UPDATE 1-BTG Pactual misses profit estimates as expenses spike

Tue Feb 18, 2014 7:50pm EST

SAO PAULO Feb 18 (Reuters) - Grupo BTG Pactual SA's profit missed analysts' estimates in the fourth quarter, as strong trading revenues were offset by a tumble in advisory income and surging expenses.

The Brazilian bank, controlled by billionaire financier André Esteves, earned 768 million reais ($320 million) in the quarter, compared with 746 million reais in the third quarter, according to a securities filing. A Reuters poll of three analysts expected profit at 792 million reais.

Although profit rose for a fourth consecutive quarter, assets and return on equity, a key measure of profitability, fell for a second straight quarter. Assets were down after BTG Pactual's holdings of financial securities funded by repurchase agreements, such as U.S. and Brazil government notes, dropped during the quarter.

Total revenue rose 27 percent on a quarterly basis to 1.799 billion reais, beating the poll estimate of 1.625 billion reais. But investment banking receipts plunged 62 percent to 50 million reais, the lowest in nine quarters, the filing said. The poll expected 111 million reais from investment banking.

Sales and trading income jumped 31 percent to 339 million reais, well below the poll's 344 million reais estimate. Proceeds from asset management more than doubled to 480 million reais.

Principal investments, or income from investing the bank's own money in hedge funds, buyouts and real estate, jumped 62 percent to 474 million reais, well above the 311 million reais expected in the poll.

BTG Pactual grappled with flagging equity, bond and derivatives markets this year in Brazil and other Latin American countries. The bank's global markets division, whose hedge funds trade all types of financial instruments worldwide, generated a great part of the fourth-quarter revenue thanks to successful bets on global credit and U.S. mortgage assets, wiping out losses in emerging markets.

BTG Pactual, which is also Latin America's largest independent investment bank, will discuss results during a conference call with investors on Wednesday.

BANKER BONUSES

"2013 was a challenging year for global capital markets ...," Esteves said in the filing. "In that adverse scenario, we were able to deliver consistent numbers throughout the year and the fourth quarter was our best in terms of profitability."

Esteves, 45, has steered the bank through turbulent times in Brazilian capital markets by sharing investment risks with clients in sectors ranging from oil and gas to logistics and agribusiness. BTG Pactual moved to a more conservative market approach last year, avoiding some risky assets ahead of the U.S. Federal Reserve's dismantling of its monetary stimulus program.

Expenses caused the decline in profit, the filing showed, after salaries, bonuses and compensation more than doubled in a quarter-on-quarter basis. Total expenses rose 75.3 percent to 880 million reais, compared with 638 million reais forecast in the poll.

BTG Pactual had 2,715 employees at the end of last year, compared with 2,195 in 2012. Salaries in Brazil rose about 8 percent, in line with the collective bargaining agreement with the banking workers' union, the filing said.

Annualized return on equity, a measure of profitability, fell to 19.3 percent in the fourth quarter from 19.4 percent in the prior three months, the filing said. The poll expected 19.2 percent in the quarter.