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Crisis makes room for Barinsul to grow

Crisis makes room for Barinsul to grow

12/29/2008
Leandro Brixius

As Barinsulís Financial and Investor Relations Officer, economist Ricardo Hingel can understand and interpret the financial crisis from a privileged standpoint. In recent months, he has traversed the United States and Europe to meet with investors, taken part in meetings in Brazil and in many conference calls, and gathered information through e-mails. At these meetings and calls, Hingel has had the opportunity both to explain why the international turmoil has had less of an impact on the Rio Grande do Sul State-owned bank than on other banks of the same size and to listen to the interpretations of major investment fund managers on the global scenario. The crusade undertaken by Hingel − and also by other Barinsul executives − is part of the bankís new strategy to be better known and, consequently, attract more value and liquidity to the stock traded on BM&FBovespa since 2007. The economist with a degree from the College of Economics at the Rio Grande do Sul Federal University, has been Financial and Investor Relations Officer since March 2003 and has worked at Barinsul since graduation, coordinating the IPO last year.

Jornal do Comércio (JC) − What is the objective of Banrisulís meetings with investors?

Ricardo Hingel − The bank did its road-show and sold its stock in 2007. Today, 43% of the bankís stock is on the market, and the state government holds almost 100% of its common shares and part of its preferred shares. Now, what should we do? Increase the turnover of the bankís shares. Therefore, the strategy is to stimulate trading, as the more the shares are traded, the more liquidity they will have. This way, they will be more valuable because of their liquidity. There is no advantage in holding the stock of a good company if it is not traded on the market. Most investors are not familiar with Barinsul, are not interested in buying and this ends up knocking prices down. It would be nice if whenever someone wants to sell, someone else is interested in buying. When we sold our shares, 88% were purchased by foreign investors. We have been focusing on diversification in the domestic market, which is more scattered, but in the end it is the investor who is doing the trading. So these 88% dropped to 74%, which has been a great help in increasing the daily trading average, which is close to R$7 million. Our work today is dedicated to seeking new investors, because they will become shareholders.

JC − What is the main competitive advantage Barinsul offers investors?

Hingel − We are facing a crisis that started abroad and is affecting the domestic market. The crisis has a key word: liquidity. Just as abroad, everyone should be able to tell the difference between companies, and especially banks, here too. One of the things we have been explaining is that within the Brazilian banking system the problem occurred in medium-sized banks, but we have made it clear that Barinsul has not been hit because the problem is not necessarily with medium-sized banks, but mainly with banks without a branch network. Because of its branch network, Barinsul has an extremely interesting advantage in times of crisis as it has a stable source of funding and is not affected by liquidity issues. Medium-sized banks depend a great deal on a set of funding sources and donít have a network of branches. No bank with a branch network has been affected by the crisis because they depend on institutional investors only to complement their cash strategy. What really matters is the scattered retail customers. The major Brazilian banks have retail networks. Barinsul has benefitted even more from the release of compulsory deposits by the Central Bank of Brazil. Our free cash was close to R$6 billion and currently we have almost R$8 billion. at a time when showing liquidity is a must, Barinsulí Basiléia index of 17.7% is among the highest in the market. This indicates that the bankís credit portfolio may increase by R$10 million − itís R$11.4 billion now. We have the means to grow and cash to support such growth.

JC − But what weight might the crisis have on growth?

Hingel − Barinsul depends, and so do other banks, on the economic scenario. We believe that the bank may continue to grow more than other banks because it does not include vehicle financing in its portfolio, which in some of the big banks is 25-30% of their portfolios. Due to the economic slowdown and market problems, vehicle financing growth should be very close to zero. So, institutions bearing vehicle financing have a significant parcel of their portfolios that should grow at next to zero, which will pull growth downwards. Barinsul, whose focus is not on the vehicle and consumption goods segments, should not be affected by a slowdown in these segments. The bankís trend is to grow a bit more than the market, since some segments that have adversely affected these big banks will slow down.

JC − Does searching for local shareholders make the bank less dependent on the exit of foreign capital in a crisis situation, just as happened now?

Hingel − The behavior of foreign investors also has its particularities. When in Europe, in November, we visited the Norwegian investment fund Skamgen, which had been buying important positions in the bank amidst the crisis. When a foreigner left, the investment fund made a purchase. We visited several investors that left the bank, seeking to understand why they did so. What happens in many funds is that due to their policy they reduce their positions in emerging countries in times of crisis. It has nothing to do with the bankís fundamentals. We continue to be a target and when the financial crisis improves they will realize what effect it had on emerging economies and may come back. We must remember that emerging economies are emergent, not developed. In times of crisis, risk aversion increases and the emerging countries pay the bill. No matter how good the fundamentals of a countryís or companyís economy are, in times of international crisis, especially if related to liquidity, capital flees emerging countries. Because Brazilís situation and liquidity were good, investors had already gained considerably and, even with the market downturn, they would lose less. But there is the other kind of investor that sees the fundamentals and is focused on the long term. This investor sees that the stock exchange has plummeted, a group of companies in Brazil is very cheap and he wants to buy, just like the Norwegian investment fund that has 5.5 billion Euros of equity under management. When I travelled at the beginning of November, they had 11%; we arrived at the meeting and they already had 13%, and by mid-December, they had 16%. The crisis at this moment helps us to be better understood. When you expose institutions to a more unfavorable situation, you see how strong they really are. So, when a crisis is related to liquidity, which is the capacity to raise funds, all banks are put to the test. The so-called middle-market banks have had to adjust their positions in terms of their expansion strategy by their ability to raise funds. We continue to be extremely solid, with robust cash and weíre taking advantage of this situation.

JC − What have investors been saying about the crisis?

Hingel − For them, Brazil is in a good situation, but is not immune to the crisis. They believe Brazil will suffer a little, but not a lot because the fundamentals of the Brazilian economy look good. Last July, when we did our road-show, the quality of Brazilian economic fundamentals was already well accepted, and we hardly ever had to address this issue. Nobody expressed an opinion that disaster is looming. Concerns exist due to the fact that Brazil is an emerging country, but nobody foresees a disaster.

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Phone: +55 51 3215-3232
E-mail: ri@banrisul.com.br

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