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Credit Suisse sees Brazilian reforms spurring repatriation of assets

The logo of Swiss bank Credit Suisse is seen below the Swiss national flag at a building in the Federal Square in Bern, Switzerland May 15, 2014. REUTERS/Ruben Sprich/File Photo

By Guillermo Parra-Bernal

SAO PAULO (Reuters) - Wealthy Brazilians could repatriate around $7 billion (5.52 billion pound) in newly declared offshore investments in the next two years after a recent capital amnesty programme, spurring growth in private banking advisory services, a senior Credit Suisse Group AG executive said.

Marco Abrahão, managing director and head of Credit Suisse Hedging-Griffo Private Banking, told Reuters in an interview he expected Brazilians to repatriate up to 15 percent of the $47 billion declared under the amnesty programme by the end of 2018.

However, Abrahão said asset repatriation could gain even more momentum if Brazil's government wins congressional approval for deficit-cutting bills under discussion and succeeds in pulling Latin America's No. 1 economy out of a deep recession.

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"If Brazil enters a virtuous cycle in which the government's reform agenda advances and the country's economy begins to show more solid signs of revival, that 15 percent level can become the lower end of our forecast," he said in the interview at Credit Suisse's headquarters in São Paulo.

Demand for private-banking advisory has grown with the amnesty programme and as the outlook for U.S interest rates turned blurrier, Abrahão said.

However, worries that U.S. President-elect Donald Trump's policies could lead to faster-than-expected U.S. rate hikes may slow any attempt by wealthy Brazilians to wire more of the declared offshore investments back home, he said.

Abrahão's remarks underscore the view that Brazil's fiscal agenda could transform the country's long-term prospects. Executives and bankers said the government's ability to nudge lawmakers into passing pension and budget bills is key to help Brazil's economy decouple from global volatility.

Last week, the Brazilian Senate approved a 120-day extension to the amnesty programme, which has so far collected about 47 billion reais ($14 billion) in taxes and fines.

DIVERSIFICATION

Over the past four decades, rich Brazilians moved wealth offshore to protect themselves from boom-and-bust cycles, hyperinflation and even savings account confiscation at home.

The amnesty programme has stoked competition for clients across Brazil's $240 billion private banking industry, which is chiefly dominated by the nation's biggest commercial lenders.

The headcount for banker and advisory services rose 15 percent this year at Credit Suisse Hedging-Griffo, Brazil's No. 2 private-banking firm, Abrahão noted.

Private banks, which offer services to high net worth individuals from money management to advisory and succession planning, are responding to the recession by offering clients a broader mix of investment options.

According to Abrahão, advisory talks with Credit Suisse Hedging-Griffo's clients have centred on offering dollar-pegged and interbank rate-linked instruments, apart from inflation-linked government debt.

More clients are beginning to eye riskier assets, such as hedge fund-like products, on expectations of lower domestic borrowing costs, he added. Brazil's central bank on Wednesday cut the benchmark lending Selic rate for the second straight time to 13.75 percent.

As clients grow their appetite for risk, allocations of tax-exempted, agriculture receivable-backed notes, or LCAs, should fall, freeing up to 50 billion reais for other instruments, Abrahão estimated. Currently, private-banking clients have about one-fifth of their money in LCAs.

Industry players expect Brazil's private-banking assets to expand about 16 percent this year and next, down from about 20 percent annually between 2008 and 2014, when the number of Brazilian millionaires soared to a record.

Credit Suisse Hedging-Griffo saw assets rise 21 percent last year, twice the industry average. Assets under management, currently at about 90 billion reais for Credit Suisse Hedging-Griffo, could rise by more than one-fifth this year, Abrahão said.

(Reporting by Guillermo Parra-Bernal; Editing by Daniel Flynn and Paul Simao)