* CEO rebuffs view that bank's business model is volatile
* Esteves calls concerns about gov't meddling "overstated"
* Says low rates to spur "revolution" in capital markets
(Adds details, quotes from paragraph 6)
By Guillermo Parra-Bernal and Todd Benson
SAO PAULO, Nov 13 BTG Pactual Group's
ability to consistently chalk up healthy profits in
a tough market is debunking the "myth" among some investors that
the business model of Latin America's largest independent
investment bank is inherently unstable, Chief Executive André
Esteves said on Tuesday.
Analysts and investors have cited BTG Pactual's strong
reliance on trading-related revenues -- a highly profitable yet
volatile source of income -- as one reason behind the stock's
underperformance since its initial public offering in April.
Esteves, however, rebuffed those concerns in an interview,
citing a business model that also allows the bank to generate
income from more stable sources of revenue like advisory fees.
The Brazil-based bank has seen "resilience" in every line of
its business -- from sales and trading to corporate lending and
merchant banking -- "despite a very weak year for capital
markets" on its home turf, he said at BTG Pactual's headquarters
in Sao Paulo.
"Each quarter the myth that BTG Pactual's model is
intrinsically volatile is getting knocked down," Esteves said.
"That is a false perception about our business model."
BTG Pactual is well-positioned to benefit from record-low
interest rates, which over time should spur activity in local
debt and stock markets, areas where the bank is a major player.
The bank's profitability could also outperform that of
rivals as it leverages growth in activities such as commodities
sales and trading and private equity in places with strong
dealmaking potential such as Mexico or Africa, Esteves said.
Esteves, a 44-year-old billionaire, is steering BTG Pactual
through turbulent times in Brazilian capital markets by sharing
investment risks with clients in sectors from oil and gas to
infrastructure and agribusiness, while also ramping up bets in
riskier investments such as U.S. mortgages, global credit and
emerging market assets.
A surge in fees and strict cost controls helped BTG Pactual
beat third-quarter profit estimates, underscoring the resilience
of Brazil's sole listed investment bank in the face of an
economic downturn. Profit tripled from a year earlier to 793
million reais ($387 million), buoyed by solid results in asset
and wealth management, sales and trading, and corporate lending.
Units of BTG Pactual, a blend of common and preferred shares
in the firm's investment-banking and private-equity divisions,
shed 1.2 percent to 30.18 reais on Tuesday.
BTG Pactual and Esteves have become symbols of Brazil's
growing economic might, competing head to head with global
investment banks in a country with sophisticated capital markets
and a promising long-term growth outlook.
The bank has been on a dealmaking frenzy in Brazil and
beyond in recent years, acquiring s takes in retailer Leader
Participações SA and commercial real estate developer BR
Properties SA. It has also made investments in
countries like the United States, Colombia and Chile.
Esteves, a mathematician who grew up in a middle class
neighborhood in Rio de Janeiro, started as a computer technician
at BTG's predecessor Banco Pactual at 21. He rapidly rose
through the ranks to become managing partner and sold the bank
to UBS AG in 2006 for $3.1 billion.
When UBS ran into serious capital problems as a result of
the 2008 financial crisis, Esteves and his partners bought back
Pactual for $2.5 billion in 2009 and formed BTG Pactual.
Esteves said he sees "no transformational deals" in the form
of acquisitions that could modify the bank's current structure
in the short or medium term. However, he expects BTG Pactual to
increase activity in Mexico -- long seen as a banking market
with a handful of entry barriers for foreign players.
Growing state intervention in Brazil's economy under
President Dilma Rousseff, especially in the energy and financial
sectors, has shaken investor confidence in the country, driving
down an index of electricity shares by about 15 percent
Esteves called those concerns "overstated," but he also said
officials should do more to mitigate the perception of a
heavy-handed government to avoid dampening investor interest in
Brazil, the world's sixth-largest economy.
Like other banks in Brazil, BTG Pactual's profitability has
declined in recent quarters as the economy slowed and loan
delinquencies crept higher. But at 24.9 percent, the bank's
annualized adjusted return on equity -- a measure of
profitability -- is still well above that of its peers.
Esteves sees return on equity for Brazil's financial system
falling to between 15 percent and 18 percent, versus 20 percent
to 25 percent a few years ago. Rivals will feel the pinch of
lower interest rates more than BTG Pactual, he predicted.
Brazil's benchmark lending rate, now at an all-time low of
7.25 percent, could fall further if policymakers feel the
economy is growing below expectations, Esteves said. Lower
interest rates in Brazil are "absolutely sustainable" and are
here to stay, he added.
Esteves predicted that lower rates would spark a
"revolution" in Brazilian capital markets in the next five
years, allowing companies to rely more on bond and stock sales
instead of credit as a way to fund investments.
"AN INVESTMENT BANK THAT INVESTS"
Esteves sought to contrast BTG Pactual with traditional Wall
Street investment banks, highlighting his firm's practice of
teaming up with clients to invest, as opposed to just buying and
trading securities in financial markets.
"The political and business spectrum in Brazil love the fact
that we are an investment bank that invests in the real
economy," he said with a chuckle.
BTG Pactual is also eyeing potential opportunities in
developed economies that have fallen on hard times such as
Spain. Esteves, who on Monday attended a series of events in
Spain, said one deal in the European country involving BTG
Pactual could be announced as early as Tuesday.
He declined to elaborate.
(For a Factbox on BTG Pactual, click on )
($1 = 2.05 Brazilian reais)
(Reporting by Guillermo Parra-Bernal and Todd Benson;
Additional reporting by Aluisio Alves; Editing by Tim Dobbyn)