Latin Finance - July 2008 - (Page 10)

investment banking outlook Balance Sheet Battles Brains by Dan Shirai and James Crombie Pure investment banks are ramping up LatAm operations amid crisis at home. They must outsmart locals and European shops throwing balance sheet at big mandates. T he collapse of Bear Stearns heralds a thorough shakeup of the global investment banking industry, which will have to retrench and refocus to survive. A beneficiary of this process is LatAm, through a rush to develop meaningful presence in key growth markets. However, pure investment banks must rethink their approach to emerging markets if they are going to beat commercial bank competition – both local and international – which has formidable balance sheet and longstanding relationships with the rising corporate second tier. The investment banks are caught in a dilemma of maintaining profitability through sticking to a niche while also doing sufficient volume to win league table standing to demonstrate commitment. This, at a time when the rules of the game are also shifting. “It’s an industry that is in a radical transformation from a countrycentric/macro-centric approach to more industry-centric specific approach in the context of countries that are being transformed very fast,” says Ariel Sigal, a Buenos Aires-based consultant to large banks and corporations. “Whoever is stuck with the old model of emerging markets, sovereign and macro, is missing the boat,” adds Sigal, a former head of EM at Deutsche Bank. A handful of US investment banks – Merrill Lynch, Morgan Stanley, Goldman Sachs, Lehman Brothers – continues to beef up in the region despite the fact that global management is buckling under pressure from subprime losses. Pink slips are starting to fly – even at those shops not hemorrhaging cash – and crisis at home leaves a question mark over long term aspirations in a region that has seen foreign investment bank commitment ebb and flow. Crowded Playing Field The main banking action has tended to focus on Brazil, where the bulge bracket seems convinced of sustainable upside. Chile and Mexico are much more mature markets, with clients used to paying lower fees and playing banks off against each other. The next frontier for the larger institutions is Colombia and Peru, with some also looking to niche business in the Caribbean and Central America. Argentine business is undermined by rocky politics and most institutions are steering clear of Venezuela and Ecuador. “There’s a lot happening in Mexico but for banks it’s a little bit less interesting because it’s a much more concentrated environment,” says Sigal. “Peru is Chile in 10 years and Colombia is Mexico in 10 years,” he adds. In Brazil, Lehman, Merrill, Goldman and Morgan Stanley face off as they swim against the tide of a corporate culture focused on lending. Credit Suisse and UBS also employ a sleeker, securities-focused investment banking model. Through entrenched Brazil operations, the Swiss duo has made significant gains over the past six years that put them well ahead of new arrivals. Some of these shops offer small bilateral loans, pre-IPO funding, and occasionally take tickets in a syndicated loan. But CFOs say their inability to provide pre-export financing, short-term lending or long-dated revolving facilities puts them at a disadvantage. “I think it’s healthy that these [pure-play investment] banks are coming to the market because it creates more competition and professionalizes the market,” says Paulo Penido Pinto, CFO of Usiminas. “But they’re going to have deal with the fact that from the point of view of a CFO and the company board, you need a bank that’s not only there opportunistically for one flashy deal. In my opinion, banks that lend are at somewhat of an advantage when it comes to making a decision on a mandate.” 10 LATINFINANCE July/August 2008

Table of Contents Feed for the Digital Edition of Latin Finance - July 2008

Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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