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The biggest steel producer in Brazil, Gerdau, selected three Brazilian banks to manage its $3.5 billion share sale in April.JPMorgan and Citi have been involved in Gerdau events prior, but not this time.
The same thing happened when retailer Magazine Luiza, went public last month.
Banco Itau lead the deal, and U.S banks weren’t involved at all.
According to Bloomberg, this trend will probably continue as “Brazilian companies and entrepreneurs are learning that they don’t need a foreign bank to help them with their financing needs. Local banks have got what it takes to do even the most sophisticated deal.”
That’s not good for the American banks, which view the surging Brazilian economy as a goldmine for fees.
“Brazilian issuers sold a record 290.7 billion reais ($180 billion) in stocks and fixed-income instruments in 2010,” Bloomberg reported. Major offerings included the $70 billion sale of Petroleo Brasileiro shares. Itau had a huge hand in that.
So what do the locals have that we don’t have?
For starters they have “a greater capacity to finance deals, improved relationships with investors, experienced executives and the ability to provide services once offered only by large global banks.”
Plus, their fees are lower. The typical fees for U.S equity deals were 3.3% last year according to Bloomberg,, and have averaged 3.4% in 2011. Meanwhile, in Brazil, the fees are about 2.5% for equity offerings.
Apparently this is unusual in emerging markets the head of Morgan Stanley’s Latin America business told Bloomberg, “You don’t find many markets where you have those kinds of strong, well-capitalised, entrenched competitors.”
Investment banks based in Brazil, including Itau, Banco BTG Pactual SA and Banco Bradesco BBI SA — the firms that managed the Gerdau share sale — maintain a grip on equity and debt offerings, even as foreign firms poach employees and ramp up operations in Latin America.
In number one place in M&A in Brazil is BTG, based in Sao Paulo. Meanwhile Itau was the top underwriter of equity and debt offerings.
One foreign bank with significant clout is Credit Suisse, which came second in advisory work on M&A in 2010 and “as more frequently among the top five managers in equity sales and M&A over the past five years than any foreign bank.”
JP Morgan’s excuse: we’re focusing on i-banking investment banking and private wealth management. “We don’t want to go head-to-head with Itau where they have all their power,” the bank said.
And in fact, one area where American banks are hard to shake is M&A advisory. While debt and equity sales are being spearheaded by Brazilian firms, JP Morgan, Morgan Stanley and BofA ranked 3rd, 4th and 5th in M&A there. (Interestingly, problem-swamped Goldman “hasn’t made the top 10 in any category since 2008, after a run as the top merger adviser in Brazil for the three years through 2005.”)
A senior BofA i-banker said: “One of the things we do well is cross-border deals. We have the power to connect the client in Brazil to a target in Asia or the client in Asia to a target in Brazil.”