Latin Finance - July 2008 - (Page 17)

investment banking outlook managing director at its Atlanta International subsidiary. And Bear’s exhead of trading and senior MD Adam Groothuis left JPMorgan after just two days to join RBS. Here to Stay Wherever the cards fall after this intensive period of flux in LatAm investment banking, it is clear that the market is evolving very quickly. At a time when the rest of the world is doing so poorly, LatAm is a magnet. And in every transformation there are pockets of overinvestment, which will likely lead to a period of consolidation over the medium term. “The market is big enough for all the smart guys – it’s not big enough for everyone who’s trying to be there today,” says Sigal. The perfect one-stop shop is still an elusive concept, even though several banks claim to already be there. “The commercial banks that are now getting into capital markets, like Santander, can leverage their balance sheets and pitch themselves as a one-stop shop,” says Thiago Alonso de Oliveira, CFO of Lupatech. He adds having a single point of service is desirable to satisfy all financing needs in one place. Itaú BBA serves as a one-stop shop for the company, adds Oliveira. Short term, it remains to be seen how less sophisticated second or third tier corporates will react to the idea of paying more to an international heavyweight like Goldman, which pitches itself as a provider of unique and sophisticated advice. Having been weaned on cheap loans from their relationship commercial bank, they may just stick to what they know. The region’s investment banking winners will be those who take a long view and bring world class strengths. They will also be the bankers working down the curve to identify the next tier of bankable corporates. Positioning in the next big countries is key. “The business of investment banks is trying to understand where all these industries are going to be in five to 10 years. But also being aware of not only returns as well as the risks. It’s not going to be a straight line,” says Sigal. “The Latin America story is an SME story,” says Merrill’s Dula. “We spend a lot of time on the next tier.” As the global investment bank crisis plays out, commitment will be tested. Competition will also heat up, putting pressure on margins. The battle for control of the growing LatAm investment banking fee pool is only just beginning. LF League Tables: Being an Idiot hen on top, banks gloat over league tables. If only doing sparse public volume, the focus shifts to diversification of business, along with vague notions of client solutions and quality. The truth is that league table standings matter, in as much as they help investment banks multiply mandates. Some will do whatever it takes to ride up the ranks. “If you are not top 10, you are an idiot, but trying to be top 10 makes you an idiot,” says a senior investment banker who asked not to be identified. “You have to take risks and do things for fees that are ridiculous.” A fine example of this practice is the mandate for City of Buenos Aires, snapped up for a mere 3.5 basis points in March by a group including Citi, Barclays and Banco Macro. If divided evenly among the leads, that would yield little more than $58,000 per bank, before lawyer and transaction costs, on a $500 million issue that will struggle to get done amid rising aversion to all things Argentine. Historically in LatAm, wafer thin fees translate into poor execution and lack of aftermarket support, which in the end can be much more costly for an issuer. But in a fairly low volume first half for debt, bankers were no doubt eager to book business at any price. A perennial favorite is issuance from Venezuela, either by the sovereign or one of its entities. Each year, lower ranked shops propel themselves up the charts by exploiting the captive local audience for hard currency – and lucrative exit via the black currency market – with a jumbo Venezuela issue. Deutsche Bank and Barclays Capital in April underwrote a $4 billion Venezuela sovereign bond, rocketing them to the top two spots in DCM. The pair had a combined 26% of the LatAm market in May, Dealogic data showed. W Barclays is a good example of a shop with significant presence in developed markets that has failed to carry its league table standing over to LatAm. It had its best league table year in 2007, finishing fifth with 5% of the market. The top two shops that year had 13% market share each, according to Dealogic. In 2006, Barclays finished eighth, again with 5% market share. By June 23, it was back in fifth place for LatAm DCM. Bulge bracket shops all want to be in the lead, or at least top three, in all regions. “We should have a similar standing in rapidly maturing markets as we have globally or in the US,” says the head of LatAm investment banking at a major US firm. “League tables are important because clients look at them,” adds the banker. “It’s nice to have but it’s not an objective in itself,” says Juan Carlos Garcia Centeno, head of LatAm for Royal Bank of Scotland. “You have to be amongst the top five,” he adds. But the tables may not be the best way for a client to pick its banks. For example, a corporate new issuer may be better served by a shop with global experience in its sector, rather than by a bank that has done a lot of plain vanilla sovereign volume. “It’s all a marketing gimmick,” says William Cohan, former MD in the M&A group at JPMorgan. “It’s a way [for investment banks] to differentiate themselves from their competitors in what is otherwise a pretty opaque system,” adds Cohan, now a financial historian. “It is true that Goldman Sachs has done more M&A deals, at higher volumes, than any other firm. And they are expert at spinning that fact into gold,” says Cohan. “On the other hand, a client could get very good advice from a small boutique if the brain power is there,” he adds. — James Crombie July/August 2008 LATINFINANCE 17

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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