Brazil expansion

Commerzbank Tries the Samba

brazil
Will Brazil welcome Commerzbank with open arms?
  • Why it matters

    Why it matters

    Tough competition at home is forcing Commerzbank to expand abroad but Brazil’s contracting economy may mean it’s a bad target market.

  • Facts

    Facts

    • Brazil’s central bank has approved Commerzbank’s application to open a subsidiary in the country.
    • The country has slumped from being the fifth to the seventh biggest economy in the past five years.
    • Commerzbank only survived the 2008 crisis thanks to a €18.2 billion ($20.5 billion) state bailout.
  • Audio

    Audio

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Like the Amazon jungle, sometimes the thick tangle of Brazilian bureaucracy reveals an unexpected clearing: After months of waiting, Commerzbank, Germany’s second-largest bank, has received an unusually speedy authorization from Brazil’s central bank (BACEN) to operate a subsidiary in São Paulo.

Speedy, but not that surprising. Chancellor Angela Merkel visited the rapidly developing country last month, and during the first bilateral governmental consultation between the two countries, Commerzbank was on the agenda.

Since receiving the sign off from Brazilian President Dilma Rousseff, the German bank is making plans to start operations in the first quarter of 2016. It will target small and medium-sized enterprises, and capital market companies.

Since the decision to launch in Brazil, the economic climate in South America’s biggest country has deteriorated – dropping from the world’s fifth largest economy to the seventh. Instead of growing almost 8 percent as it did in 2010, its economy is expected to shrink by 3 percent this year and is unlikely to make a significant recovery in 2016.

“Even in times of volatile markets, it is important for our Mittel­standsbank, the market leader in Germany for SMEs, to have a local presence to support our customers outside Germany.”

Bernd Laber, Board member, Commerzbank’s corporate banking segment

“Even though the growth momentum in Brazil has slowed recently, the country still remains the seventh largest economy in the world and is by far the most important economy in Latin America. Thus it is a major economic partner for Germany and Europe,” said Bernd Laber, a board member of Commerzbank’s corporate banking segment (Mittelstandbank).

“Even in times of volatile markets, it is important for our Mittel­standsbank, the market leader in Germany for SMEs, to have a local presence to support our customers outside Germany,” he added.

According to the latest statistics from BACEN, foreign direct investment in Brazil shrank by 40 percent in July compared to last year. Given this economic crisis, many of Commerzbank’s targeted medium-sized enterprises are likely to be cautious about their investments in Brazil.

Harald Lipkau will take the position of General Manager in Brazil and will be supported by a staff of 50. Mr. Lipkau, a German-Brazilian, already has a team of 33 in São Paulo.

The opening of the Brazil office comes after a tumultuous time at Commerzbank. In 2008, it became the first of Germany’s major private banks to ask for state aid. The bank survived the financial crisis thanks to a bailout of €18.2 billion ($20.5 billion), and joined state-owned BayernLB bank and real estate lender Hypo Real Estate in tapping Berlin’s €500 billion bailout package.

 

 

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At the time of Commerzbank’s bailout, Martin Blessing, the chairman of the board, said the bank would focus only on its home market of Germany and on selective growth in Eastern Europe.

The bank has since adopted a more ambitious strategy to expand further afield into the key markets of Brazil, the United States and Asia. In an interview with Handelsblatt in 2014, Mr. Laber said: “The international market is very important to us and we’re gaining a foothold in new growth areas.”

The competitive pressure on Commerzbank’s home turf is likely the reason for expansion further afield. Alongside existing German banks, such as Deutsche Bank, pressure is mounting on Commerzbank from international banks looking to get a stronghold in Germany. In order to emerge from the crisis, it needs to position itself to be a global player.

 

Alexander Busch is Handelsblatt’s South America correspondent. To contact the author: alexander.busch@terra.com.br

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