(Adds comments from executive in paragraphs 6-10)
By Guillermo Parra-Bernal
SAO PAULO May 7 The contribution of commodities
sales and trading to Grupo BTG Pactual SA's profit
will rise in coming quarters, Chief Executive Officer André
Esteves said on Wednesday, underscoring the synergies the unit
has with the investment bank's trading desk.
A move to extend the offering and trading of specialized
products for fixed-income, equities and currencies to
commodities since late 2012 was shown to be "the right decision
because we leveraged our synergies in a number of key areas,"
Esteves said in a conference call to discuss first-quarter
BTG Pactual is betting big on commodities, taking advantage
of regulatory hurdles afflicting larger rivals. Some operations
outside Brazil are being integrated rapidly, raising revenue in
areas from asset management to financial advisory services,
Esteves and other executives added.
The contribution of commodities sales and trading, which
includes grains, oil and gas, energy and mining and metals, to
profit will be incremental in spite of a tough market for the
asset class, he added. He provided no guidance on the unit, but
said its share in the sales and trading revenue line should be
similar to that of currencies, fixed-income and equities.
"Not more, not less, just in line with the other legs of the
business," Esteves said of the weight of commodities sales and
trading on revenue.
The São Paulo-based lender reported first-quarter net income
of 832 million reais ($373 million), well above the 797 million
estimate in a Reuters poll. Compared with the fourth quarter,
profit rose 8.3 percent, while on an annual basis it soared 35.9
percent - the result of a tumble in taxes amid stable revenue
and a slight decline in expenses.
Esteves, 45, who said BTG Pactual's business model is more
stable than analysts think, weathered the toughest start to a
year for Brazilian capital markets in a decade by cutting banker
bonuses by 28 percent in the wake of lower private-equity and
asset management income. Sales and trading thrived as the
commodities drive bore fruit, making up more than half of
While the bank has remained secretive over its foray into
commodities, sources told Reuters BTG Pactual hired Ricardo
Leiman from Noble Group Ltd and nearly 200 staff among traders,
analysts and managers in London, Geneva, New York and elsewhere
to cover everything from freight to grains to natural gas. The
bank has spent $300 million on the unit, the same sources noted.
The ability to extract more profits from the unit also is a
function of BTG Pactual's investments to add scale and the use
of its balance sheet to offer products and win new clients,
Investor Relations Director Jõao Dantas said in an interview.
The unit became operational within a year because it merged
prior trading of financial commodities with new capabilities to
trade physical commodities on a larger scale, he said.
Shares reversed early gains and shed 0.3 percent to 31.50
reais on Wednesday. The stock is down 4.3 percent in the past 12
Esteves' efforts to expand in areas such as commodities and
in countries such as Mexico, Chile and Colombia are likely to
impact results more in coming quarters, analysts said.
BTG Pactual and peers are struggling with rising risk
aversion that is weighing on share and bond offerings throughout
Latin America this year.
"The figures showed the resilience of the bank's business
model," Carlos Firetti, head of equity research at Bradesco BBI,
said on Wednesday. "Despite large quarterly variations in
different business units, as a whole, the bank's revenue mix can
sustain decent levels of return."
As a result of that, BTG Pactual is on the "more
conservative side" in terms of risk allocation, Esteves said.
"We are happy that we could deliver in terms of return on equity
in a very challenging market scenario," he said.
Annualized return on equity was 20.2 percent in the first
quarter, compared with the 19.4 percent estimate in the poll,
and in line with Esteves' 20 percent target for the long run.
Return on equity, or ROE, is a measure of how well a bank spends
Total revenue fell 5.2 percent to 1.71 billion reais on a
quarterly basis, missing the poll's estimate of 1.74 billion.
Principal investments - or income from investing the bank's
own money in hedge funds, buyouts and real estate - unexpectedly
swung to a loss after real estate and private-equity investments
flopped. The line has a 115 million real shortfall, compared
with the poll's estimate of 385 million reais in gains in the
Wages and banker compensation in the first quarter fell to
384 million reais from 535 million reais in the fourth quarter,
reflecting weaker capital markets activity and declining asset
management revenues. General expenses fell 12.7 percent, despite
the bank's expansion into different regions and markets.
($1 = 2.23 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Jeffrey
Benkoe, Chizu Nomiyama and Eric Walsh)