Finance and economics | Decapitated but defiant

BTG Pactual soldiers on

Brazil’s biggest investment bank tries to shrug off its founder’s arrest

A WEEK ago BTG Pactual, a Brazilian investment bank, seemed to be headed for the bulge bracket. But since the arrest of its chairman and CEO, André Esteves, on November 25th, it has instead been desperately trying to convince clients and investors that it isn’t bilge.

The bank has tried to move on quickly, first appointing Persio Arida, a former central banker, as interim CEO and then as chairman. A duo of founding partners, Marcelo Kalim and Roberto Sallouti, will share the corner office. On December 2nd the bank announced that other partners would buy Mr Esteves’s controlling shareholding, subject to regulatory approvals. BTG, the message was, is bigger than its larger-than-life former boss.

Questions remain, nonetheless. On December 1st Moody’s, a rating agency, cut the bank’s rating by two notches, to junk. Yields on BTG bonds have risen and its shares continued to slide this week, after Mr Esteves’s detention was extended. (The arrest is in connection with a big scandal engulfing Petrobras, Brazil’s state-controlled oil and gas giant; Mr Esteves denies any wrongdoing.) The bank has already lost a third of its market value. And on the day of the arrest alone clients pulled 4.3 billion reais ($1.1 billion) from its investment funds, which managed 178 billion reais before those withdrawals.

The bank’s own funding is another question. Like most investment banks, BTG relies heavily on wholesale borrowing. In September about 30 billion reais, or roughly half of the banking arm’s funding needs, had to be refinanced within 90 days (this excludes BSI, a Swiss private bank whose purchase BTG concluded in September). Offsetting those short-term liabilities the bank had 60 billion reais or so in cash and easy-to-shift assets. On another reckoning, Standard & Poor’s, another rating agency, puts BTG’s liquid assets at 1.6 times short-term wholesale-funding needs. To preserve this store of liquid assets, the bank has stopped extending new loans. It is trying to offload around 4 billion reais of its loan portfolio to other Brazilian lenders. It is also in talks to sell several big (and lucrative) investments, including stakes in Rede D’Or, a hospital chain, and Estapar, a parking-garage firm.

Brazil’s economy isn’t helping such efforts. On December 1st official beancounters reported that it shrivelled by 4.5% in the third quarter, compared with a year earlier. BTG’s predicament would be testing in the best of times; against a backdrop of a swooning home market, it will be especially hard to handle.

Most observers agree that even an outright implosion would have limited consequences for the financial system as a whole: BTG accounts for just 2% of Brazilian banks’ assets. But there is no sign of one yet in any case. Unlike retail investors, BTG’s dominant institutional creditors are hyperrational, notes Eduardo Ribas of Fitch, yet another rater. They are likelier to hold their nerve until the dust settles. Fitch itself has put BTG on watch for a possible downgrade, but not yet cut its investment-grade rating. So quickly have BTG’s fortunes changed, that now counts as good news.

Discover more

China’s banks have a bad-debt problem

As is becoming increasingly obvious

Which country will be last to escape inflation?

A new dividing line in the global fight


How the “Magnificent Seven” misleads

Forget the supergroup of stockmarket darlings