SAO PAULO, Oct 29 (Reuters) - Deutsche Bank is moving its Brazilian stock and bond trading business to New York, leaving mainly payment processing, cash management, asset management and corporate finance units in Brazil, a source said after the bank announced a series of strategic shifts on Thursday.
The bank is trying to keep low-capital businesses in Brazil, while moving higher-capital businesses, the source said. The bank had about a dozen traders in São Paulo, split between fixed income and equity, said a second source, who requested anonymity because of the sensitivity of the issue.
Total employees in Sao Paulo are around 330, and most work in asset management, corporate finance, and payment processing, the source said.
A spokesman for Deutsche Bank in Sao Paulo declined to comment.
Deutsche Bank’s shift from trading in Brazil underscores the challenges facing banks as the country braces for economic contraction this year and next. A decade-long market boom that brought hundreds of billions of dollars into the country has fizzled, making this year especially miserable for some banks.
Payment processing, also known as “transaction banking,” can generate high profits in a country where red tape can make transferring money expensive and difficult for outsiders, the second source said. Boston Consulting Group forecasts that emerging market countries will account for two-thirds of expected growth in transaction banking next decade.
“It’s an unsexy segment but is reasonably profitable and, especially, demand little capital,” said the second source, who is not allowed to discuss the issue with the media. “The segment will certainly keep growing in Brazil.” It is headed by Maria Cristina “Kika” Ricciardi, who took it over in 2013.
Pre-tax return on average equity, a gauge of profitability in the financial industry, was 20 percent for global transaction banking at Deutsche Bank last year, compared with 13 percent at the corporate banking and securities unit, according to the bank’s 2014 annual report.
Local stock and bond offerings have virtually ground to a halt and São Paulo’s stock exchange was replaced last month by Mexico’s as Latin America’s top equity market by market valuation for the first time since 2003.
The downsizing of Deutsche Bank’s corporate banking and securities operations began early last year, when the lender cut equity capital markets positions in São Paulo and other cities in the region, leading to the departure of key staff such as Mario Pierry, a former head of Latin America equity research.
According to the second source, Deutsche Bank management estimates that the onshore trading book in Brazil will remain active for almost three years.
Apart from moving Brazil trading, Deutsche Bank plans to shut down operations in Argentina, Chile, Mexico, Peru and Uruguay, it said on Thursday when it announced a strategic overhaul known as “Strategy 2020.” (Reporting by Guillermo Parra-Bernal, Editing by Dan Wilchins and David Gregorio)