FT REPORT – CORPORATE FINANCE: Rapidity of the upswing has caught everyone by surprise

Tracking down an investment banker in Brazil at 11pm is simple. You do not need to search out a mobile number or email: bankers are at their desk every evening, burning the midnight oil.

“The number of deals hasn’t increased three- or four-fold in the past couple of years but 30-fold. The structure at investment banks hasn’t been able to keep up. I haven’t seen anything like it in the 15 years that I’ve worked in the industry,” says one São Paulo-based banker. “Even the mediocre are treated like geniuses,” he sighs.

The hiring problem in Brazil has been exacerbated by the exodus of talent between 1997-2002. A dearth of market activity in that period saw a number of US banks either slash or shut down operations, while local banks also redeployed or sacked many investment bankers. The rapidity of the upswing over the past three years has caught everyone by surprise. Hiring and retaining talent has become the biggest headache for investment banks and has led wages to spiral. Wage inflation explains why so many firms have been slow to come to the party, according to one banker. They are simply unable to find qualified personnel to staff the office. Although salaries have been increasing throughout the region, the huge wage increases seen in Brazil are exceptional. Even the buoyant markets of Argentina and Colombia have proved relatively immune to that kind of wage inflation, says Nicolas Aguzin, head of Latin American investment banking at JPMorgan in New York.

Nevertheless, Buenos Aires is now seen as a hot market for M&A bankers, with poaching between big international investment banks and predictions that there will be shortages of talent next year as the mid-sized corporate market heats up. Merrill Lynch has been hiring from Citibank while Deutsche Bank and HSBC have both recently taken bankers from JPMorgan.

Colombia, which has relatively under-developed financial markets, is also evolving with some hiring by Merrill Lynch and JPMorgan. And Mexican investment banks, although they have not witnessed the same increases in M&A activity this year, are beefing up selectively. The blue-chips, including Deutsche Bank, Merrill Lynch, UBS and JPMorgan, are all hiring in capital markets and/or investment banking. UBS obtained a banking licence to operate in Mexico and officially started trading in May. Dominating business in the region are the usual suspects, including Citigroup, Goldman Sachs, JPMorgan, Credit Suisse and UBS.

Brazil has a slightly different dynamic with its IPO market dominated by the two Swiss giants, UBS and Credit Suisse. Citigroup, ABN Amro and Itaú are the other big operators. Goldman Sachs is notable for its absence. The US M&A powerhouse has struggled to build a convincing presence in São Paulo, but is said to be putting in place a team of local bankers to plug that gap - presumably at salaries that would make mere mortals blanch.

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