Bloomberg View: Has the Fed Declared War on Brazil?

Brazil’s president, Dilma Rousseff, and her finance minister, Guido Mantega, are attacking the U.S. Federal Reserve for embarking on a third round of quantitative easing. By aggressively buying bonds, the Fed aims to push interest rates lower, and that will nudge the dollar down as well.

This will hurt Brazil and other developing-country exporters, Mantega says, and what’s more, it’s meant to. To him, the U.S. has declared “currency war.”

The Fed’s primary goal, however, is not to manipulate the dollar but to expand demand at home. It hopes to do this mainly by lowering interest rates and convincing investors that rates will stay low for a good while. This should encourage consumers to spend and companies to hire and invest. If these things happen, U.S. imports will rise, and exporters such as Brazil can expect to benefit.

Although Mantega is wrong about QE3, his wider concern about currency manipulation is right. Indeed, it’s an issue over which Brazil and the U.S. should make common cause.

Let’s be a bit more precise about who manipulates currency. The charge is best limited to nations that block the movement of currencies toward levels that would help balance global trade. If currency manipulation is defined this way, the leading offender is China. One measure is a country’s growth in foreign exchange reserves: Manipulators hold their currencies down by using domestic money to buy foreign assets. Recently, and especially over the past year, China has eased this policy, but its foreign exchange reserves still stand at a colossal $3.2 trillion.

We favor adding currency oversight (and the sanctions that might go with it) to the duties of the World Trade Organization or the International Monetary Fund. This makes excellent sense because currency manipulation can add to trade policy friction and vice versa, in a cycle of mutually assured disadvantage.

Currency manipulation already violates WTO and IMF rules, but there is no enforcement. This should change. Meanwhile, Mantega and other finance ministers need to be more careful about whom they accuse of waging currency war. The U.S. isn’t among them.

To read Edward Glaeser on privatizing government agencies and William D. Cohan on JPMorgan, go to: Bloomberg.com/view.

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Itau Takes Top Brazil Bank Rankings From Citigroup, Rothschild

December 05, 2011, 9:04 AM EST By Cristiane Lucchesi

Dec. 5 (Bloomberg) -- Banco Itau BBA SA has taken over the top rankings in Brazil for merger advice, equity underwriting and initial public offerings, supplanting foreign banks Citigroup Inc., Rothschild and Credit Suisse Group AG.

Itau BBA, whose parent is the biggest bank in Latin America, pushed Rothschild from the No. 1 spot among advisers on Brazilian mergers and acquisitions with 27 deals totaling $35.4 billion, according to data compiled by Bloomberg for this year through Dec. 2. Sao Paulo-based Itau BBA also replaced Citigroup as the top equity underwriter, and pushed Credit Suisse off the No. 1 spot among IPO managers.

Foreign firms are facing more competition from local rivals as they try to hold on to their share of the investment-banking market in Brazil, where an emerging middle class is propelling one of the world’s fastest-growing economies. Brazilian banks such as Itau BBA and Banco BTG Pactual SA boosted their capacity to finance deals and hired executives with the ability to provide services once offered only by larger global lenders.

“Our market position is the result of a long and consistent investment we have been making over the years,” Jean-Marc Etlin, chief executive officer of Itau BBA Investment Bank, said in an interview. “Our strategy was essentially centered on bringing Brazil and now also Latin America to global investors and corporations by building, over the years, a world-class distribution platform.”

Magazine Luiza

For the first time, Brazilian banks including Itau BBA led an IPO for a Brazilian company, Magazine Luiza SA, without the help of an international bank, Etlin said.

“Our revenues will grow this year even in a shrinking-fee- pool market,” he said.

Itau BBA’s M&A team also participated in the biggest transaction of the year, Telemar Participacoes SA’s merger, via a share swap, of two of its units into one entity. The transaction had a total announced value of $17.3 billion, according to Bloomberg data.

BTG Pactual is the second-biggest equity underwriter this year in Brazil, up from seventh in 2010. The company rose to third in M&A from fourth, and jumped to 11th from 19th in international bond issuance. BTG’s investment-banking business expanded to 63 employees from 52, according to Guilherme Paes, head of the unit.

“We had a lot of bigger transactions last year, but with a very small fee,” Paes said, adding that this year the bank doubled its fee revenue compared with 2010.

Revenue Trend

Overall fees for investment banks in Brazil fell this year, to $782.7 million through November from $1.16 billion in 2010, according to Dealogic, which took into consideration bonds, equity, syndicated loans and M&A advisory work.

The volume of announced M&A deals involving Brazilian companies tumbled to $91 billion this year from $161 billion in 2010, Bloomberg data show. Equity offerings decreased 72 percent amid Europe’s debt crisis, to $12.1 billion from $42.5 billion for last year, the data show.

Itau BBA had more investment-banking revenue this year than Zurich-based Credit Suisse for the first time since the boom in that industry started in Brazil in 2007, according to Dealogic. The Brazilian bank was also first in distribution of fixed- income products in the domestic market, according to Anbima, the local investment-bank and capital-markets association.

In the international bond market, Itau BBA ranked fourth, according to Bloomberg data.

‘Quite Active’

“Financial players are keeping the M&A market quite active,” Paes said.

BTG Pactual is helping STP - Servicos & Tecnologia de Pagamentos SA, a Brazilian electronic-toll-collection company, sell a controlling stake, two people familiar with the negotiations said last month.

“A lot of international banks have invested in Brazil, but the most important competitors we have are still the usual suspects,” said Jose Olympio Pereira, co-head of the investment bank at Credit Suisse, referring to local banks.

Credit Suisse is fourth this year in equity underwriting, with 14 percent of the market. Last year, the bank was eighth, with 7 percent. It fell to second place this year on IPOs, with an 18 percent market share.

“The IPO market could take a bit of time to open again as the European crisis is still cloudy and unresolved,” Pereira said. “We have a lot of liquidity in the U.S. markets, and Brazil is very well-positioned to go through this process, so the country continues to be an option for long-term investors.”

Camil Alimentos

Pereira pointed to the purchase of a 31.8 percent stake in Camil Alimentos SA, a food company in Brazil, by JPMorgan Chase & Co.’s Gavea Investimentos Ltda., a private-equity and hedge fund led by former Brazilian central banker Arminio Fraga.

“Although the market is rough, we will have profits in Brazil this year,” Pereira said, without providing a forecast.

Rothschild, which ranked fifth in M&A this year, is “having a good year” and is “still very well-positioned,” Luiz Muniz, head of the company’s Brazil business, said in an interview. The European crisis transformed the M&A market into a more complicated one, with transactions taking longer to close, he said, “but our market share with our clients is growing.”

An official at Citigroup, which didn’t underwrite any Brazilian equity deals in 2011 after taking the top rank in that business last year, declined to comment on the New York-based bank’s rankings.

--Editors: Steve Dickson, Dan Kraut

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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In Brazil, the Bikini Wax Is a Harbinger of Inflation

Thales Stadler/Agencia Estado/ZumaPress

By Iuri Dantas

If you're getting a bikini wax in Brazil, you'll likely find that the cost is rising. And if you're an economic policy maker, you'll likely see that as a problem, since the bikini wax is one of the items the Brazilians track to figure out inflation.

As with services ranging from car repair to dentistry, the price of waxing is going up in one of the world's most important emerging markets. Inflation is moving above the government's target and may force Alexandre Tombini, the central bank president, to prolong his policy of interest-rate hikes.

Price increases for services, which make up 24.1 percent of Brazil's benchmark inflation index, outpaced all other categories in the past two months, according to data released on May 11 by the central bank. They rose 8.57 percent in the year through April, the fastest pace in at least 15 years. "Services will continue to be the main villain of inflation," says Fernando Fix, chief economist at Votorantim Wealth Management in Sao Paulo. "Domestic demand is too strong."

That includes demand for bikini waxes, which are often considered a necessity, says Elzimar Siqueira, former owner of a beauty shop and now head of administrative affairs at the Syndicate of Women's Beauty and Hairdressing Institutes of Rio de Janeiro. "We have summer all year, we're always wearing bikinis and miniskirts," she says. At the Imaculada Hair and Makeup shop in Brasilia, owner Alessandra Rita de Arruda Lopes says she's raised the price to 35 reais ($21.63) from 30 reais. The average price of the depilation procedure rose 12.4 percent in the year through April, the national statistics agency says. A bikini wax at J. Sisters in Manhattan costs $75.

Consumer price increases in Latin America's biggest economy breached the government's 6.5 percent target ceiling in the year through April for the first time since June 2005. The benchmark interest rate has now reached 12 percent, and economists expect the central bank to boost it to 12.5 percent by year-end, a recent survey showed.

Gross domestic product per capita reached a record $10,813 last year, after the economy grew 7.5 percent, the fastest pace in more than two decades. Such growth boosts demand for services. Also contributing to higher prices is a tight labor market, which drives wages up. Wages may be bumped up again after collective bargaining late this year and next, says Constantin Jancso, an economic analyst at Sao Paulo-based HSBC Bank Brasil. "Negotiations with metalworkers and bankers begin in the third quarter," he says. "I wouldn't be surprised to see increases of 10 percent."

Prices of 20 of 41 services monitored by the central bank accelerated in April from March. Oil changes and car cleaning prices rose 18.25 percent in the year through April. Hotels increased prices by 14.03 percent.

Price hikes in Brazil are also spurred by indexation, in which past inflation is used as a benchmark for raising prices. The minimum wage, for example, is computed annually by adding the previous year's inflation to economic growth from two years back. In 2012 the minimum wage will likely go up more than 13 percent.

Higher wages are one reason beauty shop owner Lopes is raising prices. Meal vouchers, cosmetics, and the cost of "depi rolls," which are used to spread the wax for depilation, are also rising, she says. "Some clients are coming less frequently for haircuts because of the higher price," she says. "But not for waxing. Brazilian women will never stop getting waxed."

The bottom line: Services from bikini waxes to car repairs are getting pricier in Brazil, prompting fears of higher inflation and higher wages.

Dantas is a reporter for Bloomberg News.

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