The biggest financial news story during 2007 was the subprime mortgage crisis in the US and its impact on worldwide markets. Well, the good news was that Latin America’s financial institutions withstood that storm elegantly because they had their loans and investments where they should be – and not in the obscure subprime category.
Latin America’s remittances market – especially Mexico’s - did however take an indirect beating from the subprime crisis as the US construction sector nosedived and left many Mexicans unemployed. But 2007 was just like 2006 - a very good year for most companies operating in the region’s different financial services industries.
Banks in most countries enjoyed double digit loan growth that was fueled by an ongoing consumer loan boom while insurers and pension plan providers also saw strong demand for many of their products – especially complementary pension plans.
The biggest deal of the year was the result of a drawn-out battle of epic proportions in Europe for control of Dutch bank ABN Amro. The battled pitted UK bank Barclays against a three-way consortium of Spain’s Santander, Belgian bank Fortis and Royal Bank of Scotland. After several months of bidding the consortium walked out victorious and Santander got its hands on ABN Amro’s large Brazilian retail banking operations, for which it had to pay 12bn euros.
Santander and ABN Amro combined will become the second largest player among private sector banks in Brazil and could trigger further consolidation and strategic acquisitions in 2008. The Brazilian government also made a historic decision in 2007 in letting federal bank Banco do Brasil (BB) take over other smaller federal banks, and that way defend its position as the country’s largest bank.
Banks in most countries enjoyed double digit loan growth that was fueled by an ongoing consumer loan boomBesides Santander, the banking dealmaker of the year was without a doubt Canada’s Scotiabank, which continued its aggressive expansion in Latin America by acquiring Chile’s Banco del Desarrollo to create the country’s sixth largest bank, and signed an agreement to buy Peru’s Banco del Trabajo. The Chilean deal cost US$1.02bn and represented Scotiabank’s largest acquisition to date outside Canada. There’s a high likelihood that the growth-hungry Canadians will continue shopping in 2008 – the real question is where and when.
The year also marked Santander’s strategic decision to exit the Latin American private pension industry by selling its pension units to ING, making the Dutch financial services group number two in that industry after Spain’s BBVA. The pension business came under pressure during the year in several countries like Argentina, Chile, Mexico and Bolivia due to reforms and regulatory changes that brought a certain degree of uncertainty to the business. The results of those reforms and changes could make the industry less profitable, but it will no doubt still remain a highly attractive business. Attractive enough for ING and also for US insurance giant MetLife, which expanded its footprint in the Mexican pension market by acquiring local private pension fund manager Afore Actinver.
History was made in January when a bill ended a 68-year monopoly on reinsurance in Brazil. The complete opening will be a gradual process over several years and although a number of foreign reinsurers will now enter Brazil, do not expect an overnight invasion.
The year was also a good one for IPOs, especially in Brazil where more then 10 midsized banks raised funds by going public. And Mexican bank Compartamos IPO showed that even a micro credit lender can attract interest from institutional investors while fast-growing Argentine banks Macro and Patagonia caught the eye of US investors, through their NYSE listings.
Financial services executives and regulators alike should take advantage of the region’s benign economic moment to speed up the incorporation of the unbanked, the uninsured and people outside the private pension systems with creative products and more fl exible regulations. According to a survey presented in November by Latin American banking federation Felaban, an impressive 60% of the region’s population still do not have access to financial services.
