Morgan Stanley Revenue From Brazil Jumps as Equity Trading Booms

  • LatAm Head John Moore sees brighter outlook for M&A, financing
  • Brazil now seen as one of the most attractive emerging markets

Morgan Stanley has reason to celebrate its 20th anniversary in Brazil: First-half revenue surged 36 percent from a year earlier, the firm is close to becoming No. 1 in equity trading, and company executives see bright prospects for mergers and financing.

“There are very few destinations as attractive as Brazil” for international investors in emerging markets, John Moore, Morgan Stanley’s head of Latin America, said in an interview at the bank’s Sao Paulo office. “The country has scale and geopolitical stability, economic growth with low inflation, declining rates, and a diversity of businesses in which to invest.”

Morgan Stanley has gained market share in Brazil in cross-border merger advice, stock and bond underwriting, structured solutions and equity sales and trading, Moore said. The bank, the biggest equity trader in the world, is close to grabbing the No. 1 spot in Brazil as well, with market share of almost 11 percent in the three first quarters of 2016 and 12.8 percent this year through Oct. 6, according to data from Brazilian exchange B3 compiled by the bank. Its share was 7.7 percent in 2013.

The jump in revenue from Brazil followed gains of 15 percent last year and 8 percent in 2015, according to people at Morgan Stanley familiar with the figures who asked not to be named. In equity trading, the firm has inched to within just 0.8 percentage point from top-ranked UBS Group AG, narrowing the gap from 3.7 percentage points in the first three quarters of 2016. Average daily equity-trading volume in Brazil rose 11.8 percent through September, to 8.29 billion reais ($2.6 billion), according to B3.

Morgan Stanley dominates the market for total-return swaps, a derivative that gives international investors the same payoff they would get by owning shares or investing in an local index without having to open a local account or deal with other Brazilian investing regulations.

“We are seeing renewed interest from international investors in Brazil as the country emerges from the prolonged recession with a stronger reserve position, a trade surplus, lower inflation, declining rates and the prospects for continued structural reforms,” said Moore, who’s also chairman of the firm’s global capital-markets business for the Americas.

Charitable Contributions

To celebrate the firm’s 20-year commitment to Brazil, the New York-based bank contributed 500,000 reais to Escola Vidigal, a school for children in poor neighborhoods in Rio de Janeiro. The charity, run by the artist Vik Muniz, provides free education in arts, technology and design.

“We wanted to partner with a charity that reflected the values of education, innovation and development of the next generation in Brazil,” Moore said. “Over 200 people in our Sao Paulo office, senior management and the firm together raised” the funds.

Morgan Stanley is also investing in its local team. Nilton David, a member of the company’s Latin America management committee, moved late last year from the buy-side area to become head of Brazil fixed-income trading. More recently, Andres Sommer transferred to Sao Paulo from Chile to run the Brazil merger-and-acquisition business.

Among its more noteworthy deals, Morgan Stanley led Vale SA’s corporate reorganization, a groundbreaking transaction in terms of improving corporate governance in Brazil that unified the iron-ore producer’s share structure and helped it move to the country’s highest listing standard. Morgan Stanley also advised Kirin Holdings Co. on the 664 million-euro ($780 million) sale of its Brazilian unit to Heineken NV.

People Moves

Earlier this year, Citigroup Inc.’s Brazil operation lured away Morgan Stanley’s co-head of investment banking, Eduardo Miras, as well as two other executives from the business.

“The competition for talented and accomplished bankers is fierce and our team is highly respected in the market,” Moore said.

“We have a deep and highly committed team and we make personnel transitions seamlessly, without any impact on client service or business development,” Moore said, adding that Morgan Stanley has since hired Felipe Mattar from Citigroup. He’ll join in November as a managing director covering clients from the power, utility and infrastructure sectors.

Morgan Stanley is also transferring Cezar Faria, a Brazilian from the New York health-banking department, to cover the Brazilian health-care sector, as well as private equity sponsors.

Earlier this year, Morgan Stanley led a $750 million bond offering for rail company Rumo SA and this month was one of Rumo’s underwriters on a 2.6 billion-real secondary equity offering.

“The capital-markets track record we developed is largely unconnected to lending activity, because our global advisory and distribution franchise are not a commodity, and our Brazilian clients value that counsel and international access,” said Franck Petitgas, global co-head of investment banking for Morgan Stanley.

Next year’s presidential and congressional elections are still a reason for concern, Moore said.

“The Achilles’ heel of Brazil is long-term fiscal policy,” he said, adding that headwinds include rising fiscal deficits, government debt and the need for pension reform. “Given the benefits the country has seen in recent months from taming inflation, lowering rates and implementing structural reforms, one would hope that popular support for the reform agenda will continue. So I am optimistic.”

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