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Bolsonaro takes charge in Brazil; BTG Pactual moves closer to new UK subsidiary

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Bolsonaro takes charge in Brazil; BTG Pactual moves closer to new UK subsidiary

Brazil under new leadership

* Brazilian stocks and the real currency surged as President Jair Bolsonaro's administration announced a series of measures to reduce the size of the state after taking office Jan. 1. Among several proposals, Economy Minister Paulo Guedes vowed to lower the country's tax burden to 20% of GDP from 36% at present. He also said he would cut protectionism in the market, as well as lower the share that state banks have in the credit market.

Brazil's benchmark Bovespa stock index hit a record high in the days that followed. The real strengthened 2.4% on Jan. 2 alone, marking the currency's best day in more than seven months. Meanwhile, other markets in Latin America followed Brazil's lead, with rises in both Argentina's MerVal the Mexican IPC index.

* Brazil's GDP should modestly accelerate in 2019 and 2020, with potential for further upside tied to the new president's success in delivering economic reforms, Fitch Ratings said. The rating agency estimates that real GDP will expand by 2.2% and 2.7% in 2019 and 2020, respectively.

* The outgoing president of Banco Central do Brasil, Ilan Goldfajn, said Bolsonaro should sign a decree that would delegate the power to authorize the participation of foreign investment in the country's financial institutions to the central bank. Goldfajn said the measure would help facilitate foreign investments in the financial sector.

* Bolsonaro named Rubem de Freitas Novaes as president of Banco do Brasil SA and Pedro Duarte Guimarães as the new chief of Caixa Econômica Federal.

Branching out

* Colombian regulators granted permission to financing company Serfinansa SA to operate as a bank. Serfinansa has the minimum capital legally required of them to operate as a bank, regulators said.

* Brazil's central bank authorized BTG Pactual Group to set up a financial subsidiary in London. The bank, which already has an office in the U.K., plans to inject an initial £16 million capital to the the new subsidiary.

Central bank moves

* A slew of central banks announced policy decisions in the wake of the Federal Reserve's final meeting of 2018, when the U.S. rate-setter lifted the funds target range to 2.25% to 2.50% and signaled a less aggressive approach to rate changes in 2019. In Latin America, Colombia's Banco de la República kept its monetary policy rate at 4.25% amid stable inflation levels and higher rates from the U.S., while Banco Central del Paraguay decided to hold its benchmark interest rate at 5.25% on the back of global economic uncertainties.

* Banco Central de la República Dominicana held its monetary policy interest rate steady at 5.50%, saying that annual inflation is expected to end 2018 at 1.3%.

In other news

* Talks for a potential merger between Paraguay's Banco Itapúa SAECA and Financiera Rio SA have reportedly resumed. If the two were to merge, the combined bank would have some US$519.7 million in total assets and US$398.2 million in total deposits.

Featured this week on S&P Global Market Intelligence

* Most LatAm bank indexes post negative total returns in 2018: In terms of total returns, the SNL Brazil Bank index outperformed other regional bank indexes in 2018 as the country's ongoing economic recovery and far-right President Jair Bolsonaro's ascension to power helped buoy the local market.

* Hires and Fires: A weekly rundown of executive management, board and other personnel moves at Latin American financial institutions.

* Ratings Roundup: A summary of various ratings actions on Latin American financial institutions and economies.