A vote for old-fashioned banking

A New York private equity firm has been drawn to a deposit-heavy institution, Suzanne Weinstock reports

Specialising in financial institutions in emerging markets, New York-based private equity firm Brysam Global Partners has made its way into Colombia following a successful foray into neighboringMexico by taking a minority stake in Banco Caja Social Colombia.

With the world's gaze focused on struggling financial institutions in the US and Europe, Brysam has been directing its attention elsewhere.

The firm, which will celebrate its second anniversary in January, has acquired an 18.8 percent stake in privately held Colombian bank Banco Caja Social Colombia (BCSC) for around $98 million.

Other investors in BCSC include Fundación Social, BCSC's largest shareholder with a 71.6 percent stake, and World Bank division the International Finance Corporation, with 9.5 percent.

The “specialty” private equity firm, as it bills itself, invests in consumer financial services in emerging markets worldwide and has interests in Russia, India, Mexico and now Colombia.

“We're fans of Colombia,” says Brysam co-founder Marge Magner, who scoured the country for some time before finding the opportunity to invest in BCSC. She says the firm's positive experience in Mexico contributed to its enthusiasm for Colombia.

According to Magner: “BCSC is clearly focused on the consumer financial services business. It is very much middle market, middle class and lower end of the middle class in savings, deposits, lending, credit cards — the kinds of businesses we know and feel strongly about and think are critical in the emerging markets as the middle class emerges.”

Magner is unconcerned that the deal came to fruition at a time when distress in the global markets was finally appearing in Latin America. BCSC's deposit-heavy, “oldfashioned” way of banking is attractive in current markets and the additional capital is intended to make the company stronger.

“Around a year ago when we would chat with potential investment targets almost the first thing out of everybody's mouth was ‘we don't need the capital’,” says Magner of demand for capital from banks in emerging markets. “Clearly that was not something you heard [since the spring].”

Despite being a minority owner, Magner expects Brysam to play an active role in shaping BCSC. Brysam has a seat on BCSC's board of directors, and Magner says: “The management team and the shareholders were very clear that they wanted us to be involved and they wanted our involvement because of what we can bring in the way of helping them with growing the business.”

The relationship with management is an essential component of managing risk when operating in emerging markets. And mitigating risk is essential to Brysam's work because “there's no such thing as a straight line in the emerging markets”Magner says.

Business cycles in Latin America have been challenging and dramatic. “It was not uncommon in the past to have a few good years and then give it all back,” reflects Magner.

The firm was co-founded by Magner, the former chairman and chief executive of Citigroup's global consumer group and Robert Willumstad, a former president and chief operating officer of the bank.

Willumstad, who remains a senior advisor to Brysam, replaced former American International Group chief executive Martin Sullivan in June 2008 after being chairman of the board since 2006. He was ousted from his post at AIG in September when the US government replaced him with Edward Liddy, former chairman and chief executive officer of Allstate, as part of its $85 billion bailout of the ailing insurance giant.

Brysam has raised roughly $1 billion, largely from JPMorgan Chase.