Long the home of flight capital in deposit accounts, the Miami private banking market has evolved into an investment management center for wealthy Latin Americans.
As recently as 10 years ago, private banking clients were content to have deposits in Miami accounts serve a safe haven from soaring inflation and political instability.
Nowadays, they want offshore trusts and sophisticated investment management and advice, according to private bankers here.
"You can almost feel the change," said Diane de Vries Ashley, senior vice president and general manager of BankBoston International, Miami. "The clients coming here to hide capital, preserve and mattress stuff, are now much more interested in rates of return."
At Citicorp, the average Latin American client would have had 60% of his money in deposits five years ago and the remainder in investment accounts, but today about 70% of the money is invested as opposed to banked, according to Miguel A. Cervoni, Citicorp's global market manager for private banking in Andean, Caribbean, and Central American countries.
"Before, people were afraid to take risks because they had risk in their local ventures," Mr. Cervoni said. But now, "the buyouts, mergers, and privatizations have created an enormous amount of wealth."
The book of business has made a similar shift at SunTrust Banks Inc., said Thomas M. Cornish, executive vice president in charge of its corporate and international banking division in Miami.
He said 10 years ago, clients typically had assets outside of their primary business - about 75% of their net worth - in bonds and deposits. Today, he said, they are putting a third of their investable funds into U.S. and Latin American equity issues.
Contributing to the aggressiveness of Latin Americans is the fact that there is a new generation of clients.
"People in their 60s to 80s are more conservative (about overseas investments). They've taken big risks in with their businesses. This generation wanted something offshore as a nest egg," said G. David Hicks, general manager of Credit Suisse private banking in Miami. "They went into time deposits and once in a while funds."
But investors now have access to live information from financial markets, and wealth in Latin America, whether inherited or newly created, is in the hands of younger people.
Though the shift from deposits to direct investments over the past 10 years came later than that in the United States, it did so with a vengeance. Recently. some assets are have flowed back into Latin American securities.
"A lot of the present generation invests from a financial standpoint in their local markets as well as offshore. What you have to do now is have a financial vehicle in that particular country," Mr. Hicks said.
Not everyone has that capability yet.
"Today, there's very few institutions that are providing full-service investment advice on emerging market issues," said Mr. Cornish of SunTrust, whose clients trade Latin American issues in brokerage accounts.
Citicorp does provide advice on Latin American securities and designs structured notes for clients, Mr. Cervoni said. At BankBoston, clients interested in local investments can be referred to its branches in several Latin American cities.
"It's a totally different mindset," said Ms. Ashley, who added that Latin Americans allocate a larger portion of their wealth into fixed assets such as real estate, which appreciate with the high inflation in their home countries.
"The person in North Carolina is apt to have a great deal more faith in paper issues. Most people in Latin America, if they have wealth, the first instinct is to put it in real estate," she added.
"Because Europeans have discovered South Florida and Florida over the last decade, we're also getting specifically into that kind of business," said Eduardo Aguirre Jr., executive of NationsBank Corp.'s international private banking division. "There's opportunity all over the state with both Latin Americans and Europeans.
Several private bankers said one of their biggest growth markets is Brazil.
"It's maturing now. The political situation is becoming more stable now. They've opened the country to competition," said Manuel Luciano Diaz, president and manager of Republic International Bank of New York, Miami. "The Brazilians have discovered Miami."
Miami, as the center of trade for Latin America, is more than just a hub. Many foreigners have second homes, own businesses, and send their children to school in the area.
The surge of wealth coming through Miami makes for attractive profits; NationsBank and Northern Trust Bank, a Miami-based subsidiary of Chicago's Northern Trust Corp., boast of 50% efficiency ratios in their international private banking groups.
As a result "everybody wants to grow this business. Well done, it produces reams of off-balance sheet income," Ms. Ashley said.
The opportunity for profits is drawing a crowd. Brokerage firms and investment banks are coming into the market with concerted efforts. For instance, PaineWebber Inc. started formally targeting Latin Americans in Miami and other U.S. cities as clients five years ago. Merrill Lynch & Co. is entrenched in the business and Latin America is one of its footholds worldwide.
"More and more the brokerage houses and investment banking houses are participating in this private banking business, especially in international private banking business," Ms. Moll said.
Latin American banks and Spanish banks also have operations in the Miami private banking market.
"It seems like everybody else is a competitor. But our toughest competitor as a group are the brokerage houses," Mr. Aguirre said. "Than you add to that the foreign banks whether they be Swiss or French or English and Canadian and so forth."
Miami represents half of NationsBank's international private banking book and its acquisition of Barnett Banks Inc., formerly the largest banking company based in Florida, brings the number of professionals in the market to 50, according to Charles A. Alzati, a senior vice president of NationsBank who runs the office.
Banks with offshore trust facilities, including Citicorp, NationsBank and SunTrust, said they are getting a lot more business because they have convinced clients to do estate planning.
"It's not just a tax shelter. It gives them a lot of flexibility for their estate planning so they can really determine who will inherit what," Ms. Moll of Barclays said.
Just as in the U.S., trust provides privacy about personal finance for family members, yet in other countries the need to keep money quiet may a necessity.
"In many countries in Latin America, for example Colombia, Brazil, and Venezuela, personal security is a paramount issue," Ms. Moll said. "If anyone would know that you have $50 million, you are a kidnapping target. Kidnapping is a business in Latin America."
Another major area of distinction from the domestic market is compliance. The ability to ascertain and confirm that clients and prospects have legitimate financial wherewithal is a more diligent process when they live and work in foreign countries where disclosure and public information do not exist as they do in the U.S.
"It's more complicated outside the United States because we do not have the same access to public or private information," Mr. Aguirre said.
"In this country, if you give me your social security number and your name and address I can find out things about you don't know about yourself. And that's just not available outside, so you have to go to a nontraditional source of information," he added.
Though fraud is not exclusive to the international segment of private banking some well-publicized allegations, including embezzlement charges by the Federal Bureau of Investigation last month that an international private banker in BankBoston's New York office made $70 million of fraudulent loans, some of which to people abroad.
And Citicorp has cooperated with a Justice Department probe about one of its clients, Raul Salinas de Gortari, the brother of the former President of Mexico Carlos Salinas de Gortari. Investigators questioned how Mr. Salinas, a former goverment official himself, received more than $100 million handled by Citicorp.
The negative taint is no small matter.
"It does take away a helluva lot. It distracts people. It consumes a helluva lot of management time. It can hurt the franchise, whether allegations or proven," Mr. Cervoni of Citicorp said. "No one can afford to have these types of bad apples in their client base.
"We've put in place huge controls to monitor this. We're involving a supervisor and general market manager in all accounts," he added.
Most Miami-based private banking groups have relationship managers travel to countries they specialize in on a regular basis - perhaps as much as four times a year - to spend time with clients and check out their businesses.
While awaiting proposed specific rules from regulators including the Federal Reserve Board, private bankers point out they have developed formal guidelines internally. In addition to helping avoid problems with accounts, the guidelines help sales, many bankers said.
"Know your customer is something seen today that not only makes good business sense and is mandatory, but it is also a great sales tool," Mr. Cervoni said.
"We're training private bankers to ask a million questions from different angles to create a real picture of the person. It helps identify problems clients might have and that helps us identity needs they did not know they had," he added.
