SAO PAULO, Sept 4 State-run Banco do Brasil SA is negotiating a new partnership model for an investment bank with subsidiary Banco Votorantim SA, with the focus on strengthening equity research and advisory on mergers and acquisitions and capital markets deals, a source with direct knowledge of the talks said on Wednesday.
Both banks are revising aspects of a potential partnership, which they discussed for months after suspending them on Aug. 22. Under new terms being discussed, Banco do Brasil would pay a fee on each deal executed by Votorantim, with Banco do Brasil also getting some sort of compensation for each deal generated from its pool of clients, said the source, who declined to be identified because the talks are in a preliminary stage.
The source said the talks are still "very incipient" and that a mechanism of remuneration has yet to be figured out.
The media offices of Banco do Brasil and Votorantim declined to comment. Newspaper Valor Econômico said on Wednesday that both banks had resumed talks.
For years, Banco do Brasil has failed to build a specialized investment-banking unit, chiefly because of pay and bonus restrictions facing state-run entities. In Brazil, state companies have a cap on salaries and compensation, making it harder for them to compete with their private-sector rivals.
Banco do Brasil needs of a bigger wholesale banking unit with bigger research, sales and trading and financial advisory capabilities to help support its bid to increase corporate lending. Previously, Banco do Brasil's priority was to have 75 percent of Votorantim's capital in an eventual partnership, or the equivalent to 49.9 percent of common stock and 100 percent of preferred stock.
Paulo Roberto Caffarelli, Banco do Brasil's senior vice president in charge of wholesale, international and private banking, said growth in investment bank can only happen either organically or through an association. A partnership with a foreign firm cannot be ruled out, Caffarelli told Reuters in May, adding that no talks on the matter were held by then.
Unlike counterparts in other emerging markets such as China, Brazilian investment banks have consistently bested their foreign rivals over the past three years at funding deals, forging stronger client ties and setting up distribution networks similar to those of global banks.
Itaú Unibanco Holding SA's purchase of Banco BBA Creditanstalt in 2002 and Banco Bradesco SA'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.