Sunday 9 May 2021

Europe’s Top Banks Are Cutting Losses In Latin America

QCOSTARICA (Bloomberg) — European banks are on the retreat all across Latin America.

 Societe Generale SA Photographer: Jason Alden/Bloomberg

Societe Generale SA
Photographer: Jason Alden/Bloomberg

Societe Generale SA announced in February that it’s dismissing more than 1,000 workers while exiting the consumer- finance business in Brazil.

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In August, HSBC Holdings Plc sold its unprofitable Brazilian unit, with more than 20,000 employees. Two months later, it was Deutsche Bank AG’s turn. The German lender said it’s closing offices in Argentina, Mexico, Chile, Peru and Uruguay and moving Brazilian trading activities elsewhere. Barclays Plc is shrinking its operations in Brazil too.

The exodus threatens to deepen Latin America’s turmoil, making it harder for companies and consumers to obtain financing. The region already is out of favor as sinking commodity prices drive it toward the worst recession since the late 1990s. European banks, meanwhile, are looking to cull weak businesses as they struggle to generate profits and meet tougher capital requirements back home.

“All large European banks are under great pressure from regulatory changes and low stock prices to change their business models,” Roy Smith, a finance professor at New York University’s Stern School of Business, said in an e-mail. “These changes have to be quite significant to make enough difference.”

Spain, Switzerland

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The exits are opening opportunities for local rivals and global banks from the U.S., Spain and Switzerland willing to wait out the economic slump.

Latin America’s economy will probably contract 0.5 percent this year, squeezed by falling commodity prices and a slowdown in Brazil that’s predicted to be the longest since the Great Depression, estimates compiled by Bloomberg show. That would make it the first recession in the region since 2009 and the biggest since 1999. Demand for investment-banking services is tumbling, with fees plunging 45 percent this year through Oct. 15 to a 10-year low of $817 million, Dealogic said.

“European banks have fairly weak profits right now and in some cases low capital levels,” Erin Davis, an analyst from Morningstar Inc., said in an e-mail. That leaves “little wiggle room” to absorb losses or low profits from Latin America, even if they believe in its long-term potential, Davis said.

Deutsche Bank, which started operating in Latin America in 1887 with a unit in Argentina, has about 269 jobs in the five countries it’s leaving, according to its 2014 financial statements. In Brazil, it has about 334 employees.

“The region is attracting fewer investments, and that reduces the need for investment banking,” Ricardo Mollo, a professor at Insper business school in Sao Paulo. At the same time, demand for loans is waning and late payments are rising.

Brazil, Latin America’s biggest economy, is also the place cuts pay off the most for some European banks. In addition to Societe Generale dropping its consumer-finance unit there, HSBC sold its Brazilian subsidiary to Banco Bradesco SA in a $5.2 billion deal announced in August. Barclays, which had about 150 people in 2013 in Brazil, has reduced the team to 80, people familiar with the matter said.

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Societe Generale “remains committed to Brazil and will continue to serve its institutional and corporate clients through its local entities,” the bank said in a statement. Barclays declined to comment.

As for HSBC, Chief Executive Officer Stuart Gulliver has said the pullback was needed as part of a plan to reduce expenses by as much as $5 billion by 2017. Elsewhere in Latin America, Gulliver said in June in an interview with Mexican newspaper Reforma that HSBC would stay in Mexico, after previously saying the country was one of four potential markets the bank would leave.

HSBC Scrutiny

Complicating HSBC’s decisions about the region are money- laundering and tax-evasion scandals linked to Swiss accounts in Brazil. It’s also been under scrutiny in the U.S. since 2012 after it reached a $1.9 billion deferred-prosecution deal to resolve claims it helped Latin American drug cartels launder money.

Global banks with sizable Latin American subsidiaries that operate trading and investment-banking businesses could pick up some of the business European banks are leaving behind, Fitch said in a report, singling out Citigroup Inc., Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co. and Bank of America Corp. Local players in the region, such as Itau Unibanco Holding SA and BTG Pactual Group, might also benefit, Fitch said.

JPMorgan says it doesn’t plan to make changes to its team in the region, while Bank of America, which has about 1,000 employees in Latin America, added 150 people this year. Citigroup sold its consumer and commercial units in Peru, Costa Rica, Panama, Nicaragua and Guatemala, and is maintaining its corporate and investment-banking businesses.

U.S. Improvement

“The U.S. economy is doing better, so it’s normal that U.S. banks are also doing better and being more aggressive in taking risks in Latin America,” Mollo at Insper said.

Argentina is the country where perceptions are shifting the most, 10 days before a presidential election where the two main candidates have promised change from a dozen years of populism led by the Kirchner family. Hedge funds and other investors say the departure of President Cristina Fernandez de Kirchner could bring a more market-friendly government and a profit windfall.

Many Swiss firms are still bullish on the region as well. Julius Baer Group Ltd., the third-largest wealth manager in Switzerland, announced in July it would acquire a stake in Mexican firm NSC Asesores after boosting its interest in GPS Investimentos Financeiros e Participacoes SA to 80 percent in Brazil last year. Credit Suisse Group AG is keeping its team in Latin America, and its Brazilian unit hired 15 people this year for private banking. UBS AG, the biggest wealth manager in the world, is also hiring in the region. Chinese banks including China Construction Bank Corp. and Bank of Communications Co. are buying local lenders and increasing their presence.

Santander’s Confidence

And Spain’s Banco Santander, which withstood Brazil’s 1999 currency devaluation and financial crisis in 2002, remains confident about the country’s prospects. Chairman Ana Botin said in September that reforms under way could mean a return to growth as soon as next year.

For many of her competitors, time has run out for that kind of optimism.

“Going back a few years, global banks were trying to offer all products to all people in all locations, said Richard Barnes, an analyst at Standard & Poor’s in London. “With tightened regulatory requirements, you just can’t really do that anymore.”

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FACT CHECK:
We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

Q24N
Q24N is an aggregator of news for Latin America. Reports from Mexico to the tip of Chile and Caribbean are sourced for our readers to find all their Latin America news in one place.

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