2 U.S. Banks Trim Operations in Brazil

www.nytimes.com By TONY SMITH

ÃO PAULO, Brazil, Jan. 28 — Despite Brazil's smooth transition to a left-leaning government, two major American banks — J. P. Morgan Chase and Bank of America — announced today that they were reducing their operations in the country.

J. P. Morgan Chase said it was selling J. P. Morgan Fleming Asset Management, with 7 billion reais ($1.9 billion) of assets, to Banco Bradesco. It did not disclose the sale price. Morgan Fleming is based in São Paulo.

Bank of America, meanwhile, said it was cutting back its Brazilian operation sharply, eliminating at least three-fourths of its work force of 200. Bank employees in São Paulo said operations were "practically shutting down," with investment banking activities and the trading desk being deactivated. Advertisement

While the news was hardly a vote of confidence in the new government of President Luiz Inácio Lula da Silva, analysts said Brazil's major banks would be rubbing their hands at another sign they are gradually squeezing the foreign competition out of asset management and generally consolidating control of their home market.

With today's deal, Bradesco's asset management arm, BRAM, will manage more than 60 billion reais ($16.6 billion) of portfolios. Bradesco, Brazil's largest privately owned bank, has recently bought the local operation of Banco Bilbao Vizcaya Argentaria of Spain in a stock-and-cash deal worth over $800 million, and also acquired the asset management arm of Deutsche Bank.

Bradesco's rival, Banco Itaú, bought BBA-Creditanstalt from the HVB Group of Germany last year, after swallowing the private banking and asset management units of Lloyds TSB of Britain in 2001.

"Last year was a hard year for all of us, and it's difficult to paint an optimistic scenario for 2003," said Bruno Pereira, a bank analyst with UBS Warburg in Rio de Janeiro. "So either you make a bet that the markets will recover or you downsize."

"I think we must be getting close to the pinnacle of the mountain of risk aversion," said Tomás Awad at Itaú's stockbroker unit in São Paulo. "Some of the foreign banks simply weren't making the returns they expected and their headquarters must now deal with that in a bear, rather than a bull market."

J. P. Morgan Chase's president in Brazil, Patrick Morin, said the bank was staying in Brazil but would now give priority to investment and private banking and local markets.

In New York, a Bank of America spokesman, Jeff Hershberger, said the downsizing was part of a drive to reduce exposure to emerging markets worldwide.

"We have now decided to restructure our operations in Brazil and Argentina to focus on the bank's global treasury services business in both countries," Mr. Hershberger said.

Bank of America's asset management arm in Brazil, which manages some 2.1 billion reais ($580 million), was not affected by the cuts but could be up for sale, analysts said.

Bank of America's track record in Brazil has not been the best, said Carlos Coradi of EFC, a banking consultancy in São Paulo.

After buying Banco Liberal in 2001, it discovered a $40 million hole hidden away in the institution's offshore operations in the Bahamas. It also made loans to the troubled soccer club Vasco de Gama and the crisis-ridden business daily Gazeta Mercantil. Even loans to some of its foreign-backed clients turned sour. Elektro, a financially sound power generator in São Paulo state, was owned by Enron, while the local wireless operator BCP defaulted after ownership wrangles between BellSouth and a Brazilian banking family, the Safras.

"It looks like Bank of America got nothing right in Brazil," Mr. Coradi said. "It didn't do its homework and embarked on a few adventures."

Several Brazilian banks were swallowed by foreign institutions as the market opened up in the mid-1990's, but those that survived, like Bradesco, Itaú and Unibanco, have expanded and now have retail networks across Brazil. They enjoy better brand recognition and have millions of captive clients — Bradesco alone has more than 13 million — to sell products to.

"When the foreigners came in, there was a huge process of natural selection, but the Brazilian banks that survived have discovered how to position themselves well," Mr. Awad said. "Brazilian banks are obviously less risk averse in Brazil, it's the risk they deal with day to day."