UBS Group AG is branching out into rural Brazil to find millionaires created by rapid growth in the agribusiness and tech industries.
The Swiss bank plans to open a wealth management office in the midwestern city of Goiania, the capital of what's known as Brazilian Texas because of its similarities to the farm-rich U.S. state. Another will open this month in Recife, a beachfront city in the northeast that's developing into a technology hub.
"Most banks never explore the interior much," Sylvia B. Coutinho, president of UBS in Brazil and head of wealth management in Latin America, said in an interview in Sao Paulo.
"Agribusiness has grown significantly in Brazil even when GDP shrank, and most of the sector's entrepreneurs are exporters, hedged in dollars, who are benefiting from an increase in commodities prices," said Coutinho, who along with an MBA has a bachelor's degree in agricultural engineering and a post-graduate degree in agricultural economics.
Diverging fortunes in the nation's private-banking industry show why UBS is targeting the countryside. While the overall market expanded 5.2% to 1.87 trillion reais ($370 billion) under management this year through September, private banking in just the midwest surged 22% to 54.6 billion reais, according to Anbima, the capital-markets association.
While Brazil's biggest banks are expanding in private banking, others, including JPMorgan Chase and BNP Paribas SA have abandoned the business entirely in Brazil, deciding that they lacked the necessary scale to compete profitably.
UBS has another advantage in the fight for rich clients: a joint venture it struck with state-owned Banco do Brasil SA for investment banking in South America and brokerage business in Brazil. Banco do Brasil is the country's largest lender to agricultural companies and has deep relationships with the sector's entrepreneurs.
UBS has 1,300 employees dedicated to 50,000 Latin American private-banking clients, including 570 wealth advisers. Its wealth management business currently has offices in Sao Paulo, Rio de Janeiro and the southern city of Curitiba.
Gross domestic product from Brazil's agribusiness sector expanded 24% in 2020 and 8.4% last year, according to Cepea, a center for economic studies at the University of Sao Paulo's agricultural school. In the first half of this year, it contracted 2.5% as input prices climbed. Agribusiness represents about a quarter of the nation's total GDP.
Brazil is expecting a record harvest this year, producing more than 300 million tons (272 million metric tons) of grains for the first time, according to Ronaldo Patah, chief investment officer for UBS wealth management in Brazil. That number is expected to grow an additional 8% next year, Patah said.
Land prices are skyrocketing along with grain production, and rich investors are interested in acquiring farmland — mainly pastures — and transforming it into agricultural farms, according to Coutinho.
Some of the recent gains come as a result of Russia's invasion of Ukraine, which destroyed farmland and machinery, along with harvests, and limited the country's access to ports for exports. But a worldwide increase in fertilizer prices hurt Brazilian producers. China has also been buying more Brazilian grain as the dollar strengthens, and as it aims to reduce dependency on U.S. production.
There are side benefits from expanding private banking, including the potential for big gains in investment banking.
"Across the industry, there are lots of investment strategies revolving around agribusiness," Coutinho said, pointing in particular to tax-exempt bonds from the sector and the funds that buy those bonds. An entire capital market is being developed, tightly linked to green finance, according to the UBS executive.
"Brazil has the most valuable environmental assets in the world, and should become a global leader in green finance," Coutinho said.
