Winners from the euro debt crisis? Try emerging market banks
Winners from the euro debt crisis?
Well, sure. Just take a look in the banking sector. Most of the attention has focused on the losers in the crisis, the European banks that are reducing their lending, selling assets, and exiting entire markets in an effort to reduce assets and up capital ratios to the 9% required by suddenly vigilant European banking regulators.
But if somebody is exiting a market, it’s likely that someone is entering. And if somebody is selling assets, somebody has to be buying.
So, for example, for the first 11 months of the year Banco Itau, the investment banking arm of Brazil’s Itau Unibanco (ITUB) has taken over the top spot in Brazil for merger advice, equity underwriting and initial offerings. (Itau Unibanco is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ )What banks used to have those spots? Rothschild for merger advice, Citigroup (C) for equity underwriting, and Credit Suisse for IPOs. Banco Itau advised on 27 deals (worth $35.4 billion) including the biggest deal of the year, the $17.3 billion merger of two units of Telemar Participacoes.
Having less competition from developed market banks is a very good thing in a market that’s down in size overall in 2011. Investment banking fees in Brazil fell this year to $783 million for the year through November from $1.2 billion in 2010, according to Dealogic. But by jumping up in the rankings Banco Itau saw its investment banking fees grow.
In Asia a similar process is at work. Commerzbank (CBK.GR in Frankfurt or CRZBY in New York) has announced that it will take a pass on any new lending business that isn’t tied to its core markets in Germany or Poland. France’s Societe Generale (GLE.FP in Paris or SCGLY in New York) is reviewing its acquisition and export finance business in Asia. The beneficiaries of any withdrawal will be banks such as Australia’s ANZ (ANZ.AU in Sydney pr ANZBY in New York), Singapore’s DBS Group Holdings (DBS.SP in Singapore or DBSDY in New York) or Standard Chartered (STAN.LN in London.) (Standard Chartered is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )
And don’t forget the winners through outright acquisition. Chile’s CorpBanca (CORPBANC.CI in Santiago or BCA in New York) has just entered its first market outside of its Chilean home market through the $1.2 billion purchase of Banco Santander’s Colombian banking business. Colombia’s economy is projected to grow by 6% in 2011, one of the fastest growth rates in Latin America. As recently as June Banco Santander (STD) said it had a goal of growing its market share in Colombia to 10% from a current 3%. But that was before regulators told the Spanish bank to raise $20 billion in capital to bring its capital ratio above the 9% threshold.
Colombia’s own Grupo de Inversiones Suramericana or Grupo Sura for short (GRUPOSUR.CB in Bogotá) has just received clearance from regulators to buy the pension assets in Colombia and Peru from the Netherland’s ING Groep (ING in New York). The deal will give Grupo Sura a 35% share of the pension fund management market in Colombia and entry into the pension management market in Peru.
The financial sector will look very different after this crisis.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares in Itau Unibanco and Standard Chartered as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
Related Posts
No related posts.
5 comments
Post a comment
Comments that include profanity, or personal attacks, or antisocial behavior such as "spamming" or "trolling," or other inappropriate comments or material will be removed from the site. We will take steps to block users who violate any of our terms of use. You are fully responsible for the content that you post.
Well Jim,
What are your thoughts on STD at this point? Will they preserve their growth opportunities or are they dead money? How will BNS fare in the new environment? Give me an idea, please.
Ditto to the question above on Banco Santander…
Yes Jim,
Will Banco Santander be the big winner as projected for a while or are they going to sink?
Thanks for this article. It pointed out something that I had not thought about. What I did think immediately after reading the Europe’s deal on Friday was UK’s banks which may benefit from David Cameron’s veto.
The whole world, US financial media in particular, immediately put out headlines “UK in Isolation”, “UK, the One Looser” etc.
People forgot that as the Primary Minister of Great Britain, David Cameron’s job is to protect UK, not to EU. Unlike our recent trade pack with S. Korea which will be win-win for the S. Korea, David Cameron precisely protected British’s national interest. His veto has shielded UK’s financial industry which contributes a lion share to Britain’s GDP from a potential European financial transaction tax. I already heard people in Frankfurt saying that they are going to loose the banking business to London, though as an investor there is no UK bank that I want to own at this moment.
Of course the long term effect of Cameron’s veto which “isolated” Britain from EU is not going to be seen for long time. I think it will be all depend on how UK conducts business. If UK keeps a free and open market economy while the rest Europe falls into regulation and protectionism which is France’s specialty, UK will be very competitive. Just look Switzland. I think Germany has a lot to loose. France whose heyday has long gone has succeeded again in borrowing some glory from Germany.
It used to be banks derived 60% of their income from loans.
Over time they have shifted rate risk to borrowers (indexed) and become more reliant on fees.
If a bank earns 1% on earning assets, for every $10k loss incurred the bank must make an additional $1M in loans JUST to offset that loss.
In these HIGHLY uncertain times, I have NO problem understanding bank reluctance to increase lending and instead decrease assets to build a capital ratio.
Gorm