Goldman Loses Ground in Brazil as Rivals Pay Cash Bonuses

People Walk near a Banco Bradesco SA Branch in Sao Paulo
People walk near a Banco Bradesco SA branch in Sao Paulo. One advantage Bradesco BBI and Itau BBA have over foreign competitors is the composition of pay, according to three people familiar with the matter. Photographer: Dado Galdieri/Bloomberg

Feb. 26 (Bloomberg) -- Goldman Sachs Group Inc. and Credit Suisse Group AG used bonus season in Brazil as a chance to reduce their investment-banking personnel, even as some local rivals posted record revenue after adding employees.

Bonuses were eliminated entirely for some bankers at Goldman Sachs, a move that contributed to the departures of five executives last month, according to two people familiar with the matter who said the company has trimmed employees in the investment-banking area to 25 from 45 a year ago. About 10 bankers left Credit Suisse after receiving smaller bonuses than last year, another two people said. The people asked not to be identified because the departures weren’t announced.

“Some U.S. and European banks have shifted their focus back to home markets because there’s more activity there, and in Brazil we have a shrinking fee pool,” said Jean Marc Etlin, chief executive officer for investment banking at Banco Itau BBA SA, ranked No. 1 in Brazil by fees in 2013 by London-based research firm Dealogic.

The nation’s total investment-banking fee pool fell 12 percent to $831 million in 2013, the Dealogic data show, and it may shrink an additional 20 percent this year, according to Guilherme Paes, head of investment banking at Grupo BTG Pactual. Sao Paulo-based BTG was No. 2 in the Dealogic rankings, which are based on estimates. Goldman Sachs dropped from the ranks of the top 10 for the first time in four years, the data show.

Michael DuVally, a spokesman at New York-based Goldman Sachs, declined to comment on staff reductions and fee rankings. An official at Zurich-based Credit Suisse also declined to comment and asked not to be named, in keeping with company policies.

World Cup

Demand for merger advisers and stock and bond underwriters may wane this year amid predictions for slower economic growth and as companies put off transactions until after the June World Cup soccer tournament and October presidential election. Adding to pessimism about investment-banking fees is speculation Brazil’s credit rating will be cut because of government budget deficits, and a reduction in demand for emerging-market assets as the U.S Federal Reserve trims its economic-stimulus program.

Some local banks boosted their market share last year even amid the market contraction. Banco Bradesco BBI SA, the investment-banking arm of Osasco-based Banco Bradesco SA, took 10.9 percent of the industry’s fees last year, up from 9.3 percent in 2012, according to Dealogic.

Fee revenue at Bradesco BBI rose 25 percent, according to Renato Ejnisman, a managing director at the firm who said the unit doubled the size of its team during the past three years and doesn’t plan any reductions in 2014.

All-Cash Bonuses

One advantage Bradesco BBI and Itau BBA have over foreign competitors is the composition of pay, according to three people familiar with the matter. The companies will give some bankers 100 percent of their annual bonus in cash, with only the so-called statutory directors receiving 50 percent in equity, the people said. That contrasts with banks including Goldman Sachs and Credit Suisse, where all investment bankers receive some of their bonus in shares, with top executives receiving as much as 80 percent that way, three people familiar with the firms’ policies said.

Bradesco BBI, Itau BBA, Credit Suisse and Goldman Sachs declined to comment on their bonus policies.

Ejnisman said more than half of last year’s revenue came from the fixed-income business, run by Leandro Miranda. The bank rose to first place for debt capital-markets underwriting fees in 2013 from fourth in 2012, according to Dealogic.

Higher Fees

“We found new pools of investors, helped to create new markets,” Miranda said in an interview in Osasco. “In a structured fixed-income transaction, fees can be up to 10 times higher than on plain-vanilla ones.”

Among this year’s biggest deals was the 1 billion real ($429 million) infrastructure bond sale by Vale SA, the world’s largest iron-ore miner. Bradesco BBI was the lead coordinator on the deal, and Itau BBA and BB Banco de Investimento SA, the investment-banking unit of Banco do Brasil SA, helped coordinate the transaction.

Fixed income and M&A were the main drivers of Itau BBA’s record year for investment-banking revenue in 2013, according to Etlin.

Itau BBA isn’t planning to reduce its team this year, Etlin said. The company’s global head of fixed income, Alexandre Aoude, left in November amid a restructuring and he won’t be replaced, according to the bank, which said Christian Egan, global head of equities, will take on Aoude’s previous duties.

Fee Ranking

Credit Suisse, with about 800 employees in Brazil, held on to its third-place ranking for investment-banking fees for a third consecutive year in 2013, Dealogic said. It was first in 2010.

Allan Libman, who led the company’s investment-banking unit, will move to New York and be replaced by Fabio Mourao, who runs the merger-and-acquisition business in Sao Paulo, two people familiar with the matter said this month. Libman will take another post in the firm’s Latin America business, the people said.

Among other foreign banks scaling back in Brazil is London-based Barclays Plc. The company’s head of credit trading in Brazil and two directors left as the lender pared its global fixed-income, currencies and commodities business, two people with knowledge of the matter said this month.

Banco Santander Brasil SA, a unit of Spain’s biggest lender, cut about five top executives from the wholesale business among other employees earlier this year after paying bonuses, two people familiar with the matter said. Santander declined to comment.

Private Equity

Foreign private-equity firms may take up some of the slack, Paes at BTG said.

“Brazil is becoming cheap in dollar terms, so we are seeing a lot of international private-equity financial players with hard currency seeing an opportunity,” Paes said. “Our merger-and-acquisition pipeline is still very strong.”

With U.S. economic growth picking up, some companies there are becoming more interested in investing in Brazil, said Marcos Flesch, a founding partner at Souza, Cescon, Barrieu & Flesch Advogados, Brazil’s top M&A legal adviser last year, according to data compiled by Bloomberg.

The elections and World Cup might also prompt the government to accelerate plans to privatize roads, ports, airports and other types of infrastructure, spurring more transactions, Flesch said.

“The commitment of Latin American banks to the region is much stronger,” Paes said. “We live and die for the local clients” and continue to support them even during slower economic times, he said.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at

To contact the editor responsible for this story: Peter Eichenbaum at