JPMorgan Chase & Co.'s purchases of Treasury securities in Brazil, where benchmark yields averaged almost 12% this month, helped push the bank's holdings in South America's biggest economy 40% higher in two months.
Assets at JPMorgan Chase's Brazilian unit jumped to 22.5 billion reais ($12.6 billion) as of Aug. 31, from 16.2 billion on June 30, Claudio Berquo, chief executive of the business, said in an interview in Sao Paulo. About 4% is company loans and most of the rest is Treasury securities, according to the unit's chief financial officer, Cristiano Almeida.
The Federal Reserve's policy of keeping its benchmark interest rate near zero in the U.S. is pushing investments offshore, said Richard Bove, a bank analyst at Rochdale Securities LLC. Brazil's real-denominated bonds returned 14% in the past year, compared with the 7% average return in local currency terms on JPMorgan Chase's government bond index for emerging markets.
"We are having a wonderful year in Brazil, better than planned," Berquo said.
Bond purchases by the New York bank contributed to a 46% jump in earnings from Brazil in the first eight months of 2011, to 94.5 million reais, even after the bank boosted expenses to continue investing in the country, according to Almeida.
Goldman Sachs Group Inc. and Citigroup Inc. have also targeted Brazil for a bigger share of their investments. Goldman Sachs, in New York, said earlier this year that Brazil was one of three countries, along with China and India, where most of its hiring efforts have been concentrated. Citigroup, also in New York, added more than 340 employees in Brazil in the month of March.
"U.S. banks have got to find growth somewhere, and they're not going to find it in the United States if the economy is going to lope along at the current level," said Bove, whose company is in Lutz, Fla.
Loans to Brazilian companies represent a small percentage of JPMorgan Chase's assets in the country because the bank has only just started offering credit denominated in reais, Berquo said.
Dollar loans remain the majority of JPMorgan Chase's lending to companies in the country, and those assets, which Berquo declined to quantify, are booked in New York.
The Brazilian unit had 952.9 million reais of loans outstanding as of Sept. 11, about twice as much as the level in December 2009, he said, adding that the bank's goal is to lend to the top 300 Brazilian firms with annual revenue above 1 billion reais.
"We are already doing business with half of these companies, but we still have a lot of room to grow," he said.
Europe's debt crisis will crimp the amount of credit international banks are willing to lend Brazilian companies and banks, Berquo said. "A lot of banks will cut credit to Brazilian clients and the spreads are going to go up," and that trend may be an opportunity for JPMorgan Chase to gain market share, he said.
As part of that effort, JPMorgan Chase moved about 923 million reais in capital into Brazil in September, and "we will bring in as much as needed," Berquo said.
JPMorgan Chase was the 23rd largest bank by capital in Brazil as of June 30, with 1.7 billion reais, according to central bank figures.