By Cristiane Lucchesi
A decade ago, Roberto Setubal set out to challenge Goldman Sachs. Setubal was chief executive officer of Banco Itau, one of Brazil’s biggest retail and commercial banks. At the time, investment banking in the country was dominated by US and European firms, with Goldman Sachs the perennial leader in advising on mergers and acquisitions.
The single Brazilian bank competing with the outsiders was Banco Pactual — and it was bought in 2006 by Zurich-based UBS.
Setubal launched his quest by acquiring a small rival, Banco BBA Creditanstalt, in 2003. He renamed it Banco Itau BBA and told its CEO, Fernao Bracher, that his job was to dislodge foreign banks from their perches atop the investment- banking ranks.
Setubal opened the coffers of Banco Itau, now Itau Unibanco Holding, to help Bracher do it.
“By maintaining Itau BBA as a different company, we kept the sophistication, agility and flexibility in decision making of an investment-banking boutique and at the same time gave this boutique the power to use the huge capital base of Itau,” Setubal, 58, says.
Today, Itau BBA is the second-biggest investment bank by revenue in Brazil. It battles for primacy not with Goldman Sachs but with Banco Bradesco and Grupo BTG Pactual — the successor to Banco Pactual, which is back in Brazilian hands under the leadership of billionaire Andre Esteves.
Itau BBA took in the most investment-banking-fee revenue in Brazil for the year ended on April 30, 2012 — $117m, according to London-based research firm Dealogic.
BTG topped the league table for the 12 months ended on April 30, 2013. Goldman wasn’t even in the top 10.
The Brazilian investment banks have used a two-track strategy to dislodge their foreign rivals: First, offer companies the best loan deals, and then use the credit portfolio as leverage to capture the company’s investment-banking business. As of December 2012, Itau BBA, led since 2005 by Fernao’s son, Candido Bracher, was the biggest lender to large corporations in Latin America, with 185bn reais ($87bn) in loans out to 3,100 companies with more than $100m in annual revenue.
Goldman Sachs President and Chief Operating Officer Gary Cohn salutes Brazil’s investment banks.
“They are much bigger competition than they were historically — and that’s a good thing,” he told a journalists’ roundtable in Sao Paulo in April. “They’re willing to take exponentially more credit risk than we are. And, by the way, they should. They understand the country.”
All banks in the country have been hurt by Brazil’s economic downturn, with gross domestic product growth an anemic 0.9 percent last year. The Ibovespa stock index was down 13.24 percent in reais for the year as of June 6, compared with a 13.77 percent rise in the Standard & Poor’s 500 Index. Total investment-banking fees fell 1.6 percent in 2012 to $916m.
As investment banks compete for slices of a smaller pie, the Americans and Europeans are by no means out of the picture. Zurich-based Credit Suisse Group has been near the top of the investment-banking league tables since it bought Sao Paulo-based Banco de Investimentos Garantia in 1998. Credit Suisse was No. 3 in overall investment-banking revenue during the 12 months ended on April 30 and No. 2 in mergers-and-acquisitions fees for 2012, according to Dealogic.
Bank of America Merrill Lynch, a unit of Charlotte, North Carolina-based Bank of America Corp, was fifth in total revenue.
Local bankers fight the overseas banks for every deal.
“We Brazilians have longtime, lasting relationships with our clients, and we are here in Brazil no matter what,” Candido Bracher, 54, says. “Foreign banks usually end up adopting a stop-and-go investment policy in the country, divesting whenever there’s a local or international crisis.”
To compete with the global banks, the Brazilians have invested in international bond and equity distribution, says Sergio Clemente, a vice-president of Bradesco who runs its wholesale-banking business. Bradesco, Itau BBA and BTG have all opened broker-dealers in Hong Kong, London and New York in recent years.
Bracher is less concerned about rivals from outside Brazil than from inside. Asked to name the biggest threat, he replies, “Competition from state-owned banks.”
Wp-Bloomberg
