The first-ever ethics and transparency survey of Latin America's biggest banks produced some surprising results.
This article was based on an independent survey conducted by Management & Excellence on behalf of LatinFinance. If you are interested in seeing more detail about the survey please e-mail w.cox@management-rating.com
LatinFinance and Madrid-based consultancy Management & Excellence have launched the first survey of ethics and transparency at Latin America's largest banks and the findings are startling. First, the good news.
Brazil's Banco Itaú tied for first place with Chile's Banco Santander Santiago with a final score of 84.5 each out of 100. M&E Managing Director Bill Cox says in a report on the survey that "Itaú does nearly everything right. What is amazing is that it is not part of a big network such as Santander or BBVA. Itaú acts like a global bank even though its business and scope is basically Brazilian." Remarkably, Itaú was the only bank in the study to get 100%, a perfect grade, in any area. M&E found its ethics policy to be literally faultless. It came close, with a score of 90 in sustainability and transparency. Says Roberto Setúbal, the bank's president, "Everything we do in this area is interconnected. Our line is that we are continuing to improve and perfect our corporate governance, not just in attitudes but also in the quality of the things we are doing." For instance, Itaú has set up an audit committee structured to exceed minimum regulatory standards. "We are not thinking of just building up the bank for today but for the long term and it needs a strong corporate governance to achieve this."
Santander's Chilean bank owes its top ranking in the survey to very high scores across all five categories, the fruit of years of effort to raise its standards in what is already a strongly regulated and competitive banking industry. Mauricio Villaraín, Santander Santiago's president, says that excellence goes beyond just making money. "If you want to become a top company in the long term, you need to focus on financial targets. They are a necessary but not sufficient condition for success. You also need to achieve excellence in ethics and corporate social responsibility. You have to define what you want, communicate it measure it and stick to it its not a matter what for years." Ultimately, he says, this is good for business. "Ethics and transparency pays. I think it's a mistake tat you can defeat competition by doing wrong, we believe that more disclosure, increased transparency increases trust and that it pays."
Investors, be they local pension funds or international asset mangers, are focusing more on these "soft" management issues than before. Peter Shaw, bank analyst at Fitch Ratings, says, "We say that exceptionally weak corporate governance can bring ratings down, although recognition of improved standards isn't going to be an upgrade driver." Fitch focuses on five areas – independent and effective boards, related-party transactions, integrity of the audit process, tying executive compensation to performance and varying shareholder structures.
Spain's Banco Bilbao Vizcaya Argentaria and Santander Central Hispano have built up a network of banks in almost every country in the region. They have executed, with differing degrees of success, well-designed strategies for ethics and transparency. Curiously, three other international banks with substantial Latin American franchises – ABN Amro, Citigroup and HSBC – have made less progress. Unlike the Spanish banks and high-ranking domestic banks, the big global banks aggregate data at global level but provide strikingly little information on their activities at local level.
Reviewing the data, Cox notes that on the whole, "private banks do better than state banks and banks belonging to the BBVA/ Santander networks do better than independents." The best publicly announce their codes of ethics, invest in training, set up strong and independent boards and board committees, report financial information in several languages, comply fully with national and NYSE corporate governance guidelines, support schools and the arts, and are rarely involved in public controversies. None of the top ten banks was recently involved in any major scandals.
Even banks that did poorly in our survey remain highly regarded institutions. For instance, Medellín's Bancolombia has won praise from discriminating organizations like the IFC, the World Bank's private sector arm. LatinFinance chose Banco de Crédito del Perú as the best bank in Latin America in 2002. The IFC approved a $98 million credit line for ABN Amro's Brazilian subsidiary Banco Real, adding to an existing credit line, to support long-term lending to family-owned, middle-market companies that meet corporate governance criteria.
This article was based on an independent survey conducted by Management & Excellence on behalf of LatinFinance. If you are interested in seeing more detail about the survey please e-mail w.cox@management-rating.com
Economic growth in Latin and Caribbean nations
The region has not experienced such sustained positive economic performance since the late 1960s and early 1970s, the commission said.
Despite the brisk growth, Latin American and Caribbean nations still lag behind other developing countries, mainly in Asia, which are growing at more than 7 percent annually.
Before the current period of expansion began in 2003, Latin America's shrinking economies sparked warnings of a lost half decade, a reference to the debilitating foreign debt crisis of the 1980s.
Per capita income for the region also has been on the rise at a rate of 3.5 percent annually.
José Luis Machinea, executive secretary for the Economic Commission, said a number of factors helped the region at the same time worldwide credit was tightening and money markets were caught up in the U.S. subprime mortgage turmoil.
From a positive trade balance to rising reserves of foreign currency and a flurry of consumer spending in some countries, the Latin American and Caribbean nations were better prepared than in the past to withstand pressures on currencies and changes in investor sentiment.
Still, during a meeting at the organization's headquarters in Santiago, Chile, Machinea warned: ``We are facing greater volatility in international financial markets and an increase in uncertainty, which require caution in economic management.''
The commission said that the immediate future was also clouded by an expected economic slowdown in developed countries, which will strain developing countries, especially those dependent on the U.S. market, such as Mexico and Central American nations.
Machinea also listed a number of self-inflicted problems, including sharp rises in the value of some currencies, rising inflation and higher government spending. The commission recommended governments invest in infrastructure and education to make their economies more competitive.
Still, exports continued to rise in 2007, although at a slower rate than in the past few years, giving the region a current account surplus and rising foreign reserves. Foreign debt also diminished during the year.
Surging investment has spurred demand in most countries, with consumer spending also driving growth as households become more prosperous because of higher levels of employment and access to lending, the report said.
Job growth has pushed the region's unemployment rate down to an average of 8 percent, a level not seen since the early 1990s.
Caribbean countries were growing at a slower pace, averaging only 3.9 percent economic expansion in 2007.
Venezuelans held as agents sue over $7M
Two men held in a scandal that may involve illegal contributions to Argentina's new president are suing a Miami bank over $7 million in a frozen account.
accused of acting as agents of their government in an $800,000 scandal, apparently under pressure from U.S. prosecutors, their lawyer complained Thursday.
''It is highly unusual that we file a suit for this fraud and days later the criminal case comes up,'' said Michael S. Hacker, attorney for Carlos Kauffmann and Franklin Durán.
Kauffmann and Durán were among the four men accused Wednesday in a Miami federal court of acting as unregistered agents of the Venezuelan government in pressuring Guido Alejandro Antonini Wilson to keep quiet about the destination of the $800,000 found in his luggage when he landed at an Argentine airport in August. U.S. prosecutors said the cash was intended for the campaign of newly elected Argentine President Cristina Fernández de Kirchner.
ACCOUNTS CLOSED
Hacker filed suit Dec. 7 against American Express Bank International, alleging that the bank ''misappropriated'' $25 million deposited by Durán, Kauffmann and Klim Fund B.V. His clients managed to recover $18 million, but the remainder of the money ''disappeared,'' he said.
The bank was closed and could not be reached for comment by the time El Nuevo Herald learned of the lawsuit Thursday.
The suit alleges that on Sept. 21, the bank notified the plaintiffs that all of their accounts were being ''unilaterally closed.'' The suit also alleges, among other complaints, failure to comply with contracts and negligence.
Hacker said that during the process of claiming the money, the bank told his clients that they were on a list of Politically Exposed Persons (PEP), a U.S. government designation for persons who need special scrutiny.
''Just because my clients are PEPs doesn't give them the right to keep the $7 million,'' he said.
FERNANDEZ REACTS
Meanwhile, in Argentina, an angry President Fernández said the U.S. prosecutors' allegation that the $800,000 was destined for her electoral campaign earlier this year was ``garbage.''
Just three days after she succeeded her husband, Néstor Kirchner, she suggested that the U.S. allegations were designed to poison Argentina's warm relations with Venezuelan President Hugo Chávez, a leftist populist who regularly vilifies the Bush administration.
''This president may be a woman, but she's not going to allow herself to be pressured,'' Fernández said, vowing to ``continue affirming our relationship of friendship with all Latin American countries and also with the Bolivarian Republic of Venezuela.''
She did not comment on the allegation that the cash was meant for her campaign.
As Fernández's political foes tried to make hay with the allegations, some political analysts in Buenos Aires noted that her presidential campaign had no need for secret cash because it was being strongly assisted by her husband's government.
THE U.S. STAND
In Washington, the U.S. State Department noted that Chávez has been accused often of meddling in his neighbors' affairs, but reacted cautiously to Fernández's complaint.
''This is not a matter of U.S. foreign policy or U.S.-Argentine relations,'' State Department spokesman Sean McCormack said. ``It's a matter of application of U.S. law.''
McCormack also said he was not aware whether the Department of Justice may have been advised to wait until after Fernández took office before unveiling the accusations -->
''I'm not aware of any interaction in that regard,'' he said. ``We were aware of the case, but that was the extent of our involvement. And I have to underline here that this is, in case you didn't get it, a Department of Justice FBI operation.''
Chávez made no mention of the allegation during a speech Thursday in Caracas.
But Venezuelan Information Minister Willian Lara denied any link between the money and the government, and called the charges ``U.S. propagandistic trash.''
Miami Herald correspondent Pablo Bachelet contributed to this report from Washington, and special correspondent Vinod Shreejarsha from Argentina.
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