Annual musical chairs at Brazil’s investment banks is underway at a giddy pace, with headhunters rubbing their hands and predicting plenty more to come. There is everything to play for as Brazil becomes one of the most important equity markets globally. As of mid-April, Joaquim Patto, principal at headhunter Mercer in São Paulo, estimates there were some 200 senior positions open throughout the investment banking industry.

US institutions have been particularly aggressive in tapping competitors for talent, recognizing the enormous long-term growth underway in Brazilian equity markets which reached 70% of US volume last year. Merrill is the big US challenger, while Unibanco and Bradesco BBI are flexing their muscles. Goldman, Lehman and Morgan Stanley are also beefing up. Perennial favorites Credit Suisse and UBS have lost out while poor Deutsche Bank reels. Brazil accounts for as much as 25% of Ebitda for some US investment banks, estimates Ademar Couto, recruiter at Ray Berndston Brazil in São Paulo.

“Over the last couple of years, US banks faced big write-downs at home and have been wondering where to allocate resources to make up for these losses. The credit crunch has made the process more immediate,” adds Rossanna Figuera-Scanlon, who recently set up New York-based recruitment agency The Talent Circle, specializing in these markets.

Interest in Brazil keeps salaries pumped up. “Just like in the economy in general, Brazil is decoupling from US with regard to salaries,” says one headhunter. Increasingly, bonuses are coming out of a local Brazil pool and firms like Credit Suisse, UBS and JPMorgan all saw salaries ring-fenced from international standards, headhunters say. “Even some New York-based staff dealing with Brazil have been squealing for part of the Brazil budget and are receiving it. This is a first,” says a headhunter.

And while New York salaries didn’t budge much, in Brazil increases reached over 100% for some client facing roles. At one bank, mid-level client-facing roles were paid $300,000 last year, with raises of 50%-60% across the board in 2008. More widely in investment banking, increases of 30%-50% were common. That has increased the gap between New York and São Paulo remuneration in the latter’s favor. Brazil now comes out 25% higher in some cases, with senior analysts faring particularly well, at $800,000-$1,000,000 including bonus. Still, headhunters point out, the exchange rate has been moving against Brazil-based staff.

The relative change in the fortunes of US and Brazilian banks is reflected in market size. Just four years ago, the market capitalization of Merrill Lynch was six times that of Bradesco. The Brazilian giant is now some 20% larger than Merrill, at close to $60 billion.

Merrill’s Splurge
In spite of Merrill Lynch’s relative shrinkage, its Brazilian invasion has been the stand-out, with 10 senior hires this year. The firm began its expansion in March when it hired nine originators for Brazil. It has raided particularly aggressively from UBS, including the co-head of investment banking, Alexandre Bettamio, M&A head Roderick Greenlees, banker Hans Lin and four others.

From Credit Suisse, it also extracted Sebastien Chatel, head of equity capital markets, and Adriano Borges, head of real estate investment banking, who also had experience in technology and agribusiness.

“The market has seen our hires as ‘Oh my God, Merrill is waking up and making a bet’. It’s nothing of the sort,” says Sonia Dula, head of LatAm investment banking, herself hired just last year. “For nearly three years, we’ve been active and focused on developing and executing a business plan. We believe in the region and have recognized that Brazil is a disproportionately large part of it,” says Dula. Brazil was already a focal point for the bank, and revenues from the country went up 2.6 times between 2006-2007, says Dula.

The build-up has been researched meticulously and over a long time, says Dula. The team shares a common vision and will bring Merrill to a whole new level in Brazil. She believes the hires will quickly prove their mettle. “These bankers have longstanding and trusted relationships with companies, CEOs and investors,” says Dula, who was previously with Grupo Latino de Radio.

Headhunters estimate that Merrill spent at least $40 million on the hires and that by attacking both Credit Suisse and UBS, it has astutely weakened both. Still, market watchers diverge on how successful the recruitment drive will be.

Believers think Merrill has catapulted itself into a position that lets it challenge the Swiss giants, but they estimate it will take two to three years, much longer than Merrill, which anticipates results starting in the second half of 2008. “In three years from now, the landscape will look different, more diverse. UBS and Credit Suisse will still be leaders but they will be joined by Merrill and perhaps Goldman Sachs,” says a headhunter.

Others pooh-pooh Merrill’s bid, questioning the tactic of hiring a team from banks with different cultures, and wondering how such diverse elements will gel. “[Alexandre] Bettamio and his team are used to hogging the limelight. It will be interesting to see if senior bankers such as [Adriano] Borges will be comfortable reporting to him,” says a recruiter.

Furthermore, rumors suggest that existing team members at Merrill, under the seasoned Richard Rainer, head of Brazilian investment banking, were not consulted in a recruitment process driven purely by New York. This sparked speculation in the local press that the old Merrill team is cheesed off and looking for a new home. Dula insists that staff were consulted in the process, declining to speculate on the possibility that part or all of the team may walk.

Meanwhile, Credit Suisse and UBS have played down the effect of Merrill’s poaching. Rodolfo Riechert, head of investment banking for Brazil at UBS – and formerly co-head with Bettamio – points out that UBS has 50 professionals based in Brazil investment banking and has quickly reallocated senior bankers to serve clients. UBS says it adopts an institutional rather than star player process which means that clients relate more to the bank and its process and respond to its platform, distribution and execution capabilities over individual relationships.

It remains to be seen how this commitment will be tested by the tens of billions of dollars written down by the parent company owing to subprime. And there are rumors that Andre Esteves, the head of fixed income at UBS and the chairman of its LatAm business, was in talks with Jorge Paulo Lemann, a founder of GP Investments, to buy out Pactual’s investment banking unit. Esteves was apparently approached by former Pactual partners at UBS to help them take back the boutique they had less than a year earlier sold to UBS for $2.5 billion. Already discontented with being employees of the global bank, a number of partners became incensed when they found out their year-end compensation might be delivered partially in stock – a stark change to the all cash bonus culture of Pactual.

UBS rejects the rumor. “Andre Esteves is not in discussions with any party or parties concerning the possible acquisition of all or part of the businesses of UBS Latin America,” says a spokeswoman. “Andre Esteves remains committed to the strategy of UBS Investment Bank.”

Meanwhile, Credit Suisse is similarly defiant. “We are not concerned by recent departures. They will not impair the level of high quality services that we’ve always provided our clients,” says José Olympio, MD and head of Brazilian investment banking at Credit Suisse.

Locals up the Ante
Merrill’s splashy entrance may not be quite the style of the big local banks, but they too have been highly active in seizing the moment. Banco Itaú, Bradesco and Unibanco have always had key advantages over international banks including deep relations across the corporate board and access to strong balance sheets. That is particularly valuable when other routes to funding are wobbly.

Local investment banks are definitely becoming a bigger part of the mix, says Figuera-Scanlon. They are also proving more nifty at recruiting from smaller banks and boutiques. “More junior guys are starting to bring skills that have not been interesting to banks for years,” Figuera-Scanlon notes.

Itaú has long blazed a trail for locals, hiring aggressively. Itaú poached Deutsche Bank’s office head Alexandre Aoude, João de Biase, head of corporate banking, Fabio Dall Acqua, senior distribution executive, as well as structuring expert Pedro Nunes. Deutsche is reportedly trying to hire to maintain a credible platform in Brazil.

Elsewhere, Bradesco BBI became operational as a separate unit in 2007 and the investment banking arm under Denise Moura has 40 professionals, says Bernardo Parnes, head of BBI in São Paulo. He believes that is paying off. “In 2006, we were placed 26 in equities, which is to say nowhere to be seen. Last year, we reached eighth place,” Parnes says.

BBI plans to open an office this year in Dubai or Singapore to expand distribution. The bank already has a small broker dealer in London and seeks a similar presence in the Middle East or Asia. Bradesco aims to compete with the increasingly aggressive foreign firms moving into Brazil by providing a one-stop shop for corporate wholesale clients. Its hefty real balance sheet is a significant asset since debt deals require firm guarantees, but most foreign houses boast more extensive international distribution.

Bradesco is hiring a senior banker from a US shop – its first non-Brazilian hire – in a transfer that should be announced soon. Bradesco boasts 14 M&A mandates and a similar pipeline for equity.

Balance sheet certainly helps. Parnes recounts receiving a call from a senior manager of Vale do Rosário, at a moment of crisis when Cosan was trying to buy more than 50% of the firm. “We received the call on a Sunday afternoon. I met with them that evening and by the end of Monday, they had a check for 1.4 billion reais. This could never happen with an international bank,” he says.

Still, he is frank about the limitations of a national focus. “We don’t have the same placement power, product technology and cross-border M&A facilities. It is difficult for us to win big roles in international deals,” he admits, adding that M&A has proved a tough nut to crack.

Unibanco has been slower off the mark. Recently, however, it hired Eleazar de Carvalho Filho, the former president of the BNDES, to head up the unit and Eduardo Gentil, a one time head of Goldman Sachs in Brazil, to head origination. The bank will kick off with 400 million reais in capital and 100 staff will be moved over, in areas including distribution, M&A, fixed-income and equity. The idea is to pay these senior staff with equity and options, dependent on the performance of the unit. 

Ones to Watch
In addition to efforts to recruit by local banks, Goldman Sachs and Lehman Brothers are the others cited most often as being in growth mode in Brazil. Goldman has been building from its FX and interest rate platform, adding mortgages, commodities and credit sales and trading. “We are looking to be a full service investment bank, offering the same in São Paulo as we do in New York and London,” says Val Carlotti, president of Goldman Sachs Bank in Brazil.

The firm is bolstering its presence in sales/trading, asset management and research and recently hired a head of equities trading. “We have recently carried out an analysis on our platform. Our size is very comparable if not bigger than some of our key competitors,” Carlotti adds.

Morgan Stanley has also been beefing up. “We certainly are making a focused investment in Brazil and Latin America and I will be moving to São Paulo, underscoring our commitment to the region,” says head of LatAm investment banking Charlie Stewart, whose wife is Brazilian. Other changes include naming Chris Harland, one of the firm’s most senior bankers and a member of the exclusive operating committee, regional head of LatAm.

This is the first time that a banker for LatAm has attained this level of seniority, points out Stewart. The firm has also just recruited Camille Faria, ex-CFO of energy company Terna. And there will be more, says Stewart.

Finally, Lehman continues to enhance operations. It opened an office in São Paulo last year, starting with a fixed-income presence. The US bank hired Alex Maya, formerly of Morgan Stanley, and Rio Bravo’s founder – veteran banker Winston Fritsch – to head the new office. It is working to add cross border M&A activity, structured products and financing.

The Great LatAm Hope
There has been little sense of any slowdown in the frenzied pace of hiring in spite of much weaker market conditions. Ray Berndston’s Couto is continuing to see strong demand from clients, which he anticipates will only slow down come July-August. Demand for traders and salespeople, particularly in the middle market, is buoyant, he says. Clients are looking for talent with experience of highly structured products and derivatives.

New players are also said to be interested in building a presence in Brazil. Royal Bank of Scotland is heard to be considering hiring in Brazil, following its acquisition of a LatAm investment banking team from ABN AMRO.

For most financiers, Brazil represents the great new hope as domestic markets stumble. At a predicted 4.8% according to IMF figures, Brazil’s GDP will grow far above the world average this year, with the US estimated at just 0.5% and global growth at 3%, says Mercer’s Patto.

And Brazil is the only BRIC country that has a solid democratic base and a financial industry that is transparent, he notes. That makes Brazil an appetizing target for foreigners desperate to expand and generate revenue. Local banks are just discovering how profitable investment banking can be in boom times too. This fight for talent is far from over. LF