Brazil IPO boom attracts more banks, hits fees

Brazil IPO boom attracts more banks, hits fees

Bankers at Credit Suisse and Bank of America Merrill Lynch may be popping the champagne corks this week because of the fees they are pulling in from Brazil’s IPO boom — but the celebrations could be short-lived as rivals are muscling in.

Brazil has jumped to the forefront of global capital markets with two of the three largest initial public offerings this year, the $8.05 billion (5.08 billion pounds) offering by banking group Santander Brasil last week and the $4.33 billion stock sale by credit card company VisaNet in June.

Credit Suisse ranks first in underwriting in Brazil after the Santander IPO, the country’s largest ever and the world’s biggest in the past 18 months. Bank of America Merrill Lynch and BTG Pactual, which until recently was owned by UBS , helped manage the massive Santander deal and ranked second and third, according to Thomson Reuters data.

The three, which have been dominant for some time, can ill afford to be complacent though. Snapping at their heels, Brazilian banks Bradesco and Banco do Brasil , which were among those that managed the VisaNet IPO and are now at fifth and sixth in the rankings.

And other major Wall Street firms, such as Goldman Sachs and JPMorgan Chase are increasingly jostling for space in the country, the world’s biggest market for IPOs so far in 2009.

“The dominance of Credit Suisse and Pactual will be violently eroded in the coming years,” said Winston Fritsch, founder of Orienta Investimentos and former head of investment banking at Lehman Brothers in Brazil.

And the increased competition means that companies will be able to push for lower fees from the banks.

“It’s hard to tell whether this shift in rankings is sustainable or not, but certainly it illustrates that the market from now on will be much more competitive,” said Claudio de Leoni Ramos, a corporate finance partner at KPMG in Sao Paulo. “Other large firms will put Brazil back on their radar, given the favourable market outlook.”

Fees to manage, underwrite and distribute the offerings — which were above 4 percent at the height of Brazil’s previous IPO boom in 2007 — have already fallen this year and will drop further because of competition, Fritsch said.

Fees on the VisaNet offering, for example, totalled 3.75 percent of the offering.

“The market will be much more competitive and fees will fall because of that,” Fritsch said.

Brazil’s stock market has seen a flurry of activity this year, with 36.9 billion reais in share sales since late June and 23.2 billion in IPOs. Ten more companies have filed to sell stock in the coming weeks; five of them IPOs.

Growing appetite for emerging market securities should keep bolstering Brazil’s market in 2010. Exchange operator BM&FBovespa expects strong IPO activity in the first half of 2010 as companies revive plans that had been shelved because of the turmoil in global financial markets, Chief Executive Edemir Pinto said on Wednesday.

Brazil’s largest private sector bank Itau Unibanco has been rising in the ranks after hiring top bankers from UBS. The bank’s investment banking unit, Itau BBA, is the lead manager for the IPO of clearing house Cetip, which may reach as much as 4 billion reais.

Bradesco, the lead manager of the VisaNet offering, may also be a top contender in the coming months after years of trying to make its mark on Brazil’s capital markets.

“Bradesco has been getting ready to take a bigger role in the market, so we will probably see them more often in the rankings,” said Luiz Fernando Resende, founder of advisory firm LatinFinance and former head of investment banking at Santander in Brazil.