Seems this will have a very negative impact on future exploration & new mine development:
FleetBoston May Be Alone In Latin American Pullback
Tue Apr 16, 6:54 PM ET
By: Mike Esterl, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- For FleetBoston Financial (NYSE: FBF - news) Corp. (FBF), the Latin American pullout might be beginning. Odds are that other foreign banks will stay the course.
As part of a broader overhaul to reduce its risk profile, FleetBoston said Tuesday it was halting future capital investments in Latin America after racking up big losses in crisis-torn Argentina .
Analysts aren't ruling out that FleetBoston, which in the past has generated about 9% of its earnings from Latin America and boasts a loan portfolio of around $15 billion south of the Rio Grande, could pull out entirely from the region.
"It's certainly an interesting development and doesn't help confidence in the region's banking systems," said Philip Harrison, Latin America banking analyst with ING Financial Markets.
FleetBoston announced a $1.19 billion, Argentina -related writedown in late January after the South American country defaulted on $141 billion in public sector debt.
Several other foreign banks have also taken big hits from Argentina in recent months, with Citigroup Inc. (NYSE: C - news) (C) reporting a $519 million charge in first-quarter earnings Monday.
But analysts say that most foreign banks, after expanding aggressively in Latin America during recent years, won't be pulling up stakes despite the Argentine debacle.
"I see it as an isolated incident," said Jeanne del Casino, a Latin America banking analyst at Moody's Investors Service, of the scaling back by FleetBoston, which also has sizeable investments in Brazil .
Foreign banks that have invested heavily in the region "know the risks, would expect to have up and down years, and are willing to take those risks in order to do well in the long run," she added.
Foreign institutions have been extremely active in Latin America since the late 1990s, snapping up assets as governments eased ownership restrictions and cash-strapped domestic banks sought to recapitalize after a series of financial crises rocked the region.
In 1995, foreigners controlled less than 25% of banking sector assets in each Latin American country. By 2000, foreign banks held majority shares in all of the larger financial systems, with the exceptions of Brazil and Colombia , according to a recent report by the Federal Reserve (news - web sites) Bank of New York (NYSE: BK - news) .
Citigroup and FleetBoston have been leading the charge among U.S. banks, although their market share has been eclipsed by Spanish counterparts Banco Santander Central Hispano SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBV). A brigade of banks from other countries, including HSBC Holdings PLC (HBC) and ABN-AMRO Holding NV (ABN), have also been increasing their ground operations in the region.
While Argentina has turned into a sinkhole, analysts say it is too risky for international banks to exit the region as a whole - particularly the two largest economies, Brazil and Mexico , which are starting to produce healthy returns on investments.
"They're too big to ignore and too big to give up on," said ING's Harrison. " I'd be very surprised if banks that really do want to be global players would stop investing in those two countries."
Indeed, Citigroup reported Monday that first-quarter income from Mexico , following its $12.5 billion acquisition of banking giant Banamex last year, rose to $280 million from $4 million in the like 2001 quarter.
Few Latin American countries' banks are also anywhere near the dire straits that Argentine institutions find themselves in after a messy default and currency devaluation. In an April report in which it gave financial strength ratings for sovereign financial systems ranging from A to E, Moody's assigned Argentina an E or insolvent rating, while Mexico and Brazil came in at a far- more respectable D+/C- range.
Chile 's banking system is even healthier, in a C/C+ range, according to Moody's. Despite economic fallout from neighboring Argentina , Chilean banks earned a combined 149.16 billion pesos ($1=CLP647.50) in the first quarter of 2002, the government reported Tuesday.
Chile 's central bank is preparing to sell its 35.5% stake in local heavyweight Banco Santiago (SAN), and Moody's Del Casino said there is a good chance that Santander, which already has a 43.5% share in the bank, will wind up with it.
"That's a big transaction," she said, of the 35% stake that's valued at about $700 million.
And while profitability has been far from stellar in many banking systems, the New York Fed pointed out in a January report that foreign institutions had higher provisioning levels in Latin America than their locally-controlled peers between 1995 and 2000. That suggests they plan to stick around for the pay-off.
"Foreign banks seemed more willing to tolerate, or could better afford, lower returns in the near term for the sake of building longer-term institutional strength. Such an approach signals a strong commitment to local markets," the New York Fed wrote.
Robert Lacoursiere, a banking analyst with Lehman Brothers, said the Argentine experience has created "a very strong perception outside the region that there's a lot of risk."
But he quickly added that if FleetBoston were to try to sell its profitable Brazilian (news - web sites) holdings, "they'd have takers."
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