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Itau Loses No. 1 Ranking as Canceled IPOs Limit Fees

November 05, 2012

Itau Loses No. 1 as Canceled IPOs Limit Fees

Itau BBA fell to second with $74 million in fees, down from $127 million last year, Dealogic said. Photographer: Dado Galdieri/Bloomberg

Brazilian share sales are on course to fall to their lowest since 2005 and acquisitions are down by 37 percent, paring fees for investment banks from Itau BBA to Credit Suisse (CSGN) Group AG.

Fees from advising on mergers and leading equity offerings, bond sales and syndicated loans fell to $662 million through Oct. 26, down 17 percent from the same period last year, said Dealogic, a London-based information and consulting service. Itau BBA, the wholesale arm of Itau Unibanco Holding SA (ITUB4), lost its spot as the top earner in Brazil this year to Grupo BTG Pactual, according to Dealogic’s rankings.

Slowing growth from China to Brazil, coupled with concern about increased government regulation in the Latin American country, prompted six companies to postpone or cancel share sales this year. Equity offerings in Brazil tumbled 54 percent to $5.6 billion through Oct. 31, the lowest for the first 10 months of the year since 2005, data compiled by Bloomberg show.

“Investors in equities in most emerging markets have been overall more risk averse given the developments in Europe and weaker prospects for China and global growth,” Jean Marc Etlin, chief executive officer of Itau BBA’s investment-banking unit, said in an interview in Sao Paulo.

BTG has earned $130 million in fees this year through Oct. 26, up from $123 million the same period last year, according to Dealogic. The Sao Paulo-based bank handled 13 equity transactions, including its own $1.95 billion initial offering in April, data compiled by Bloomberg show.

Equity Rankings

Itau BBA fell to second with $74 million in fees, down from $127 million last year, Dealogic said. Credit Suisse is ranked third with $65 million. Banco Bradesco SA (BBDC4), through its investment-banking arm Bradesco BBI, jumped to fourth place this year from fifth in 2011 with $56 million of revenue, up from $49 million last year.

Fees for the industry totaled $922 million for all of last year, compared with $1.15 billion in 2010 and a record $1.6 billion in 2007, Dealogic said.

Itau declined 0.4 percent to 30.87 reais at 1:19 p.m. in Sao Paulo trading, bringing its year-to-date loss to 9.2 percent. BTG Pactual rose 0.9 percent to 31.34 reais today, while Brazil’s benchmark Bovespa index dropped 0.7 percent.

CPFL Energias Renovaveis SA, Brazil’s biggest renewable- energy producer, delayed plans to raise as much as 1.5 billion reais ($738 million) in an IPO amid concern government regulations forcing utilities to lower electricity costs will hurt demand, two people with direct knowledge of the decision said in September.

“Changes in regulations and pressure to reduce prices imposed losses on investors and didn’t help to stimulate the equity markets,” said Guilherme Paes, head of the investment- banking business at Grupo BTG Pactual.

Lower Rates

Brazilian President Dilma Rousseff this year has ordered banks to shrink interest rates, utilities to cut power bills and phone operators to drive down wireless costs for consumers to fuel growth and curtail inflation.

Economic growth in Brazil, the world’s largest emerging market after China, will slow to 1.54 percent this year, according to a weekly central bank survey of about 100 economists. That’s down from 2.7 percent in 2011 and 7.5 percent in 2010.

Economic Growth

“The decrease of Brazil’s economic growth also helped to reduce the movement on the equity market,” said Jose Olympio Pereira, CEO of Credit Suisse in Brazil, the second most-active M&A adviser, according to Bloomberg rankings for this year through Oct. 31. Itau BBA is in the top position, after advising on transactions totaling $22.2 billion.

A weaker IPO market doesn’t stimulate M&A activity “because equity offerings not only raise cash for consolidation but also boost corporate sentiment,” said Luiz Muniz, global partner and head of Rothschild in Latin America. The value of M&A deals has fallen 37 percent this year to $52.6 billion, data compiled by Bloomberg show.

As equity sales decline and interest rates fall, companies are turning more to local and international debt markets to raise cash. Sales of local fixed-income assets, which usually generate smaller investment-banking fees than mergers and IPOs, increased through September to 75.68 billion reais, up 6.4 percent from the same period a year earlier, according to Anbima, Brazil’s capital-markets association.

“Strong activity in Brazilian fixed-income local and international markets has helped to partially offset weak equity markets,” Itau BBA’s Etlin said.

Paes, the investment-banking head of Grupo BTG Pactual, said the Brazilian fixed-income market will have a record year. “The local players, the traditional leaders in these markets with bigger balance sheets and capital to invest in the country, will be the winners,” he said.

BTG Results

BTG will release its third-quarter results tomorrow after markets close. The bank reported 179 million reais in revenue for its investment bank in the first half of the year, a 25 percent decline from the same period last year.

Bradesco BBI ranked first in local fixed-income origination, with 17.5 billion reais in transactions, or 24 percent of the market, Anbima said. Itau rated first for local fixed-income distribution, with deals totaling 8.98 billion reais, or almost 29 percent of the market.

As Brazilian banks lead the local fixed-income market, New York-based JPMorgan Chase & Co. is first on Brazil’s international bond sales, working on deals totaling $4.7 billion in a market that grew to $44.5 billion, 40 percent more than the $31.8 billion in 2011. The bank also ranked first on equity offerings for Latin America through Oct. 31.

Mexico, Peru

“Mexico, Peru, Chile and Colombia fared better than Brazil in share sales because they depend less on foreigners to buy the new issuance,” said Patricia Moraes, co-head of investment banking at JPMorgan in Brazil, in a interview in Sao Paulo. The share of Brazilian markets in Latin American equity issuance fell from 60 percent last year to 34 percent this year, data compiled by Bloomberg show.

IPOs and equity markets will rebound amid rising liquidity in international markets after the Federal Reserve engaged in a third round of bond purchases known as quantitative easing 3, Credit Suisse’s Pereira said in an interview in Sao Paulo.

Anticipating better growth in 2013, Bradesco BBI hired 30 people in the past two years for investment banking and integrated the division with corporate banking, mid-size companies and private-equity areas under the responsibility of executive director Sergio Clemente. In the second quarter of 2012, the Osasco-based bank was Brazil’s top merger and acquisition adviser for the first time in more than nine years.

“We gained market share customizing more products for our clients,” Renato Ejnisman, managing director of Bradesco BBI, said by telephone from Sao Paulo. “Brazil will grow more and falling interest rates will increase demand for more structured products.”

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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