Brazil has a key role in Intesa Sanpaolo’s strategy of expanding into fast-growing emerging economies. The bank’s subsidiary in São Paulo offers a prime example of how the bank uses its international network to deliver value for clients in these markets.
Ferdinando Angeletti, chief executive of Intesa Sanpaolo Brazil, says that although growth in Brazil has yet to pick up as hoped after the recession ended in 2017, the world’s ninth-largest economy has stability and resilience that make it attractive for international companies.
To take advantage of these opportunities, however, they must navigate Brazil’s heavily regulated economy and its complex tax system, which discourages very short-term financing.
Because the Brazilian real is not a convertible currency, companies routinely fund their activities using a mix of onshore and offshore financing and require expert banking support to ensure transactions are structured as efficiently as possible.
“We are in constant daily discussion with the rest of the Intesa Sanpaolo network to support our clients,” says Angeletti. “They might raise a tranche of funding locally, plus foreign-currency debt from an international Intesa Sanpaolo branch, such as New York or Madrid, that we can hedge back to the real on the local market. We recently closed a $200 million (€181 million) financing for a German multinational company, structured in cooperation with Frankfurt Branch.
“Brazil is certainly a market where you really have to understand what each customer needs and provide the appropriate solution.”
Intesa Sanpaolo’s Brazilian bank opened in mid-2015, in the middle of a five-year recession, and now has 40 staff and a balance sheet of about €370 million, or around €450 million including guarantees.
“The bank is up and running, and now it has to find its growth path,” says Angeletti, who moved to São Paulo having run Intesa Sanpaolo’s operations in Dubai and Luxembourg. “We don’t aim to be the everyday bank for our customers, but instead to be the solution provider for their more strategic activities.”
As a result, Intesa Sanpaolo Brazil has opted not to offer standard products such as current accounts and payment services. Instead it focuses on specialist areas such as funding for capital projects, international trade and supply-chain finance.
In positioning itself as a solution provider, the bank has two major competitive strengths, he argues. As part of a larger international group it has access to cheaper liquidity than mid-sized local rivals, coupled with extensive international expertise. And because it remains a small operation, it can offer a highly responsive, boutique service that tailors financial solutions to fit the needs of the client and the complex regulatory environment.
“We serve the local subsidiaries of Italian groups, regardless of their size,” Angeletti explains. This is alongside the local needs of Intesa Sanpaolo’s major multinational clients, which are fewer in number but represent a similar proportion of the bank’s credit portfolio. Intesa Sanpaolo Brazil has also attracted as clients a few local companies with significant presence in the country, he says.
“We’re focusing mainly on industrial sectors that are capital-intensive or involve a lot of cross-border activity, such as the automotive industry or energy transmission. These areas are a very good fit for our expertise”
Aside from agribusiness, a specialist area well served by local players, Intesa Sanpaolo Brazil provides banking for businesses in most sectors. “Our portfolio reflects the structure of the economy, so infrastructure is an important market for us – roads, power distribution and generation – as well as oil and gas and industrials,” he says. “We’ve recently been focusing on the automotive industry and on other industrial sectors that are capital-intensive or involve a lot of cross-border activity. These areas are a very good fit for our expertise.”
In a country with a relatively closed economy – yet one that is the world’s third-largest beer producer and eighth-largest automotive manufacturer –there are clear attractions for Intesa Sanpaolo Brazil in working with the local subsidiaries of major global clients. Tariff barriers mean that these companies will tend to work with local suppliers to avoid the cost of importing the items they need. This opens an opportunity for Intesa Sanpaolo’s clients to establish a presence in the country and be part of the big local network of suppliers in areas such as components, packaging and logistics.
Angeletti argues that among the emerging markets, Brazil is an unusually stable economy. He highlights its large domestic market, coupled with ample foreign-exchange reserves, large flows of foreign direct investment, a positive trade balance helped by currency restrictions and tariffs on most imported goods, and low inflation which allows for an aggressive reduction of domestic interest rates.
He also stresses that president Jair Bolsonaro’s economic team is well respected and pursuing a reform programme that is far from radical by international standards, concentrating on fiscal sustainability, debt reduction, moves to simplify the tax system and encourage investment, private-sector investment in infrastructure and greater competition in key sectors of the economy. The recent approval of pension reform is a step in the right direction and is expected to pave the way for the rest of the reform programme.
“Their overall agenda is one of the most orthodox I’ve seen,” Angeletti concludes. Although the prospect of a pick-up in economic growth has receded since the election that brought Bolsonaro to power, hopes remain that growth will accelerate if his government can follow up the pension reform with getting the rest of its economic plan through parliament between now and 2020.
“If that happens, we will probably see faster growth in the next two years. But if not, the downside is quite limited. This is a very resilient country.”
The international banking network with local expertise
Intesa Sanpaolo’s International Subsidiary Banks Division balances local heritage with a global culture, says new head Paola Angeletti
Intesa Sanpaolo’s Frankfurt branch builds bridges across borders
The team in Germany provide essential support to German, Austrian, Swiss and (of course) Italian companies establishing a presence in Europe’s biggest economy – and increasingly help German clients expand into Italy, Central and Eastern European Countries and other target markets
The value of experience
Intesa Sanpaolo’s new global strategic coverage team is enjoying the success of an innovative approach that draws on expertise from across the whole bank to deliver the best investment banking and structured finance solutions tailor-made for clients