We hope to improve our performance this year compared to last year thanks to the economic recovery and bouyant Portuguese capital markets, says Joaquim Souza, CEO of CaixaBI, one of Portugal’s largest investment banks.
Lisbon, February 26: With the Portuguese economy rebounding from the recent recession there is a strong demand for Portuguese assets financial and real, and that is creating a virtuous cycle for the country’s capital markets and CaixaBI, one of Portugal’s largest investment banks, is aiming to get a fair share of this business, the bank’s Chief Executive Officer Joaquim Souza told IFM Editor Arjun Sen in an exclusive interview. He, however, felt that the slowdown in emerging markets, especially Brazil, where CaixaBI has a significant presence, plus the possible adverse impact that the remaining austerity package may have on Portugal’s growth rate were areas of concern. Excerpts from the interview:
IFM: 2012 was a remarkable year for you as your Net Income on pro forma basis had jumped up by 237 percent from €8.6 million in 2011 to €28.8 million in 2012 although Net Operating Income was up by only 35 percent. Of course, impairment and provisions came down by 13 percent while cost-to-income ratio also came down to 19.6 percent in 2012 compared to 28.1 percent in 2011, but even then there must be other reasons for the very big increase in Net Income. Would you please share with our readers what were the reasons behind this excellent performance?
Souza: CaixaBI has a relatively conservative Balance and even though we had our fair share of credit issues, we have been provisioning in a conservative way and this has enabled us to withstand the impact of the adverse economic conditions. In terms of our cost basis we have been making a special effort to contain operating costs but the current cost-to-income ratio is clearly not sustainable and will necessarily go up in the future. On the revenue side we have been helped by our strong franchise in Portugal as we have been involved in most of the large transactions that took place in the country, namely the main Privatizations processes, either on the sell side or the buy side.
IFM: Your Annual Report for 2013 is probably due any time now but would you please give our readers some idea of your performance in 2013?
Souza: In 2013 we have managed to maintain the financial performance of 2012, with similar level of earnings. The improvement in the financial markets and the opening of the capital markets in Portugal have not only helped us in our trading results but also in our investment banking business, as CaixaBI was involved in various debt issues (corporate and sovereign) and in the first IPO in Portugal in the last 5 years. On the M&A we are still benefitting from the ongoing privatization program and we have also been involved in some interesting cross border deals.
IFM: What about 2014? From your bank’s point of view, how do you assess the overall economic outlook for 2014 and what do you identify as the main threats and opportunities this year?
Souza: The economic outlook for Portugal is improving with a clear rebound from the recent recession, the main question is at what level will the growth rate stabilize and what will be the impact on growth of the remaining austerity package. In terms of the banking business we see a strong demand for Portuguese assets, financial and real, and that is creating a virtuous cycle for capital markets in Portugal and we hope to take our fair share of that new business. In global terms the main threats are related to the economic slowdown in emerging markets and its impact on global capital flows and growth. Portugal being a small and open economy is very much affected by a slowdown in growth and trade, even though right now it is benefitting from a relative “safe haven” status compared to emerging markets.
IFM: Right now you are quite aggressively internationalising your operations, especially in Brazil, Mozambique and Angola. You acquired CGD Investimentos of Brazil in 2012. Did you go for any other such acquisitions in 2013? Are you looking at any acquisitions in 2014? Apart from acquisitions, what are the other ways you plan to strengthen your internationalisation programme?
Souza: We have always in mind that our international expansion is closely linked to the needs of our clients. Our priority this year is to develop our Brazilian and Portuguese-speaking African countries. Besides the afore-mentioned acquisition we are also intensifying our commercial efforts in the countries where CGD is present and building partnerships in other markets, particularly in Latam countries where there is an increasing activity level by our Portuguese and Brazilian clients.
IFM: Regarding Brazil, do you think the slowdown in China’s growth rate and a possible cooling of commodity prices as a result of lower demand from China will impact your bank in any significant way? If so, what steps are you planning to take to counter such a possible adverse scenario?
Souza: We have already observed a significant decrease in activity in the Brazilian capital markets resulting in a direct impact in our group´s business, such as lower trading volumes and a significant reduction in IPO’s and other equity offerings. The secondary effect of this has been increasing investment flows by Brazilian investors and corporates outside Brazil and, in this case, there has been a positive impact in our operations in Portugal and Portuguese-speakingAfrican countries, as these are natural destinations for Brazilian investment. To offset the slowdown in activity in Brazil, we are taking measure to reduce costs and we are increasingly focusing on cross border transactions.
IFM: In what ways do you feel your bank is contributing to economic recovery in Portugal in particular and in Europe in general?
Souza: We are doing our bit in helping the Portuguese State to return to the markets, not only in its debt offerings, where we were bookrunners in several debt offers, including the first 10 year bond since the crisis started, but also through our work in the Privatization program that has attracted significant foreign investment into the country. I would like to stress the success we had with the privatization of the Portuguese Post Office (CTT) that was executed though an IPO. It was the first equity offering in Portugal in 5 years and was oversubscribed more than ten times, mostly by international investors and marked the reopening of the Portuguese equity markets. We are again trying to grow our lending portfolio in some very specific sectors where we feel there are some good risk/reward opportunities and, as such, we are promoting economic growth.
IFM: Apart from internationalising your operations, what are the other ways you are trying to expand your customer base as well as overall business in terms of both topline and bottomline growth?
Souza: We are increasing our efforts in the middle market companies in Portugal, benefitting from CGD reach and relationships, trying to help them in their capital raising, partnerships, M&A and international expansion. We are also increasing our Project Finance efforts in Portugal and with Portuguese and Brazilian groups outside Portugal.
IFM: As an investment bank what are the key advantages you offer to existing customers as well as potential new customers?
Souza: We are the go to investment bank in Portugal and Portuguese-speaking African countries, where we can provide financial support and a highly qualified team with experience in large and complex international transactions.
We also offer highly professional, trustworthy and committed support elsewhere in the world where CGD group is present, in particular in Brazil where we have been present for many years and where we have a in-depth knowledge and network of contacts.
We strive to create a solid and long partnership with our clients, in good and bad times, and that’s the only way to create long term value for them.