Credit Suisse’s Loan Portfolio in Brazil Doubles During Pandemic

(Bloomberg) -- Credit Suisse Group AG’s loan portfolio in Brazil has doubled since the Covid-19 pandemic began as record low interest rates and tax incentives encourage borrowers to take on more debt.

Lending surged after the government temporarily exempted loans from annual taxes as high as 3.38%, according to Jose Olympio Pereira, the Swiss bank’s chief executive officer for Brazil. And with benchmark interest rates at all-time lows, billionaires including Jorge Paulo Lemann and Michael Klein are using loans to buy more of their company’s shares, people familiar with the matter said this month.

“For the first time ever, leveraging is an alternative to investors here in Brazil as a way to enhance their returns,” Pereira said in a virtual editorial board with Bloomberg.

Lending to corporations is also climbing. The Zurich-based firm was among 20 banks participating in a 14.8 billion-real ($2.7 billion) syndicated loan to power-distribution companies organized in July by the government development bank, BNDES.

Credit Suisse declined to give figures for the size of its credit portfolio.

In addition to lending gains, Pereira said he’s also optimistic about prospects for the investment-banking operation. Central banks’ “massive liquidity injections in the markets globally” are fueling a shift from fixed-income products to equity, he said.

‘Crazy’ Markets

“The level of activity in equity capital markets is crazy,” Pereira said. “I could never have imagined in March that we would have all this movement.”

Total equity issuance jumped 40% to 87.8 billion reais this year through Aug. 25, according to data compiled by Bloomberg, and Credit Suisse is forecasting an additional 70 billion reais through the end of the year.

“The fee pie this year is going to be a lot larger than last year,” Pereira said, referring to revenue from merger-and-acquisition advising and equity and debt underwriting.

Credit Suisse advised AES Corp. on its 1.27 billion-real purchase of a BNDES stake in AES Tiete Energia SA, in which AES was already a controlling shareholder. The bank was lead manager on the government development bank’s sale of 22 billion reais of shares of Petroleo Brasileiro SA in February.

On the hiring front, Credit Suisse has been bringing aboard top executives for its Brazil operation, including last year’s addition of former central bank governor Ilan Goldfajn as chairman. Earlier this month, the bank said it hired Ivan Monteiro, the former Petrobras CEO, as vice chairman for investment banking.

And Credit Suisse named Marcello Chilov to lead the wealth-management business in Brazil last month. The former head of the division, Marco Aurelio Abrahao, left along with his team after Chilov took over.

“We will replace the people who left in wealth management,” Pereira said, adding that the company is also increasing the investment-banking team. “So we are in a hiring mode.”

Credit Suisse has 230 billion reais in wealth under management from Brazilian clients, and is among the nation’s top three firms in the business.

Pandemic Fallout

Even amid the pandemic, Credit Suisse’s revenue is higher in local-currency terms. But because Brazil’s real lost about 28% of its value against the U.S. currency this year, revenue is down in dollar terms.

Pereira said the government has done a good job in avoiding a bigger economic contraction from the pandemic, and has regained some popular support as spending increased.

“The big question markets have right now is if the government is committed to going back to fiscal austerity next year as the pandemic effects go away,” Pereira said. “It’s how do you balance the need for popularity with spending discipline? I just hope fiscal discipline doesn’t lose to popularity.”

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