FOCUS-LatAm banks seen prey to global players
Reuters, Monday, March 02, 1998 at 21:06
By Fatima Cristina
SAO PAULO, March 2 (Reuters) - Reports Monday that Goldman
Sachs & Co was looking to acquire Brazil's maverick Banco
Garantia have reignited a debate over the survival of Latin
American investment banks in an increasingly globalized market.
Analysts said the wave of buyouts and mergers in the
investment banking industry was a worldwide phenomenon to which
even some of the region's most successful banks were not
immune.
International brokering powerhouses like Goldman, Merrill
Lynch and SBC Warburg are extending their reach as a way of
gaining volume and leveraging their competitiveness in the
dog-eat-dog financial services business.
Garantia, a 300-person outfit which once enjoyed a
reputation for virtual invincibility, could become the next
victim of an unstoppable global trend, analysts said.
"With the globalization of markets, there will no longer be
any room for banks that are genuinely Brazilian, except for
those which have very specific market niches" said Erivelto
Rodrigues of banking consultants Austin Asis.
Garantia chief executive officer Claudio Haddad on Monday
denied newspaper reports that the bank was in the early stages
of acquisition talks with Goldman.
However, an industry source said the two are in preliminary
talks that might lead to Goldman taking a stake in Garantia.
The two banks have worked closely in the past. Garantia has
modeled its operation on Goldman's successful meritocratic
system and the two have teamed up on a number of big projects,
most recently a failed bid to oversee the privatization of
Brazilian telephone holding company Telebras SA.
"We are not up for sale, we never were," Haddad told
Reuters in a telephone interview. A Goldman Sachs spokesman
declined comment on the reports.
Despite Garantia's denial, a wave of mergers of
medium-sized Brazilian banks with powerful international
partners is already in full swing.
Last year, SBC Warburg acquired Banco Omega and Robert
Flemings took over Banco Graphus. Charlotte-based NationsBank
assumed control of Rio de Janeiro's Banco Liberal in January.
Foreign investment banks are flocking to Brazil, whose $800
billion gross domestic product accounts for half of that of all
Latin America, eyeing opportunities in the country's lucrative
mergers and acquisitions and asset management businesses.
Like no other country in the region, Brazil has a strong
investment houses. Institutions like Garantia, Pactual and
Bozano Simonsen are respected in London and New York for their
creativity and aggressiveness and compete head-to-head with the
biggest names in the industry.
During the years in which Brazil posted double-digit
monthly inflation, these banks learned how to make quick
profits in arbitrage.
More recently, they were among the first to recognize the
huge potential of Brazilian stocks as the country developed
into one of the world's hottest emerging markets.
But tougher competition coupled with narrower margins,
following the successful introduction of an anti-inflation plan
in 1994, have hurt the bank earnings, particularly in their
trading operations.
"More than ever, banks have to increase their volumes to
show a profit," said Gustavo Campos, head of research at BCN
Alliance Capital Management.
Those that hope to avoid being swallowed up by a foreign
bank are working on strategies to improve their
competitiveness.
Bozano, Simonsen and Pactual are already moving into retail
banking, a sector that is expected to grow steadily over the
next few years.
Rodrigues of Austin Asis said last year's Asian debacle may
speed up further mergers and buyouts in Latin America's
investment banking sector.
Local investment banks saw their profitability shrink in
1997 partly due to losses stemming from the Asian financial
turmoil. According to a Austin Asis report on the results of 10
investments banks, Brazilian banks' return on equity fell
roughly 15 percent on average in 1997.
Copyright 1998, Reuters News Service |
