Credit Suisse Group AG, Brazil’s top merger-and-acquisition adviser, is responding to a decline in demand for investment-banking services with an increased focus on structured credit and wealth management.”Those activities are growing faster and represent the biggest part of our revenue this year as the initial public equity offering and M&A markets slow down,” Jose Olympio Pereira, the Zurich-based bank’s chief executive officer for Brazil, said in an interview in Sao Paulo.
Pereira blamed exchange-rate and equity-market volatility for Brazil’s investment-banking slump, which has seen fees slide
13 percent this year through July to $506 million, the lowest since 2009, according to London-based research company Dealogic.
Credit Suisse ranked third, with $60 million, its worst showing in four years. Banco Itau BBA SA was first, followed by Grupo BTG Pactual, according to Dealogic.
International banks such as Credit Suisse and Bank of America Corp. are investing in credit businesses in Brazil as they compete against local lenders such as Banco Bradesco BBI SA, Itau BBA and BTG. Those companies have been using their local contacts and big balance sheets to squeeze out foreign rivals.
Pereira said Credit Suisse’s effort includes hiring for regional offices in Porto Alegre, Belo Horizonte and Rio de Janeiro. The bank, which has about 800 workers in Brazil, has doubled to 30 the number outside Sao Paulo in the past two years. It’s also seeking an executive to lead a team in Northeast Brazil as the company tries to double credit and investment-banking corporate clients to about 1,000.
“We want to be closer to Brazilian emerging entrepreneurs, to help them not only with their long-term capital needs and growth planning, but also with their investments,” Pereira said.
In one structured deal this year, Credit Suisse arranged a
$1.27 billion federally guaranteed loan for the state of Minas Gerais in February and then packaged and sold the debt as securities to fixed-income investors a month later at a markup of 9.2 percent, or about $116 million. Pereira declined to comment on the total earned on the deal.
Credit Suisse also made upfront loans before underwriting bonds on the international markets to middle-sized companies including Grupo Virgolino de Oliveira SA, Aralco SA Acucar & Alcool and USJ Acucar & Alcool SA, Pereira said.
“The lending activity has synergies with the investment- banking area because a credit is a great way to start a relationship with a company,” Pereira said.
Credit Suisse has already been picked to lend $1 billion to Mato Grosso, an agricultural state in western Brazil, and another 1.1 billion-real loan to the southern state of Parana.
Both loans also have federal guarantees.
“Brazil is the biggest emerging-market platform for Credit Suisse, and because of that we have the power to bring to the country a check of $1 billion in just one week,” he said.
Credit Suisse Hedging-Griffo, the bank’s asset-management unit, has 60 billion reais in private-banking assets under management. The business expanded 36 percent last year. That compares with a 21 percent increase for the market overall, according to Anbima, the nation’s capital-markets association.
The bank bought a controlling stake in Hedging-Griffo in
2006 for $294 million and exercised its option to buy the rest by the end of 2011 for about $810 million, according to a company earnings report. The private-banking business had about
10 billion reais in assets at the time of the acquisition.
Credit Suisse was Brazil’s No. 1 M&A adviser in the past 12 months, followed by Bradesco BBI and Itau BBA, according to data compiled by Bloomberg. Credit Suisse’s brokerage trades the most shares on the BM&FBovespa SA exchange. The bank ranks fifth on equity underwriting in Brazil, up from seventh last year, data compiled by Bloomberg show.
Credit Suisse rose to the top ranks of the investment- banking industry in Brazil in 1998, when it paid $657 million for Banco de Investimentos Garantia SA, founded by billionaire Jorge Paulo Lemann in 1971.
Expanding in structured credit carries risks for Credit Suisse, because it increases the amount of capital at risk from potential defaults or unfavorable markets, said Alexandre Chaia, a finance professor at Insper business school in Sao Paulo.
“When a bank has a greater risk, it usually asks for big returns,” Chaia said. Advising on mergers is safer because the bank can collect fees without allocating capital to the deal, he said.
Pereira said Credit Suisse is willing to take bigger credit risks in Brazil.
“Our business model, our expertise, is to originate and structure a credit, and then find the best way to distribute it to other banks or investors on the local or international markets,” he said. “We are mostly known for our investment- banking activity, but we are a much more diversified bank in Brazil.”
Brazilian revenue in dollar terms grew 10 percent this year over the same period of 2012 as increased revenue from structured credit, private banking, trading and proprietary trading compensated for the investment-banking slowdown, according to Pereira.
Credit Suisse doesn’t plan to start a private-equity business, he said, because that could create competition with some of its own clients.