Latin Finance - September/October 2010 - 16

investment bank fees

significantly more than last year. A lot of it is coming from Europe,” says Udi Margulies, head of LatAm M&A at Barclays. “We’ve seen a lot of Asian crossborder in the natural resources/mining space,” he adds. Besides an abundance of cheap capital, also fueling the trend is the perception in the old money centers of Europe and the US that there are limited growth and investment opportunities at home. Multinationals see Brazil in particular as a good place to invest money. And with the IPO market stalled, sellers are opting to go the strategic route rather than a float.

And even though deals like Telefónica’s Vivo purchase – at around 11 times Ebitda – suggest valuations are getting toppy, bankers say there is still value in Brazil. Bankers see a real competitive advantage in the country, particularly for sectors like protein and natural resources. “When you adjust for the growth, it’s not that rich in value,” says Margulies. “We see activity in pretty much every main sector: financial services, education, metals and mining, pulp and paper. It’s really across the board,” says Daniel Wainstein, head of Brazil investment banking at Goldman Sachs. “I haven’t seen

this level of activity in terms of M&A for years,” he adds. Other bankers see opportunity in healthcare, oil & gas, transport and real estate, with companies taking majority and minority stakes. There is also private equity buying, consolidation in sector and strategics coming to Brazil. “In general, most banks are probably thinking about close to doubling last year’s results [in M&A],” says Nicolas Aguzin, CEO of Latin America at JPMorgan. “In M&A, the first six months were probably the best six in a very long time,” he adds, referring to his institution’s LatAm franchise.

Key EM Driver

he shotgun wedding of Bank of America and Merrill Lynch at the height of the global financial crisis, appeared to spell the end of the latter’s LatAm franchise, and many senior bankers quit. The speed and extent of its resurrection has astonished the competition. According to Andrea Orcel, Bank of America Merrill Lynch’s (BAML) executive chairman of global banking and markets and president of EM ex-Asia, LatAm is an essential part of the franchise. And investment banking represents just 5% of the potential fee pool. “The emerging markets are an enormous and critical opportunity,” Orcel tells LatinFinance in an exclusive interview. “Latin America is obviously a key component of our global emerging markets strategy.” He adds that the region will be a significant contributor to global revenue across all products, but declines to put a number on it. “Latin American investment banking revenues have soared in the past year and are expected to be up 70% by year end, versus 2009,” says Orcel. The star rainmaker – whose reported $34 million bonus in 2008 attracted heat from regulators and the envy of colleagues – took the LatAm helm earlier this year. He estimates a fee pool of around $70 billion in LatAm and CEEMEA across banking, global markets and wealth management. About $30 billion of that is anticipated from LatAm, taking into account less glamorous areas like trade and export finance, leasing, treasury services and cash management, which pays well when done in bulk. “That includes all businesses: corporate banking, sales and trading, investment banking and wealth management,” says Orcel. “According to Dealogic, the investment banking fee pool for Latin America was about $1.5 billion in 2009. We had a high single digit market share of that and we believe we are on target to achieving double-digit share in the future,” he adds. Globally, BAML earned $3.1 billion in the second quarter of 2010, from $29.5 billion in revenue. Investment banking income was $1.3 billion in the quarter, which BAML does not break out by region. BAML is excited about growth prospects for the major economies – Brazil and Mexico – and expects increased domestic and crossborder M&A and capital markets activity, as well as equity markets to further improve in the coming quarters. And Orcel says BAML is committed to pan-regional coverage. “We are achieving revenue growth in all of the countries we are in and we are seeing very good business prospects in the Southern Cone and Andean regions in the year ahead,” says the banker. Sectors with most potential include E&P, industrials, metals and mining, and FIG, he adds. The merger with Bank of America is “effectively complete,” adds the former Merrill banker, who says that the former’s corporate banking – lending, cash and treasury management – businesses provide cross-selling opportunity. “The two had very little client overlap in the region,” says Orcel. Despite all of the noise around the merger, BAML is starting to show how an investment bank can work alongside a retail/commercial financial institution. While new recruits from pure investment bank franchises may get excited by access to balance sheet, Orcel says BAML will rely more on relationship and value-added ideas. “We do not lead with our balance sheet and we don’t intend to do so in the future,” says Orcel. “Local players and legacy commercial banks are lending heavily. We are not competing head-on with this.” And the banker generally sounds upbeat about the future of the region. “Strong GDP growth prospects will continue to drive business activity and infrastructure development, and we are yet to experience the full wave of global investor portfolio diversification into the region,” Orcel says. “Our outlook remains positive for the region as a whole and also for our own market share growth,” he concludes. –James Crombie

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September/October 2010

Latin Finance - September/October 2010

Table of Contents for the Digital Edition of Latin Finance - September/October 2010