This from Taipan Daily’s Emerging Markets blog:

Late October, Brazil and Argentina announced that their governments would buy up private assets in financial markets.

Brazil’s plan would allow its state-controlled banks (Banco do Brasil and Caixa Economica Federal) to buy stakes in private financial institutions. Argentine President Cristina Fernandez de Kirchner announced that the government would take over the $30 billion private pension fund.

These announcements pushed Latin American markets well into the red, but they also knocked Spain’s Ibex index off 184 points, or 2%.

That should come as no surprise. Spain and Latin America have many economic ties, and some Spanish companies do so much business across the pond that 29% of net profits come from that region.

So when news of nationalization hit last week, naturally Spanish markets shuddered… With good reason.

Just look at Bolivia and Venezuela, both controlled by heavily nationalistic leaders.

Venezuela has had three major blackouts this year. Some areas spent more than two weeks without power at a time. Bolivia continues to buy up local and international stakes in its natural gas pipeline infrastructure, but it’s been shipping less than 50% of its contracted amount of natural gas to Argentina since September.

Problems like this led to a severe power crisis last summer, and forced Argentina to buy energy from Brazil.

So the question is… Will government intervention result in protection from global markets, or will pensioner and investors alike be holding worthless papers and wondering where all their money went?

And how will markets in both Latin America and Spain respond?

We know the first knee-jerk reaction was not good. In fact, after the news, Argentina’s main index fell 8.3%, Brazil’s fell nearly 7%, and Mexico’s dropped more than 4.5%.

And yet, markets started to rally back a couple days later… And get this: Spanish banks are posting jumps in earnings, thanks in part to their Latin American divisions. That flies directly in the face of what some analysts were saying last week after those nationalization announcements.

Let’s take a closer look.

Banco Santander (NYSE:STD), Spain’s largest bank, announced net profits from its Latin American units climbed 6% in the first nine months this year compared to the first nine months of 2007. And the group’s net profits rose a collective 9.1% for the past nine months, and 4.3% in the third quarter alone.

Here’s what’ll blow you away though… The bank’s third-quarter profits for Latin America clocked in at 1.12 billion euros (US$1.45 billion) – an all-time high for the group.

I know what you’re thinking, “Okay, those numbers are good, but it’s only a matter of time before bad loans and credit crunches catch up to these guys, right?”

Not quite…

You see, Spanish banks operate differently than other international banks. They chose not to buy any of the risky subprime mortgages during the banking heyday and the housing bubble.

Actually, one Spanish bank, BBVA Group (NYSE:BBV), who also posted good earnings for the third quarter this year (net profit is up 5.6%), even called U.S. banks “immoral” lenders.

Have non-performing loans (NPLs) increased? Sure… BBVA’s NPL ratio jumped from 1.2% to 1.5% and Santander’s ratio climbed to 1.6% from 1.3%. But get this… Santander’s loan coverage ratio is at 116%, meaning it has enough cash to cover those non-performing loans. BBVA’s coverage ratio is even higher at 127%.

These guys are at rock-bottom prices, and I consider both strong companies. Both have sizable dividends as well. Could they go lower? Yeah, maybe. We’ve watched these financially stable companies get halved over the past year, just for being in the financial business.

The IMF still maintains that Latin America will weather this storm… that countries are expected to deal with this current crisis better than previous crises… and that the region will grow 3% next year, which is close the emerging market average forecast.

It’s time to take a wide-angle, long-term view on growing markets with strong companies. That’s Latin America and these two companies.

Source: Latin American Investments: A Hot Bed of Opportunity

Emerging markets’ share of investment banking revenue has increased in both percentage share and in total value over the past few years.

Of course, if you want to buy into this dynamic growth business you need to invest in emerging markets investment banks. Martin has picked three that are worth a look…

In 2005, investment-banking revenue from emerging markets accounted for almost $40 billion, or 16% of the global investment-banking revenue total. Those figures increased to just over $78 billion, a 21% share of the total in 2007.

Emerging markets’ share of investment banking revenue will soar to 28%-30% by 2010, according to McKinsey Quarterly. And depending on how quickly the global financial markets recover, emerging markets will see investment banking revenue growth from $40 billion to somewhere between $90 billion and $115 billion in the five-year period of 2005-2010.

McKinsey’s overall thesis – that emerging markets are coming to represent an increasingly important source of investment banking revenues – appears correct. Emerging market economies are generally growing economically much faster than the West, so opportunities for companies are greater and an increasing proportion of the merger business is happening there.

With high Asian savings rates, current account surpluses, and the piling up of petrodollars, emerging markets represent much of the world’s savings pool. So, it’s not surprising that emerging market investment banking business is growing rapidly, both in absolute terms and as a percentage of the global total.

So we should all rush out and buy Goldman Sachs Group Inc. (GS), right?

Not so fast.

First, Goldman Sachs has had huge successes in a number of emerging markets, notably China, but its main business remains with U.S. and European Union companies, and that’s not going to change. Even if its emerging markets business were to expand, it could never be big enough to provide more than a modest uplift over the gloomy prospects for investment banking business domestically.

Second, Goldman Sachs and the rest of Wall Street are hopelessly uncompetitive in terms of costs and fees. They can be undercut, and fairly easily.

Wall Street firms have a habit of relying on superb connections to get the mandates and a dedicated team of top quality salesmen to sell the paper. But with emerging markets being largely separate from the United States and EU, the big Wall Street houses don’t necessarily have the local connections they need. And paper issued by emerging markets often sells to investors such as the sovereign wealth funds, which are again outside the normal Wall Street speed-dial.

Moreover, Wall Street bankers are hopelessly overpaid – recent graduates from the top business schools can start at around $200,000 a year. That makes a lot of emerging market deals off-limits, because they are too small to cover U.S. investment bank’s costs.

A merger deal that might make a $250,000 fee just isn’t worth their while – by the time they’ve put analysts onto it, found a buyer and done the legal work, they’re out of pocket. A $250,000 fee is small change to a U.S. or Western Europe investment bank, but in many emerging markets it represents a decent piece of business. What’s more, there are a far greater number of $250,000 deals around in those emerging markets then there are $2.5 million pieces of business.

Local traders and analysts, even with some years of experience, make a fraction of $200,000 Wall Street salaries. That means, for most business in emerging markets, local houses are likely to be much more competitive than their Wall Street brethren.