Emerging Power or Emerging Bubble? What You Do in the Latin America Coverage Group at an Investment Bank

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Latin America Investment BankingInvestors like growth.

And now that they aren’t getting it in developed economies, whether they’re looking at industrials, consumer retail, or other sectors, they’re turning their attention south and east – to the BRIC countries and other emerging markets.

We’ve been through what to expect in China and India multiple times (Russia, you’re next on the list), but Brazil hasn’t received much attention.

Actually, I’ll correct that statement: Latin America has received no attention so far.

That changes today with an interview from a reader who started out in risk management in Latin America and then networked his way into investment banking to cover Latin America at a New York-based investment bank.

Keep reading to learn how you can do the same, what it takes to cover Latin America, and how everything from valuations to pitch books differs – plus, whether it’s an emerging power or just an emerging bubble.

Breaking In

Q: For starters, could you tell us a bit about your background and how you got started in your group?

A: Sure. My family is originally from Latin America: half from Argentina and half from Brazil. I went to school in Argentina, studied commerce, and right out of school I worked at one of the Latin American banks (ex: Itaú, BBVA, Banco Bradesco, Banco do Brazil, to name a few).

As an MBA student I studied at Stanford, and after meeting the right people, I started my investment banking career for one of the bulge bracket firms in Manhattan.

Q: What do you mean by the “right people”? It sounds like you already had quite an advantage considering you’re half-Brazilian and half-Argentinian…

A: I applied the usual networking tactics: finding people through alumni databases, reaching out and staying in touch and so on.

But I always tried to make myself a resource to the other person and help them as much as I possibly could.

So rather than just ask for introductions, I would offer to introduce my contacts to people I had met or tell them about my experience working in Latin America.

Q: Right, that’s a good strategy if you have enough contacts and work experience to be useful.

But I thought you started out in risk management initially – how’d you make the switch into investment banking?

A: You’ll learn something with any experience you have, whether it’s stuffing bears for the student store, pitching a stock, or even dishwashing.

And you can pick up bits and pieces of these learnings and combine them into something transferable.

With risk management specifically, you need to model something abstract into concrete terms (Excel work), present your findings or conclusion (pitch book work), and of course learn how things are done (let’s call this “product work”).

So it’s all about how you present the experience – play up the modeling aspect, how you had to sell others on your ideas, and work effectively in a team.

Anytime you need to bridge a gap like that, just start finding parallels between the two items and you’re good to go.

If someone insists that there are more differences than similarities, just downplay the numerous minute differences and play up the few major, positive items that work in your favor.

Q: That makes sense, but let’s jump back to the dishwashing part.

Did you just mention that randomly, or is there a way to spin even something like that experience in a positive way?

A: Of course there is.

Let’s say you’re a dishwasher for a café. You’ll need to multi-task all the time and make sure all of your plates/cups/silverware are ready before they’re needed.

At an investment bank, you’ll be tasked with competing assignments, and of course, these assignments need to be completed before your VP or MD needs them since there are always changes in direction, edits, pages in or pages out.

Obviously it’s better if you’ve had more relevant experience, but don’t discount yourself just because you’ve had part-time service jobs in the past.

Team Latin America

Q: I’m still not convinced that I’d bring up dishwashing in an interview, but you do make a great point there.

Shifting gears, could you tell us more about your team? I’m assuming most people are also from Latin America and know the language(s)?

A: La primera cosa que debo decirte, es que es muy importante para los financieros que ellos hablan español para trabajar con companias en Latino America. (The first thing that I should tell you is that it’s very important for financiers to speak Spanish in order to work with companies in Latin America)

Se você pode falar português, ótimo. (Or if you can speak Portuguese, even better)

I’m sort of joking here; the majority of pitch books are actually done in English because we see so many cross-border deals.

But you will be at a significant disadvantage if you can’t speak Spanish or Portuguese (or ideally both).

You need to relate to your clients and co-workers, and in Latin America the local languages are extremely important – you’ll feel awkward and out of place if you can’t communicate with others.

Most of our team has some experience in the region and knows the languages, even if they’re not from Latin America originally.

And if you really don’t know the languages, you’d better have an ace up your sleeve.

Q: What would such an ace look like?

A: Maybe you’ve done research projects on Latin America that require you to read and understand documents in the language(s), or you’ve worked with Latin American companies before.

But again, you’ll have a pretty steep hill to climb if you don’t have the language aspect down cold.

Q: So let’s assume you know the languages and you’re getting ready to start working there.

How does the “Latin America Coverage Group” actually work? Do you cover all sectors, or is it split into geographies and industries?

A: Coverage differs across banks. At some firms, Latin America FIG (Financial Institutions Group) might be its own team; other firms might have Latin America cover all of the sectors.

Just as tech is covered out of San Francisco and oil and gas is covered out of Houston, the popular sectors here depend on the region you’re working on or covering for a particular assignment (partial list):

  • Chilé: Mining
  • Argentina: Industrials
  • Brazil: Alternative Energy
  • Mexico: Telecom

This list is not exhaustive and there’s some overlap in the bigger countries – in Brazil, for example, you’ll see everything above.

Q: That’s interesting that you have quite a broad set of sectors to cover in your group.  What sorts of deals do you usually work on?

A: Mostly equity offerings and advisory assignments (read: M&A).

The M&A deals often involve foreign sellers who are looking to exit; buyers tend to be either local or from East Asia.

Certain countries have certain particularities (e.g. historically a lot of Japanese buyers in Brazil), and China has invested a huge amount in natural resources deals within Latin America.

On the equity side you have a bifurcated market with domestic, consumer-related plays doing better than the more export-oriented commodity plays.

Brazil is the biggest equity market by far.

Debt is active but dominated by large issuers – and is more straightforward to execute.

Different sectors become more active in debt offerings at various times; you might see a very active year for banks, then little activity, but a lot more activity for natural resource companies, for example.

Latin America Analysis

Q: So how does the valuation in those sectors differ?

Is it more dependent on the industries or the region?

A: It’s different because you need to think about sovereign risk. An election can change the cost of raising capital; a string of protests might cause the dial to shift slightly as well.

You’d make these adjustments when calculating the cost of capital (at least, that’s how it’s taught in business school).

If the IMF (NB: the International Monetary Fund, not the Impossible Mission Force) has to inject capital into a nation, or if a Latin American nation is injecting capital into another Latin American nation then you’ll also need to consider those items in your framework.

The valuation work is not incredibly different: you see the same methodologies, such as DCF, trading comparables, etc.

For an example of a valuation, click here to see page 7 of this document (warning: it’s in Portuguese).

Q: So the valuation methodologies themselves are similar, but you might tweak certain items depending on the country and economic environment.

Is there anything else that makes valuing Latin American companies more difficult than valuing US companies?

A: A couple of the key challenges:

1) Lack of true comparables in some spaces both from a precedent transaction and public market perspective.

On the consumer retail front, one time I saw a valuation for a restaurant company driven off financial institutions comparables.

That would make no sense in the US or Europe, but here it worked because they didn’t have comparable restaurants and because of the source of revenue: finance professionals were the chief clientele for this particular chain.

2) Some companies in Latin America have substantial operations in other countries. In this case, a sum-of-the-parts valuation is required.

This process is complicated by the way divisions may be structured (think of one division split between two offices) and by corporate overhead.

You’d just have to get creative for something like this and make solid estimates

3) The level of disclosure by companies is often poorer given the emerging market setting so that’s another important valuation constraint.

You’ll just have to do more digging around, looking up articles, and otherwise turning into a detective to get a better perspective on a company’s operations.

In such cases, the firms won’t necessarily disclose key items like customer concentration, employees by division, revenue by segment and so on.

Q: Right, it’s almost like valuing private companies in developed markets: minimal information and lots of guesstimates required.

What about qualitative analysis of sectors in Latin America? Any important points to keep in mind there?

A: Sure. A few points that come to mind:

Government Policy Implications: Many nations in Latin America are very protective of their strategic assets.

A “strategic asset” in the United States might be a communication system used by a majority of airlines (ex: Aeronautical Ratio, or ARINC), whereas in Latin America, a “strategic asset” might be a large oil/gas project.

The rules governing cross-border investments will impact whether the deal has additional hurdles to clear.

Interdependence: Unlike the US consumer retail sector, which generates the lion’s share of revenues from within the US itself, companies in Latin America earn a higher percentage of revenue from other countries.

You might see copper contracts from Chile signed by China, or corn ethanol produced by Brazil and imported to the United States.

Cultural Differences: Black, Red, White, Brown, Yellow, Green (Army), or Blue (Smurfs!) – we’re all human. We all have a basic set of requirements such as food, shelter, and connectivity.

In Latin America, there’s a stronger sense of interdependence in families: if you ever see a family reunion you can expect to see many generations there.

Moving back in with your parents happens more often than not, which means that consumer spending is also much different.

A large household size means that there’s more demand for basic goods or consumer staples, which changes what companies are valuable and which divisions are the most valuable.

You can also apply this thought paradigm when analyzing the US Hispanic Market: If you’re in San Francisco, Los Angeles, and most parts of Texas, you can see domestic firms expanding their offerings to better resonate with the local populace.

A prime example was Nestlé’s introduction of Aguas Frescas, which includes Tamarindo, Horchata, and Jamaica.

Monetary / Fiscal Policy: Any cross-border analysis needs to take into account interest rate levels and any contracts used to lock in those rates.

This aspect involves a lot of international finance, so it’s a good idea to take that class if you’re interested in working in Latin America in the future.

Q: Thanks – that’s great! I hadn’t thought through the implications of those cultural differences on product demand and company valuations, but your explanation makes perfect sense.

Lots of people think Latin America and other emerging markets are in a bubble and that inflation is out of control – do you think that’s true? And how does it affect valuation and analysis?

A: It’s hard to say definitively because while there is a lot of hype over emerging markets, they are also growing much faster than other economies.

I don’t necessarily think it will come crashing down like the dot-com or real estate bubble, but valuation multiples will probably decline over time as the hype subsides.

As prices rise the comparable companies also get a boost, and you may see significantly different ranges for precedent transaction multiples depending on the dates.

You might need to adjust for that in modeling and valuation work, especially if you’re also working with companies in “non-inflated” regions.

Q: Right, that makes sense. How do all these policy and cultural differences affect the sector pages in Latin America coverage materials?

Do you focus more on a sector (say: regional jets for Embraer), or are the pages more about LatAm policy decisions?

A: It depends on the market and the country. If you’re dealing with countries with more unstable political atmospheres, you’ll likely dedicate pages to policy issues.

And some sectors, such as mining, also have important ties to policy; you may even see some industries where policy itself is driving a lot of growth. One example is how social welfare programs in Brazil have driven demand for consumer goods there.

You’ll usually spend some time discussing the sectors on a global scale or “developed market” scale before getting into specifics on a regional basis.

And you’ll usually end up discussing items on country-by-country basis, given how different the dynamics are in each of the countries.

Finally, you’ll often try to rope in a “big-picture sell” that connects to what’s happening in the rest of the world.

For example, in the oil and gas pitches we emphasize the state-sponsored investment from Asia that had arisen in recent years since that was a major shift in the space that affected companies in Latin America.

Q: Awesome. Thanks so much for your time.

A: Glad to be helpful.

About the Author

has worked in investment banking for several years covering the industrial sector. In addition to being an avid mentor for his alma mater, he volunteers for the Association of Latino Professionals in Finance and Accounting. In his spare time, he enjoys fencing and attends networking events in New York. He graduated from Stanford with a BA in Economics.

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57 Comments to “Emerging Power or Emerging Bubble? What You Do in the Latin America Coverage Group at an Investment Bank”

Comments

  1. Themb says

    Muito obrigado pela entrevista muito interessante, gostei.

    I also do have a couple of questions:

    – Do LatAm Coverage Groups also exist in Europe (London/Frankfurt)?
    – How are the chances to break in right out of undergraduate?
    – How are the hours?
    – Any chances to leverage your assignment in such a coverage group for an assignment abroad?

    • says

      Thanks!

      I’m not 100% certain on those questions above but the interviewer (Luis) may drop by later to answer them. My thoughts for now:

      Hours should be about the same as IB anywhere; you can get in right out of undergrad but you need a solid connection to the region. You can always move to another group / country after working in a group like this, though some banks make it easier than others.

      • M&I - Luis says

        Q:Do LatAm Coverage Groups also exist in Europe (London/Frankfurt)?
        A: Yes, agree with InSouthAmerica’s points.

        Q:How are the chances to break in right out of undergraduate?
        A: Same as for any other group. Language skills and heritage add points in your favor if you’re applying for a seat in the LatAm IB team.

        Q:How are the hours?
        A: Same as other groups.

        Q: Any chances to leverage your assignment in such a coverage group for an assignment abroad?
        A: You sometimes go on trips for due diligence, but you won’t be spending too much time outside of the client’s office or team meetings.

    • InSouthAmerica says

      1. In Europe not so much, but they would be based out London where they do exist or a bank’s powerbase, e.g. Zurich for UBS.

      2. I’m outside Brazil but what I’ve seen on the PE side is that it’s primarily connections and when that fails, the fund will go to the best schools (and only the best) for people, but they will typically have prior experience.

      3. Hours are long but nothing like London

      4. Internal transfers, I feel, are always the best way to go. Howver, your bank/funds on the ground presence may limit these chances if you don’t want to go to Brazil.

      • Adam says

        Just a small point, but UBS’s European power base for IB/markets is London, not Zurich. Zurich is private banking.

  2. InSouthAmerica says

    Also, unless you are going for an internal transfer never underestimate the value language skills. In many countries ex-pats are retyrning home with considerable skills in IB and PE so yhe question that people should be asking is “what can I offer that that a local can’t aside from fluent English and increased salary expectations?”

  3. GML says

    How would you leverage your language skills (Spanish) in an interview and how’s the best way to handle “You completed Level I of the CFA, does that mean you want to go to a hedge fund afterwards?” Thanks

    • says

      Probably best just to state that you’re fluent in the language and let them test you if they want.

      For the CFA question, say that you believe it’s useful for IB as well and that you took it to demonstrate your interest in the field, as well as for the networking opportunities via CFA societies.

  4. MMM says

    Some additional comments regarding Themb’s first three questions:

    1) To my knowledge, LatAm i-banking groups do not exist in London, at least not in BBs or major boutiques. It is possible that some banks have salespeople or traders based in London that cover LatAm, or private bankers covering the region out of Switzerland, but that’s about it.
    2) As mentioned above, these groups actively recruit both undergrads and MBAs. Some banks place you in these groups once you get a general offer, while others (such as CS or Citi) have a separate recruiting process (though they still go on-campus).
    3) For NYC-based groups, your hours will be just as bad as other groups. For groups or rep offices based in places like Mexico, Sao Paulo or Buenos Aires, it depends… though the places with good dealflow will work you hard.

    One final note – LatAm is no longer covered entirely by one single group or office. Most banks (perhaps with the exception of JPM and Barclays) cover Brazil locally, meaning the SP-based teams are large and originate/execute locally (though of course they get help from industry/product groups from NYC, etc.). The rest of the region is covered out of NYC (w/ the exception of Goldman, which no longer has a NYC-based Latam group to my knowledge), with rep offices based in places like Argentina, Colombia, Peru, Chile and Mexico. I believe some banks give their Mexican teams automony, given the size of the market there, but I’m not well-versed on the Mexican market.

    Hope this helps for anyone looking to work in the region.

      • MMM says

        Glad to help.

        Also forgot to mention – UBS recently dismantled its Latin America group in NYC as well. I also heard BAML was thinking of doing the same, but I’m not sure if they ever did.

        As far as the major independent advisory firms go (Lazard, Rothschild, Evercore, etc.), many of them have a local presence in LatAm but do not cover the region out of NYC (though Lazard did before its IPO).

    • Brian Smith says

      Do you think MMM, do you think Citi or BAML is stronger in LatAm with regards to M&A and what would the exit opps to PE be like at one of these banks. Thanks.

  5. Cheveré says

    Hey, thank you very much for the article!

    I am a german student at a local target university with the goal to break into LatAm finance. I have been to Latin America quite a few times in the past and I am fluent in Spanish and Portuguese with experience in IB (German Mid-Cap M&A). Next semester I will go to study a semester abroad in Brazil (target university). I want to use that move to break into Investment Banking over there. However, I currently don’t know what would be the best option for me. Is it realistic to get an internship in Brazil, once I get there and make local contacts ? Or would I be better off by getting an internship/job at a BB in Frankfurt/London and move over to a LatAm team later ?

    • M&I - Luis says

      The LatAm team I spoke of is within an investment bank not located in Latin America. The bank is located in New York. Following MMM’s thoughts, at least in New York, there is a Latin America IB office, with coverage for particular parts of Latin America. There are also offices within the various regions that cover firms locally.

      To your question, it’s better to get contacts where you have previous contacts and an advantage. I would choose the path that appears easier to you. Since you’re already in Europe, I would get an internship there and make a transition into a dedicated LatAm group once you’ve earned your stripes.

  6. Paulo says

    I was born in brazil and came to the uk when I was young aspiring to get into sales/private banking. Is there a particular place, association that it is easier it is to network with fellow Latin anericans in finance. I saw the end note saying you do charity work with the association of Latium financiers, is there a group in London. Ps speak fluent portiguesse and spanish

    • M&I - Luis says

      I would look into CFA Chapters, or even university student groups. In the US, there’s ALPFA, NSHMBA, and NHBA (for students).

      To find any of the pitchbooks I’ve included in this series of interviews, I just did some creative web searching. I spent the last 45 seconds looking for you and found:

      http://www.linkedin.com/groups?home=&gid=679627

  7. Not Latin American says

    I read Garrincha Estrela Solitária by Ruy Castro in the original Brazilian Portuguese and I don’t speaka word of it.

    • M&I - Luis says

      That’s great that you can read. I’m sure you learned some good stuff. It’s important to be able to apply what you’ve learned from something like this as I mentioned in the interview. You might bring it up during your own interview as evidence of your interest in the region, culture, etc…

  8. Camille Mbiakob says

    A very good day to you.
    i am a Cameroonian Student, Currently studying Mathematical Finance in South Africa (Second Year), and i want to work for an investment Bank after my Studies. Could you please advised me on what to do to get experience while studying. More over, what are the different options that i will have after my Degree related to investment banking.
    Thanks.

  9. JimB says

    Great interview. Just a note though, on the bio it says Luis Miguel Ochoa graduated from Stanford with a BA in Economics…I thought he said he got his MBA at Stanford?

  10. scott says

    I have an unrelated question. What valuation methods do I bankers use? I understand you value an asset 2 ways – intrinsic valuation and relative. Are all valuations done with D c f?

      • scott says

        that doesn’t answer my question. I picked up this valuation book and apparently you can value a company on a historical basis (capitalized economic income) projections (d c f) asset approach, which values the company if it were to liquidate its assets as opposed to a going concern. And market comps. Do I need to only concern myself with market comp and d c f? Also the book investmentnbanking only covers d c f

        • says

          You always value companies using both intrinsic (DCF) and relative (comps) valuation.

          There are other methodologies, but those are the most common ones. Other methodologies are generally just variants of those.

          I would do a search on this site for valuation to learn more, or sign up for the free financial modeling tutorials.

  11. Marvin says

    Thank you for such an insightful article. Coming from an emerging market background, I have a question with regard to valuation. How do banks actually take into account the sovereign risk? Do they just add a sovereign risk premium to the CAPM (cost of equity) just like what is described in CFA or they do it in a more comprehensive and complicated way?

    Also do all the points regarding differences in valuation apply to other emerging economies such as Russia and Africa?

    Many Thanks

  12. Chris says

    I have a bunch of choices to choose from for the times of an interview. Would it be best to interview morning, late morning, after lunch, etc?

  13. 'dito says

    Maybe slightly off topic, but how is the selection process for banks actually in Brazil? Do you have any idea how they take to foreigners? I speak the language pretty well (working on that), and I can legally work there, but my experience is limited to my ongoing internship in business valuation at a regional accounting firm in the US. I have a family situation that might necessitate my move to Rio. I love what I’m doing here, so I wouldn’t leave unless I really had to. Thanks for any advice you can give me.

  14. Alex says

    Been waiting for LatAm articles! Thank You.

    Question: Is there a NYC Latam tradegroup or association that is better known over the many others out there for young professionals? I am interested in some LatAm IB/PE groups to join.

    Look forward to more LatAm insights. Thx again!

  15. Brian Smith says

    Hi,

    First, this is a great article so thanks for putting this together. I have two quick questions. I was wondering which bank you think is stronger in LatAm for IB between Citi and BofAML. Specifically with regards to their teams based out of NYC just covering the region. Second I was wondering what the exit opps to PE would be. I would appreciate any insight that you have.

    Thanks.

  16. Taraz Dearmont says

    I’m also interested which LatAm teams based out of NYC would have good exit opps to PE besides Credit Suisse and J.P. Morgan. Any insight at all would be a big help.

    • says

      Not really sure on that one but most bulge brackets there have good PE exit opps. The trend lately is for more and more of the teams to work directly in Latin America so you should probably go with a bank that still focuses more on NY.

  17. Otto says

    I loved the link with the document in portuguese. It is hard to get good examples of what you might have to do if you work in this sector.

    Gracias Luis!!

  18. Jon says

    Hi guys,

    I am wanting to start a language course shortly and have the option of choosing ‘Spanish’ or ‘Brazilian Portuguese’ . I aspire to get into IB (possibly with some focus on the Oil and Gas sector). I am in a dillema as to which one I should choose. Its a significant investment of time and like everyone else, I guess I want to ensure I get maximum ROI. I guess I would want to work in Brazil and as such Portuguese could be a better option, but I fear its acceptability would be lower than Spanish. I am presuming the IBs in Brazil would have to work closely with those in other South American countries and as such Spanish could be a broader/safer option. Am I correct in arriving at this deduction? Any thoughts would be hugely appreciated.

  19. Anonymous says

    How easy is it to lateral into LatAm IBD from LatAm DCM? I’m facing a decision between attending an M7 school (with a scholarship) with the objective of joining the LatAm IBD team at a BB afterwards, or accepting an associate offer for LatAm DCM at a BB to start now. My worry is being pidgeonholed in DCM, since that is not what I want to do since that is not what I want to do, and I would only consider the DCM LatAm offer as a way to get my foot in the door of a BB while looking to lateral to its LatAm IBD team.

    • M&I - Nicole says

      If you already have an offer at the LatAM IBD team (after graduation) then I’d go for that option. However, from the sounds of your comment, I think only your DCM offer is secure. In that case, I’d probably take that offer and lateral after, unless you’re sure you can get an M&A role at a BB after school and that you absolutely do not want to do DCM.

      • Anonymous says

        The sure thing is an M7 acceptance with a scholarship. The DCM LatAm is not a sure thing, but I’m assuming that, if an offer materializes, I would have to make a decision very quickly.

        You’re right in that I don’t have an offer for LatAm IBD after graduation right now (but I might, since I was sought out for this role – I didn’t apply for it – I’d like to think my chances might be good). What I’m pondering is, since the school I’m going to has a heavy LatAm presence, if the relationships I develop while there will be sufficiently beneficial to have a more successful banking career (once I have to start generating revenue) as opposed to joining a BB now and not have that network to tap into when I have to start generating revenue.

        If I get the offer, you say I should take the offer and lateral – my question is how feasible is lateraling from DCM into other groups, and how long could that take? (taking into account I would be hired at the associate level)

        • M&I - Nicole says

          If you get the offer yes I’d take it and lateral. It is feasible assuming you’re a strong candidate and have established solid connections. How long it takes depending on the individual to be honest; say 2-3 years or sometimes longer

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