UPDATE 1-Brazil's BTG Pactual misses profit estimates as expenses soar
* Net income plummets 28 pct, misses estimates
* Results at BTG Pactual are weakest in 1 1/2 years
* Revenue lags as advisory, principal investments weigh
By Guillermo Parra-Bernal
SAO PAULO, May 7 (Reuters) - Net income at BTG Pactual Group, Brazil's sole listed investment bank, tumbled 28 percent in the first quarter after sagging equity markets in Latin America's largest economy hit revenue, while compensation and administrative expenses jumped.
São Paulo-based BTG Pactual earned 612 million reais ($304 million), compared with 854 million reais in the previous three months, according to a securities filing on Tuesday. The result missed the average 700.8 million reais profit estimate in a Thomson Reuters survey of four analysts.
The results were the weakest since the third quarter of 2011, according to Thomson Reuters data. An almost eight-percent drop in the local stock market during the first quarter hurt income from financial advisory and stock listings, while widespread market turmoil took its toll on trading of global currencies, commodities and bonds, the filing added.
As market conditions remain challenging, especially in Brazil, Chief Executive André Esteves has gradually expanded the bank's market share in brokerage and investment banking across Latin America while extending more credit to companies in the region. As a result, pay jumped and expenses related to integrating takeovers in Chile and Colombia edged higher.
Profitability as measured by return on equity sank to 16.9 percent in the first quarter - the lowest for BTG Pactual since the third quarter of 2011. The bank's ROE, as the indicator is known, fell short of the 19.3 percent estimate in the poll and, unlike prior quarters, failed to beat that of rivals despite Esteves' focus on cost-efficiency and deal-making expertise.
"Even as results came in below average numbers for the past year, we feel that the performance was good, especially in some important lines," the bank said in the filing. Management will discuss results on Wednesday in a conference call with investors.
BTG Pactual is facing more competition from the investment-banking units of bigger financial conglomerates such as Itaú Unibanco Holding SA, which are pursuing growth in fee-based businesses as weak credit growth and lower borrowing costs in Brazil hurt revenue.
Hampering profit, banker compensation surged 19 percent in a quarter-on-quarter basis, to 387 million reais - an unusual result given that bonuses only rise when revenue increases. The number however came below the 439 million reais estimate in the poll.
In addition, a smaller portion of revenues coming from Bermuda-based unit BTG Investments Ltd drove an increase in the bank's income tax rate.
Compared with the previous fourth quarter, net revenue fell 10 percent to 1.69 billion reais after asset management proceeds plummeted 60 percent and investment-banking fees slipped 14 percent, the poll found. The poll expected net revenue at 1.61 billion reais, with asset management tumbling 57 percent and investment-banking receipts about 4.5 percent.
Mergers and acquisitions activity in Brazil this year got off to its worst start since 2005 as buyers, fretting over growing state intervention and a weak economy, held off on some sizeable deals to get better terms.
As for principal investments - or income from investing the bank's own money on hedge funds, buyouts and real estate - proceeds dropped 67 percent after management cut the value of a 28 percent stake in BR Properties SA. Grim performance of the real estate and global markets units also contributed to the hefty decline in that revenue line.
Sales and trading income recovered, growing 212 percent from the prior quarter, helped by BTG Pactual's active trading of interest rate futures in Brazil.