroad and swap the dollars back into reais,” notes another FIG banker, adding that the “sales pitch” about diversifying the investor pitch by going off-shore is falling on deaf ears: “I tell the banks that they are too concentrated in Brazil and they need to maintain their offshore investors, but they reply it’s too expensive.
"Also, they know the main investors in this type of paper, so they have been going direct and doing private placements if that fits in the funding strategy.”
Data from Dealogic show issuance from financial institutions is slowing across the region. In 2018, there was $24.1 billion of issuance from 152 deals; 2019 year-to-date is below this run-rate, with $18.6 billion from 75 deals.
Bankers also say that at some point lower domestic rates should help banks’ broader fixed-income revenues as banks, asset managers and insurance companies seek returns from short-term liquidity that is still largely offshore.
“They are going to have to start to look for something different,” says one. “They still make a lot of money on local overnight products, but I am confident that international instruments for daily liquidity will grow and we can offer structured products that offer exposure to treasuries and FX. We have even been having a lot of discussions about how they might take exposure to international trade finance.”