(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 (Reuters) - 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 strategy said.
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 Hudson)