Banks Vie for $200 Billion of Latin American Tax-Amnesty Wealth
(Bloomberg) -- Talk to bankers in Miami who manage the fortunes of Latin Americans and they’ll tell you how hard they’re working to improve compliance with “know-your-customer” rules in the wake of corruption, tax-evasion and money-laundering scandals.
The effort required to vet wealthy individuals from outside the U.S. can be so intensive that banks are increasing minimum investment amounts for prospective clients, and in some cases it may not even be worth trying. Those with complex ownership structures may have to wait more than a month to open accounts.
Brazilian lenders, benefiting from a deep familiarity with Latin America, are sensing an opportunity as they compete with less-entrenched rivals such as UBS Group AG and Morgan Stanley for $200 billion of wealth unlocked by recent tax-amnesty programs in Argentina, Brazil, Colombia, Mexico and Chile. Most of those assets are held outside of Latin America, in wealth-management centers like Miami.
The success of the tax-amnesty laws, which allow citizens to report undeclared assets held outside of their home countries, created room “to steal market share from more traditional competitors,” said Rogerio Pessoa, head of wealth management for Banco BTG Pactual SA.
Itau Unibanco Holding SA, Latin America’s largest lender by market value, aims to be the biggest provider of private banking for Brazilians outside Brazil in five years, said Carlos Constantini, head of international private banking and chief executive officer for U.S. operations.
“We plan to aggressively grow the business in the U.S. and Switzerland, focusing almost exclusively on Latin Americans from countries where we have a local presence,” he said.
Itau manages $20 billion for Brazilians outside Brazil, ranking it third behind JPMorgan Chase & Co., with $28 billion, and Banco Safra SA, with about $25 billion, said two people with knowledge of the matter who asked not to be identified because the figures aren’t public. Zurich-based UBS, the world’s biggest wealth manager, oversees about $13 billion, the people said.
“Local presence helps us know local clients, local laws,” said Carlos Albertotti, head of sales for Itau’s international private-banking operation. “We can be quicker and at the same time diligent in opening accounts because clients come referred by their local bankers.”
Brazilian firms still lag far behind global peers when it comes to managing money for clients from nations other than Brazil. Morgan Stanley oversees about $90 billion in the U.S. for customers from Latin America, including Brazil, ranking the New York-based bank No. 1 by that measure.
Itau plans strong local growth for its wealth management operations in Argentina, Paraguay, Colombia and Chile, Albertotti said. It’s already the biggest in Brazil.
“The most efficient model for us and the most satisfying for clients is the one in which most relationship bankers are based in local markets and advisers remain in the U.S. or Switzerland,” Constantini said.
Part of Itau’s new strategy is to surrender clients from non-priority regions. In Miami, for example, it referred Venezuelan and Ecuadorian clients with about $800 million of assets to Banco de Sabadell SA.
Banco do Brasil SA, the nation’s biggest bank by assets, is opening a new office for its U.S. broker-dealer in Miami, said Daniel Maria, who runs that business. “We want to be able to expand our team, given the potential for growth, as the tax-amnesty program demystified Latin American investments offshore,” he said.
BTG opened an office in Miami in March 2016 and Banco Bradesco SA, the second-biggest Brazilian bank by market value, plans to open one there next month.
Upcoming presidential elections in Mexico, Brazil and Colombia will create more political risk, driving investors to seek diversification in other nations’ assets, said Enio Shinohara, head of portfolio solutions at BTG.
“Falling interest rates in Brazil are also forcing investors to seek more yield abroad,” he said.
BTG, with about 85 billion reais ($25.8 billion) in wealth under management, expects to end 2017 with about 90 billion reais, roughly 15 percent of which is held outside of Latin America, Pessoa said. The goal is to grow those assets by 20 percent next year, he said.
Brazilian banks will face tough competition from bigger peers. In a referral deal with the U.S. unit of HSBC Holdings Plc earlier this year, UBS ended up with 15 bankers and $4 billion to $5 billion of assets for clients from Central America and Andean nations, including Venezuela, Ecuador and Peru, according to people familiar with the matter.
“As the largest wealth management firm in the world, we have the resources to invest in enhancing our account-opening procedures and we can prioritize Latin American clients,” said Ricardo Gonzalez, head of international wealth management for UBS Americas.
HSBC is also planning to expand its team in the U.S. by focusing only on clients from regions where it already has scale and growth opportunities, such as Brazil, Chile, Mexico and Argentina, said George Crosby, its head of private banking for Latin America.
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