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.
The overall resilience of the main
business lines has helped prop up fees, even though the sources of revenue have
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 2012.
Equity capital 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 volume.
Credit Suisse led the table with
$136 million, or 9.5% of the market. Citi and JPMorgan are in second and third,
“The competitive 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
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.”
Earnings from 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.
“M&A activity 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 of 2012.
But whether 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