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UBS, Banco do Brasil Reach Deal for Venture in South America

Cristiane Lucchesi
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UBS, Banco do Brasil Reach Deal for Venture in South America

(Bloomberg) -- UBS Group AG and Banco do Brasil SA agreed to create a partnership for investment banking and an institutional-brokerage business in South America.

The venture, which still needs regulatory approval, will operate in Brazil, Argentina, Chile, Paraguay, Peru and Uruguay, the two companies said Wednesday in a statement.

UBS will have a controlling stake of 50.01% of total capital and Banco do Brasil, the nation’s biggest bank by assets, will hold the rest. There will only be common shares. Giving the Zurich-based company control means the venture wouldn’t have to comply with some of the constraints Brazil places on state-owned entities, such as restrictions on bonuses and hiring.

The Brazilian lender’s clients will benefit from UBS’s global trading and investment-banking reach and research capabilities, while the Swiss firm gains access to Banco do Brasil’s corporate customers and transaction flows. UBS will contribute its investment-banking platform in Brazil and Argentina, as well its leading institutional brokerage business in Brazil, the companies said.

UBS also gains entrance into the booming local fixed-income market, where Banco do Brasil is the fifth-biggest underwriter so far this year, according to Anbima, the capital markets association. The bank earned 462 million reais ($114 million) in capital-market fees during the first half, 11% more than a year earlier, according to its earning statement.

“If I am a corporate client of Banco do Brasil, I will now have access to what UBS has in terms of its local and global capabilities,” Tom Naratil, president for UBS Americas and co-president for global wealth management, said in an interview. “If you look at our partnership, there is very little overlap of capabilities.”

The companies will each appoint three board members to the venture, with the chairman picked by Banco do Brasil. UBS will name the vice chairman and chief executive officer. Banco do Brasil will also select a commercial officer to oversee the relationship between its customers and corporate bankers, and the newly formed investment bank. The venture will be incorporated on UBS’s balance sheet under UBS Brazil, led by the CEO for the country, Sylvia Coutinho.

“We expect the capital markets in Brazil to flourish and companies to begin issuing more and more debt and equity, and we plan to have a leading position in those businesses,” Coutinho said in an interview, adding that the deal came together after 18 months of talks. “Most of the companies in Latin America are owned by families, so there is a lot of synergy between our wealth-management business, where we are global leaders, and the investment-banking business.”

Bank Rankings

Banco do Brasil, the nation’s biggest asset manager, doesn’t have its own brokerage to trade securities, forcing it to rely on other banks. The Brasilia-based lender had 1 trillion reais in assets under management as of September, according to Anbima. UBS’s broker dealer, ranked No. 1 in Brazil equity trading since 2014, is in second place this year, according to data compiled by Bloomberg.

Banco do Brasil had a loan book of 686.6 billion reais as of June. Loans to large corporations accounted for about 154 billion reais of the total. The state-owned bank can help the joint venture win investment-banking deals that require credit such as bridge loans for acquisitions or underwriting of local bonds -- markets that are booming this year.

“Banco do Brasil is extremely strong in debt capital markets, and we can benefit from that,” Naratil said.

UBS ranks fourth in advising on mergers in Brazil this year through Nov. 4 and 11th in equity underwriting, according to data compiled by Bloomberg. The Zurich-based lender doesn’t participate in the local bond market.

UBS’s broker dealer lost its No. 1 rank in Brazil equity trading this year to XP Investimentos SA, according to data compiled by Bloomberg. XP handled 894.8 billion reais in gross value this year through Nov. 4, while UBS took second with 672.8 billion reais, the data show. XP also owns brokerages Clear and Rico, which add an additional 219.9 billion reais to the firm’s total.

UBS’s brokerage, which doesn’t operate in the retail market in Brazil, has led the nation in low latency computer trading, a market dominated by foreign investors. The bank also has a strong presence in the cash equity and derivatives markets.

Companies related to wealth and asset management aren’t included in the partnership.

(Updates with executives’ comments starting in the sixth paragraph. A previous version of this story corrected the date of the companies’ announcement.)

--With assistance from Felipe Marques.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Steven Crabill

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