Q-1: Mr. Sacerdote, reviewing the extended history of BankBoston, which was founded back in 1784, it is possible to say that 1997 was perhaps the most significant year in the bank's long-standing tradition in Argentina. What were the objetives of the investment and development strategy for Argentina that the bank launched in 1997?
A-1: We were aware before 1997 that the Argentine banking system was set for strong growth, while there was going to be a strong process of concentration within the sector. That is the reason why we decided that, in order to become an important player in the new banking system that was developing in Argentina, it was necessary to have a significant size. That is, there were going to be less banks, but they were going to be much larger. BankBoston has always been a very important player, and if we intended to keep being one, we had to cover a national scope. This development project included, on one hand, the purchase of the investments Deutsche Bank already had in Argentina, and on the other, the opening of branches in 22 of the country's 24 provincial states. As a result, we have a nation-wide coverage and, at the same time, a size comparable to that of five of the country's largest banks in the private sector, such as Banco Galicia, other Spanish Banks, and Citigroup. Within this strategy, we sought to become in a top-tier universal bank. We do not intend to become leaders in the individual banking system but we target the ABC1 segment. Within the corporate banking sector, we are the number one, as we are in the investment banking industry.
Q-2: Since 1998 and up-to-date, your number of branches has three-folded to 140. This must have posed a big challenge given the need to incorporate new technologies.
A-2: Indeed, although we did not invest in new technology all at once but we are now just beginning to invest in new technology. We are now witnessing the results as we are implementing a new system, Altamira, developed by Arthur Andersen. We have been working in this process for the past three years, and it will be fully in place by April. We are also working with our Internet systems in order to offer our clients special services on the web. However, this is a gradual process given that as soon as you are done with implementing a new system, an upgraded version comes out. Today we have ways to operate personal banking through the Internet. We also have an information platform to serve the equity markets.
Q-3: What are the different alternatives that the Internet, as a tool, offers in the providing of banking services?
A-3: We never thought that there were going to be offering banking services on the Internet. That is, that someone who is not a bank would began offering banking products, and, by working through the web, would obtain a significant share of the market, as it happened, for example, with Internet-based brokerage firms, which now have a significant position in the market place.
Q-4: The building where we are standing right now, which belongs to BankBoston, is a good example of the incorporation of modern technology in the banking industry, as it stands, in that sense, as one of Latin America's most modern buildings. What does this building represent for the future as BankBoston enters the new millennium?
R-4: This building is sort of a commitment BankBoston has towards Argentina. It has also a financial objective because before we were atomized in seven different buildings, which hampered our efficiency. Now we operate from two headquarters, one being this building and the other our traditional office in Florida Street. There we have our operations center. That is also the location were our clients go. We do not use this building to serve our individual clients. Whomever has to make a day-to-day banking transaction goes to our Florida Street office or any other of our branches. Our corporate clients come to our offices in this building.
Q-5: As a result of your investment, development and growth plan, BankBoston improved its positioning within the local financial market. In this sense, I would like to know what is the bank's position within the country's investment fund industry.
A-5: We control a 22% market share in the investment fund's industry. We were the first bank to offer this product in Argentina and since then we remain the leading bank in the industry. It is an area with a high development potential in Argentina. When the Argentine economy takes off, people will start investing on mutual funds as they do in other parts of the world. Other areas where we have a significant leadership is in the investment banking industry, where we are first in structuring syndicated loans, one of the most relevant activities in the Argentine investment banking business. We also work with small and medium-sized companies. This is a relationship that we started four or five years ago. The polls show that the small and medium-size companies we work with rank us at the top of their list of preferences.
Q-6: Is it possible to translate the positive aspects of the recent financial-aid package put together by the IMF into, let's say, into less expensive credit facilities for the small-and medium-sized companies?
A-6: Local interest rates have been coming down since the financial aid package was announced. I do accept that (interest rates) were to high, but the problem of the small and medium-sized was not related to the lack of credit but their financial strength. Some of them do not present their accounting results correctly, which generates the additional risk that they might not be up to date with their tax obligations, or that their losses have not be fully accounted for. As such, there is a great risk involved in lending to those companies which do not have their accounting in rule, as you really don't know who are you lending to. Further more, us, the banks, we are helping them to put their accounting in order because this is needed in order to be able to operate with any bank. Besides, many of these companies were working with smaller banks, many of which began to shut down. They (the smaller banks) accepted to work with companies with messy accounting procedures. Once they disappeared, they had to operate with larger and more serious banks which demanded clearer accountings. On the long run, if these companies organize themselves and pay taxes, they will benefit the country as a whole.
Q-7: Several small-and medium-sized companies keep complaining it is hard for them to have access to credit....
A-7: Indeed, evidently this will be a gradual process given the reasons I just stated, as we cannot operate with companies which not show sound accounting procedures. Besides, these companies cannot clean up their accounting overnight. Thus, we will become more flexible and they will adjust.
Q-8: Could you please explain to our readers the objective of the Program for the sectorial development of Argentine Exports that launched the BankBoston Foundation. What is the content and the objective of this program?
A-8: BankBoston was a pioneer in this field, which we have been developing for the past 25 years. Basically, the program intends to help companies learn how to export. We think that a significant contribution that could be made by a foreign bank which has been operating locally for several years, is to teach business men how to operate globally. As a result, we launched the first Argentine school for the export business and we began to lecture young people who are not yet entrepreneurs but are willing to learn how to export. Our Foundation, which began to operate in our Florida building, has grown so much that now it operates from its own building, where we offer this lectures as well as other undergraduate careers. It's also involved in other cultural activities. The BankBoston Foundation is one of Argentina's most relevant entrepreneurial foundations.
| Q-9: What other tasks does the Foundation sponsor?
A-9: Our foundation develops cultural-promotion activities throughout the country. It also collaborates with poverty-stricken schools te help enhance the educational level of the their most challenged students. In these schools there is a significant number of students who cannot perform properly which translates in a big loss both for the student and the school. Our Foundation works together with teachers and tutors students during non-school hours in order to enhance their learning abilities. We have performed several pilot tests that came out quiet well and for that reason we are expanding this program all over the country.
Q-10: Do you believe that banks such as BankBoston, Citibank, Santander and the BBVA play with a disadvantage in Argentina precisely because their being foreign institutions, and that activities as the ones sponsored by Fundación BankBoston help improve the bank's image in the Argentine market?
A-10: No. There is no clear discrimination (against) foreign banks today, although there used to be. Today, foreign banks operate under equal conditions to those of national bank, but us, as a foreign institution, I think we should do a something more than that. That is why we created a foundation that sponsors multiple activities, mainly in the educational field.
Q-11: Mr. Sacerdote. Going back to the positioning of BankBoston in Argentina, what is the bank's ranking in the mortgage segment?
A-11: BankBoston is quiet an important operator in Argentina's mortgages business. We have a individual client portfolio which is by far the country's largest, representing roughly u$s1 billion. This type of credit facility has been the industry's fastest-growing segment in the past year. It’s a field we place great importance on as we believe there's yet much to be done. In Argentina, the level of mortgages is extremely low as until 1991 houses were paid for in cash. That is why the construction industry did not develop much either. When we finally achieved economic stability in 1991, mortgages reappeared at more competitive rates of 11% on a ten-year basis.
Q-12: In your role as vice-president of Argentinas Banks' Association (ABA) you said that there is no money-laundering in this country. Do you still think that way following the recent release of the controversial results of several investigations regarding this issue ?
A-12: Yes, I do, although I did not say that these kind of activities do not take place here but that it is not a common practice. If you take a look at the investigation made by the U.S. Senate, there is only one operation which has been proven to be related to money laundering, and it was originated in Mexico. I said that there is no money-laundering within the financial system. The operation in question was not channelled through a financial entity as it was orchestrated by an entity which is not a financial institution, and, as such, is out os the Central Bank's orbit. I am not saying that there cannot be an isolated maneuver of this kind, but Argentina does comply with international regulations that penalize money laundering and is (Argentina) widely accepted by all international institutions as a country which participates in all the conferences with vast audiences. The press articles gave the sensation that Argentina was a money-laundering heaven. My statements at the time brought me many problems, but I do ratify my sayings.
Q-13: What's your view on Pedro Pou as head of the Central Bank?
R-13: Until now I have not seen any element that proves that Pedro Pou did not perform his duties appropriately. If he is removed from his post based on the evidences they have gathered until now, I would say he would have been fired for no reason.
Q-14: The political problemas that Argentina is currently facing, are perhaps stronger than the ones it deals with in the economic front. Could this circumstance have a strong leverage in the case against Pou?
R-14: Exactly, let's not pass judgement yet, let's see what happens. If he is removed with the information that is available, he would be removed for political reasons. And that would be wrong, because the Central Bank has independence.
Q-15: Taking now a closer look into the future of Argentina it seems to be very likely that one of the biggest obstacles will be the task of reducing the provinces´ public spending. Do you think it is possible?
A-15: The Argentine Entrepreneurial Council, which I head, requested (think tank) FIEL a very important study on how to lower public spending, and it can be seen on the Internet. You can find it on the Council's site (consejoempresario.com), and it was conducted by Manuel Solanet. That is, the issue has been thoroughly researched, and they know how to do it. I am convinced that public spending can be reduced.
Q-16: Mr. Sacerdote, what are your projections for BankBoston as a leading bank, given the current contraction in demand?
A-16: Our objective is to keep operating with the private sector's different segments by offering the best quality service and the best demand. This comprehends large companies as well as small and medium-size firms and individuals with certain income level. We have the capacity to work with the ABC1 level, which represents the part of the population with medium-to-high income levels, to offer them products such as mortgages and other investment tools such as mutual funds.
Q-17: A final question for our interested readers, if you had to choose one sector of the Argentine economy where to invest, which one would you choose?
R-17: Everything that is related to the telecommunications business, with energy, petrochemical activities, the agricultural and food sectors. One other area which has not been much exploited here is tourism. We have fantastic locations in Argentina which are not well-known. People come to Buenos Aires and it does not realize the beautiful scenery that can be found in the countryside. The hotel sector does not have a long-standing tradition in this places because it barely existed the need for them before. Now, you can achieve much by investing little in tourism. Fishery as well. We have an extended and plentiful coast. And so underdeveloped that other countries come to fish in our waters. Argentina has been through some difficult times, but there is a government's will to liberalize the markets, to open and rationalize the economy. That is way, looking into the future, there can be significant opportunities if you consider that the government of U.S. President George W. Bush has stated a very clear commitment towards the Free-Trade zone of the Americas (ALCA). This would be very positive for the whole hemisphere. I am confident about Argentina's future. The country has been severely punished in the past few years by a combination of negative factors, such as the low price of commodities and high-interest rates. This last issue is slowly reverting itself, but the price of commodities is still low. The issue of high interest rates hits Argentina hard given its high levels of indebtedness. Compared to some European countries, this level isn't that high, taking into account the ratio between debt and GDP. But, given that Argentina has to pay high interest rates, the burden becomes quiet significant.
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