U.S. banks in Brazil chalked up record profits last year, riding a surge in interest margins and steep gains on their securities holdings.

According to results reported in Brazil this week, Chase Manhattan Corp. topped the U.S. banks with a fivefold increase in net earnings in Brazilian reais, to $278 million. Bank of America Corp followed with a 461% increase, to $90.5 million, and FleetBoston Financial Corp. recorded a 70% rise, to $119 million.

Banking sources said the record earnings testify to the extreme volatility in emerging-market countries and the skills U.S. banks have developed since the 1980s, when they posted large losses on lending to Brazil and other Latin countries.

By far the largest portion of the earnings came in January 1999, when a massive devaluation of the Brazilian real triggered a sharp rise in the value of dollar-linked securities held by U.S. and Brazilian banks and a large increase in interest spreads on lending.

The higher results, "reflect a number of factors related to economic events in Brazil," said John Keane, a spokesman for Bank of America in San Francisco.

He said the factors included a more than doubling of interest rates on local investments, increased demand from clients for risk management services, and a more favorable tax environment.

Alex Zornig, chief financial officer at FleetBoston's local banking unit in Brazil, also noted that a good portion of the improvement in its business in Brazil came from a 25% increase in banking customers, to 153,000, and a 90% increase in local currency assets, to $10 billion, most of it in corporate lending.

Funds under management at FleetBoston in Brazil also climbed 43%, to $6 billion, while deposits more than doubled, to $1.6 billion. FleetBoston is investing $140 million into expanding its network of 65 branches across Brazil.

To be sure, the gains in local currency have to be measured against a 50% decline in the value of the Brazilian real against the dollar at the beginning of last year. That means the gains are slightly lower in purely dollar terms.

When the prevailing exchange rates at the end of 1998 and 1999 are taken into consideration, for example, Chase earned $71 million in 1998 compared with $278 million last year, a 300% increase in earnings rather than a 500% increase. FleetBoston's earnings remained at about the same level, and Bank of America's earnings climbed 250% rather than 481%.

Still, the results show that banking in emerging-market countries can be extraordinarily profitable. Chase's return on equity, for example, nearly doubled in 1999, to 80%, from 42% a year earlier, Bank of America's return rose threefold, to 65%, and BankBoston's rose 20%, to 22%.

Results for Citigroup Inc., the second-biggest U.S. banking company operating in Brazil, were not available.

Brazil has the single largest banking market in Latin America, with some $425 billion in assets, followed by Mexico with some $190 billion and Argentina with around $150 billion.

Roughly half the assets are in the hands of government-owned banks, 25% belong to privately owned Brazilian banks, and slightly more than 25% to banks with majority or minority foreign ownerships.

Among U.S. banks, FleetBoston is the biggest, with some 2.3% of the total market and slightly more than 4% of the privately owned banking sector.

Citigroup follows with $7.6 billion in assets in Brazil, and Chase Manhattan with $2.5 billion. J.P. Morgan had around $1.7 billion, and Bank of America nearly $1.9 billion through its two local banking units, Multibanco SA and Banco Liberal. Other U.S. banks, such as Wachovia Corp., which has about $100 million of local assets, have a far smaller presence.

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