TEXT-Fitch affirms Safra Asset Management 'M1(bra)' rating

Wed Oct 31, 2012 11:21am EDT

Oct 31 - Fitch Ratings has today affirmed the 'M1(bra)' National Asset
Manager Rating of Safra Asset Management (Safra Asset), business unit of Banco J
Safra S.A. (J Safra), fully controlled by Banco Safra S.A. (Safra; foreign and
local currency Issuer Default Rating of 'BBB-'; Stable Outlook by Fitch). The
'M1(bra)' rating is assigned to asset manager operations that show the lowest
vulnerability to operating and investment management failures.

Safra Asset's National Asset Manager Rating factors in its well-defined
practices for risk controls, policies and compliance, in addition to the robust
and segregated structures in line with the local market best practices for
fiduciary administration and custody. The rating also benefits from the Safra
group's long track record in investment management activities in Brazil, ongoing
investments to improve its structure and resources, and the important
distribution channels to serve several segments of investors.

The rating considers Safra Asset's domestic activities only and does not include
the investment management activities of fund of third-party funds and private
wealth management, locally and abroad. Those areas have segregated processes and
policies.

The asset management activities are strategically important for Safra group,
both in terms of financial contribution and relationship with its clients. Since
the 2008 restructuring, Safra Asset has been focused in value added products,
especially in multimarket class that represented 35% of its total AUM in the
first half of 2012 (1H'12) (61% in 2010), above the average of other large local
asset managers. On the other hand, Safra group distribution channels are limited
compared with other large financial conglomerates despite the fact of reaching
several investors' types. The combination of these factors have resulted in an
AUM annual compounded average growth rate of 20% between 2007 and 2011, compared
with 14% of the industry in the same period. At the same time, its client base
has been built by more sophisticated investors in niches of main segments, such
as corporate, pension funds, private clients and prime retail.

As consequence, Safra Asset has presented a high concentration of clients
historically that substantially contributed for the high volatility of AUM
during the 1H'12, with a decrease of 24% of AUM largely due to net redemptions
of large corporate investors. This effect was related to very specific cases of
performance-based competitive mandates managed by a determined group of
institutions through dedicated funds. Despite the size of the redemption, there
was not a significant impact to Safra Asset's financial standing or fund
performance of other segments and clients. Furthermore, a reasonable portion of
this volume has returned between September and October 2012 due to performance
improvement.

There were no relevant changes in the asset manager's structure in the last
year, although a new Head of Equities has been in charge since April 2012
without changes in investment process guidelines. Risk Management and Compliance
count with formalized process, controls and appropriate independence that have
been continuously refined since 2007, when Safra Asset reinforced substantially
those areas. In the mid term, Safra group is planning a major change in its core
systems architecture to improve the automation capabilities and processes
efficiency. Also, the asset manager is working to expand distribution efforts in
order to boost sales of more sophisticated funds due to the aggressive
competition in a lower local interest rate environment.

Risk management has maintained appropriate practices through committee-based
governance and oversight. Funds had not experienced market risk limit breaches
due to the low utilization in risk budgets based on its conservative approach.
Deviations in concentration limits have been low and promptly addressed.
Processes continue to be performed through good systems and controls from market
and liquidity perspectives. Operational risk management has been improved in
recent years and is supported by the group corporate structure although there is
a room for further enhancements.

The investment process remains well-defined based on formalized committee
decisions and practices that have been reviewed after the 2008 restructuring by
new CEO and CIO. Portfolio management structure relies on a lean investment team
with portfolio managers traditionally organized by market expertise and
dedicated professionals for macro and equities research. The structure has
exhibited overall stability since the implementation of a new compensation
policy in 2008 although the equities team has presented a certain level of
turnover during the last two years. Nevertheless, Fitch considers that the
institutionalized nature of Safra Asset's investment and administration process
mitigates the impacts of the reasonable turnover rate and equities funds
represented 3% of total AUM in 1H'12.

Administration and Custody are mostly performed by the group's business units as
it is at other large bank-related asset managers. The processes are compliant
with regulations and best practices and are supported by secure and good
technology platforms and the important corporate structure.

Among the key challenges for Safra Asset is to achieve lower volatility on AUM
and a higher diversification of its client base. Other challenges include the
continuous improvements in efficiency of processes and controls in order to
reduce the operational risks, sustain a consistent performance mainly in
multimarket funds class and achieve a steady investment team for equities funds;
particularly in light of the high presence of institutional and sophisticated
investors in its AUM base and the lean organization structure.

Since 1980, Safra group has provided asset management services through Safra
Asset, business unit of Banco J Safra S.A., fully controlled by Banco Safra
S.A., the sixth largest privately-owned bank in Brazil by assets. Safra Asset's
AUM reached BRL32 billion in June 2012 and was ranked as the 11th-largest asset
manager in Brazil with around 1.4% of market share (eighth-largest with 2.2% of
market share in December of 2011), according to the Brazilian Association of
Financial and Capital Markets Entities (Anbima).

Safra Asset's 'M1(bra)' rating is based on the following category scores, which
represent a scale from 1 to 5, with 1 as the highest possible score:

Company & Staffing: 2.0
Risk Management & Controls: 1.75
Portfolio Management: 1.75
Investment Administration: 2.0
Technology: 2.25

The rating may be sensitive to significant adverse changes to any of the
aforementioned rating drivers. A material deviation from Fitch guidelines for
any rating driver could cause the rating to be lowered by Fitch. For additional
information on Fitch asset managers' guidelines, please refer to the criteria
referenced below, which can be found on Fitch's websites, at
'www.fitchratings.com' or 'www.fitchratings.com.br'.

Additional information available at 'www.fitchratings.com' or
'www.fitchratings.com.br'. The ratings above were solicited by, or on behalf of,
the issuer, and therefore, Fitch has been compensated for the provision of the
ratings.

Applicable Criteria and Related Research:
--'Reviewing and Rating Asset Managers' (Aug. 13, 2010);
--'National Scale Asset Manager Rating Criteria' (July 2, 2010).

Applicable Criteria and Related Research:
Reviewing and Rating Asset Managers
National Scale Asset Manager Rating Criteria
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