Private banking survey 2013: Brazil’s wealthy say goodbye to risk-free investment

Joao Albino Winkelmann, the head of Bradesco Private Bank, frames the challenge presented to Brazil’s private banking market by the demise of high interest rates. “What we did before wasn’t consultative private banking,” he says. “It was so easy; we would just leave the money in a CD [certificate of deposit] – a liquid asset with no risk and which paid 12.5%. Was that a consulting service? Suddenly you have a 525 basis point interest rate cut and now it’s a completely different game…”

Since the middle of 2011, the Brazilian central bank has cut the country’s base rate, the Selic, from 12.5% to 7.25%. Although in the past few years a new, lower interest rate environment had looked likely, it has been put in place in the past 12 months. For the first time in memory, real interest rates have fallen below 2%, as inflation pushes 6%. Many bankers argue that private banking clients are facing negative real interest rates for the first time because as a segment they are more exposed to service-sector inflation, which is pushing into double digits. The days when private bankers and clients met briefly to confirm the continuation of the almost total domination of government bonds – high-paying, highly liquid, virtually risk-free investments – are over. And no one expects them to return any time soon. Although the Selic might rise by 100 to 150 basis points by the end of the year, in response to persistent and stubborn inflation, Brazil’s interest rates are tracing down in each cycle. Albino finishes his point: “Suddenly clients have to move to a totally different environment, and it is difficult [for them] to understand the concept: if they really want to achieve 1% return a month – which is a magic figure in Brazil – they will need to take more risk.”

For the full article go to: Euromoney’s website

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