Facilitating Growth in Latin America

An interview with Juan Pablo Cuevas, Treasury Sales Executive – Latin America, Global Treasury Solutions, Bank of America Merrill Lynch

What economic and industrial trends are you witnessing in Latin America?
Multinational corporations from across the world are seeking fast-growing economies outside of their home territory to fuel their business expansion, and the countries of Latin America offer considerable opportunity to develop new supplier and customer bases. This is particularly the case in Brazil, Mexico, Colombia, Peru and Chile. With the exception of Mexico, which was more significantly affected by recession in the United States following the financial crisis than other parts of the region, these countries have enjoyed extended periods of political stability and their economic and physical infrastructure has developed accordingly.

Expansion and diversification in the region is not limited to foreign multinationals. In the past, much of the industrial focus of companies headquartered in the region was commodity-based, but as economic and industrial sophistication increases, and commodity prices continue to experience considerable volatility, there is now a greater emphasis on industrial diversification and adding value to commodity products. For example, in North Brazil, motorcycle production and technology industries are developing. Local and foreign companies alike are basing shared service centres in Costa Rica and Argentina, facilitating best practices in operational processes across the region that will support further growth.

To what extent can Latin America truly be regarded as a single region, and what does that mean in practice?
Every country in the region is different with very distinct geographic, economic and cultural diversity. Economic maturity and wealth vary substantially, and it is this that is driving many companies’ decision about where in the region to do business. Brazil and Mexico, for example, account for more than 75% of total GDP in the region, so these are logical destinations for companies seeking to invest in the region. This level increases to more than 90% of GDP when Chile, Colombia, Peru and Argentina are added; consequently, by extending business operations across only six or seven countries, companies benefit from virtually all of the GDP in the region. Population is also a consideration. For small countries it is difficult to compete for investment dollars. To leverage the opportunities that exist across all the major countries, companies are seeking to create regional synergies, such as in infrastructure and logistics. Such synergies can, for example, enable exporting across the region from a central hub.

What challenges are being experienced by companies establishing in Latin America or domestic firms extending their footprint across the region?
Many parts of Latin America still lack the free flow of funds that is enjoyed in Europe and North America, which can hinder efforts to optimise cash and liquidity management. Governments in the region recognise, however, that regulatory liberalisation is necessary to fuel economic expansion and attract foreign investors. For example, Peru now supports dual utilisation of Peruvian Nuevo soles (PEN) or USD, so an invoice issued in PEN can be paid in USD and vice versa, effectively indexing the local currency to the USD. This has considerable implications for foreign companies operating in Peru who can now reduce their foreign exchange exposure significantly. Local companies have access to more USD for foreign purchases and investment without incurring FX margin costs. In Brazil, a number of restrictions still remain, but we are seeing a gradual move towards liberalisation.

Many parts of Latin America still lack the free flow of funds that is enjoyed in Europe and North America.

What impact do you think some of these changes will have on companies’ ability to manage their cash in the region?

As economic liberalisation progresses, we are also likely to see greater opportunities for cash and liquidity management. For example, techniques such as notional pooling are likely to become more feasible, and repatriation of cash from within the region easier. We are already seeing some changes to repatriation laws. This will be a vital consideration for foreign multinationals that are determining the extent to which they can invest in Latin America. Foreign and local multinationals paying high borrowing rates in other parts of the world, despite holding large cash surpluses in Latin America, will particularly benefit. Consequently, there is considerable focus on easing repatriation laws, although inevitably these are not moving as fast as some would like. It does need to be recognized, however, that a more controlled economy has helped the region to weather the financial crisis more successfully than other parts of the world with a free flow of funds.[[[PAGE]]]

We tend to talk about cash management, but trade is obviously vital to Latin America.
Absolutely, domestic and international trade is vital to economic growth. This is a major element of Bank of America Merrill Lynch’s strategy in the region, and we are providing trade solutions such as pre- and post-export financing in all countries, irrespective of whether we have a presence there. In some markets that are particularly trade-oriented, such as Brazil and Chile, we have a direct presence with a significant portfolio of trade solutions, both domestic and international. For example, a retailer may be purchasing from southern Asia, China and Central America. Many of their suppliers will already be clients of Bank of America Merrill Lynch, so we can connect the two more closely and create supply chain synergies.

You’re right to say that trade is often discussed less than cash, and the reality is that the bank continues to be very active in this area with significant growth in supporting trade flows between companies such as Brazil and Mexico with Europe and China. In addition, we have made a number of key new hires in the region to facilitate further expansion in the depth and breadth of trade services that we are able to offer.

Another area in which Bank of America  Merrill Lynch excels in Latin America is commercial cards. How has this come about?
We are one of the largest card providers in the United States and in many other parts of the world. Consequently, our market penetration is huge within the large corporate and commercial segment, and many of these companies needed to extend their card programmes into Latin America as part of a global solution. This enabled us to develop a significant depth of cards capability from which domestic and regional companies are able to benefit, as well as foreign multinationals. We are therefore experiencing growth both from outside of the region as well as an organic expansion in in-country, regional and global programmes originating from Latin America.

Three years on from the merger, how would you distinguish Bank of America Merrill Lynch business from your competition?
The first year of the merged Bank of America and Merrill Lynch businesses was spent getting to know the other’s capabilities and culture. We quickly moved forward with an innovative business proposition that combined the strengths of each organisation. As we went through the early stages of discovery, it became apparent that Bank of America Merrill Lynch has a unique value proposition by combining investment banking, corporate banking, transaction banking, research etc. that together enable us to provide a wide spectrum of flexible, value-added solutions to our corporate clients. We are not limited to solutions covering cash, trade or investment, nor to providing services in a particular region, but can mirror and anticipate the broad, evolving requirements of an international client base.

Every client's needs are different, even when companies operate in the same countries and industries, according to their policy, strategy, culture and risk appetite.

Brazil, Mexico and Chile are key markets for the bank, just as they are for your key customers. How do you differentiate your services and approach in these countries?
Bank of America Merrill Lynch’s breadth of capability across transaction banking, corporate banking and investment banking means that we are uniquely equipped to support the full spectrum of our clients’ banking requirements. To do this successfully relies on excellence not only in services and infrastructure, but on talent as well. A key focus for the bank in recent years has been on attracting and retaining the very best talent, including expertise and experience and creativity across a wide range of disciplines, as part of our commitment to excellence across every element of our business. We listen, we respond in a creative and pragmatic way, and we are proactive in supporting our clients at every stage of the relationship.

How are you positioning Bank of America Merrill Lynch’s services in the region?
Every client’s needs are different, even when companies operate in the same countries and industries, according to their policy, strategy, culture and risk appetite. As a result, solutions cannot be developed and implemented in the same way, and instead need to be tailored specifically to each client. For some aspects of their banking business, it may be appropriate to work with a global bank, whilst in others, a local bank may be better equipped to provide a particular service, or a combination of the two. For example, we now have a substantial presence in Brazil, but local banks still fulfil an important role, particularly if a client requires access to an extensive branch network, or needs to satisfy local regulations such as making tax payments through a state bank. In some remote regions of a country too, it may be uneconomic for commercial banks to establish a strong presence.

From our perspective, the key is to understand each client’s needs, constraints and aspirations, and construct a solution accordingly, wherever they are located, and whatever their international strategy. [[[PAGE]]]

Paul Simpson, Head of Global Transaction Services

Paul joined Bank of America Merrill Lynch earlier in 2011 and is responsible for harnessing the immense talent and capability across the organisation to service the current and evolving needs of existing and new customers globally. Latin America is a region about which Paul is particularly passionate, so we asked him to share his thoughts about the opportunities that exist.

What is the attraction of Latin America in your mind?

Latin America is exciting for a number of reasons. There is a great deal of energy and enthusiasm about growth opportunities, with many companies making new links to other markets such as Asia and Africa, as well as Europe and North America. I believe strongly that Bank of America Merrill Lynch is superbly placed to harness this energy and facilitate growth by leveraging the full spectrum of our transaction banking, corporate banking and investment banking services. What is key is to take the time to really understand each client’s needs in the region and construct the right solution accordingly. This may result in a solution that combines the capabilities of one or more best-in-class local banks, as well as Bank of America Merrill Lynch’s services to enable cross-border flows, both within and beyond the region. We help companies with strategic growth plans to gain real time visibility of their cash, aggregate their liquidity and risk, and provide practical solutions for addressing their financial challenges. It is marvellous to see the impetus to change and growth over the past 5 to 10 years, and from my perspective, it is very rewarding to see this passion and confidence resulting in success.

How would you characterise Bank of America Merrill Lynch’s capabilities in the region?

It is easy to forget that Merrill Lynch has had a huge presence in Latin America for more than 50 years, with deep relationships with governments, financial institutions and corporates alike. Our wealth management business also has a long and successful heritage. These existing, trusted relationships and depth of presence have given us a unique platform from which to extend our cash, treasury and risk management services, building further on the bank’s reputation for commitment and credibility in Latin America.

We have ambitious growth plans, but a view that I hold passionately is that we will only achieve these objectives if we have the right people in place who we nurture and support with the right tools, infrastructure and business culture to enable them to be successful. We have made a number of carefully chosen appointments in Latin America recently, and my commitment is to help them to deliver the best possible experience to our clients. It is this investment in both our employees and our clients that will ultimately fuel our growth and ongoing success in the region, and a prospect I find very exciting and rewarding.