Latin Finance - July 2008 - (Page 2)

Front Notes Big Fish in Fee Puddle o global investment banks hemorrhaging tens of billions of dollars because of the credit crunch, emerging markets are bewitching. For the jaded Wall Street financier, there’s nothing like a trip down to São Paulo or Bogotá to erase nightmares of dying business lines and swirling pink slips at home. Amid such stellar growth – despite global crisis – surely a LatAm fee bonanza beckons? As usual in emerging markets, bankers must look very carefully before leaping. Far from outperforming US markets, the core LatAm investment bank fee pool is actually evaporating as fast as in the developed world, and from a much lower base. Fees earned from LatAm/Caribbean debt and equity underwriting, as well as M&A advisory, dropped to $646 million in the year to June 23, down 25% year-on-year, according to Dealogic. For the US, the numbers are $11.3 billion versus $15.6 billion in the corresponding period of 2007, a 28% fall. Overall EM core investment bank revenues tumbled 27%, to $3.4 billion, Dealogic data shows. Some of the false hope may arise from pumped up M&A numbers. Total LatAm M&A fees were $258 million in the year to June 23, up 23% versus 2007. This looks great against a 40% drop in US M&A to slightly over $3 billion in revenue, and LatAm M&A looks buoyant through the second half. But it’s hard to get too excited about a market that is less than 6% of the size of the US. LatAm is finally being taken seriously by the Wall Street titans who for decades saw it as little more than a rounding error. They are spending tens of millions constructing LatAm teams at the expense of thousands of bankers laid off in established money centers. But even if the decline in core fees reverses, LatAm will continue to generate a fraction of the revenue of the developed world. Perhaps that is why hopes are so high – the upside in percentage terms may be huge. But it is a pipe dream to assume that decay in the US will be offset by growth in EM. The LatAm fee pool is much smaller and more hotly contested than many senior bankers would like to imagine. As they learn this the hard way, issuers can bag low fee bargains, investors will get burned and those with long term aspirations must prepare for pain. Only smart shops with agility and true long term commitment will survive. EDITOR James Crombie ASSISTANT EDITOR Dan Shirai REPORTERS Ben Miller, Julio Urdaneta CONTRIBUTORS Greg Brosnan, Lucien Chauvin, Dan Horch, Jason Mitchell, Andy Webb-Vidal ART DIRECTOR Rosa Matamoros-Sense COVER ILLUSTRATION Oliver Weiss COMMERCIAL DIRECTOR James Norton DIRECTOR OF BUSINESS DEVELOPMENT Teresa Aguilar MANAGER, CARIBBEAN, PERU, BOLIVIA, ECUADOR Arielle Schrader EUROPEAN REPRESENTATIVE Robert Logan T +44 (208) 579-4836 CARIBBEAN & VENEZUELA REPRESENTATIVE Matthew Perks T +1 (718) 260-8970 ADVERTISING & PRODUCTION ASSISTANT Suhey Saldarriaga SENIOR EVENTS MANAGER Omar Suarez EDITORIAL DIRECTOR, CONFERENCES & SPECIAL PROJECTS Michael Brosgart EVENTS MANAGER Marlene Alvarez EVENTS PROGRAMMER Alana Gutiérrez MARKETING MANAGER Kathy Andrew CIRCULATION MANAGER Patricia Arcic OFFICE MANAGER Teresa Romero ASSISTANT TO THE CEO Vicky Maqueira NETWORK ADMINISTRATOR Lukasz Przybyl LATINFINANCE BOARD OF DIRECTORS Stuart Allen, Christopher Brown, James Crombie, Colin Jones, Giuliana Moreyra CHIEF EXECUTIVE OFFICER & PUBLISHER Stuart Allen CHIEF OPERATING OFFICER Giuliana Moreyra T Appetite for Destruction The most surprising aspect of Argentina’s return to ruin is the financial sector’s impotence when faced with a doomed government that seems intent on reliving the past. Publicly, not one senior banker, investor or major issuer will condemn the Kirchner administration for its folly. Privately, none has a good word to say about politics in a country that has everything else going for it. Meanwhile, in an agriculturally rich nation, there is a shortage of basic products in the supermarkets, where price rises indicate inflation of more than double the official estimate. Street protests are mounting in the capital, where residents note a sharp uptick in crime. And yet GDP growth expectations remain strong, and besides rich human capital and robust infrastructure, Argentina is abundant in some of the commodities that are enjoying a global boom. The central bank sits atop a $50 billion cushion of dollar reserves. After halting debt payments and enforcing a harsh haircut on creditors – many of whom are still holding out – the economy has grown at close to 9% during the past five years. The markets are preparing for the worst, with benchmark bonds trading in the low 70s lateJune and showing a considerable amount of stress. The five-year CDS was at around 640 basis points, implying a decent probability of default. Compare Argentina to booming Brazil, which was looked down on for decades by its southern neighbor. Much of LatAm enjoys a flood of new investment. And yet the buyside has relegated Argentina to the same division as Venezuela, Ecuador and Bolivia – high risk and best avoided. Time is running out for Argentina, though favorable external conditions give it breathing space to make necessary adjustments. However, the country faces a credibility crisis and the opportunity is there to be lost. Sadly, Argentina has replaced Brazil as the LatAm country of the future that probably always will be. Its bankers have only their elected officials to blame. Telephone: (305) 448-6593 Fax: (305) 448-0718 E-mail: editorial@latinfinance.com www.latinfinance.com Subscriptions hotline: U.S. (800) 437-9997 (212) 224-3570 U.K. 44 (0) 870 906-2600 E-mail address: subscriptions@latinfinance.com Subscriptions: one year magazine only $495. Premium subscriptions $2,499 Send subscription orders to: LatinFinance, 2600 Douglas Road, Suite 410, Coral Gables, FL 33134 USA T 305-448-6593, F 305-448-0718. Copyright© 2008 Latin American Financial Publications, Inc. is owned by Ell Holdings, Inc. All rights reserved. Reproduction in whole or in part of any text, photograph, or illustration without written permission from the publisher is strictly prohibited. Title is protected through a trademark registration with the US Patent Office. Indexed in Information Access Company. 2 LATINFINANCE July/August 2008 http://www.latinfinance.com

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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