* Agrees to sell Pactual to BTG Investments to reduce risk
* To sell Pactual for $2.5 bln, same price it paid in 2006
* Sale raises UBS Tier 1 capital by 1.3 bln Sfr
* Shares slump 4.5 percent
(Adds foreign banks in Brazil, details on BTG and Esteves)
By Katie Reid
ZURICH, April 20 UBS AG UBSN.VX(UBS.N) agreed
to sell its Brazilian business back to its original owners for
about $2.5 billion, boosting its capital despite a small loss,
and potentially reducing the need for a capital hike.
UBS, one of the European banks hit hardest by the credit
crisis, said the sale was part of a strategy to reduce its risk
profile and strengthen its balance sheet.
The deal for Banco Pactual is the biggest sign yet of
foreign banks pulling out of Latin America's largest economy
because of problems they are facing at home. It also marks the
return of Andre Esteves, a 41-year-old banking wunderkind who
sold Pactual to UBS for $2.5 billion three years ago, to the
forefront of Brazil's financial world.
Activist investor and former UBS chief executive Luqman
Arnold called last year for UBS to sell the highly profitable
Brazilian investment bank as part of a series of demands
centered on refocusing the bank on wealth management.
The Swiss bank is struggling to return to profitability and
rebuild its brand after massive investments in risky U.S.
assets forced it to write down billions and accept government
Arnold, who said last month he was still trying to recover
his 2.8 percent stake in UBS from the administrators of
collapsed bank Lehman Brothers, has also called for the sale of
UBS's Australasian business and its huge asset management
"The transaction highlights the downsizing and re-alignment
activity UBS is firmly showing," said Kepler Capital Markets
analyst Mathias Bueeler. "There may be more transactions like
this to follow."
UBS said the sale, which it hopes to close in mid-2009,
will result in a small loss. The bank will give more details
when it reports first-quarter results on May 5.
UBS shares were down 4.5 percent at 13.35 Swiss francs at
14:56 GMT, compared with a 5.9 percent slump in DJ Stoxx
European banking index .SX7P.
Last week, the bank said it would post a first-quarter loss
of nearly 2 billion Swiss francs ($1.73 billion), mainly due to
writedowns and outflows at its prized wealth management unit
and announced plans to cut another 11 percent of its staff.
Esteves, a former global head of fixed income, currencies
and commodities for UBS, founded BTG after stepping down as
chairman and CEO of UBS' Latin America unit in June 2008.
The new bank, to be called BTG Pactual, plans to expand its
business beyond Brazil once the takeover is approved by the
central bank, Esteves said in a statement.
"BTG is celebrating the reunion with its former partners,
who have been managing Banco UBS Pactual, in the certainty of
consolidating and expanding the global operations of the new
BTG Pactual group," he said.
BTG, with more than 100 employees in Sao Paulo, Rio de
Janeiro, New York, London and Hong Kong, has about $1.5 billion
in assets under management. The firm said UBS Pactual had 14
billion reais ($6.25 billion) in assets and manages about 57
billion reais for clients.
BOOSTING THE CAPITAL BASE
New UBS Chief Executive Oswald Gruebel, the former Credit
Suisse CSGN.VX boss UBS brought out of retirement in February
to try to end the bank's woes, said last week he would take
steps to protect and strengthen UBS' capital base.
UBS said on Monday the sale of Pactual will strengthen its
Tier 1 ratio, a measure of financial strength, by approximately
60 basis points. The bank's Tier 1 ratio fell to 10 percent at
the end of March, from 11 percent at the end of 2008.
UBS said the deal would increase its Tier 1 capital by 1.3
billion Swiss francs, decrease risk weighted assets by 3
billion francs, and reduce total assets by 6.3 billion francs.
Vontobel analyst Teresa Nielsen said the sale would release
a large amount of goodwill which was the reason for the big
fall in risk weighted assets and the Tier 1 capital increase.
"Hence, we believe it ensures there will be no need for a
capital increase," she said.
The founding partners of BTG, headed by Esteves, built up
Pactual into one of the most successful Brazilian investment
banks before selling out to UBS in 2006.
There had been speculation in the last year that Esteves,
made one of the wealthiest people in Brazil by the Pactual
sale, might want to buy back the bank, Brazil's seventh largest
asset manager and one of the leading underwriters of stock
issues in Latin America's largest economy.
($1=1.155 Swiss Franc / $1=2.239 reais)
(Additional reporting by Elzio Barreto in Sao Paulo, editing
by Dave Zimmerman)
(Reporting by Katie Reid, writing by Emma Thomasson, editing
by Jon Loades-Carter)