Latin Finance - September/October 2009 - 14

investment banking survey The Battle of Brazil by Dan Shirai and James Crombie Since the financial world did not end, global banks have dusted off and gotten largely back to business as usual. Brazil is the focus of a new fight for LatAm fees. enior investment bankers would rather be anywhere but Wall Street or the City, and when shareholders or regulators are baying for blood, a flight to São Paulo presents a delightful distraction. But far from the Wild West of just five years ago, Brazil now offers the potential to make serious long-term returns. Asked about his bank’s LatAm strategy, Goldman Sachs COO Gary Cohn is quick to respond. He captures the thinking of many of his competitors and colleagues when, two weeks before flying to Goldman’s annual management summit – held this year for the first time in São Paulo – he says his interest in LatAm is fundamentally Brazil-focused. Cohn – visiting São Paulo in the same July week as Citi CEO Vikram Pandit, and stomping identical ground as Wall Street titans like John Mack and Jamie Dimon – is one of many Brazil converts. Despite extreme market volatility typical of emerging markets – Brazil’s stock market was up 90% in August from its 2008 low, but still well short of last year’s peak – the sell side appears more committed than ever to a market on which it has historically blown hot and cold. “Fundamentally Brazil is a great place,” says Nicolas Aguzin, head of LatAm investment banking at JPMorgan. “You have an investment grade country with very little leverage with all the conditions to be among the leaders in the world, so it is no surprise that Brazil is much more resilient,” he adds. “Latin America in general is important S and Brazil, as one of the largest economies in that region, with great potential is obviously a key market for the bank,” chimes in Gerardo Mato, co-head of global banking for the Americas at HSBC. Long term investors from the Middle East and Asia are staking out territory, while Brazilian exporters of food, energy, iron ore and steel continue a push abroad, planting themselves in developed markets. For some institutions, this is the last chance to establish a winning, long-term strategy in a highly alluring BRIC country. “The high growth rate coupled with economic and political stability has created an environment in which both our corporate and investor clients are very interested,” says Goldman’s co-head of Brazil investment banking Daniel Wainstein. “Brazil will become a major power in the long run worldwide,” he adds. Fee Pool Replenished Despite debilitating global financial crisis, banks’ appetite for the region’s most fertile ground for financial intermediation has barely cooled over the past year, in part because Brazil’s economy has displayed impressive resilience. For investment banks, that means a reinvigorated fee pool. In the first seven months of 2009, while US markets braced for low returns, Brazil was put on review for upgrade by Moody’s; its central bank cut the benchmark interest rate by 400 basis points to a record low of 8.75%; and local banks increased the tenor on fixed-rate mortgages by five years, reaching the 30-year mark for the first time ever. Meanwhile, Brazilian credit card processing giant VisaNet raised 8.6 billion reais in the world’s second biggest IPO year to date. Underwriters reaped close to 320 million reais in fees. Bankers at several major shops estimate the investment banking fee pool in Brazil is worth $1.0-$1.5 billion in 2009, versus $1.5-$2.0 billion in 2007 14 LatinFinance September/October 2009

Latin Finance - September/October 2009

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