Swiss private banks are looking for footholds in Latin America as the lower fees and higher interest rates offered by local wealth managers deter the region’s super-rich from traveling to Geneva and Zurich.
Better investment opportunities are making private banking a “domestic game” in Brazil with as little as 5 percent of wealth booked in offshore centers, said Joao Albino Winkelmann, a director at Osasco, Brazil-based Banco Bradesco SA, Latin America’s second-biggest lender.
“A lot of people used to keep their money in Geneva but that doesn’t happen anymore,” said Winkelmann, who helps oversee $31 billion of client assets. “Very few Brazilians are sending money abroad.”
That’s changing a relationship started in the 19th century when Swiss banks guarded the fortunes of plantation owners and mining magnates. UBS AG, Credit Suisse Group AG and other Swiss banks are being forced to seek acquisitions as Latin America’s $3.5 trillion wealth management market is set to grow by more than half by 2016, according to Boston Consulting Group.
“People are becoming richer and richer,” said Gustavo Raitzin, head of Latin America for Julius Baer Group Ltd. “An emerging consumer class wants to make liquid investments and they need private banks and wealth managers, especially in Brazil.”
Brazil’s private banking industry increased assets under management 50 percent to 434.3 billion reais ($214 billion) between 2009 and 2011, according to a survey by Anbima, the national banking association. Switzerland’s biggest banks are looking to tap that growth.
UBS, Switzerland’s biggest bank, is in talks with Brasil Plural SA Multiplo, a Sao Paulo-based bank and asset manager to buy BNP Paribas SA’s Brazil wealth-management unit for about $50 million, a person with direct knowledge of the matter said on Oct. 6. The companies declined to comment on the discussions.
Credit Suisse this year increased its majority stake in Hedging-Griffo, a money manager in the same city that oversees 45 billion reais for wealthy individuals. The Zurich-based bank has identified Brazil and Mexico for domestic investment.
Both UBS and Credit Suisse, which each have at least eight offices in Latin America, declined to comment for this story on their strategies in the region.
Julius Baer last year purchased a 30 percent stake in GPS Investimentos Financeiros e Participacoes SA, a Sao Paulo-based money manager for wealthy families that’s trying to double its 11 billion reais in client assets over the next five years. The bank is also buying businesses in Uruguay, Chile and Panama through the acquisition of Merrill Lynch’s wealth management assets outside the U.S. from Bank of America Corp.
“Brazilians only send money abroad in times of turmoil,” said Winkelmann. “Ten years ago money was being wired abroad like hell. Now absolutely they’re bringing it back. I don’t see anyone making much money on an offshore business with low interest rates and the regulatory framework.”
Economic growth has created a new class of entrepreneurs in Latin America’s consumer industries, said Henrique Meirelles de Campos, a former head of the nation’s central bank and now an adviser to Bedrock Group, a Geneva- and London-based private investment office.
“Until 2003 Brazil was still in a period of recurrent financial crisis, short-term planning, short-term horizons, putting little investment into innovation,” he said. “The financial system is now in good shape and the domestic market is growing.”
Brazilian President Dilma Rousseff’s economic team forecasts that gross domestic product expanded at a 5 percent to 6 percent annualized pace in the third quarter, the fastest in more than two years, a government official said. In a bid to boost growth, Brazil’s central bank this month cut its benchmark Selic to a record low 7.25 percent. The Swiss National Bank kept its benchmark interest rate at zero at a meeting in September.
“There are opportunities for Swiss and other international managers but an emerging crowd of local players is also winning business in Brazil and Chile,” said Jorge Becerra, a Santiago-based consultant with Boston Consulting. “Latin American banks are making acquisitions to try to build pan-Andean managers.”
The need for asset protection, which spurred the creation of offshore Swiss accounts, still has a role, said Karen Simpson, head of RBC Wealth Management, a unit of Royal Bank of Canada, in Geneva, where about 40 percent of the 7.5 billion francs ($8 billion) under management are for Latin American clients.
“If you are a Latin American sitting in an environment that is turbulent, be it economically, politically, or socially, you probably choose to have offshore sites for a portion of your money,” she said.
About a third of the $1.5 trillion banked offshore by Latin Americans sits in accounts managed in Switzerland, according to a UBS presentation.
Still, Swiss wealth managers are no longer simply about a deposit account that’s less vulnerable than one at home, said Magda Gabriel, head of HSBC Holdings Plc’s Latin American desk in Switzerland.
“Whereas a couple of years ago you would be focusing on offshore private banking I would say that’s kind of history,” said Gabriel, while adding that HSBC’s Swiss business is looking for referrals from local banks it has acquired in Brazil, Mexico and Panama. “It’s helped us to develop our international business.”