CARACAS - J.P. Morgan Chase & Co. will shut its Venezuelan banking and brokerage operations during the first quarter but will maintain its investment banking office there, a person close to the situation said Wednesday.
"We will cease to provide certain products and services in Venezuela, as in other countries, as part of a global decision to realign the cost base to a new projected revenue base," said the person, who asked not to be named. "We will, however, continue to provide investment banking services to our existing customer base, which includes the government, [the state oil monopoly] Petroleos de Venezuela SA, and other corporate clients and financial institutions."
The company will likely sell its seat on the Caracas Stock Exchange, which it has had for about nine years, and sell its banking license, which it has had for about four, the person said. "We'll essentially go back to what we've had in Venezuela for over 40 years."
With its economy crumbling, tensions are high in Venezuela. President Hugo Chavez has rejected opposition demands that he resign, but the left-leaning Chavez detractors blame his three-year-old presidency for the country's economic decline.
The economy had a 7.1% contraction in the first half amid 17% unemployment, and 28% annualized inflation has sparked by a 48% devaluation of the bolivar this year.
However, the person stressed that Morgan Chase's decision had very little to do with Venezuela's current political and economic crisis. "This could have happened regardless of who's president."
The company is by no means the only international bank reconsidering its exposure to Latin America. Many institutions embarked on aggressive expansion efforts in the region during the late 1990s and initially enjoyed strong returns. Now that conditions have changed, many are pulling back.
Canada's Bank of Nova Scotia, France's Credit Agricole SA, and Italy's IntesaBCI SpA all have announced plans this year to decamp from Argentina, South America's second-largest economy, after the recession-racked country defaulted on most of its public debt, scrapped dollar parity, and imposed harsh capital controls.
Citigroup Inc., FleetBoston Financial Corp., Spain's Banco Santander Central Hispano SA, and Banco Bilbao Vizcaya Argentaria SA are also treading more cautiously.
Fred Jaspersen, the Latin America director at the Institute of International Finance, a Washington-based umbrella group for the world's biggest banks, acknowledges that foreign financial institutions "may be in a less expansive mood right now." However, he insists they are "still very interested" in the region.
"I think they put the ups and downs, the cyclical nature of the problems, and other things that are happening in long-term perspective," Mr. Jaspersen said.
The only country in Latin America that is clearly bucking the trend is Mexico. Citigroup paid a premium last year to take control of a local heavyweight, Grupo Financiero Banamex-Accival, in a $12.5 billion deal. The funds have kept flowing. In August, after Mexico secured an investment-grade rating from Standard & Poor's, Britain's HSBC Holdings PLC announced a $1.14 billion tender offer for Grupo Bital Financiero.
