Goldman Revenue Jumps 50% in Latin America as Hedging Picks Up

  • Colombia bond sale for infrastructure helps boost results
  • Firm also weighing wealth-management operation for Argentina

Goldman Sachs Group Inc.’s revenue from Latin America surged 50 percent this year as the firm helped to structure one of the region’s biggest infrastructure-financing deals and sold more hedging strategies to clients.

“We’re having a record year,” Marc Nachmann, who heads Latin America for the New York-based firm, said in an interview. “All the businesses are doing well -- banking, fixed income, equity and asset management.”

Revenue jumped from 2015 levels as the firm helped structure financing for Colombia’s 4G infrastructure program with three deals totaling $1.2 billion for highways. Goldman Sachs also made a private-equity investment in Tienda Inglesa, a supermarket chain in Uruguay, and helped finance Nubank, a financial-technology company in Brazil, with two credit facilities totaling about $50 million.

To ride the wave of rising corporate demand for hedges, the firm shifted the regional derivatives business, headed by Alejandro Vollbrechthausen, to the investment-banking unit from the sales and trading division. That structure, already in place in other regions, “provides a lot of connectivity and better client coverage," said Nachmann, who declined to break out dollar figures for the revenue increase.

Nachmann, who also runs Goldman Sachs’s global-financing group, took over as head of Latin America in May, when Stephen Scherr left that position to become chief strategy officer. Nachmann works out of New York, and the firm no longer has any partners based in the region. Gonzalo Garcia, who helps lead the natural-resources group, was named co-head of investment banking for Latin America on Nov. 17, but will stay in London.

Local Presence

“We think we need to have the proper mix of local presence and New York support,” Nachmann said, adding that more than half the firm’s managing directors focused on Latin America are based there. “More of the client-coverage bankers sit in the region and more of the product experts sit in New York, because they’re tapping into the overall system and we want them to get the cutting edge of the product expertise.”

Hedging also contributed to this year’s revenue gains, with business picking up steam following the election of Donald Trump as U.S. president and a rise in market volatility.

“There is probably going to be more demand in the hedging business if you look what’s going on in the market right now and you see more volatility ahead, and you imagine yourself as a manufacturer who was thinking about doing a merger or maybe building a plant," Richard McNeil, co-head with Garcia for Latin America investment banking, said in the interview. “The derivatives business is growing, with higher volume and a bigger footprint.”

Private Equity

The bank also sees opportunities in middle-market financing and private-equity principal investments for companies that don’t have access to banks, Nachmann said, adding that the firm handled five such transactions in 2016.

Goldman Sachs recapitalized MetroFit SA, a self-storage operator based in Sao Paulo, and secured $10 million in financing for CargoX, a technology company that offers trucking services for corporations in Brazil. It also announced a joint venture with Innova Capital Partners LLC to support the development of telecommunication assets in Colombia.

Goldman Sachs is also weighing whether to open a local wealth-management business in Argentina, he said, depending on the results of the tax amnesty program and how much of the funds declared will enter the nation local markets.

Total equity offerings fell to $8 billion so far this year in Latin America, the lowest level since at least 2005 and a 20 percent decline from 2015, data complied by Bloomberg show. Goldman Sachs handled just one deal out of 29.

‘Very Tough’

“The competitive landscape in the region is very tough," McNeil said. “What we try to do is focus our business strategically on the areas where we would expect to have meaningful activity and where we feel we have value to add," he said, citing the Colombia road project.

On that deal, Goldman Sachs spent “a lot of time analyzing the structure of the concession, what the cash flows would look like, the risk underlying different parts,” McNeil said. It then segregated those risks to place them with investors that the firm decided were best suited, he said, explaining that shorter-term cash flows denominated in Colombian pesos were sold to Colombia banks, while dollar-linked, longer-term cash flows were sold to offshore investors.

“This deal really utilized our strength in having a global franchise and plugging this into our global distribution system,” Nachmann said.

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