Argentines’ love of dollars creates a windfall for local brokers

Argentina’s economic disaster has crushed the currency, sent inflation soaring and pushed poverty levels toward a 15-year high. Companies are slashing jobs as a recession looms.

But for local brokerages, the chaos has fuelled a boom unlike anything industry veterans can remember. They’re rushing to hire staff, open new offices and launch smartphone apps amid feverish demand from Argentines wanting to convert pesos into dollars while skirting controls that limit foreign exchange purchases.

Some local trading firms have quadrupled their workforce since 2019 and are reporting five-fold surges in profit. Old, defunct brokerages that have been out of business for decades — but come with operating licences — are being bought for US$300,000 or US$400,000 by new entrants seeking a quick way to set up shop.

The disconnect — a thriving corner of the financial industry in an otherwise battered economy — points to the ways Argentina’s capital controls distort everyday life. While brokerages are overwhelmed with business, banks are cutting staff because there’s so little investment, farmers are abandoning fields because they can’t afford irrigation and all the while bond traders are betting another government default is inevitable.

But brokerages are making out like bandits because of insatiable demand for greenbacks in Argentina, where the peso is on a constant downward trajectory. Appetite for dollars is only accelerating as outsider politician Javier Milei, who has proposed getting rid of the peso entirely, climbs in polls ahead of the first-round vote next month.

Because the country limits dollar purchases in an effort to keep hard currency in, savers turn to brokerages that carry out complicated transactions known as the blue-chip swap to get their dollars. And that’s a lucrative business.

“We have a currency that doesn’t exist in terms of what a currency has to have, so any surplus you have in pesos you have to turn into dollars,” said Claudio Porcel, the chief executive officer of Balanz Group.

His company quadrupled its workforce in four years to become the largest broker in Argentina by number of employees, and now has almost a sixth of all brokerage accounts in the country. Assets under management have swelled to US$4.5 billion as it adds 20,000 clients a month, triple the pace from a year ago.

According to Porcel, a lot of big funds “threw in the towel with Argentina” after the 2018 crisis. “This was a great opportunity for brokers,” he added.

Blue-chip

To obtain dollars via the blue-chip swap, brokerages will buy local assets on behalf of clients for pesos, then sell them abroad for hard currency. The effective rate — about 796 pesos per dollar — is much weaker than the official rate of 350 per dollar, but it’s the only option to get around rules that limit Argentines to buying no more than US$200 a month.

Transaction volumes tied to the blue-chip swap have doubled this year to about US$100 million a day in stocks and bonds, according to a person familiar with the matter who asked not to be identified discussing confidential data.

The country’s biggest brokerages have seen profits soar. Puente’s doubled it, earning US$6 million in the six-month period ended June 30. Balanz, Centaurus and Cocos Capital each reported five-fold increases in profit in the same period. Allaria, the largest by trading volume, more than doubled its net income in the six months through February 28, the latest data available, to US$23.5 million. The figures do not include earnings from overseas units.

Brokers have found a way to make the blue-chip swap especially profitable — by using securities they already own on either end of the transaction. About 85 percent of Allaria’s revenue comes from earnings on the securities it holds to facilitate the blue-chip swap and from its own portfolio, while the remainder stemmed from commissions for clients’ trades, according its last financial statement.

Facilitating dollar purchases has become such an easy way to make money that shells of old brokerages, many of which haven’t operated in years, sell for as much as US$400,000 because they come with valuable operating licences. That’s double the price of just a few years ago, according to people who monitor the market.

Ariel Sbdar, the co-founder and CEO of Cocos Capital, went that route when he started up his brokerage in February 2021. He bought the assets of a company that had practically no business; today he has 185,000 client accounts and 65 employees.

Argentines are also increasingly turning to another corner of capital markets to protect against the weakening peso. Daily stock trading in the local market has jumped 33 percent this year, according to data from the Argentine Institute of Capital Markets. Brokerages have also benefited from the pickup in retail investors using equities and inflation- and dollar-linked bonds as a hedge.

If Milei wins the presidential election and is able to push through his signature proposal — dollarise the economy as a way to fix inflation — the end of the peso would presumably pull the plug on a lucrative era for brokerages.

Sbdar, the CEO of Cocos, said he isn’t too worried. He expects dollarisation would deliver a jolt to the economy, driving investment and securities trading that would more than make up for the end of foreign-exchange operations.

“There will only be a problem for those who are not prepared,” he said.