Haitong’s caravels have set sail

Portuguese bank Espírito Santo went under dramatically in August 2014 and parts of it were later sold. One of its healthy activities, investment banking, was acquired on September 7 for €379 million (R$1.64 billion) by Chinese investment bank Haitong. Who? Do not be surprised if you have never heard of this financial institution founded in Hong Kong in 1973 as Haitong Securities. Initially operating as a brokerage house, the institution became a traditional investment bank.

It has always operated on the Chinese market. Since 1997, when Hong Kong was handed over to China, it expanded its activities in the country. It has 4.6 million individual clients, 12,000 institutional clients and offices in 240 cities. Its most recent financial statements show that the bank holds 80 billion Hong Kong dollars in assets (R$41 billion) and posted R$1.07 billion in profit in the first half of the year. The acquisition of Espírito Santo represented a watershed for the bank. After the deal, it transferred its headquarters to Lisbon.

The “new” CEO is José Maria Ricciardi, former head of the Portuguese investment bank. “The objective of the new controllers is clear: they hope to make Haitong a global investment bank," said Rafael Valverde, from Portugal, who is also a former employee of Espírito Santo and is now CEO of Haitong Brasil. Valverde believes the acquisition represents a new opportunity on this side of the Atlantic. “Espírito Santo entered Brazil 20 years ago and, during this time, we had the opportunity to get a good feel for the Brazilian market, learning what to do and what not to do," he said.

Haitong offices in Hong Kong: brokerage and asset management throughout all of China

The strategy is to work by the book: raise funds, grant structured loans to companies and finance foreign trade between Brazil and China. “The economies are complementary and there are opportunities here to advise Chinese companies seeking opportunities in Brazil.” It will not be easy. Valverde recognizes that the crisis at Espírito Santo last year, the government intervention and the change in command had a significant impact on the financial institution’s business. The goal, he said, is to obtain return on equity (ROE) of 15% per year, on average. In 2014, return on invested capital (ROIC) was nearly zero, at a mere 0.2%. “We need to improve this figure,” he said.

“There are many opportunities in Chinese companies.”Rafael Valverde, CEO of Haitong in Brasil

Will they be able to do so? Comparison with their fellow resident of Hong Kong HSBC is inevitable. Nonetheless, anyone who knows the market believes that the two banks stand in quite different positions. “Investment banks are far more flexible than retail banks, it is easier to change strategy,” said a banker. 
Haitong has another factor working in its favor. According to economist Roberto Troster, a specialist in the financial system, Chinese banks have improved their governance substantially over the last decade.

“They became more open to the international financial markets and incorporated best practices," said Troster. “Chinese authorities know that in order to maintain accelerated economic growth, they must continue to expand the Chinese economy internationally, and banks play a crucial role in this process.” To support this growth, Valverde plans to expand both the offer of banking products and Haitong’s geographic footprint. Currently operating only from São Paulo, Haitong plans to open six to eight new offices in major Brazilian cities.

East Asia Potential

Learn more about Haitong, the newest contender for the Brazilian market

Foundation: 1973, in Hong Kong

Retail Clients: 4.6 million

Acquisition of Banco Espírito Santo: 2015

Activities: securities brokerage, investment and asset management

Institutional and Corporate Clients: 12,000

International footprint: Brazil, Mexico, United States, Portugal, United Kingdom

In IstoÉ Dinheiro

by Cláudio Gradilone