A new trade landscape emerges in LatAm

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16 February 2010

Valentino Gallo, Managing Director and Americas Head, Citi, Export and Agency Finance, takes a look at the effects of last year’s dramatic shifts in the financial landscape and the way forward in 2010.

This article appears in the February print edition of Trade Finance under the headline: After the crisis, a new landscape emerges in LatAm

With the financial world still reeling from the global credit crisis in 2009, perhaps the most visible effect was seen in the rising cost of credit, where losses on the consumer side (mortgages, auto loans, credit cards, etc.) rose to record highs, and non-consumer losses (commercial real estate, corporate loans) followed a similar upward trend.

Equity capital became expensive as well, as regulators and shareholders required banks to hold more equity against loan commitments.

Finally, the cost of funding was severely affected by the credit crisis, as upward pressure exerted on deposit rates raised the cost of term debt dramatically.

Amid this tightened credit environment, we witnessed bifurcating behaviour between bank and nonbank lenders. Following a period of weakness between September 2008 and March 2009, the second half...

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Poll

Will Russia’s recent ban on grain exports result in a significant rise in private risk insurance claims from grain traders unable to fulfil their contracts?

Yes – there will be more claims. The government’s actions allow traders, with PRI cover, to make claims through contract frustration.

No - the majority of Russia’s wheat production, some 70%-80%, is used for domestic consumption so the contracts represent only a small portion of the total wheat market, limiting the amount of potential claims.

23%

No - traders had a week’s notice before the ban allowing them to secure alternative supplies to fulfil contracts stated as optional origin.

23%

Maybe - but claims are likely to be limited to traders dealing in soft wheat whose contracts demand they source wheat only from Russia.

46%