Exclusive: Banco do Brasil, UBS in advanced talks for investment banking joint venture - sources

SAO PAULO (Reuters) - Brazilian state-controlled lender Banco do Brasil SA BBAS3.SA and UBS Group AG UBSG.S are in advanced talks about an investment banking joint venture that could be signed as soon as next month, two sources with knowledge of the matter said.

FILE PHOTO: The Banco do Brasil logo is seen outside a bank office in Sao Paulo, Brazil August 9, 2018. REUTERS/Paulo Whitaker/File Photo

Banco do Brasil, Brazil’s second-largest lender, has been considering alternatives to bolster its investment banking business for a while.

The bank began to search for a partner last year and held talks with different investment banks, but the process was interrupted by the presidential election.

Rubem Novaes, whom Finance Minister Paulo Guedes named as the bank’s chief executive earlier this year, rekindled the formal search for a partner in March.

Banco do Brasil and UBS are in advanced negotiations and could finalize a deal as soon as next month, one of the sources added. The governance under discussion would combine Banco do Brasil investment banking unit, known as BB BI, with UBS’s Brazil division.

UBS would have a controlling stake to avoid operational hurdles that are common in state-controlled companies in Latin America’s biggest economy, but governance would be shared, the sources added.

UBS and Banco do Brasil declined to comment.

No payment is expected in the deal, which Banco do Brasil hopes will allow it to offer a broader variety of options to its corporate clients, including distribution of share offerings with European and U.S. investors, the two sources said.

UBS, in turn, would benefit from Banco do Brasil’s ample balance sheet, which could be drawn on to help finance acquisitions and other deals. One of the sources said potential credit would be booked by Banco do Brasil and not by the joint venture, which would receive the investment banking fees.

UBS has lagged U.S. investment banks in Brazil, where the flow of deals is expected to rise as President Jair Bolsonaro’s government pushes for large privatizations.

The Swiss bank is in ninth place so far this year in Brazil-related equity offerings and 21st place in M&A advisory, according to Refinitiv data. Banco do Brasil is in tenth place on managing share offerings, but has not been active in M&A advisory.

The deal is favored by U.S.-based UBS executive Ros Stephenson, one of the sources said. Stephenson was named global co-head of investment banking with Javier Oficialdegui in a revamping of UBS investment banking business this week.

The restructuring came in an effort to lift flagging earnings at the Swiss bank, whose shares have fallen 30% in the past 12 months.

UBS has been trying to get a stronger foothold in Brazil for more than a decade.

Reporting by Tatiana Bautzer; Editing by Steve Orlofsky