Bracing For The Covid Recession

Latin America’s private bankers scramble to maintain communication with clients while figuring out what the new normal will be for their portfolios.

The Covid-19 pandemic is spiking in Latin America, casting the region’s long-term economic prospects in doubt; and its private banks are ratcheting down their 2020 revenue projections accordingly. If there’s a silver lining, it’s that Latin American private banks are drawing on emerging technologies to connect with clients and manage investment portfolios as never before.

“Covid-19 made the private banking business tougher; because return expectations on managed assets remain high while the economy slows down, with a recession likely to happen in the near future,” says Nir Sadeh, senior vice president and head of private banking at Butterfield Bank in Bermuda. “Like most banks, we have reset our revenue outlook for 2020.”

Teleconferencing platforms like Microsoft Teams, Cisco Webex and Zoom permit banks to remain close to their high-net-worth clients in difficult times, however. “We have used videoconferencing technology extensively to stay in touch and carry out meetings that would normally be done in person,” says Alan Haidinger, COO of BTG Pactual WealthManagement in Brazil.

“We continue to look for new instances of contact with clients,” says Gonzalo Córdova, head of Wealth Management at LarrainVial in Chile. “As technology is scalable, we are not restricted to only our wealthiest clients.” The private bank sends morning briefings by WhatsApp or email to help clients stay atop of developments in specific asset classes.

And while many private bankers would agree with Sadeh that “nothing beats the effectiveness of face-to-face interaction,” others, like Córdova, gained new respect for teleconferencing as a way to enable more client/prospect meetings. “To put the success of our [recent teleconferencing] efforts in context: In April 2019 we had meetings with around 200 clients and prospects, and in April 2020 this number exceeded 800 participants,” says Córdova.

Reliance on emerging technologies like robo advisory, artificial intelligence and data mining, for portfolio optimization and investment strategies is likely to increase as well, even after the coronavirus crisis, says Alejandro Martínez, head of Investment Strategy at Citibanamex Private Bank.

Meanwhile, many of the region’s private bankers are getting used to working from home. PTG Pactual began working on a contingency plan for Covid-19 in February, says Haidinger; and “because we already had in place a tested remote-working solution, when the pandemic first hit Latin America and the US we were able to quickly move a very large portion of our staff to their home offices. In a matter of a few days—not weeks or months—we relocated 90%.”

Are all these adjustments temporary, or will they carry over after the pandemic ends? “Some changes, like working remotely from home and interacting with clients digitally, may increase in traction,” says Sadeh. “The adoption of emerging technologies will be something truly important for private banks going forward,” Martínez agrees.

More Diversification?

Responding to the health and economic crisis and its likely impact on Latin America’s wealthy investors poses the biggest challenge for private banks, however. “The Covid-19 outbreak reinforced the importance of having a diversified and balanced portfolio,” says Haidinger, adding that BTG Pactual has been building out its international investment capabilities over the past year and will continue to do so.

Risk will be increasingly seen as a key investment-allocation guideline, Martínez predicts. “We may go from a traditional asset-allocation approach to a risk-allocation approach,” he says.

What about new credit opportunities during the crisis? Haidinger points to some openings in selected bonds. “We have seized this opportunity to advise our clients on buying bonds from large Brazilian banks that at some point were trading at double-digit yield-to-maturity,” he says. The liquidity shortages and dislocations that occurred in March have “thrown up many opportunities in investment grade, high-yield and emerging markets credits,” Córdova says.

Whatever the direction that private banks—and their clients—take, the crisis has pushed them to move far more rapidly. “The current market environment has made us speed up the solution to [many] issues, such as onboarding clients,” Córdova tells Global Finance. “This crisis forced changes on everyone.”