* Itaú, Bradesco to earn fees close to Banco do Brasil's
* BB Seguridade may be largest Brazil IPO this year
* Banco do Brasil has struggled to build investment bank
SAO PAULO, Feb 27 (Reuters) - State-run Banco do Brasil SA will have to split the lion's share of proceeds from advising on the initial public offering of its insurance unit with its fiercest local rivals, which have more sophisticated investment-banking divisions.
Itaú Unibanco Holding SA and Banco Bradesco SA will each earn 17 percent of the pool of fees for the IPO of BB Seguridade Participações SA, compared with a 17.50 percent take for Banco do Brasil's investment bank, known as BB Investimentos, according to a prospectus for the transaction published on Wednesday.
Foreign and local banks are betting that advisory services for IPOs and mergers and acquisitions will be a stable source of revenue now that record-low interest rates are hampering revenue. Bankers told Reuters the BB Seguridade deal, which may happen by April, could fetch at least 5 billion reais ($2.5 billion) - making it the largest IPO planned for Brazil this year.
For years, Banco do Brasil has failed to build up a wholesale bank to help support Brazil's largest lender in its bid to increase corporate lending. In contrast, Itaú's purchase of Banco BBA Creditanstalt in 2002 and Bradesco's creation of Bradesco BBI in 2006 allowed both private-sector lenders to vie with foreign investment banks for lucrative mergers and capital markets advisory deals in Brazil.
Last year, Itaú BBA, Itaú's investment bank, became the No. 1 manager of global debt sales by Brazil's government and companies - the highest ranking for a local firm since Thomson Reuters began tracking the data in 2010.
Itaú BBA was ranked second in Thomson Reuters' annual mergers and acquisitions deal-making report for Brazil, behind Credit Suisse Group. Bradesco BBI was ninth.
JPMorgan Chase & Co, which BB Seguridade hired as global co-manager for the sale, will earn 17.50 percent of the fee pool, the prospectus said. BTG Pactual Group, Citigroup Inc and São Paulo-based Brasil Plural Banco Multiplo will be paid a share of 8.50 percent each, while Banco Votorantim SA will get 5.50 percent of total fees.
According to the prospectus, banks could change the current arrangement for fee payouts by common agreement.
Banco do Brasil may sell as much as 40 percent of BB Seguridade to investors. The filing did not give details of the size of the deal, the number of shares on offer or a timetable for the transaction.