Brazilian banks beat foreigners and solidify leadership in the local private credit market

A surge in private credit funds and record local bond sales are helping Brazil’s biggest lenders take market share from rival U.S. investment banks.

Bank of America fell from second place in 2023 to third this year, as the bank gave way to local heavyweights such as Itau Unibanco and BTG Pactual, which rose one position. The data is from Dealogic, until October 31st. JPMorgan Chase, the largest bank in the US, also lost market share.

The success of local banks stems, in part, from their relationships with the country’s retail customers, who have been purchasing more Brazilian government bonds due to higher interest rates and, in some cases, tax exemptions. North American banks do not have a retail presence in Brazil.

“Brazilian banks, which have a stronger local balance sheet, have more appetite to buy local bonds and keep them on their books, if necessary, selling them in the future,” said Felipe Thut, head of fixed income and structured products from Banco Bradesco, based in Osasco, whose market share rose from 5.6% in 2023 to 7.1% this year. “This way, they can offer companies a complete subscription, a practice that has been gaining importance in Brazil since 2018.”

Still, total investment banking fees fell to $591 million this year through Oct. 31, down 6.1% from the same period last year, according to Dealogic. A weaker year for the issuance of equities was to blame, as volume fell 18% compared to the same period last year, to R$30.8 billion, according to data compiled by Bloomberg.

Itaú’s revenue from brokerage fees and financial and economic consultancy work rose 51% in the first nine months of 2024, according to its earnings statements, while BTG said its investment banking revenue more than doubled in the first semester.

Demand for private credit has been growing as Brazil’s monetary policy diverges from much of the rest of the world, with benchmark interest rates rising in the country while falling in many other major economies. Tax changes and the poor performance of investment funds hedge and equities also encouraged investors to turn to fixed income alternatives.

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Local corporate bond issuance increased 88% to a record R$378.7 billion ($66.7 billion) this year through November 7, according to data compiled by Bloomberg.

Companies are taking advantage of the opportunity to sell debt with historically thin margins, according to Cristiano Guimarães, head of the Corporate and Investment sector at Itaú, the leading underwriter of local bonds, according to the data. The lender’s share of Brazil’s total investment banks rose from 12.4% to 14.7%, according to Dealogic, placing it at the top of the rankings.

The local market has been maturing, with more transactions, such as structured transactions sold to retail clients, which generate higher investment banking fees than straight bonds offered to institutional investors, Guimarães said.

“On the other hand – like any industry that is generating money – you attract new competitors who enter the market by charging less,” he said.

Bank of America has acknowledged that its presence in Brazil’s local bond market is limited. But the bank’s franchise has a “leading position in strategic products, such as mergers and acquisitions consultancy, global equity and bond underwriting,” said Hans Lin, co-director of the investment bank in Brazil.

M&A deal volume is at a much higher pace than last year as many international strategic investors with a long-term view are seizing the opportunity to buy companies due to the weaker real, Lin said.

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Transactions in which Brazilian companies were targeted increased 62% to US$35.9 billion this year through October 18, compared to the same period last year, Dealogic said.

Bruno Saraiva, co-head of investment banking at Bank of America in Brazil, added that “there are a number of M&A transactions that are being closed now and are expected to generate significant revenue next year.”

BofA has been swapping places with Itaú at the top of the revenue rankings in recent years, and BTG has always had a strong presence in the market. US banks performed better in 2018 and 2021, when many Brazilian companies went public on US stock exchanges and completed additional offerings paying fees of up to 6.5% of the total transaction value.

Banco Bradesco SA’s revenue from capital markets and financial consultancy increased 27% in the first nine months of the year, according to its financial statements, and the bank rose from 7th to 5th position in the Dealogic ranking.

Investment banking revenue reached 1.2 billion reais at BTG in the first half of the year, according to its financial statements, while Bradesco’s revenue from financial consultancy and capital markets was 1.16 billion reais in the three first quarters of the year.

Bond issuance has been so strong that Bradesco hired 12 investment bankers this year to originate deals and six people to distribute them, Bradesco’s Thut said, forming a team of 55 people. The bank also decided, for the first time, to appoint a director specifically in charge of fixed income, and Thut took on the role. The M&A advisory and share underwriting businesses are now being led by André Moor.

“The local bond market has tripled since 2018 and all the big local banks are increasingly focusing on it,” Thut said, adding that he expects growth to continue next year as rates in Brazil continue to rise. “But the pace of market increase in 2025 should be slower.”