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Stake sales to prop up Banco do Brasil in 'new competitive landscape,' exec says

Potential stake sales and partnerships should help Banco do Brasil SA position itself better under a "new competitive landscape," Daniel Alves Maria, the bank's investor relations head, said during a discussion of 2019 fourth-quarter earnings results Feb. 14.

On Feb. 13, CEO Rubem Novaes said Banco do Brasil is looking to sell at least 51% of its asset management unit, BB Gestão de Recursos-Distribuidora de Títulos e Valores Mobiliários SA, which could raise "billions of reais" and help the state-owned bank compete with its private rivals amid heightened competition.

Previous reports said major U.S.-based asset managers BlackRock Inc., Franklin Templeton and Principal Financial Group are vying for a joint venture partnership deal with BB DTVM, with nonbinding proposals already submitted.

Although a partnership has not yet been announced, such a move should give Banco do Brasil a competitive advantage on a global scale, similar to what it had achieved with its investment banking tie-up with Switzerland's UBS Group AG, Alves Maria said.

The strategy should also help the bank branch out amid "more compressive fees" offered by Brazilian fixed income securities, the executive noted. "Certainly, there is a migration to more sophisticated strategies, and some of them probably bringing different dynamic, [in which] you can start to deliver," he said.

Banco do Brasil is also reportedly assessing a restructuring of its payments businesses, which could lead to the sale of its stakes in some of its companies. One of Banco do Brasil's holdings in the segment is Cielo SA, the biggest card processing company in the country. The company, which has been facing tight competition from financial technology startups such as PagSeguro Digital Ltd. and StoneCo Ltd., reported a 68.0% drop in its fourth-quarter profit.

Although Alves Maria said that no definite deal has been made yet within the payment space, he said that "there will be a huge transformation" in the segment in the long term.

He also added that any potential measures would be more "strategic" in nature and do not mean that the company is trying to generate additional capital. "We are building up capital organically, and we are quite comfortable with our products," Alves Maria noted.

The executive said the bank expects an impact of between 300 million reais and 350 million reais on its net interest income as a result of the central bank's lower interest rate cap on overdraft credit facilities. However, the adverse effect on the bank is lower compared to those for its competitors, given that overdrafts consist only 1% of its total individual portfolio. The system average for overdrafts is between 2% and 3%, according to Alves Maria.

Banco do Brasil saw its fourth-quarter adjusted profit rise 20.3% from the prior year, backed by double-digit growth in commercial income and interest income. For 2020, the bank expects total adjusted net income of between 18.5 billion reais and 20.5 billion reais, which would imply a possible 15% increase from its full-year 2019 results.

As of Feb. 13, US$1 was equivalent to 4.33 Brazilian reais.