Brazil’s lucrative market overlooked by global players

International private banks are in danger of losing out to local players in the Brazilian market as they continue to focus on the emerging market perceived to hold the most promise, Asia. In fact, the growth experienced by Brazil’s wealth market between 2005 and 2008 is only rivalled by China, resulting in a turf war breaking out between the already established players.

The country’s big domestic retail banks, in particular, are not prepared to give up their pre-eminent position and are actively defending their turf. Itaú Private Bank, a subsidiary of the country’s largest bank Itaú Unibanco, has used its advantage as the reigning incumbent to amass some BRL100bn (€43bn) under management – a figure that the bank estimates to represent 37 per cent of the Brazilian wealth management market.

UBS Pactual however suffered converse fortunes after the huge reputational blow incurred by its Swiss parent’s subprime losses led to a mass exodus of assets, ultimately driving it into the arms of BTG, Brazil’s largest independent investment bank.

Since the change in ownership the new BTG Pactual has emerged as a major player in the wealth management market, mainly through its focused efforts on the ultra high net worth market. Despite being the third largest player in the Brazilian market with BRL22m in assets under management (AuM), the bank only employs 30 private bankers and serves just 800 clients. Data from Scorpio Partnership’s annual KPI Benchmark indicates that the global average AuM:banker ratio in 2008/2009 was $115m (€90m).

Separating the two leading domestic players (in terms of assets under management) is Credit Suisse Hedging-Griffo, which was formed in 2007 when Credit Suisse acquired a 50 per cent plus one share stake in the Brazilian asset manager Hedging-Griffo. In this instance the brand of the Swiss parent worked in the institution’s favour as the bank’s assets under management jumped by 70 per cent last year to BRL30bn.

Other foreign players have been trying to catch up with the local players by building on their existing Brazilian footprints. Citigroup recently brought its Brazilian private bank and Citigold services under one roof, while HSBC Brazil Private Banking has been espousing its global presence and cross-border solutions as a USP. In contrast Merrill Lynch and Goldman Sachs Private Bank have yet to make headway in the market, but are trying to move away from their current niche player status. Merrill has upped the minimum required to join the bank to BRL5m and is selling itself on its open architecture capabilities, perhaps to counter the fact that it lacks an asset management operation in Brazil.

However, with the tug of war for clients between the incumbent and international private banks set to continue a key battleground is emerging – client service. Some of the domestic private banks have significantly grown the numbers of private clients without a proportional increase in the number of bankers. Foreign banks able to offer a much lower client:banker ratio may therefore in the future pose a threat to the domestic banks purely due to an increased level of client contact.

For now, it appears that deep domestic roots remain the key advantage held by the domestic players and there is plenty of business to go around. However, going forward, AuM:banker and client: banker ratios will become key comparable performance indicators for strategy teams making business investment decisions in the region.

Karl von Bezing is a director and Ziggy Harris is a senior associate at wealth management strategy think-tank Scorpio Partnership.