Brazil: UBS links wealth management, trading and IB
Strong wealth management focus; Main push in Brazil and Mexico
UBS was preparing to announce the formal acquisition of Link Investimentos, a Brazilian brokerage firm, as Euromoney went to press. A press conference was scheduled for February 25 in São Paulo, at which the bank was due to announce that its Brazilian subsidiary has finally acquired Link, as well as obtaining a much-sought-after Brazilian banking licence.
Since the Swiss bank sold Pactual in 2009 it has been looking for a way to re-enter the largest Latin American market. The deal to buy Link, which was agreed in April 2010, has been a central part of the bank’s subsequent Brazilian strategy.
UBS combined its application for regulatory approval of what is Brazil’s largest brokerage firm with its request for a banking licence.
However, during that time UBS’s decision to withdraw from Brazil, after it had already secured Brazilian government approval, made acquiring licences for other foreign banks a more complicated process.
Mark Tuttle, UBS’s head of Latin America debt and equity capital markets, says: "The Link side of the equation was the simplest in many ways but also the most complicated to execute. We reached an agreement with Link’s management and then we had to wait for the regulatory approval and banking licence."
In effect, the Brazilian government now requires new local and foreign entities that are seeking to obtain a banking licence to buy one of the legacy banks the central bank has on its books.
Tuttle declines to comment on whether UBS had been obliged to buy one of these old Brazilian banks as a means to gain regulatory approval to bank in Brazil. However, a source close to UBS’s discussions with the central bank says UBS was presented with a list of about 30 Brazilian banks and told to choose one to buy. The due diligence and negotiations added complexity, cost and above all time to the process.
"UBS’s decision to pull out came at the worst possible moment for the rest of the foreign banks that were waiting for a licence," says the source. "UBS pulled out just after [president] Dilma [Rousseff] had signed UBS’s licence personally; the subsequent withdrawal was therefore more than a little embarrassing for all concerned."
However, it might be that the delay in UBS developing its onshore Brazilian business is a mixed blessing: the past couple of years of relative inertia have at least prevented UBS building up an ambitious presence – and cost base – before the bank’s recent global strategic switch to large reductions in the capital allocated to its investment banking and fixed-income businesses.
"We are going to look at the region not just from a capital markets perspective but from a broader banking matter," says Tuttle. "We will also take a step back and look at the new strategic way the bank is operating, with the two sides of corporate client services (CCS) and the investor client services (ICS), from an investment banking perspective. That model will be applied to Latin America as we build out our relatively small regional presence to date and we will be strategically very aligned with what banking does, as well as with wealth management."
Wealth management will be crucial to UBS’s strategy. In an interview for last month’s issue of Euromoney, Jürg Zeltner, chief executive of UBS Wealth Management, cited developing local knowledge and capital markets access in Brazil as one of the main priorities for the bank and for his division.
"As we integrate Link we want to continue to be a leader on the trading side," says Tuttle, who confirms that Link already operates in the bank’s new Faria Lima office, comprising two of the bank’s five floors, along with wealth management, banking and investment banking.
"We [also] spend a lot of time with our wealth management division. It has $1.7 trillion under management and we treat them like an institutional investor but we can get them involved in deals early – and that’s important as we sell to our clients. We can’t say for certain the wealth management division will participate but when you can show potential clients 25 recent transactions where our wealth management was first, second or third in terms of volumes of orders, then that conversation draws you closer."
A buy-side focus and a desire to avoid the locals and the internationals that are attempting to build balance sheet will be UBS’s strategy as it looks to build modest volumes of primary issuances through its investment banking division.
"On the DCM side, the aspiration isn’t to compete with the locals in underwriting debentures – we won’t compete on balance sheet and we won’t do deals that aren’t fully divestible or that we don’t bridge into capital market transaction take-outs," says Tuttle. "From a primary business strategy our focus [is] where there is less competition, on a smaller number of names where we can have good relationships."
UBS’s focus, somewhere down market towards high yield and more bespoke transactions and structured financings, is driven to lessen its direct competition. However, Brazil is growing fiercely competitive across all segments and products and UBS is likely to come up against the locals and other international banks wherever it tries to engage with potential clients.
Brazil and Mexico will be central to the bank’s new attempt to generate revenues in Latin America.
"We focus heavily in Brazil and Mexico," says Tuttle. "We have full-service offices in both of those countries, including wealth management, banking and capital markets. In the future the linkage between UBS’s wealth management and investment banking will continue to draw closer and we will use that from a strategic standpoint. That will help us both to originate products for our clients that have assets under management as well as to distribute into those same clients."