Latin American wealth markets: European wealth managers are packing their bags

Barclays Wealth has announced the closure of its only Latin American office in Buenos Aires. Latin American clients will now be served from the US. The region offers substantial revenues for global wealth managers; however, the right strategy is not easy to find.

In May 2011, Datamonitor discussed the booming Brazilian economy, its rising prosperity, and the extensive opportunities for wealth managers. Then, in August, Datamonitor looked at the joint venture between Itau Unibanco and Chilean financial services firm Munita, Cruzat & Claro, and the potential of the Chilean wealth management industry.

Yet it is not all plain sailing for wealth managers in the region. In January 2012 Barclays Wealth closed its only Latin American office in Buenos Aires, while Standard Chartered divested its Latin American private banking businesses to Banco Santander International in late 2011, and ING sold its Latin American pensions, life insurance, and investment management operations to Grupo de Inversiones Suramericana in July 2011.

Conversely, as 2012 begins Credit Suisse has acquired a broker-dealer license to offer expanded wealth management services in Chile. Scotiabank has acquired Nuevo Banco Comercial, one of Uruguay's largest private banks, while Julius Baer acquired a minority participation stake in GPS, the largest independent wealth manager in Brazil, in 2011. Moreover, UBS divested its Brazilian financial services business, UBS Pactual, in 2009, but in 2010 acquired the Brazilian brokerage firm Link Investimentos.

A pattern is emerging. European banks - excluding Swiss banks - are leaving the onshore market, serving clients from the US, or exiting the market entirely. In some instances, such as with ING, this is due to European banks' wider problems and the need to streamline their operations. Yet, there are also intrinsic issues that competitors face when entering the Latin American markets. Barclays, for example, cited the growing complexity of regulation in Argentina, and the lukewarm demand for onshore services.

Lukewarm demand for onshore services in Latin America can be explained partly by the economic and social history of the region. Whether it is due to the 1999-2001 economic crisis in Argentina (culminating in the forcible exchange of domestic dollar-denominated accounts into bonds denominated in the heavily devalued peso), or the current drug violence in Mexico, wealthy Latin Americans are maintaining their historic tendency of banking offshore, outside of their home countries. As a result foreign wealth managers are withdrawing to their New York and Miami offices (where many wealthy Latin Americans own holiday homes) to serve the growing high net worth populations from South America.

Moreover, competition in Latin American onshore wealth markets is tough. Hispanic giants such as BBVA, Santander, Itau Unibanco, and Bradesco can leverage regional knowledge and experience, vast regional networks, and mass affluent feeder programs to attract onshore clients. European banks, which are already focused on shoring up their operations, can ill afford to meet their scale.

Banks such as Julius Baer, Scotiabank, and UBS, with the ability to acquire or participate in already well-established local players, immediately gain local knowledge and presence. This can then be leveraged against a vast global network, offering both onshore and offshore capabilities, satisfying Latin American offshore desires, and building valuable local market experience.


Selected Datamonitor CommentWires for further reading:

* "Itau Unibanco's Chilean joint venture highlights wealth market potential" (August 2011)

* "Brazil is booming and the wealth management industry is preparing for the rewards" (May 2011)