Banco Pactual Sold By UBS For $2.5B

UBS AG (UBSN.VX) (UBS.N) is selling its Brazilian business back to its original owners for about $2.5 billion, boosting its capital despite a small loss and potentially cutting the need for a capital hike.

UBS, one of the European banks hit hardest by the credit crisis, said the sale -- just three years after it bought Banco Pactual for $2.5 billion -- was part of its strategy to reduce its risk profile and strengthen its balance sheet.

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 centred 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 backing.

UBS said the sale, which it hopes to close in mid-2009, will result in a small loss. It will give more details when it reports first-quarter results on May 5.

UBS shares were up 2.2 percent at 14.29 Swiss francs at 0738 GMT, outperforming a 0.6 percent firmer DJ Stoxx European banking index .SX7P.

"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."

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 unit.

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.



BOOSTING THE CAPITAL BASE

New 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 3.0 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 Andre Esteves, built up investment bank Banco Pactual before selling out to UBS in 2006. The two companies then worked together for two years integrating the businesses, according to BTG.

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.

Esteves, a former global head of fixed income, currencies and commodities for UBS, founded BTG shortly after stepping down as chairman and CEO of UBS' Latin America unit in June 2008