Latin America Equity House
Aspiring to greatness: Brazil has dominated the Latin America ECM landscape for much of the past five years, with one Brazilian bank, Itau BBA, taking ever more of the business. For ambitions that transcend its home borders and for its dominance of one of the most exciting countries for ECM, Itau BBA is IFR’s Latin America Equity House of the Year.
In recent years, investment bankers from global institutions have been heard to complain with increasing frequency about fierce competition from Brazilian banks. Their activities have not only been ramped up in Brazil, but also in Mexico, Chile and other important markets.
One particular institution stands out, not only for its aggressive expansion and savvy execution, but for the sheer size of its parent and its compelling story. Itau BBA, the investment banking arm of Brazil’s largest private lender, has established itself as a regional powerhouse almost from scratch – and in only 10 years.
And in no other market has this presence been as transformational as in ECM. Itau BBA has established itself among the top five in regional league tables for the past three years, after spending many years in the wilderness. By the end of November 2010 it had been a bookrunner in 13 deals in Brazil, and logged its first foreign mandates. Global banks have increasingly identified Itau BBA as providing stiff competition in Mexico and Chile – and even the US.
Measured by the number of transactions led, Itau BBA loses out to Credit Suisse for the top spot, but has certainly proved it can execute deals with the big boys. In a year that has seen both issuers and investors complain about poor valuation and mispricing of deals, nine of the transactions led by Itau BBA in 2010 had positive returns.
Some of them, for example the IPO of Mills Engenharia, have returned as much as 100%. With the Brazilian index Bovespa showing a negative return by December, investors have every reason to cheer Itau BBA. Accounts have also praised the bank for following deals up with an excellent service in both trading and research.
“They always have the shares when I need them and are good at executing trades if I ask them to,” said one account. “They have very good research and have been consistently adding analysts,” said another.
Itau BBA has the largest equities research team of the LatAm banks, with its team of analysts covering 130 companies all over the region. The bank also has one of the largest dedicated salesforces in the region, with 27 people, including nine in the US. It boasts 38 traders, 12 sales traders and more than 30 investment bankers.
Keeping everyone happy
Happy investors can often mean dissatisfied issuers. With so much excitement about Itau BBA on the buy side, it is natural to question its commitment to issuers. But Fernando Fontes Iunes, head of ECM at Itau BBA, points to the bank’s track record as a comprehensive riposte. The vast majority of issuers that dealt with Itau BBA gave the bank the mandate again when they returned to market. “We are client-oriented, not transaction-oriented,” he said.
In 2002 Itau BBA acquired BBA, signalling a shift of focus on to wholesale banking. Since then it has steadily built the team and has striven to become a one-stop shop for companies requiring funding. Investment bankers at Itau are directed to seek the best alternative for the issuer, not the one that will make their bonus better, said Iunes.
The bank benefits from the advantage of access to the balance sheet and corporate relationships of its parent Itau-Unibanco, the largest private retail bank in Brazil. Couple that with one of the best and largest teams in the country, and it is easy to understand how Itau BBA has become a thorn in the side of global shops.
Yet Itau BBA has also made a point of originating deals in the good old-fashioned style, advising on M&A deals or identifying prospective success stories and helping them get financing early in their business plan. In 2010 Itau BBA helped arrange pre-IPO private placements for internet company Locaweb and Queiroz Galvao Oil and Gas, but the bank’s relationship with both groups far precedes this year’s deals.
The size of its parent has not encouraged Itau BBA to focus on boring, safe transactions. The past year has seen the bank lead or co-lead some of the boldest transactions originated in Brazil, such as the IPO of homebuilder Direcional Engenharia. While that was a public deal, its placement resembled a private one, with a few strategic anchor investors taking up almost the whole transaction and other accounts taking the leftover. The firm also reopened the Brazilian IPO market this year when it led the listing of Alliansce, a mall operator.
Bank of America Merrill Lynch was forced to shed most of the stake it still owned in Itau-Unibanco to comply with TARP capital requirements in May, right in the middle of the Greek crisis. It was one of the most complicated ECM transactions of 2010, and Itau BBA helped engineer a massive US$4bn-plus private placement, bringing in its parent as well as other Brazilian investors.
Meanwhile, Itau BBA took one of the global co-ordinator spots in Petrobras’s massive US$70bn follow-on. Some banks have suggested it only got the position because it had lent heavily to the Brazilian state-owned oil company in recent years. But Itau BBA argues that it drove a significant chunk of the demand needed to fill the book on the jumbo deal.
But what really demonstrates Itau BBA’s ECM expertise is the variety of sectors it has covered over the years, with significant deals done in virtually every category listed in the Bovespa. The bank plans to lead the charge to bring new sectors to the index as well, said Iunes.
Alongside Credit Suisse, Itau BBA had most stabilisation agent mandates in Brazil – an important role requiring active trading after the deal and the ability to put balance sheet on the line.
Self-critical
But the bank is anything but complacent. Iunes concedes the bank has arguably fallen short of its own expectations in terms of its presence elsewhere in LatAm. It is an easy trap to have fallen into, with more than 90% of the deals in the region coming out of Brazil. Indeed, according to some ECM bankers, there is no such thing as a LatAm equity capital market – just a Brazilian one.
Yet 2010 saw IPOs surface in Argentina, Chile, Colombia, Mexico and Peru, after years of absolute inactivity. Itau BBA’s absence from these deals is a stain on its record, even if these transactions in aggregate account for less than US$2bn. Brazilian activity, including Petrobras, amounted to more than US$86bn.
Itau BBA is working hard to rectify the problem and become a true regional bank. “We are striving to become a LatAm player,” said Iunes. The bank has extended its research coverage and opened offices in Argentina, Chile and Mexico.
But Itau BBA’s ambitions extend beyond the region. It has been rapidly increasing its global footprint this year and scored a bookrunner position for a US IPO, the listing of biofuel concern Amyris on Nasdaq. The bank boasts brokerage licences and/or trading desks in New York, London, Shanghai, Tokyo and Abu Dhabi, complementing its main centres in Latin America: Buenos Aires, Mexico City and Santiago.
“We truly see the market from a global perspective,” said Iunes.
And yet the bank has never lost sight of its core market. “If you are an investor and you want to be exposed to Brazil, we want to be the go-to bank,” Iunes said.
Christopher Langner
