UBS Exits Brazil

The sale by UBS of Pactual Monday raises doubts about the Swiss bank’s long term commitment to it LatAm business, which was underpinned by Brazil. UBS says the deal is consistent with a policy to continue to reduce its risk profile, strengthen the balance sheet and sharpen its business focus, but it is withdrawing from a market that most of the competition considers core to any regional investment banking platform. “I wouldn’t be surprised if they got totally out of Latin America,” says a person familiar with the UBS operations. “Pactual was 80%-90%, why keep the rest of the business,” adds the banker. A Sao Paulo-based banker at another shop says UBS is exiting all Brazil businesses and will apparently sign a non-compete with BTG. However, UBS says it will continue to cover LatAm, including Brazil-based clients. “We will continue to have a sizeable presence in Mexico and representative offices in other Latin American countries,” says a UBS spokesman. “We have no intention to exit any other EM region,” he adds. UBS has rep offices in Argentina, Chile, Panama, Uruguay, Cayman Islands and Bahamas. UBS says the transaction is at a premium to book value. It will increase Tier 1 capital by CHF1.3bn, cut risk weighted assets by CHF3.0bn, and reduce total assets by CHF6.3bn. It will also strengthen UBS’s BIS Tier 1 ratio by approximately 60bp. UBS said last week it was looking to exit high-risk and unpromising businesses. When it bought Pactual in 2006, then-CEO Peter Wuffli hailed Brazil as one of the world’s fastest growing financial markets and a key focus for UBS. The bank was a leader in the Brazil equity boom of 2007 and finished second last year in the LatAm core investment bank fees league table.