Latin Finance - July 2008 - (Page 16)

investment banking outlook abroad and staff departures will impact UBS’s regional franchise. In June the shop was co-lead on a $3.4 billion IPO for OGX, after having led a $1 billion private round of financing for the company in December. Regional Diversification There is much in Brazil to keep banks busy, but as with this year’s equity bust, banks need to diversify to ensure a steady stream of regional income. Goldman, which has focused the lion’s share of its most recent LatAm push in Brazil, acknowledges the need for this. “We’re not going to ignore opportunities in Peru, Colombia, and selectively in Argentina,” says Kennedy. That belief is echoed across nearly all the US investment banks. JPMorgan is among the US banks that have displayed a better mix of Brazil and non-Brazil business. Its franchise has been centered on banking big blue chips in Chile, Mexico and Brazil. It has been involved in three of the major equity offerings of the year, including Mexico’s Fresnillo and Brazil’s Gerdau. JPMorgan also landed big mandates last year in M&A – it advised on the BM&FBovespa merger alongside other banks, and garnered sole advisory roles in AXA’s acquisition of Seguros ING in Mexico, Marubeni’s purchase of Mirant and other Chilean mining assets, as well as Cosan’s purchase of Esso assets in Brazil. The shop is now looking at expanding that platform to reach into markets where it sees emerging opportunities. “We expect local markets to become a more significant part of our focus and activity in the future,” says Aguzin. He views local market equities and fixed income capabilities in places like Chile and Colombia as a priority. Small and mid-cap entities with market caps of $200 million to $1 billion are also on his radar. However, an attempt to capitalize on the distressed acquisition of Bear Stearns by absorbing the shop’s lucrative Caribbean franchise appears to have failed, following widespread defections. This includes people with strong client relationships instrumental in building Bear’s Caribbean niche. Veteran banker AJ Mediratta, former senior managing director and head of international debt capital markets at Bear, jumped to the buyside to run a fund for New York-based hedge fund Greylock Capital. Meanwhile, ex-senior managing director Carl Ross – Bear’s well known former head of research – moved to Oppenheimer, the integrated financial services holdings company, where he is a Lehman and Merrill: Trouble at Home T hey have bet big on LatAm, but both Merrill Lynch and Lehman Brothers have had to tread a delicate line between turmoil in New York and the developing banking bonanza south of the border. Lehman spent most of last year hiring aggressively in LatAm. In the 12 months up through February 2008, it doubled the LatAm headcount to 90 from 55, says a senior official at the shop. The focus was on building up trading and structuring capabilities, both in New York and in Brazil. It opened a new office São Paulo and hired 12 people, including a team of bankers from local boutique Rio Bravo. But in June, Lehman, a niche player in LatAm M&A and structured products, faced the possibility of a fate similar to Bear Stearns’ if it failed to secure $6 billion in equity capital to ward off a takeover. And its LatAm business, some of which appears to depend on the use of its balance sheet, may also suffer. The shop only barely managed to hang on to a senior advisory role in Vale’s aborted $90 billion bid for Xstrata in March. It did so by sticking to its lending commitment, despite headlines about its ailing US business and the threat of capital calls. Meanwhile Merrill, Lehman’s investment banking counterpart in the Vale deal, was less fortunate. The shop reportedly requested a smaller role in the lending group because of its own writedown woes, but protested when fees were cut. Upon hearing the complaints, Vale allegedly dismissed the shop from the transaction, according to a banker at another shop close to the process. Merrill declined to comment. But in LatAm, Merrill seems undeterred by the Vale incident or its subprime troubles in the US, which have helped halve its stock in the past 18 months. The shop provided the boldest pledge to the region this year by spending a rumored $50 million to assemble a team of Brazil-based bankers from UBS and Credit Suisse to do M&A, ECM and banking coverage. Competitors downplay the poaches but acknowledge the horse trade was a bold one and concede the US shop will likely earn itself market share with the new team. “We hope to double revenues over the next several years,” says Sonia Dula, head of LatAm investment banking at Merrill Lynch, speaking of the region as a whole. “We are committed to investment in growth,” she adds. Merrill’s pure-play investment banking model and its stomach for LatAm’s sometimes patchy business opportunities will be tested during an IPO drought and a period of steep competition in the M&A realm. Like other broker-dealers, lack of balance sheet is seen as a disadvantage, countered by expertise in global distribution and valueadded structuring capabilities. “Banks like Santander and Itaú BBA can market themselves as a one-stop shop when some of these other banks are not one-stop shops” says Thiago Alonso de Oliveira, CFO of Brazil’s Lupatech, referring to broker dealers like Morgan Stanley, Lehman, Goldman and Merrill. Still, Merrill has succeeded in becoming Lupatech’s most used investment bank, highlighting how much global distribution networks and tight execution of cross-border financing is valued by borrowers. Luckily for all shops now channeling resources into LatAm, issuers say they have not avoided working with a bank because of bad news related to its exposure to subprime. For bread and butter investment banking services, including ECM, DCM or M&A, the key focus is execution, say CFOs. And so far they do not see that being hindered by writedown-related issues. “These issues do end up being a source of concern for us,” says Guilherme Prado, treasurer at Cosan, an active user of capital markets. “Luckily the banks we’ve done more work with have avoided some of the worst problems.” — Dan Shirai 16 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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