Foreign Bank Assets In Miamidade Drop 67 Billion This Year
By Frank Norton
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Economic contagion in South American capital markets has cut demand for financial services in Miami, bankers and analysts said during this week’s technology conference, fel@tech, at the Hotel Inter-Continental Miami.
The specter of further infection in that region, they said, may force some local players to revise products and competitive strategies to match darkening global market conditions.
"When there’s no new wealth creation it’s bad for everybody. There’s no turnover," said Thorsten Ruelle, vice president and senior economist with Dresdner Bank in Miami. "Trade finance is down. There’s less lending going on. And it’s difficult to convince private banking clients to change their asset classes. People just want to stick to their positions."
According to data from the Florida Division of Banking & Finance, assets held by foreign bank agencies in Miami dropped by a third, or $6.7 billion, to $15 billion in the first half of this year as consolidating financial institutions moved international private banking and commercial lending businesses to New York.
Though flight capital from South America propped up local deposits in the first quarter, analysts now expect those levels to fall off as clients increasingly cannibalize savings to pay for daily expenses.
"We’re being impacted by people having to use their funds to survive rather than pay for new financial services," said Robert Brookes, president and CEO of Eagle National Bank in Miami.
Argentina’s second wave of contagion to neighboring Brazil, Uruguay and Paraguay has further forced investors to liquidate assets and has undercut investment flows from that region to Miami, analysts said.
"This has diminished the need for new products and services," said Pat Roth, executive director of the Florida International Bankers Association, which sponsored the three-day conference on technology.
Bankers and analysts also see a further decline in opportunities for trade finance, particularly for exports to South America. The problem is twofold, said E.N. Roussakis, chairman of the Finance Department and FIBA professor of finance at Florida International University’s college of business.
While falling consumption in Argentina and Brazil decreases the region’s ability to buy US exports, the growing perception of risk in that region is also gnawing away at lines of credit for future trade finance, Dr. Roussakis said.
Exports to Brazil, Florida’s largest trading partner, dropped about $550 million to $1.9 billion in the second quarter compared to the same period a year ago. Also, during the same period, exports to Argentina plummeted to $144 million from nearly half a billion, according to data published by Enterprise Florida, the state’s economic development agency. Argentina is now 17th among Florida’s top 50 export destinations while Guatemala is No. 9.
But despite grim forecasts of dwindling demand for financial products, one analyst sees opportunity.
"It doesn’t eliminate the demand for new financial products, it just changes it," said Alejandro Picos, McKinsey & Co strategist and the Fel@tech conference’s keynote speaker. "While the time isn’t right for new wealth creation, it may be right for extending credit in certain cases.
"These are crisis opportunities."
Mr. Picos said South Florida banks must develop new services based on the shifting production factors caused by the steady devaluation of the Argentine peso and more recently the Brazilian real, which could open new doors for servicing certain sectors.
Banks, he said, will have to shift their client profile toward more labor-intensive service and agricultural industries that could benefit from cheaper currencies.
Devaluation lowers labor costs and export prices for those industries, Mr. Picos said, and that could create opportunities for further leveraging.
"I think we’ve been seeing the Latin American glass half empty, but South Florida institutions experienced in these market sectors may be able to address these needs very creatively," he said.
Dr. Roussakis said banks may find import financing opportunities for now-cheaper agricultural products.
He also said bankers may want to look into beer production in Latin America since that industry is less sensitive to economic cycles.
"Every country has a dominant brewer that controls as much as 70% of each market," Dr. Roussakis said. "People may want to drink more to forget about the problems."