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Capital raising: UBS leads the way in global deleveraging

The sale of Pactual could be the first of many disposals of emerging markets assets by banks desperate to raise capital.

Esteves details his plans for Pactual

Slowly but surely UBS is dismantling the emerging markets business that it has built over the past few years. First, in January, it sold its 1.33% stake in Bank of China for a reported profit of about $350 million after a three-year lock-up period expired. Then, last month, it sold its Brazilian business, Pactual, back to its original owners for $2.5 billion.

While the first could be charitably characterized as an opportunistic trade, the latter is anything but. The bank describes its sale of Pactual – which it bought only three years ago – as "consistent with UBS’s policy to continue to reduce its risk profile, strengthen its balance sheet and sharpen its business focus". Tear away the spin and the bank is saying that it is desperate for capital and can no longer provide the level of investment needed to continue supporting the business. The bank’s desperation is evident from its admission that it expects the sale to result in a small loss. When UBS bought Pactual from Andre Esteves in May 2006 it paid six times book value. It is selling it back to him at barely a premium to book value.