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Cablegate: Argentina's Buenos Aires Province-Owned Bank

VZCZCXYZ0007
RR RUEHWEB

DE RUEHBU #1418/01 2891910
ZNR UUUUU ZZH
R 151910Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2249
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS BUENOS AIRES 001418

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON EINV PGOV PINR AR
SUBJECT: Argentina's Buenos Aires Province-owned Bank
Seek to Expand Venture Capital, Micro Finance Profile

-------
Summary
-------

1. (SBU) Guillermo Francos, President of Argentina's second largest
public bank, Banco de la Provincia de Buenos Aires (BP), is looking
to expand secured lending to provincial small and medium enterprise
for investment in new productive capacity. Outside of BP's regular
lending activity, Francos sees an opportunity to have a significant
impact on provincial new business generation via a provincial
venture capital fund to be structured with World Bank, IDB, and
perhaps OPIC support (if 620Q sanctions are lifted). Francos also
called micro-financing an exciting "outside-the-envelope"
opportunity for BP, with informal surveys pointing to 800,000
potential micro-finance clients in the province. On provincial
politics, Francos called Governor Scioli of "presidential weight" in
upcoming 2011 elections. Key for Scioli, Francos said, will be to
manage well, connect on a human level with his provincial
constituents, and maintain good relations with the Kirchner
administration to keep needed federal funds flowing into provincial
coffers. End Summary

--------------------------------------------
Bank Focus on Venture Capital, Micro-Finance
--------------------------------------------

2. (SBU) Banco de la Provincia de Buenos Aires (BP) President
Guillermo Francos and BP Director Carlos Magarinos hosted Ambassador
and Econ Counselor to lunch October 1 to discuss BP's efforts to
support credit expansion and investment in Argentina's largest and
most densely populated province, which holds 35% of the nation's
population and contributes 38% of total GDP.

3. (SBU) Francos called BP's overriding mandate to expand secured
lending to provincial small and medium enterprise (Pymes) for
investment in new productive capacity to meet burgeoning domestic
demand. Cash-flow financing for business and personal use are not a
priority and the domestic mortgage market remains stagnant, he said.
Francos said he was unconcerned by Standard and Poor's April 2008
downgrade of BP from "B+ stable" to "B+ negative" since it reflected
a broader provincial downgrade which BP could not escape.

4. (SBU) Outside of BP's regular lending activity, Francos said he
sees an opportunity to have a significant impact on provincial new
business generation and employment via participation in a "sizeable"
venture capital fund. Director Carlos Magarinos said he had already
been in touch with the World Bank and IDB on this. Francos said he
was aware of OPIC's substantial expertise and involvement in
regional investment funds and noted he had met OPIC President
Mosbacher in Miami during the spring 2008 IDB meeting in Miami.
(Note: OPIC remains closed in Argentina pending resolution of 620Q
sanctions).

5. (SBU) Francos also called micro-financing an exciting "outside
the envelope" opportunity for BP to improve the wellbeing of Buenos
Aires province residents. He said that informal bank surveys
indicated that there were 800,000 potential micro-finance clients
for small loans in the ARP 1,000 - 1,500 (roughly US$ 300-450)
range.

6. Francos and Magarinos said they planned to attend the annual
mid-October Bank/Fund meetings in Washington. They asked Ambassador
to pass a letter to Senator Dodd (who Magarinos said he had met in
the 1990s while working for the United Nations) requesting a meeting
with him. (Post forwarded the letter to Dodd's staff in early
October.)

--------------------------
Francos on Governor Scioli
--------------------------

7. (SBU) In an earlier conversation with EconCouns, Francos freely
admitted that he has little financial background but emphasized he
is close to Province of Buenos Aires Govenor Daniel Scioli. He
highlighted polls calling Scioli one of Argentina's most trusted
politicians and called him of "presidential weight" in upcoming 2011
elections. Key for Scioli, Francos he said, will be to manage well,
continue connecting on a human level with his provincial
constituents, and -- most challenging -- maintain good relations
with a jealous and periodically vindictive Kirchner administration
to keep needed federal funds flowing into provincial coffers.

---------------------------
Background: Banco Provincia
---------------------------

8. (SBU) Banco Provincia (BP) was founded in 1822, which makes it
the oldest financial institution in Latin America, with 342 branches

in the province and city of Buenos Aires. BP is the second largest
public bank in Argentina after federally administered Banco de la
Nacion. Within the broader Argentine banking sector, BP ranks
second in terms of assets and deposits, sixth in terms of loans and
seventh in terms of net worth. While BP's role as financial agent
for the province offers it a source of cheap and ready liquidity, in
an earlier conversation with EconCouns Francos called it an
inefficient behemoth whose operating expenses are "out of control."
(S&P notes that operating expenses consume 86% of total revenues,
significantly higher than the cost structures of other public
Argentine banks).

---------------------------
Bio Data: Guillermo Francos
---------------------------

9. (SBU) Guillermo Francos was named President of Banco Provincia in
December 2007 when the Provincial Senate accepted his appointment to
replace Martin Lousteau who has been designated Ministry of Economy.
Previously, Francos worked as a Director of Aeropuertos Argentinas
2000 for the Eurnekian group and as the head of LAPA airlines before
it went bankrupt in 2003. Francos' political background includes
serving as a parliamentary deputy from 1998 to 2000 representing the
"Accion por la Republica" party founded by former Minister of
Economy Domingo Cavallo. He resigned his seat citing "moral
fatige" following the Senate labor reform scandal (which also saw
the resignation of then-VP Carlos Alvarez) in 2000. Earlier, in
1994 he served as Undersecretary of General Inspection Office in the
city of Buenos Aires during the first Menem administration. One of
Francos' sons works as an attorney for a Washington DC firm,
specializing in ICC arbitration.

WAYNE

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