Manuel Meza gives Carlos Izquierdo a BBVA Bancomer-eye view of Mexico's developing structured products market.
In what he describes as a beautiful morning full of blossoming jacarandas, Manuel Meza says how much he likes days like these in Mexico City. He did not appreciate them as a child, he says, but with the passing years and after travelling the world, he realises there are some spectacular things in your own country that you do not find anywhere else.
A pioneer in Mexico's structured products industry, Manuel Meza, managing director of structured products for BBVA Bancomer, has participated in the creation and development of structured products at two banks. After completing his bachelors in actuarial sciences, he joined Serfin, first in the derivatives desk, where he was particularly involved in issuance of warrants, and then on the operations desk, focusing on FX volatility. Back then, in 1996-97, Mexico's derivatives market was just beginning, he remembers.
In 2000, when Santander acquired Serfin, and after completing his masters in Financial Mathematics at the University of Chicago, Meza returned to Santander; a year later, he joined Santander's structuring team in Spain, where he remained for four years. Back in Mexico, he opened the structuring desk, and a year later repeated the action, this time for BBVA Bancomer.
Meza remembers that when he came to BBVA Bancomer, his business area focused only on structuring, whereas now it also embraces development operations. The structuring department is focused on quantitative tasks, and its goal is to bring all the new products on the market into BBVA Bancomer's remit. Meanwhile, the development team focuses on promoting new and complex products within the bank's treasury, and on assisting the retail, institutional and private banking sales teams, and more recently the Regional Centre for Derivatives, or CRD as it is known in Spanish.
The CRD, established two years ago in Mexico City, is BBVA's derivatives trading desk for Latin American products. Part of Manuel's team's job is to add volume and value to CRD books by constantly interacting with the different sales areas in Chile, Colombia, Peru, New York, Mexico and Madrid, and providing them with global and local solutions. "We have a mandate to promote Latam products with clients worldwide," he affirms.
As with other big banks in the region, BBVA Bancomer only issues products that have been structured in-house. "The most valuable BBVA asset is its people. If we cannot make the product in-house, we don't do it at all," says Meza, proudly.
Within BBVA's global organisational chart, Manuel is responsible for structured products in Mexico. He coordinates with Spain on the development of products using the group's global models and technology, and adapts them to the Latin American markets. In Mexico, he reports directly to BBVA Bancomer's general director of markets, Jose Antonio Ordás, and globally he reports to Jose Maria Pesquero, BBVA's global head of quants and IT.
Meza counts among his main achievements at BBVA Bancomer the way he has brought new products to market and promoted derivatives in general, achieving a significant increase in the bank's market share by both issuance and volume in the process. He owes this success, he says, to his teams' efforts and to the time devoted to developing wrappers, products and human capital to satisfy client needs. "That is the most important thing," he tells us: "Identify client needs and keep them happy."
Meza's main goal for 2010 is to promote more equity-linked products. Currency-linked products are well developed in Mexico, and the bank will keep working on them, he says. However, it is the wider market's task to develop underlyings and complexity. "A pending task in Mexico", he says, "is to keep developing equity-linked products, and Latam products to be distributed from Mexico."
Meza thinks there may be traction for this development. Mexican investors are open to new ideas, he says, but it has to be done in an orderly fashion and with proper financial advice. As long as the client knows the product and its potential, he says, investors will increase their positions little by little as they diversify their portfolios.
For equity-linked products to be appealing, product term also needs to increase locally. Unfortunately, Mexicans are used to predominantly short-term, mostly FX, products and are reluctant to try an increase in maturity.
"A few investors have started to try long-term products, but we still have to demonstrate the worth of the product for them to add it to their portfolios," he says.
So far, BBVA Bancomer has developed its equity-linked products via the warrants market, which is slowly growing in popularity. All of BBVA Bancomer's structured products are sold into its private banking and high-network segments.
Manuel says the main storyline of 2009 was investors' return to short-term products - bonds, certificates and cash products in general. "Many [structured] issues from 2009 were not renewed. Therefore, there is a lot of money invested in other instruments," he says. This year, on the other hand, investors are starting to assess their alternatives. He believes retail, private banking and institutional business will all gradually grow this year, as investors seek higher returns.
The number of Mexican providers has increased since the last quarter of 2009, and the existing ones have become more active. Meza is not fazed by the increase in competition: as well as providing investment alternatives, it compels issuers to offer new and better products, he says.
Finally, Meza, once again proud of his team, highlights their performance during the financial crisis. "We reacted to keep the ship on float," he says; the bank adapted to challenging market conditions in large part because of the effort of its personnel.