May 8, 2012 12:22 am

Banking: Liquidity generated locally drives flurry of overseas deals

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Luis Carlo Sarmiento Jnr

Luis Carlo Sarmiento Jnr: straight-talker

Bogotá’s hotels are filled with visiting bankers. The economy is taking off, credit is growing at 20 per cent, and new entrants want to capture the returns in one of Latin America’s most vibrant economies.

Brazilian giant Itaú is setting up shop, Canada’s Scotiabank just bought a local presence in a $1bn deal, as has Chile’s Corpbanca. Others are moving in as well.

Above all the excitement stands the measured confidence of Grupo Aval, Colombia’s largest financial services group, and Luis Carlos Sarmiento Jr, its straight-talking chief executive.

“We welcome the competition,” says the son of self-made billionaire Luis Carlo Sarmiento Sr, who turned a 10,000-peso bonus 50 years ago into a fortune that Forbes estimates today stands at $12.4bn, the 64th-largest in the world.

Mr Sarmiento Sr has just crowned his career with the purchase of Colombia’s most venerable newspaper, El Tiempo.

But media is not part of Mr Sarmineto Jr’s remit. Instead he manages the group’s largest part, banking, including the $2bn purchase of central American credit card issuer BAC-Credomatic in 2010, one of a flurry of overseas Colombian banking deals.

“We generate so much liquidity at home, we have to use it somehow,” he says.

Credomatic last year earned $200m in profit, giving the deal a respectable – if not stellar – 10 per cent return on investment, versus the 20 per cent plus return on equity Grupo Aval enjoys at home.

“Once you take into account leverage, though, the return is more like 18 per cent,” says Mr Sarmiento.

Still, the difference illustrates just what a tempting market Grupo Aval sits on.

Indeed, in midtown Bogotá, Itaú, Latin America’s biggest bank by assets, has just opened a gleaming corporate and investment banking office.

“Colombia offers all the right financial conditions,” says Ramiro González-Prandi, country manager.

“Moreover, a lot of our clients are coming here, and we can help Colombian companies go abroad. It’s all part of Latin America’s growing internationalisation.”

Mr Sar­miento appears unruffled at the prospect of entrants competing away his returns.

“That kind of talk has often been heard before: when American banks came here, and then Spaniards,” he says. “But with Colombian banks selling for three times book value, the new entrants will want to earn their money back.”

Such talk might sound complacent were it not for the long-held conservatism of Colombian bankers, plus the Sarmiento family’s record.

“As my father says: aim for the sky but always prepare for what the worst outcome might be. That is the secret of his Midas touch.”

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