JPMorgan Brazil Assets Surge 40% in Two Months on Bond Purchases

JPMorgan Chase & Co. (JPM)’s purchases of Treasury securities in Brazil, where benchmark yields averaged almost 12 percent this month, helped push the bank’s holdings in South America’s biggest economy 40 percent higher in two months.

Assets at JPMorgan’s Brazilian unit jumped to 22.5 billion reais ($12.6 billion) as of Aug. 31 from 16.2 billion on June 30, Claudio Berquo, chief executive officer of the business, said in an interview in Sao Paulo. About 4 percent is company loans and most of the rest is Treasury securities, according to the unit’s chief financial officer, Cristiano Almeida.

The Federal Reserve’s policy of keeping its benchmark interest rate near zero percent in the U.S. is pushing investments offshore, said Richard Bove, a bank analyst at Rochdale Securities LLC. Brazil’s real-denominated bonds returned 14 percent in the past year, compared with the 7 percent average return in local currency terms on JPMorgan’s government bond index for emerging markets.

“We are having a wonderful year in Brazil, better than planned,” Berquo, 50, said.

Bond purchases by the New York-based bank contributed to a 46 percent jump in earnings from Brazil in the first eight months of 2011, to 94.5 million reais, even after the bank boosted expenses to continue investing in the country, according to Almeida.
Goldman Sachs

Goldman Sachs Group Inc. and Citigroup Inc. have also targeted Brazil for a bigger share of their investments. New York-based Goldman Sachs said earlier this year that Brazil was one of three countries, along with China and India, where most of its hiring efforts have been concentrated. Citigroup, also based in New York, added more than 340 employees in Brazil in the month of March alone.

“U.S. banks have got to find growth somewhere, and they’re not going to find it in the United States if the economy is going to lope along at the current level,” said Bove, whose company is based in Lutz, Florida.

Loans to Brazilian companies represent a small percentage of JPMorgan’s assets in the country because the bank has only just started offering credit denominated in reais, Berquo said. Dollar loans remain the majority of JPMorgan’s lending to companies in the country, and those assets, which Berquo declined to quantify, are booked in New York.

The Brazilian unit had 952.9 million reais of loans outstanding as of Sept. 11, about twice as much as the level in December 2009, he said, adding that the bank’s goal is to lend to the top 300 Brazilian firms with annual revenue above 1 billion reais.
Room to Grow

“We are already doing business with half of these companies, but we still have a lot of room to grow,” he said.

Europe’s debt crisis will crimp the amount of credit international banks are willing to lend Brazilian companies and banks, Berquo said. “A lot of banks will cut credit to Brazilian clients and the spreads are going to go up,” and that trend may be an opportunity for JPMorgan to gain market share, he said.

As part of that effort, JPMorgan moved about 923 million reais in capital into Brazil in September, and “we will bring in as much as needed,” Berquo said.

JPMorgan was the 23rd largest bank by capital in Brazil as of June 30, with 1.7 billion reais, according to central bank figures. Itau Unibanco Holding SA, the biggest, had 67.2 billion reais.
Oil and Gas

“We want to finance the biggest oil and gas projects, the infrastructure projects, we want to be a big credit bank in Brazil,” Berquo said, adding that trade finance and export- prepayment loans are also being targeted.

“But we are also planning to start participating in the local bond markets, which are open right now and more attractive than international markets,” he said.

JPMorgan hired Ricardo Leoni from Santander to head fixed income in Brazil, and plans to bring on more people after the end of the bonus season in February, Berquo said. JPMorgan has more than doubled its headcount, to 750 employees from 339, since Berquo came back from New York to head the Brazilian operation at the end of 2009.

The bank is also expanding in asset-management for larger companies and institutional investors and has 40 people devoted to the business so far.

Last year, JPMorgan bought Gavea Investimentos Ltda., the wealth-management company founded by former Brazilian central bank Governor Arminio Fraga, for an undisclosed amount. The bank also has a private-equity arm, One Equity Partners, to invest JPMorgan’s own money. That business in Brazil is run by Veronica Serra, the daughter of Jose Serra, who ran for the presidency last year against Dilma Rousseff and lost.

“We will keep growing in the asset-management business, in private and corporate banking,” Berquo said, adding that the plan is to reach 1,000 employees by the end of 2014.