Banco do Brasil bets on fiduciary services to lift profit outlook

SAO PAULO Mon Aug 18, 2014 2:48pm EDT

SAO PAULO Aug 18 (Reuters) - Banco do Brasil SA, long a powerhouse in lending and insurance in Latin America's largest economy, is betting big on a segment that has traditionally been dominated by global rivals to bolster its profit outlook.

Bank executives expect fiduciary services, including trust, depositary and custody services, to become a key profit engine in coming years. Banks are growing their loan books at the slowest pace in a decade this year, forcing Banco do Brasil and rivals to look for sources of profit in areas other than simple credit.

The segment accounts for less than 5 percent of the 12 billion reais ($5.3 billion) in fee income, or revenue from financial services, that Banco do Brasil has earned so far this year. But that could soon change as Banco do Brasil, which has the nation's largest loan book, put a new focus on fiduciary services as an alternative engine to speed up loan origination.

Beyond clearing and settling payments for clients and investment funds, fiduciary management can also help the state-run bank team up with rivals to sell client solutions it would otherwise have to develop from scratch, executives say.

Currently, the bank controls a fifth of the fund trustee services market and is the No. 3 asset custodian in Brazil. Banco do Brasil expects the growing use of project finance to fund infrastructure to bolster its trustee business in coming years.

"We see this unit fully capturing future growth in capital markets activity," Chief Financial Officer Ivan Monteiro said at an event to discuss second-quarter results last week. "Loan origination will hinge more on market activity, thus the excitement we have with the potential for fiduciary services."

The growth and development of transaction banking in Brazil is heavily dependent on a recovery in local capital markets. HSBC Holdings Plc, Citigroup Inc and Bank of New York Mellon Corp are among the largest players in the segment.

Banco do Brasil is up 24 percent this year, compared with an average 30 percent gain in shares of Brazil's top three private sector banks. Had it not been for a recent government decision to recalculate compensation that Banco do Brasil might have to pay depositors in a landmark savings case, the discount would be larger.

By touting fiduciary services as a promising business, Banco do Brasil is implicitly seeking to improve investor perception about the value of its core assets, analysts said.

Following the successful $5.1 billion initial public offering of the insurance unit of Banco do Brasil, BB Seguridade Participações SA, in April last year, investors are pondering what other unit IPO may be in the offing.

Sources told Reuters that Banco do Brasil could list its asset management unit, known as BB DTVM, or its card unit BB Cartões. Analysts estimate the combined value of BB DTVM, which oversees 535 billion reais ($237 billion) in assets, and BB Cartões to be about 60 billion reais.

"Should the fiduciary unit becomes a large player, the impact could be transformational for the bank," said a São Paulo-based fund manager who owns Banco do Brasil shares but is not authorized to speak publicly about a specific stock.

($1 = 2.2560 Brazilian reais) (Reporting by Guillermo Parra-Bernal; Editing by Tom Brown)