First came the arrival of large financial groups, and then a lively series of mergers and acquisitions led to industry consolidation. Now in Latin America’s banking sector comes the turn of making markets deeper, which in a region with high levels of poverty means embracing microfinance. The interest in developing financial services business models that reach the lowest income sectors of the population was the trend in 2007, and promises to be one of the main tendencies of 2008, reflected in the selection of some of the companies included in the ranking this year.
Compartamos: too profitable?
The Mexican microfinance company, one of the largest in Latin America, became the first company of its kind in Latin America to be traded on the stock market. Compartamos offered 30% of its stock on the Mexican exchange in April 2007, raising US$468 million in an operation that was three times oversubscribed. The success of the offering is explained by investors’ interest in taking part in the growing microfinance market, as well as the juicy profits that Compartamos has registered since 2000 on the back of the high interest rates it charges for its loans. In the microfinance community, the success of Compartamos has opened the debate as to whether these large earnings aren’t a clear sign that the microfinancer should reduce interest rates on its loans to low income individuals.
Santander: Brazilian cheer
Through participating in a consortium that bought Dutch bank ABN Amro for US$101 billion in 2007, Santander acquired Banco Real, the Dutch group’s operation in Brazil. This has made Santander a giant in the Brazilian market, where the bank run by Emilio Botín had already made a sound strike against conventional wisdom with the acquisition in 2000 of Banespa for US$5 billion, an amount some competitors at the time deemed excessive. Time proved Botín right. In 2007, Santander’s Brazilian operations were those that accounted for the group’s third-highest profits, after Spain and the United States. With the acquisition of Banco Real, Santander becomes the third largest bank in Brazil in terms of assets.
BBVA: Mexican strength
The Spanish financial group is increasingly more Mexican. The excellent results of its Mexican subsidiary Grupo Financiero BBVA Bancomer (US$2.04 billion in the first nine months of 2007, 17% more than the same period of the previous year), were responsible for 36% of the group’s net profits worldwide. Profits of the other Latin American units of the bank weren’t so bad either: profits grew by 23.6% in the first nine months of 2007, reaching a combined US$610 million.
Banorte: strength of the last Mohican
Many observers of Latin America’s financial industry thought some years ago that the days were numbered for Banorte, the only large financial group in Mexico whose shares remained in local hands. The multimillion dollar acquisitions of large local banks by international giants suggested that Banorte would be next in line. But far from it, Banorte has continued to grow strongly in Mexico and moreover has made purchases in the US. In November 2006 it bought 70% of Inter National Bank, in Texas, and in January 2007, it acquired the New Jersey money wiring company Uniteller.
ParaLife: insurance for the base of the pyramid
Insurance for the handicapped? Insurance for low-income earners? ParaLife has not chosen the most appetizing segments of the insurance business, but the most coherent with its vision of socially responsible business. ParaLife was formed in 2005 by a group of executives led by Rolf Hüppi, ex CEO of the giant insurer Zurich Financial Services, with the idea of opening insurance services to the lowest income sectors and the handicapped. With capital contributions from the International Finance Corporation, Fomin (part of the International Development Bank) and the Andean Development Corporation, ParaLife chose Latin America to launch its model, beginning with Mexico in 2007.
WAL MART: LATE-NIGHT BANKING
The largest supermarket chain in the world revolutionized Mexican purchasing habits when it started operations in that country. Now Wal-Mart is threatening to change its banking habits. In 2007, the chain founded by the mythical Sam Walton obtained a banking license, and in November opened its fi rst branches inside the supermarkets, operating seven days a week from 8am to 10pm. The supermarket chain’s plan is to close 2008 with 75 functioning branches.
MAPFRE: LATIN AMERICAN FUTURE
The Spanish insurance company continues with its plan to end 2008 with 2,000 offices in Latin America. With this objective in mind, and the desire to make the region its main source of growth, Mapfre pulled out the checkbook in 2007 and bought insurance companies in Peru, Uruguay and Paraguay. The Latin American market, according to the Spanish insurer’s CEO Rafael Casas, spends 0.9% of its GDP on life insurance, and 1.4% on non-life insurance - in which Mapfre occupies first place in Latin America - far from respective global averages of 4.4% and 3%.
PORTO SEGURO: HOME STRENGTHS
Latin America’s insurance market is not only for multinationals. Brazilian company Porto Seguro, the largest vehicle insurer in the country, is actively expanding its range of services to contest an expanding market. For example, in 2007 the insurer re-launched insurance for the agricultural and construction sectors - both of which are enjoying a boom in Brazil - and inked a deal with retail chain Lojas Renner to sell insurance in its stores.
SCOTIABANK: RICH AND POOR
The Canadian financial group has significantly increased the weight of its operations in Latin America. In the fiscal year ending October 30, 2007, the region was responsible for 22% of the group’s earnings, compared to 16% in the previous period. Scotiabank has continued shopping in the region. In late 2007, it closed a deal to buy Banco de Desarrollo in Chile, and signed an agreement to acquire Peru’s Banco del Trabajo. With these acquisitions, Scotiabank is targeting a middle and low income market and small and micro businesses, although its strategy does not appear to be limited to this segment. In 2008, the group plans to open 15 private banking centers (financial services for clients with large capital) in Latin America.
WESTERN UNION: MOBILE MONEY WIRING
In 2008 the largest money wiring operator in the world plans to launch a mobile phone based money transfer system. In late 2007, Western Union signed an agreement with the world association of GSM cellular telephone operators to develop a system that will allow for transferring money between mobile phones and from mobile phones to payment centers.
