With sluggish growth in the United States and Europe, the nation’s largest banks are looking towards expansion opportunities in more unconventional markets – for JPMorgan Chase (NYSE: JPM), that means Brazil.
A decline in interest rates to record lows will create room for states and municipalities to access the debt capital markets in a way unheard of in the country, Aod Cunha, who heads the bank’s public sector corporate banking unit, told Reuters. Government presence in the economy accounts for about 40 percent of Brazil’s gross domestic product.
JP Morgan bankers observe actions by the government as proof that the government’s presence will remain significant – under President Dilma Rousseff, measures such as interest-rates, tax reductions and regulatory changes have gained the upper hand. Efforts to boost investment will increase demand for specialized financial advisers among government agencies, Cunha added. From his Sao Paulo offices, Cunha commented “Our opinion is that the government will continue to have a relevant participation in the economy. Of all these developments, the drop in borrowing costs is probably the one that opens the most exciting business opportunities for us.”
The attractiveness of Brazil is a stark change for the nation – once plagued by high interest rates, a complex tax system, and volatile cyclical flows in the bond market, many banks chose to stay away from the region, despite the economic opportunities there. However, a recent surge in demand for corporate debt has pushed investors and government officials to look for new frontiers in fixed-income markets – such as structured finance products for states, cities and state-owned companies.
São Paulo, Brazil’s most indebted city, is tapping growing demand for fixed-income investments as the central bank signaled on Wednesday that it will keep borrowing costs at a record low for a prolonged time. Rates in Brazil were for years the highest among the world’s 20 biggest economies. “We have engaged in various discussions with the states of São Paulo, Rio de Janeiro, Rio Grande do Sul and Minas Gerais,” Cunha, a former finance secretary for Rio Grande do Sul state, said. “It’s a market with terrific opportunities.”
With the complex market and lack of competition, that may bode very well for the growth prospects of JPMorgan Chase, and award their prime mover status in the market.
