UBS Brazil unit sale to attract interest

SAO PAULO (Reuters) - A potential sale by UBS AG (UBSN.VX) of lucrative Brazilian division Pactual would likely attract significant interest from both big foreign and local banks, analysts said on Friday.

The beleaguered Swiss bank came under increased pressure to break up as activist investor and former chief executive Luqman Arnold demanded it overhaul its structure and governance to refocus on wealth management.

In addition to the ouster of UBS's newly named chairman, Arnold is pushing for the sale of Pactual, the highly profitable Brazilian investment bank that UBS bought in 2006 for $2.5 billion.

"It's a great franchise, been very profitable and a great earner for UBS," said Deval Kaloo, head of Global Emerging Markets Equities at Aberdeen Asset Managers Ltd in London.

UBS Pactual is the seventh-largest asset manager in Brazil, with a portfolio of 61.21 billion reais ($35.8 billion), according to the Brazilian investment banking association. It is also one of the leading underwriters of stock issues in Latin America's largest economy.

UBS Pactual downplayed the talk of a potential sale.

"UBS Pactual remains an integral part of UBS," it said in a statement, noting UBS CEO Marcel Rohner stressed in February that Pactual "fits perfectly" in the bank's strategy.

Given Pactual's size and the lofty price that UBS paid for it, analysts said only a handful of big players would be in a position to make a bid.

"It would have to be one of the big local banks or a big foreign bank," said Aloisio Villeth, a financial sector analyst at Agora Corretora, a Brazilian brokerage house.

Among Brazilian banks, analysts said only Banco Bradesco (BBDC4.SA)(BBD.N) and Banco Itau ITAU4.SAITU.N -- the country's top two private-sector banks -- would likely have enough firepower to acquire Pactual.

Itau already has a well-established investment banking unit, ItauBBA, which ranked fourth in equity underwriting in Latin America in 2007. But Bradesco is a newcomer to the investment banking business and may be a more likely suitor for Pactual, analysts said.

Bradesco, the investment banking arm of which bought local brokerage Agora last month for about $495 million in stock, declined to comment.

Pactual might be an even more attractive target for foreign banks seeking a foothold in Brazil, where stock sales and merger-and-acquisition activity have boomed in recent years.

"The acquisition would fit like a glove for a bank that doesn't have problems at home and wants to rapidly establish a position in the Brazilian market," said Luis Miguel Santacreu, an analyst at Austin Rating, a Sao Paulo consulting firm.

Santacreu said investment banks like Goldman Sachs Group Inc (GS.N), Merrill Lynch & Co Inc MER.N and Morgan Stanley (MS.N), all of which are seeking to boost their presence in Brazil, would benefit tremendously from an acquisition of Pactual.

Goldman, which opened an operation in Brazil last year to trade local securities and capture a piece of the growing market for equity underwriting, had held talks to buy Pactual before the UBS deal was sealed.

In recent months, local media have even speculated that Andre Esteves, Pactual's former managing partner and now the global head of fixed income for UBS Investment Bank, was interested in teaming up with Brazilian investors to buy a controlling stake in UBS.

Esteves, one of the wealthiest people in Brazil, has repeatedly declined interview requests and did not immediately respond to a request on Friday.

"There has been a lot of speculation about Esteves," said Luiz Fernando Resende, head of LatinFinance, a mergers and acquisitions advisory firm in Sao Paulo. "Some of it could be true."

($1=1.71 reais)

(Additional reporting by Rodolfo Barbosa in Sao Paulo and Herb Lash in New York; Editing by Braden Reddall)