Emerging Markets : International banks enjoy Brazilian boom times


Brazil’s strong capital markets recovery and IPO blitz has prompted international investment banks to put the country back on their radars. Lehman Brothers, which exited Brazil in 2003 amid a near market collapse, has reopened its São Paulo office and acquired the investment banking unit of Rio Bravo, a local firm. Others, including Citi and UBS, have boosted their local investment banking teams through new hires. Falling interest rates have fueled the recovery by fostering new corporate investments and boosting consumer spending. The central bank cut the benchmark Selic rate to a record low 11.5% in July.

Commercial banks are also benefiting from lower interest rates, with increased lending leading to strong second-quarter earnings. Banco Itaú and Banco Bradesco, the country’s two largest private sector banks, reported a 30% and 44% rise in quarterly earnings, respectively. New foreign players are looking to take a piece of the action. Banco Azteca, a Mexican bank owned by retailer Elektra and which focuses on lower-income clients, has received regulatory approval to establish retail operations in Brazil.

The Brazilian economy is on track to grow by at least 5% in 2007, according to finance minister Guido Mantega, who attributes the improved outlook to increased infrastructure outlays. The government had predicted a 4.5% expansion for this year, following 3.7% GDP growth last year. Supporting growth is also the 6.6% year-on-year industrial production expansion registered in June.

Foreign investment is on the rise, too. According to the central bank, Brazil scored a record $10.3 billion in FDI in June, nearly 50% of which involved the repurchase of shares in Arcelor Brasil by India’s Arcelor Mittal. June’s figure brought FDI in first-half 2007 to $20.9 billion, compared with only $7.6 billion during the same period in 2006. Future prospects will be bolstered by the fact that in July Brazil’s environmental protection agency granted preliminary approval to a controversial hydroelectric project on an Amazon tributary that could bring in as much as $15 billion in investments over five years.

Antonio Guerrero