(Repeats to widen distribution)
* Plans to invest $300 million-plus in commods expansion
* Ex-Noble Group CEO Leiman brings key hires
* Opening trading desks in London, Geneva, New York
By Jeanine Prezioso, Emma Farge and Guillermo Parra-Bernal
NEW YORK/GENEVA/SAO PAULO, July 31 Brazil's
Grupo BTG Pactual SA, Latin America's largest independent
investment bank, is making a bold push into the global commodity
markets just as other banks bow out, betting it can avoid the
regulatory pressure rattling rivals.
Even as U.S. lawmakers and regulators step up scrutiny of
Wall Street's giants over their physical commodity operations,
the privately held bank run by Brazilian billionaire André
Esteves has forged ahead with a $300 million-plus expansion plan
that has taken the industry by storm.
Since hiring former Noble Group chief executive Ricardo
Leiman to lead the drive, BTG has recruited nearly a
dozen traders, managers and analysts in London, Geneva and New
York to cover everything from freight to grains to natural gas,
according to headhunters and a source familiar with the plans.
Sao Paulo-based Ozeias Silva de Oliveira, who ran Noble's
Brazil grains desk, is also in a senior role and will be joined
by several top staff from his former employer.
The build-out is part of a bold push to match the bank's
well-regarded raw materials research teams with trading
capabilities, the source said.
Logistics and warehousing, major problems for soy, coffee
and sugar producers in Brazil, are another area of interest, the
source said. The bank is looking to spend more than $300 million
to build the business, two sources familiar with the bank's
Officials at BTG's headquarters in Sao Paulo declined
requests to comment on the bank's plans.
The wave of hiring stands out in an industry that has seen
attrition from big banks over the past several years, a trend
that threatens to accelerate as U.S. politicians and regulators
subject banks' commodity operations to unprecedented pressure.
Reeling from criticism of its warehouse business and
allegations of power market manipulation, JPMorgan Chase & Co
on Friday announced it was selling its physical
commodities business, which includes a metals warehouse, power
plants and oil and gas storage. On Tuesday it paid a near-record
$410 million to settle with power regulators.
Morgan Stanley and Goldman Sachs are also at
risk if the U.S. Federal Reserve decides to clamp down on
allowing banks to participate in the raw material markets.
But BTG, like a handful of other foreign banks including
Sydney-based Macquarie Group, is not subject to Fed
oversight because it doesn't operate any commercial U.S. banks,
potentially allowing it to benefit from what may be the biggest
reshuffling of financial players in a decade.
"From a regulatory perspective they may try to become like
Macquarie, a representative of a foreign bank. There's an angle
there," said Peter Henry, senior consultant at Commodity Search
Partners in New York.
BTG is focused on organic growth for the moment, one of the
sources said. But the bank could be spoiled for choice if it
decides to buy into the sector: In addition to JPMorgan, energy
traders Hetco and U.S.-based Gavilon are on the block, while
Morgan Stanley has been looking at a possible sale of its
commodity arm since last year.
BTG Pactual, formed in 2009 when Esteves' Bank and Trading
Group acquired UBS Pactual, is branching out as part of a
broader push to diversify its revenue base, which is at present
mostly driven by equity and debt capital market transactions as
well as its mergers and acquisitions advisory business.
Last November, Esteves told Reuters that the bank wanted to
leverage growth in activities such as commodities sales and
trading as well as private equity in places with strong
dealmaking potential such as Mexico and Africa. He added that
the bank was focused on diversifying its revenue sources and on
allocating capital "in the most efficient possible way".
Now the 45-year-old billionaire is steering the bank through
turbulent times in Brazilian capital markets by sharing
investment risks with clients in sectors from oil and gas to
logistics and agribusiness. The bank is also ramping up bets on
riskier investments such as U.S. mortgages, global credit
markets and emerging market assets.
Part of the rationale behind BTG Pactual's foray into
commodities is that it lacks trading capabilities to match the
size of its research team in the area, according to the source.
BTG Pactual has also conducted advisory work for companies in
industries such as mining and metals, processed foods and oil.
Last July, BTG teamed up with Roger Agnelli, the former head
of Brazilian metals and mining giant Vale SA, and set
up B&A Mineracao, a mining group focused on fertilizer, iron ore
and copper, in Latin America and Africa.
"They're already lending to a lot of people in the soft
commodities and metals space so they do have leverage to get an
investment bank flow business going," Henry said.
But recent hiring suggests a much larger ambition and shows
that it has successfully lured key players from top commodity
trading houses such as Noble and Bunge.
Registration documents showed that commodities branches had
been registered in trading hubs Geneva and Singapore in July as
the bank builds a "significant international business" and
expands its Brazil base, one of the sources said.
In terms of management, the bank has hired Nick Brewer as
chief operating officer and Dean Morris as chief risk officer,
both formerly senior managers at Noble, trade sources said.
On the trading side, it has added Jim Rowe, the former head
of North American crude oil trading at Noble, and Rich
Brockmeyer, a former natural gas trader for Noble as well as
Jonathan Haines from hedge fund Tudor and Larry Greenhall, a
former director at Bunge, trade sources also said.
The build-up comes at a time of enormous uncertainty on Wall
Street, with mounting political and public pressure over banks'
involvement in metals warehouses and physical trading.
The Federal Reserve surprised much of the industry on July
19 when it said it would review a landmark 2003 decision that
first allowed commercial banks to trade raw materials. That was
followed by a scathing review of banks operating in commodities
markets by the powerful Senate Banking Committee in Washington.
Lawmakers argued that commercial banks should not be allowed
to back a margin-heavy, volatile commodity business while taking
customer deposits. Furthermore, those banks should not control
the supply of raw materials for their own monetary gain while
driving up the market price.
"The banks went a little bit too far with the Fed's
authorization to get into the commercial side of commodities
business and I think that the Senate is more than shocked about
what they saw when they started investigating into this
situation," said Richard Bove, a veteran banking analyst
currently working as an equity research analyst for Garden City,
New York-based Rafferty Capital Markets, LLC.
"I doubt that any bank will have any, if you will,
commercial commodities business in 12 to 18 months from now."
(Additional reporting by Sarah McFarlane in London, Luke
Pachymuthu in Singapore; Editing by Jonathan Leff and Dale