TEXT-Fitch affirms BTG Pactual, subsidiaries, outlook stable

Fri Feb 1, 2013 1:16pm EST

Feb 1 - Fitch Ratings has affirmed the ratings of Banco BTG Pactual S.A.
 (BTG Pactual) and its subsidiaries: Banco Panamericano S.A. (BP),
Brazilian Finance & Real Estate (BFRE), Brazilian Mortgages Companhia
Hipotecaria (BM) and Brazilian Securities Companhia de Securitizacao (BS). The
Rating Outlook of all entities is Stable. A full list of the actions taken is
detailed at the end of these comments.

RATING ACTION AND RATIONALE

The rating affirmation and Stable Outlook for BTG Pactual reflects its solid
franchise as a merchant bank and solid profitability through economic cycles.
Management has expanded the balance sheet rapidly over the last several years,
although risk controls are considered strong. These strengths are
counterbalanced by weaker leverage and a steady increase of less liquid assets,
although the long-term financing is growing accordingly.

In the last five years, BTG Pactual has been aided by capital injections,
including a recent IPO in 2012 (capital injection of BRL 4.5 billion since
2010). As a result, BTG Pactual expanded its activities into consumer financing
(through BP), financial services to the real estate sector (including real
estate financing and securitizations through BFRE, BM and BS) and also expanded
into the brokerage business and investment banking in several countries of Latin
America (Chile, Colombia and Peru).

All these acquisitions were funded with capital injections and should assist
future income diversification. Currently, the subsidiaries provide limited
income to BTG Pactual due their small size and/or the need to revamp their
business model. Most of the acquisitions have been completed and new management
has been appointed. As such, execution risks have decreased, though monetizing
the investments is still a challenge.

BTG Pactual's capital and leverage ratios have weakened considerably since
end-2010 as a result of the fast balance sheet growth. Leverage metrics have
remained fairly stable recently but somewhat weaker than similarly rated peers.
Tangible equity to tangible assets has averaged 7% since 2010. Gross leverage
measured as total assets over Fitch Core Capital (FCC) was 14.6x as of September
2012 (adjusted leverage of 7.5%). This relative weakness is partially offset by
BTG Pactual's history of stable profitability. That said, it certainly demands a
more conservative approach by the bank in times when its profitability may be
pressured by the low interest rate environment and heightened competition.

BP's VR remains limited by weak profitability, poor asset capital and negligible
capital base. The bank enjoys a stable funding base with committed funding and
liquidity lines from both its controlling shareholders: BTG Pactual and Caixa
Economica Federal (Caixa, Foreign Currency LT IDR rated 'BBB' with a Stable
Outlook by Fitch).

SENSITIVITY/RATING DRIVERS: VR's and IDR's

Fitch may downgrade BTG Pactual's VR and IDRs due a deterioration of its
leverage (adjusted leverage above 8x), a decrease in its operating profit ratio
or unexpected large trading losses. Also, a sudden deterioration of the
operating environment or a troublesome performance of one or more of its
subsidiaries may negatively affect BTG Pactual's ratings. Fitch believes that
the potential for near-term rating upgrades is limited due to the bank's
business model, wholesale funding structure, and weak leverage. Future upgrades
would be dependent on a broader business mix, consistent adjusted leverage below
5x, and a lower share of income derived from proprietary trading.

Fitch believes that there is also limited rating upside over the near-term for
BP's VR. A longer than expected breakeven point of its operations and diminution
of already low capital ratios may trigger a negative rating action by Fitch.

SENSITIVITY/RATING DRIVERS: Support and Support Rating Floors

BTG Pactual's current IDRs are equal with its VR. Given its nature of
merchant/investment bank and relative small deposit base; Fitch believes that
the probability of support from the government is unlikely.

SENSITIVITY/RATING DRIVERS: Subordinated Debt and other Hybrid Securities

Subordinated debt and other hybrid capital issued by BTG Pactual are all notched
down from the banks' VR. These securities two notches lower than BTG Pactual's
VR, one notch lower due to Loss Severity features and its subordinated status,
and a one-notch deduction due to moderate risk of non-performance. The
subordinated debt and hybrid capital ratings are primarily sensitive to any
change in the VR of the bank.

SENSITIVITY/RATING DRIVERS: Subsidiary Ratings

BP, BFRE, BM and BS are strategically important subsidiaries for BTG Pactual. As
a result, the ratings are one notch lower from the parent IDR. Fitch believes
that despite their relatively small size and low earnings contribution, these
entities are part of BTG Pactual's plan to diversify away from merchant banking.
The IDR's and National Scale Ratings of Banco Pactual subsidiaries would be
affected if their strategic importance and ability to provide support from BTG
Pactual changes; Fitch believes that the likelihood of this scenario is low.

Fitch has affirmed the following ratings:

BTG Pactual
--Long-Term Foreign and Local Currency IDRs at 'BBB-', Outlook Stable;
--Short-Term Foreign and Local Currency IDRs at 'F3';
--Viability Rating at 'bbb-';
--Support Rating at '5';
--Support Rating Floor at 'No Floor';
--Long-Term National Rating at 'AA(bra)', Outlook Stable;
--Short-Term National Rating at 'F1+(bra)';
--Senior unsecured notes, due in July 2016, Foreign Currency Rating at 'BBB-';
--Senior unsecured notes, due in September 2017, Foreign Currency Rating at
'BBB-';
--Subordinated notes due in September 2022, Foreign Currency Rating at 'BB';
--Senior unsecured notes due in January 2020, Foreign Currency Rating at 'BBB-'.

BP
--Long-Term Foreign and Local Currency IDRs at 'BB+', Outlook Stable;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Viability Rating at 'b';
--Support Rating at '3';
--Support Rating Floor withdrawn;
--Long-Term National Rating at 'AA-(bra)', Outlook Stable;
--Short-Term National Rating at 'F1+(bra)'.

BFRE
--Long-Term Foreign and Local Currency IDRs at 'BB+', Outlook Stable;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Long-Term National Rating at 'AA-(bra)', Outlook Stable;
--Short-Term National Rating at 'F1+(bra)'.

Brazilian Mortgages Companhia Hipotecaria (BM)
--Long-Term Foreign and Local Currency IDRs at 'BB+', Outlook Stable;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Long-Term National Rating at 'AA-(bra)', Outlook Stable;
--Short-Term National Rating at 'F1+(bra)'.

Brazilian Securities Companhia de Securitizacao (BS)
--Long-Term Foreign and Local Currency IDRs at 'BB+', Outlook Stable;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Long-Term National Rating at 'AA-(bra)', Outlook Stable;
--Short-Term National Rating at 'F1+(bra)';
--First debenture issuance due in October 2014, Long-Term National Rating at
'AA-(bra)'.

Additional information available at 'www.fitchratings.com' or
'www.fitchratings.com.br'. The ratings above were solicited by, or on behalf of,
the issuer, and therefore, Fitch has been compensated for the provision of the
ratings.

Applicable Criteria and Related Research:
--'Global Financial Institutions Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Securities Firms Criteria' (Aug. 15, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05,
2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Ratings Criteria
Securities Firms Criteria
Assessing and Rating Bank Subordinated and Hybrid Securities
Rating FI Subsidiaries and Holding Companies
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