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UBS & Banco do Brasil Likely to Strike Investment Banking JV

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Per a Reuters article, UBS Group AG (UBS - Free Report) and Banco do Brasil SA are in an advanced stage of discussions related to an investment banking joint venture, which is likely to be finalized in next month.

Under the deal, Banco do Brasil’s investment banking unit will be combined with UBS's Brazil division. Also, UBS is likely to have a controlling stake to avoid operational hurdles that generally arise in state-controlled companies, but governance might be shared.

Banco do Brasil seeks to offer a wide range of services to its corporate clients, including distribution of share offerings with European and U.S. investors, per two sources with knowledge of the matter.

On the other hand, UBS expects to reap benefits from Banco do Brasil's strong balance sheet position and bolster presence in Brazil. The article also reported that required credit would be booked by Banco do Brasil and not by the joint venture, which would receive the investment banking fees.

Recently, UBS was in news for planning to restructure its investment banking unit in order to boost performance and trim costs. The move is likely to result in hundreds of job cuts by the end of this year.

Also, Banco do Brasil had been looking for opportunities to boost investment banking business since the past year.

Overall, the performance of investment bankers is likely to be soft in the quarters ahead as political uncertainties and geopolitical tensions continue to weigh on the economy. This has led to several major banks mulling ways to restructure the unit.

Though the company remains focused on building capital levels, global expansion and executing restructuring initiatives, its net interest income remains under pressure due to persistent negative interest rates in the domestic economy. Also, involvement in several lawsuits and regulatory probes is likely to keep costs elevated.

The stock has lost 12.1% so far this year compared with 2% decline of the industry it belongs to.

Currently, UBS Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the finance space are Royal Bank Of Canada RY, Credit Agricole SA CRARY and BNP Paribas SA BNPQY. All these stocks carry a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Royal Bank Of Canada has been raised slightly for the current year in the past 30 days. The company’s share price has gained 11.7% so far this year.

Credit Agricole has witnessed slight upward revision in earnings estimates for 2019 in the past 30 days. Its share price has risen 9.6% year to date.

BNP Paribas’ shares have gained 3.6% year to date. Its earnings estimates for 2019 have moved up 4.7% in the past 60 days.

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