Morgan Stanley Is Said to Follow Goldman in Brazil Fintech Bet

(Bloomberg) -- Morgan Stanley is following Goldman Sachs Group Inc. in lending to Brazil’s booming fintech industry in search of higher yields, according to four people with direct knowledge of the matter.

Morgan Stanley bought about 50 million reais ($14 million) in local subordinated bonds from Geru Tecnologia e Servicos SA, an online lender to individuals, two of the people said, asking not to be named because no public announcement has been made.

The purchase follows Goldman Sachs’s decision last year to extend a 455 million-real credit line, along with Fortress Investment Group LLC, to Nubank, a company that offers credit cards and checking accounts with all interactions handled through a mobile app.

Morgan Stanley Is Said to Follow Goldman in Brazil Fintech Bet

Financial-technology startups have boomed in Brazil as digital newcomers target big banks. About 210 such companies are operating in Brazil, the most in Latin America and a surge from 54 at the start of 2015, according to a Goldman Sachs report in May 2017. Those ventures are fighting banks for a revenue pool Goldman Sachs said could reach about $75 billion in 10 years, across banking and insurance markets.

In March, Geru started to offer payroll loans, in which payments are deducted directly from paychecks, in a partnership with BNP Paribas SA’s Banco Cetelem consumer-credit unit.

Higher Yields

Helping to finance the startups can be lucrative for the banks. The Geru bonds, issued in December with a four-year maturity, pay 175 percent of the interbank rate DI, or around 11.2 percent annually. That’s a better return than available on, for example, four-year bonds sold last month by Brazil’s Raia Drogasil, a pharmacy chain, which pay about 105 percent of the interbank rate.

Geru and Morgan Stanley declined to comment on the bond purchase.

Geru is also raising capital and talking to international investors for a $50 million equity round, one of the people said. The stake sale is being coordinated by investment firm QMS Capital, which already has a 10 percent stake in Geru, the person said, adding that General Atlantic LLC is among investors considering an acquisition.

Geru confirmed QMS Capital has a stake in the firm, without providing a number, and declined to comment further. General Atlantic declined to comment.

Pacific Investment Management Co. has also considered providing credit to Brazilian fintechs, but decided the transactions are too small, one of the people said. A $540 million bond issue earlier this month by Andrade Gutierrez SA was a better fit for Pimco, which agreed to purchase the securities in a deal that could help the construction company cover a missed debt payment, a person familiar with the transaction said earlier this month.

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