How Latin investment banking just got bigger
Net revenues for investment banks in Latin America in 2006 were up by more than 30% on the previous year, according to Dealogic. Net revenues from all public deals in equities, debt, loans and M&A reached $1.37 billion in 2006 (see table below) compared with $1.04 billion in 2005. These figures are in stark contrast to those for 2002/04, when average net revenues for each year were just $639 million.
Yet break down the figures for last year and one theme jumps out. In 2006, for the first time in at least five years, revenues from equity capital markets outstripped those of debt. The level of fees generated in the region’s equity capital markets was 32% of total net revenues, compared with 24% in 2005. By contrast, the level of fees generated in the debt markets was just 26% of total revenues, compared with 36% the previous year. Aside from exceptional transactions, such as the Argentina debt restructuring in 2005, the sovereign business is becoming less profitable. If banks want to make money in debt then high yield or structured finance are much more lucrative.
"Fees in high yield depend on how complicated the trade is but you can generate fees that are greater than 100 basis points, though it is a risky business," says Pablo Venturino, head of Latin American fixed-income capital markets at ABN Amro.