Founder's Takeaways from the 2017 H1 Latam Treasury Peer Group Meeting
Here are my "Founder's Takeaways" from our 2017 H1 Latin American Treasury Peer Group meeting. It was a real pleasure to step in and lead the Latam group, which is always a fun one. Many thanks to our host and sponsor Bank of America Merrill Lynch.
1) Trump turmoil is not as big a deal for the region. Argentina and Brazil are coming out of recession, though BAML is saying sub-2 percent GDP growth, and the typical pattern of a US Fed rate hike cycle leading to recession in the region may not hold if the hikes are gradual enough. Hyperinflation is not in the cards either. Mexico is a bit out of synch sandwiched between the US election shock and its own presidential election next year, where the leftist party is polling well. Higher US rates may still curb some investors from searching for yield in Latin America, but other underlying sources of trade and economic growth, including the influence of China on the regions' economies are more positive.
2) Transformation pieces of proposed US tax reform don't look as likely. An expert from PwC presenting on tax reform proposals and their probability suggested that the border adjustment tax and curbs on interest expense deductibility are less likely to come to pass. And, even if, say, the border adjustment tax came into being, the impact on the region starting with Mexico might not be as severe as feared. Much depends on the labor cost component of manufacturing, the exchange rate adjustment and how the cost of moving it to the US gets weighed against the potential tax benefits of doing so.
3) A change in the Latam Treasury Peer Group's secondary mandate. This group's secondary mandate has always been to encourage the members' global banking partners to build and maintain their presence in this region to link it to their respective global banking and treasury operations platforms. Recent pullbacks by global banks like HSBC from Brazil have left them frustrated. Citi is really the only player of significance when it comes to maintaining its own geographic coverage in the region. However, Bank of America Merrill lynch made a compelling argument that strategic alliances with local banks supported by service level agreements, innovation and technology integration could deliver for MNC clients in the region. Most are currently forced to work with local banks to some extent, in any case. Global bank alliances with local banks, of course, is nothing new. However, the realities of global banking and the new regulatory constraints on building and maintaining full geographical coverage in Latin America or other regions makes investment in strategic alliances more responsible and advances in technology make it more viable. The question is if and when banks can get it right. Accordingly, the Latam group's secondary mandate now includes the exploration of this option for regional banking services.
Next up for me is the NeuGroup's Tech20 meeting May 4th in Silicon Valley California, also sponsored by Bank of America Merrill Lynch.