Latin Finance - September/October 2009 - 20

investment banking survey Goldman and Morgan Stanley have crafted comparable strategies in the region, focusing the bulk of their resources, which are increasingly based on the ground, in Brazil. Both have strong brands among global investors that are backed by sophisticated trading and investment banking operations. Adapting their models, which have typically performed well in developed markets and Asia, to Brazil, where volatility has historically been more intense and the market environment generally less predictable, has taken time. And promoting LatAm business internally appears to have required substantial effort at both Morgan Stanley and Goldman. At both US houses, the top two LatAm officers are non-Latin executives that command strong internal relations, thanks to many years at their respective shops. Rather than fully delegating the buildup to locals, or acquiring external teams, the New York-based banks have chosen to build up gradually over the past two years, establishing on-theground presence one piece at a time. “Our goal is to be fully local in Brazil,” says Christopher Harland, head of Morgan Stanley’s LatAm business, adding that means also being fully connected to the bank’s global franchise and client network. His head of LatAm investment banking, Charlie Stewart, moved to Brazil last year to help oversee the expansion of the São Paulo office, which has included several senior hires in banking and trading. Goldman in turn last year moved Andy Rabin, a US telecom banker, to Brazil to help lead investment banking as COO, alongside Valentino Carlotti, president of Brazil investment banking. “Everywhere we go, we seek to be a leader; it is no different here,” says Carlotti. Both US houses require senior local Brazilian bankers for on the ground knowledge, continuity with clients and deal pitching. For example, corporate client Batista says he was very impressed by a recent visit from a group of Morgan Stanley bankers, which included CEO John Mack. The comment from Batista – who has given a lot of his companies’ business to the likes of Credit Suisse, UBS Pactual and Itaú BBA – is a reminder that in Brazil, banking relationships are fluid and the opportunity to capitalize on a good idea is no more than a good pitch away. Building Barcap The challenge for Barclays, which appears to be shooting for something akin to a pure play, non-universal model, is to differentiate itself from the competition and convince clients it is in for the long haul. Barclays’ acquisition of Lehman Merrill fan: BlackRock’s Landers gives it a strong global sales and trading platform for equity and fixed income, with a particular strength in areas like structured credit and derivatives. For LatAm this translates only partially into a leg up, since Lehman had only begun to build up its non-banking capabilities in the region when it ran into trouble at home. Barclays did, however, inherit a host of fixed income strategists and traders, as well as a regional M&A banker. “We believe there’s an opportunity for investment banking in Brazil and we want to capture that,” says Gustavo Ferraro, head of LatAm DCM. DCM for the region including Brazil will continue to be run out of New York, he adds. The same goes for LatAm equities, a burgeoning business headed by Stanley Rowe that aims to focus initially on sales and trading of derivatives and cash. Rowe says he wants a complete product offering, suggesting he will also be looking to add ECM capabilities as soon as possible. In its initial stage, the focus of the equities buildout is unequivocally Brazil, though the long term goal is to cover the region, says the executive. Barclays has also historically made use of balance sheet and has often participated in syndications that are unrelated to its investment banking pipeline. It has even occasionally led some deals on its own that have dubious cross-selling potential such as a $190 million 6.5-year financing for Mirabela, the Australian-Brazilian mining project, finalized in March 2009. “We want to use our balance sheet smartly,” remarks Ferraro, adding the tendency going forward will be to deploy it in support of M&A and other investment banking activities. In this sense Barclays would be thinking along the same lines as JPMorgan and BofA Merrill. The view is similar to that of Deutsche Bank, which is also in the process of building out its Brazil investment bank. “We will use our balance sheet where it makes sense,” says Stephen Cunningham, head of corporate finance and M&A at Deutsche. The German shop has made several hires ranging from MDs to junior bankers in São Paulo this year, and its Brazil office, led by Bernardo Parnes, aims to take on other pure-play investment banks. Vicious Competition Having a leaner model focused on financing and M&A does not shelter Barclays, Goldman or Morgan Stanley from the likes of JPMorgan, whose broader array of products includes a formidable investment banking platform. It is cited by some of Brazil’s top issuers and acquirers as a go-to shop for M&A advice, and its equity franchise has gained momentum relative to peers in the past two years, albeit amid overall lower volume. As of early August, it was leading the ECM volume league tables, up from third place at the same time last year and year-end 2008, according to Dealogic. 20 LatinFinance September/October 2009

Latin Finance - September/October 2009

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