Goldman Sachs Group Inc. (GS) is increasing its Brazil workforce by about 20 percent this year to expand in an economy that’s growing more than twice as fast as the company’s home market.
The Brazilian unit, which raised headcount to about 300 from 200 last year, plans to invest during 2011 in research, asset management, private banking, sales, investment banking and trading, the group’s president, Valentino D. Carlotti, said in a video-conference interview last week from Goldman Sachs’s headquarters in New York.
“We have been growing a lot in Brazil over the past couple of years, but we still see significant opportunities to continue to build,” said Carlotti, 45, who plans to hand leadership of the unit to Alejandro Vollbrechthausen, 42, over the next several months. “We have robust growth plans for every product and division.”
U.S. and international banks are competing against Brazil- based companies such as Banco Itau BBA SA and Banco BTG Pactual SA, which have used their stronger local contacts to squeeze out foreign firms. Investment-banking fees in Brazil were about $1 billion to $1.5 billion last year industrywide, two dealmakers said last month, asking not to be identified because they aren’t authorized to speak publicly.
Goldman Sachs only completed its strategy to become a full- service bank in Brazil in late 2009, after two failed attempts to buy local firms. In 1998, Goldman Sachs tried to purchase Banco de Investimentos Garantia SA, which was acquired by Credit Suisse Group AG. (CSGN) Seven years later it sought to purchase Banco Pactual SA, a top investment bank later acquired by UBS AG. Pactual was sold back to BTG Partners in 2009 and is now BTG Pactual.
Credit Suisse has continued to grow in Brazil, and in 2007 acquired a majority stake in Brazilian asset manager Hedging- Griffo for 358 million Swiss francs ($427 million).
Investment banks are turning to emerging markets to tap faster growth. After expanding 7.5 percent last year, the highest growth in more than two decades, Brazil’s economy is expected to grow 4 percent this year, according to central bank estimates. U.S. central bankers said the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April.
Goldman Sachs didn’t make the top 10 in any Brazil investment-banking categories in 2009 and 2010, excluding international bonds, according to Bloomberg data. The firm, which doesn’t separately disclose Brazil revenue or profits, said its strategy in the country is to focus on more complex products that generate higher profit margins, such as convertible debt and receivables securitization.
“They’re going to have a hard time getting market share from us because we have long-term, well-established relationships and we have a big balance sheet locally,” Renato Lulia-Jacob, Banco Itau BBA International SA’s head of corporate banking for North America, Europe and Asia, said in an interview in London today.
Itau BBA is the leading adviser of equity sales so far this year in Brazil, and ranks fifth in mergers and acquisitions, according to Bloomberg data.
“We are not planning to do plain-vanilla credit,” Daniel Wainstein, who heads investment banking for Goldman Sachs in Brazil, said in a joint interview with Carlotti from Brazil.
Wainstein’s team grew to 40 bankers this year after the firm hired 10 people, including managing director Rodolfo Soares, previously head of fixed income at Banco J. Safra SA. Soares is the head of a new division of structured credit. The bank also hired Marcelo Bernal from HSBC Holdings Plc, where he was responsible for bond and syndicated-loan transactions.
Zurich-based Credit Suisse has about 36 investment bankers in the country, and Banco BTG has 49.
Compared with Goldman Sachs’s 300 total employees in Brazil, JPMorgan Chase & Co. (JPM), the second-biggest U.S. bank, has 630, including its investment bankers, and plans to almost double that figure. Bank of America Corp. (BAC), No. 1 in the U.S., employs about 400 in Brazil.
Among Goldman Sachs’s current deals in Brazil is a 300 million reais ($189 million) convertible-bond sale by Minerva SA, Brazil’s fourth-largest meat producer. The structure allows the company to sell debt without increasing leverage because the securities become equity when they mature. Investors receive a set coupon until the conversion, and then can benefit if the shares gain.
Goldman Sachs is also betting that its advisory work for private-equity clients who want to get into Brazil will generate investment-banking business and help boost fees from initial public share sales and acquisitions, Wainstein, 41, said.
The volume of M&A transactions reached 85 billion reais so far this year, compared with 97 billion reais in the same period last year, according to Bloomberg data.
Goldman Sachs Chief Operating Officer Gary D. Cohn said earlier this month that China was the No. 1 country for new hiring at the firm, and the top three would also include India and Brazil.
Brazil, Latin America’s biggest economy, is key for Chief Executive Officer Lloyd Blankfein’s strategy “to be Goldman Sachs in more places,” said Wainstein, who along with Andre Laport, head of equities for Latin America, became the first Brazilian partners at Goldman Sachs last year.
With Brazilian stocks underperforming comparable shares in most other emerging markets, some medium-sized Brazilian companies are looking instead to private-equity companies for financing.
The Carlyle Group, one of the world’s largest private- equity managers, raised $1 billion to invest in South American companies with an emphasis on Brazil, according to a June 15 statement. The leveraged-buyout firm closed a $776 million fund that will target deals across South America with a focus on Brazil, and a 360 million real pool raised with Banco do Brasil SA dedicated to Brazilian deals.
“We have seen a number of private-equity firms setting up platforms in Brazil and actively looking at opportunities,” Wainstein said in a phone interview on June 1. “Given our global relationships with these firms and other long-term oriented investors, we have been close to this dynamic and we’ve been providing them with opportunities and ideas and liaising them with our clients in Brazil.”
Initial Share Sales
The bank is currently managing two initial public offerings of companies that are controlled by private-equity firms. Technos SA, a watchmaker, hired Goldman Sachs as joint lead- manager and bookrunner with Credit Suisse. Itau BBA is leading the group. Private-equity firm DLJ South American Partners owns 39.9 percent of Technos, while local asset manager firm Dynamo has a 32 percent stake. Switzerland-based private-equity firm Partners Group owns about 5.6 percent of the company and executives and other investors own the remaining stake.
Qualicorp SA, a Brazilian health-insurance broker controlled by Carlyle, is also listing shares. Goldman Sachs and Banco Bradesco BBI are the bookrunners, and Bank of America Merrill Lynch is leading the group.
Goldman Sachs is climbing in investment-banking rankings in Brazil, and is back among the top 10 advisers of mergers and acquisitions and equity sales so far this year for the first time since 2008, according to Bloomberg data.
The firm’s role in the second-biggest transaction so far this year was to advise Telefonica SA (TEF), a longtime client that simplified its corporate structure in Brazil in a deal that included a merger between its fixed and mobile-phone assets. The assets involved in the restructuring were valued at nearly 9 billion reais, according to Bloomberg data. Banco Santander SA and HSBC also worked with Telefonica.
The bank worked on only one of the 20 equity sales that have been priced this year, though it has been hired by two companies to work on offerings that are expected to be priced in the second half and would be among the biggest this year, according to Bloomberg data.
In the first quarter, Goldman Sachs rose to the top of Brazil’s M&A rankings. It’s in fourth place year-to-date, compared with 20th for all of last year. Banco Santander SA is the top-ranked bank. Goldman Sachs climbed to ninth among underwriters of equity offerings, from 11th last year.
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