Banco do Brasil seeks Sao Paulo payroll deal-paper

SAO PAULO, Nov 27 (Reuters) - Banco do Brasil (BBAS3.SA: 行情), Brazil's largest lender, is likely to pay the city of Sao Paulo 726 million reais ($413 million) to handle its payroll, the largest of any municipality in the country, Valor Economico newspaper reported.

Both parties are also in advanced talks to transfer to Banco do Brasil management of Sao Paulo's banking relations with its suppliers, the newspaper said without citing its sources.

Banco do Brasil did not return calls seeking comment.

State-run Banco do Brasil, which under the instructions of President Luiz Inacio Lula da Silva has been aggressively winning market share from private lenders in the wake of the global credit crisis, has gotten help from the federal government to win the Sao Paulo contracts, Valor said.

Itau Unibanco (ITUB4.SA: 行情) (ITUB.N: 行情), the largest non-government bank in the country, currently runs a five-year payroll banking agreement for the city that expires in 2010, while Banco Bradesco (BBDC4.SA: 行情) is in charge of running Sao Paulo's banking affairs with suppliers, the newspaper said.

Payroll management is one of the banking industry's most profitable businesses, because banks offer services to customers that mostly enjoy long-term job stability and have wages above the national average.

Mayor Gilberto Kassab, a member of the opposition Democratas Party, is planning to use the proceeds from the sale of payroll management rights to Banco do Brasil to invest in public transport projects, the newspaper said.

If Sao Paulo signs with Banco do Brasil, it might have to return to Itau Unibanco part of the 510 million reais it received in Sept. 2005, Valor said.