Bloomberg — A Miami-based digital brokerage that agreed to sell control to Itau Unibanco Holding SA last year is looking to its next chapter: becoming a bank.
Avenue Securities, which serves middle-class Brazilians investing in the US, saw its assets under custody almost triple to $3 billion after the deal with Itau became public in July 2022. Its client list surged 63%, to 800,000.
“We are on a journey to become a bank, although there is no final deadline for that,” Roberto Lee, Avenue’s chief executive officer and founder, said in an interview. “We are already offering checking accounts and debit cards for Brazilians traveling abroad, but the plans are to provide more services such as payments and credit.”
Brazilian banks are racing to serve middle-class investors looking to park money in the US, anticipating that the appetite for dollar assets will continue to grow. Founded in 2018, Avenue plans to reach not only travelers but also more permanent customers, including content creators who are paid in dollars such as YouTubers or web designers. Other potential customers include people with property in the US who receive rent there, or those with kids studying abroad who need to pay bills.
Brazilian digital bank C6, backed by JPMorgan Chase, has been providing global accounts for the middle class since 2019. Banco Bradesco SA, Brazil’s second-biggest bank by market value, announced in December 2021 a partnership with Miami-based fintech BCP Global to offer digital investments to Brazilians, after cutting a deal in 2019 to purchase Coral Gables, Florida-based BAC Florida Bank.
More recently, XP Inc., Brazil’s biggest brokerage for retail investors, and Banco BTG Pactual SA also announced dollar-account, brokerage and investment services in the US for the middle class.
“The presence of those giants will help us to resolve regulatory challenges,” Lee said.
Itau said it will buy 35% of Avenue for about 653 million reais ($133 million), and an additional 15.1% stake in two years, in a deal that needs approval from Brazil’s central bank. After five years, Avenue founders will have the right to list the company and Itau will have the right to buy the remaining 49.9% stake.
The idea is to try to list the firm, Lee said. “The IPO would let the company have a lasting impact, and we could continue to grow at a rapid pace,” he said.
One of the first investors in Avenue was Vectis Partners Holding SA, which continues to hold a stake. Vectis’s partners include Paulo Lemann, the son of billionaire Jorge Paulo Lemann; Alexandre Aoude, Deutsche Bank AG’s former chief in Brazil; and Patrick O’Grady, a former XP partner. In August 2021, Avenue received a $30 million second round of investments led by SoftBank’s Latin America Fund.
Brazil is set to change the way taxes are calculated for investments abroad for individuals, allowing investors to net their losses and gains and turning the monthly payment into an annual one. That will make it much easier for the middle class to invest in the US. Falling interest rates in Brazil — while US rates hold steady — may also stimulate a migration to dollar investments, according to Lee.
“Over the next 10 years, the Brazilian investment industry will grow more at Brickell Avenue than at Faria Lima,” Lee said, referring to the financial centers in Miami and Sao Paulo, respectively.
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