UBS AG Set to Operate in Brazil

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Earlier this week, Bloomberg reported that after waiting for roughly two years, UBS AG (UBS) – the Zurich-based bank – finally received the Brazilian government’s approval to operate in the country. The decision by the Brazilian government is anticipated to be made public later this week.

The license allows the Swiss bank to trade stocks, bonds, currencies, commodities or other financial instruments, with its own money in Brazil. Further, UBS AG can make real-denominated loans, raise funds in the Brazilian market as well as underwrite stock and bonds in the local market.

Along with the banking license, UBS AG also gained consent from the Brazilian regulators to buy Link Investimentos – a Brazil brokerage firm. The deal has been in the pipeline since April 2010. Earlier in 2009, UBS AG sold its Pactual bank division to Andre Esteves – the former head of operations at Pactual bank – for a sum of $2.5 billion. .

UBS AG stands to benefit from its foray into Brazil by providing more diverse products and services to the international as well as local customers. Further, Brazil’s reputation as the leading market in Latin America will serve as an added incentive.

The majority of global banks are currently struggling with the gloomy macro-economic factors and Eurozone crisis. As a matter of fact, UBS AG’s investment banking business has been faltering with a sharp decline in its revenue. Moreover, the stressed operating environment and stricter capital norms have added fuel to the fire.

UBS currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, we believe that opportunistic acquisitions as well as prudent business model changes can lead to an improvement in efficiency and add to its competitive edge. These factors may ultimately result in upward estimate revisions, thereby leading to an improved Zacks Rank. In the same sector, India-based HDFC Bank Ltd. (HDB) retains a Zacks #1 Rank.

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