Morgan Stanley goes after Goldman Sachs to finance the growing FinTech industry in Brazil in search of higher yields, said four people with direct knowledge of the subject.
Morgan Stanley bought about $ 14 million in subordinated debentures from Geru Technology and Services, which offers online loans to individuals, two people said, asking not to be identified because no public announcement was made. The acquisition follows last year’s decision by Goldman Sachs to provide a $ 167 million credit line along with Fortress Investment Group LLC to Nubank, a credit card and checking company with all customer interactions made by means of application.
Financial technology startups grow up in Brazil challenging the big banks. About 210 of these companies are operating in the country, the largest number in Latin America and an increase from the 54 in early 2015, according to a May 2017 Goldman Sachs report. They compete with banks for a revenue that Goldman Sachs estimates at $ 75 billion in 10 years in the banking and insurance markets.
In March, Geru started offering payroll loans, in which payments are deducted directly from the payroll, in partnership with the consumer credit company Cetelem, of BNP Paribas SA.
Helping to finance startups can be lucrative for banks. Geru securities, issued in December with a four-year maturity, pay 175% of the Interbank Deposits rate, or about 11.2% per annum. This is a better return than is available, for example, on the four-year debentures sold last month by Raia Drogasil, which pay about 105% of the interbank rate.
Geru is also raising capital and talking to international investors to get $ 50 million, one of the people said. The sale of the stake is being coordinated by investment company QMS Capital, which already owns a 10% stake in Geru, the person said, adding that General Atlantic LLC is among the investors considering it an acquisition.
Geru confirmed that QMS Capital has a stake in the company, not to mention a lot, and declined to comment further. General Atlantic also declined to comment.
Pacific Investment Management Co. also came to plumb the possibility of granting credit to Brazilian fintechs, but decided that the transactions are very small, one of the people said. A $ 540 million bond issue earlier this month by Andrade Gutierrez was more suited to Pimco, who agreed to buy the securities by providing resources that could help the construction company to pay back late debt, said a person familiar with the matter In this month.