Swiss financial giant UBS AG (UBS), Monday, said it has agreed to sell its Brazilian financial services business, UBS Pactual, to BTG Investments LP, an investment company led by Andre Esteves, for about US$2.5 billion, or CHF 2.8 billion. The company said the sale is to reduce risk profile, strengthen balance sheet and sharpen business focus.
The company said in a statement the deal is not expected to result in any disruption to its other businesses. The consideration will be in cash and assumed liabilities, and the deal is expected to close in mid 2009, subject to regulatory approval, it added.
Last Wednesday, UBS, at the company's annual general meeting, said it would exit high-risk and unpromising businesses. The bank said it was conducting a review to make clear decisions about which businesses it wanted to keep active and grow, and which it will exit.
UBS now said the transaction will take place at a premium to book value. It will increase Tier 1 capital by CHF 1.3 billion, while decrease risk weighted assets by CHF 3.0 billion, and reduce total assets by CHF 6.3 billion. It will strengthen UBS' BIS Tier 1 ratio by about 60 basis points.
UBS' recently appointed chief executive officer Oswald Grübel, at the annual general meeting, said the company expected to have a tier 1 capital ratio of roughly 10% at the end of March 2009, driven by a further reduction of its balance sheet and risk-weighted assets.
It was BTG, led by Andre Esteves, UBS' former head of fixed income, currencies and commodities, who built up investment bank Banco Pactual. In 2006, Pactual was sold to UBS for up to $2.5 billion, reports said.
UBS, Switzerland's largest bank, now said it expects the sale to result in a small loss. The company will provide a detailed description of the deal effects, while announcing UBS' first quarter results on Tuesday, May 5, 2009.
In January, UBS announced the sale of parts of its non-strategic Commodities businesses, such as Base Metals, Oil and US Power & Gas businesses, to Barclays Plc (BCS) for undisclosed terms and conditions. UBS then said it expected to complete the full risk transfer by end of the second quarter, subject to certain conditions.
In December 2008, UBS announced the sale of UBS Commodities Canada Ltd., the Canadian energy operations of UBS, as well as the firm's global agricultural business to J.P. Morgan Chase & Co. (JPM).
In the same month, the company also announced the sale of its investment of about 3.4 billion Bank of China Limited H-shares to institutional investors through a placement. The company purchased the stake in Bank of China in 2005 in preparation for Bank of China's Initial Public Offering, or IPO, to the international market.
UBS had noted in October 2008 that, following a thorough review, UBS' investment-banking arm, UBS Investment Bank, would reprioritize its business portfolio to preserve its core strengths and client franchises in the Securities and Advisory businesses, while downsizing or exiting certain business activities. UBS then said that the Investment Bank is exiting all of its Commodities businesses with the exception of Precious Metals and the Index and Exchange-Traded Commodities activities.
Meanwhile, in mid January, UBS Investment Bank signed a binding agreement to purchase the commodity index business of AIG Financial Products Corp., including AIG's rights to the DJ-AIG Commodity Index. The transaction is expected to close by May 2009.
UBS recently said it expects to report a loss attributable to shareholders of almost CHF 2 billion in the first quarter, hurt by the negative impact of about CHF 3.9 billion due to losses on previously disclosed illiquid risk positions, credit loss expenses and valuation adjustments on the last positions transferred to a fund controlled by the Swiss National Bank.
The company had also said then that it intended to cut the number of employees to about 67,500 in 2010, a reduction of about 8,700 employees from its global workforce. UBS is planning cost savings of approximately CHF 3.5 billion to CHF 4 billion by the end of 2010 in light of changed market conditions and lower levels of business. The company also seeks to realize substantial cost savings in all areas.
Since the start of the credit crisis in the middle of 2007, UBS has cut about 7,000 jobs, most of them in the investment banking sector.
UBS also had noted that it would continue to reduce risks and maintain its core business international wealth management and the Swiss banking business in the future along with its investment banking and asset management.
UBS closed Friday's regular trading session at $11.99, up $0.31 or 2.65%, on a volume of 6.89 million shares. In the past 52 weeks, shares have been trading in a broad range of $7.04 -$36.03.
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