IB revenue steady, awaits market clarity
LatAm bankers are earning roughly the same in fees as a year ago, with ECM activity compensating for lower M&A. Much depends on stability in the markets ahead.
The earnings of
investment banks in Latin America's capital markets
have remained stable over the past year, despite a sharp
rise in US Treasury market volatility and against a backdrop of
flagging regional economic growth.
resilience of the main business lines has helped prop up fees,
even though the sources of revenue have changed.
The fee pool for
LatAm investment banking - combining revenue from DCM, ECM,
M&A and loans - had reached $1.43 billion this year through
September 27, according to Dealogic data. This was up from the
$1.33 billion earned during the corresponding period in
market activity picked up pace this year, helping compensate
for a slump in M&A volume. Despite uncertainty over the
direction of interest rates, debt capital market revenue is
down only slightly on last year, tracking overall
Credit Suisse led
the table with $136 million, or 9.5% of the market. Citi and
JPMorgan are in second and third, respectively.
environment continues to rise," said Lisandro Miguens, co-head
of corporate and investment banking for Latin America at
JPMorgan. "Some international banks came back strong after the
2008 crisis, local banks continue to strengthen their
investment banking practices and some local banks are expanding
their investment banking franchises regionally. All of this is
putting some pressure on fees."
Mexico has been
the busiest area in the region's equity markets. It has driven
an ECM market that has earned $478 million in fees in the
region through September 27, up from $244 million in the
corresponding period in 2012.
"In an economy
like Mexico, with a lot of change, there will be continued
equity issuance activity," said Mark Rosen, head of Latin
America investment banking at Bank of America Merrill Lynch.
"We don't see that slowing in the next 12 months."
M&A transactions, however, have taken a turn for the worse
this year. Deals had netted LatAm bankers $319 million through
September 6, down from $506 million in the same period in 2012.
This is on the back of $105 billion in announced volume, down
from $134 billion.
in Latin America is strongly correlated with the commodity
cycle," said Hernan Rissola, head of Latin America M&A at
HSBC. "Commodities have weakened, and Brazil has weakened. This
has meant a significant deceleration in activity."
Rosen noted a
strong pickup in M&A dialogue in last few months, however,
which he says could mean more activity into next year. "M&A
has been very slow in Latin America," he said. "You could see a
change to that in the next six to nine months."
A market shutdown
amid US Treasury volatility in June and July raised the
prospect this year of less active debt capital markets
following record issuance in 2012. Fees, however, remain stable
from last year. Banks have earned $484 million from DCM deals
this year, compared to $467 million in the corresponding period
issuance will top last year's record will depend on the market
openness over the remainder of the year and volatility in the
US Treasury market. Concerns over an unwinding if the US
Federal Reserve's monetary stimulus continues to dog borrowers
and investors, while the US government showdown this week has
also unnerved markets.
Market participants said they expected a higher cost of
funds ahead. LF