August 7, 2013 / 12:05 AM / 4 years ago

UPDATE 1-Brazil's BTG Pactual misses profit estimates in gloomy second quarter

* Profit at 650 mln reais misses estimates in poll

* Six out of eight main revenue lines post decline

* Principal investments surprisingly report a loss

By Guillermo Parra-Bernal

SAO PAULO, Aug 6 (Reuters) - Net income at Grupo BTG Pactual SA missed analysts' forecasts in the second quarter after sagging global bond and equity markets weighed down revenue and a weak economy in Brazil forced the country's largest independent investment bank to rein in lending to clients.

São Paulo-based BTG Pactual earned 650 million reais ($284 million), compared with 612 million reais in the previous three months, according to a securities filing on Tuesday. The result was below the average 775 million reais estimate for net income in a Thomson Reuters survey of four analysts.

The result was BTG Pactual's second straight quarterly drop - the first back-to-back decline in earnings since the second and third quarters of 2011. Only two out of the bank's eight main revenue lines rose on a quarter-on-quarter basis; profit only did not fall further because losses in a real estate subsidiary allowed BTG Pactual to claim a sizzling tax rebate.

A 23.4 percent drop in Brazil's stock market and a surge in local bond yields hurt proceeds from trading of financial securities. Widespread market turmoil took its toll on trading of global currencies, commodities and bonds, driving the so-called principal investment line to lose money for the first time in more than two years, the filing added.

"In a very challenging market environment like this, we are satisfied with the performance of some client lines," Chief Executive Officer André Esteves was quoted in the filing as saying.

As market conditions remained especially challenging in Brazil, Esteves, 45, trimmed the bank's loan book for the first time in at least two years. BTG Pactual's loan book fell 3.7 percent to 35.59 billion reais from the prior quarter.

Management will discuss results at a conference call on Wednesday. The bank did not make any mention of its loan exposure to Grupo EBX, the troubled mining and energy conglomerate owned by tycoon Eike Batista. BTG was one of the EBX's major creditors and its main financial advisor as of the end of last quarter.

PRINCIPAL INVESTMENTS

Compared with the first quarter, net revenue slumped 41 percent to 1.01 billion reais because of the 313 million reais loss in principal investments and a 31 percent tumble in sales and trading, the filing said. The poll expected net revenue at 1.65 billion reais.

Principal investments - or income from investing the bank's own money on hedge funds, buyouts and real estate - swung to a loss after global equity and interest rate markets flopped. The poll had predicted 520 million reais in income from principal investments in the quarter.

Sales and trading income fell to 462 million reais from the prior quarter after growing risk aversion and volatility hampered equity trading strategies. Such disappointing performance offset an otherwise satisfactory performance in local currency and interest rate trades, the filing added.

Profitability as measured by return on equity rose to 17.5 percent in the second quarter from 16.9 percent in the first three months. The bank's ROE, as the indicator is known, missed the 20.5 percent estimate in the poll and, like in the previous quarter, failed to beat that of rivals despite Esteves' deal-making expertise and focus on cost-efficiency.

Helping profit, banker compensation slumped 32 percent in a quarter-on-quarter basis, to 265 million reais - usually bonuses only rise when revenue increases. The number however came well below the 495 million reais estimate in the poll.

In a separate statement, BTG Pactual approved the payment of 315.5 million reais in dividends to shareholders.

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