* Net income plummets 28 pct, misses estimates
* Results at BTG Pactual are weakest in 1 1/2 years
* Revenue lags as advisory, principal investments weigh
By Guillermo Parra-Bernal
SAO PAULO, May 7 Net income at BTG Pactual
Group, Brazil's sole listed investment bank, tumbled 28 percent
in the first quarter after sagging equity markets in Latin
America's largest economy hit revenue, while compensation and
administrative expenses jumped.
São Paulo-based BTG Pactual earned 612 million
reais ($304 million), compared with 854 million reais in the
previous three months, according to a securities filing on
Tuesday. The result missed the average 700.8 million reais
profit estimate in a Thomson Reuters survey of four analysts.
The results were the weakest since the third quarter of
2011, according to Thomson Reuters data. An almost eight-percent
drop in the local stock market during the first quarter hurt
income from financial advisory and stock listings, while
widespread market turmoil took its toll on trading of global
currencies, commodities and bonds, the filing added.
As market conditions remain challenging, especially in
Brazil, Chief Executive André Esteves has gradually expanded the
bank's market share in brokerage and investment banking across
Latin America while extending more credit to companies in the
region. As a result, pay jumped and expenses related to
integrating takeovers in Chile and Colombia edged higher.
Profitability as measured by return on equity sank to 16.9
percent in the first quarter - the lowest for BTG Pactual since
the third quarter of 2011. The bank's ROE, as the indicator is
known, fell short of the 19.3 percent estimate in the poll and,
unlike prior quarters, failed to beat that of rivals despite
Esteves' focus on cost-efficiency and deal-making expertise.
"Even as results came in below average numbers for the past
year, we feel that the performance was good, especially in some
important lines," the bank said in the filing. Management will
discuss results on Wednesday in a conference call with
BTG Pactual is facing more competition from the
investment-banking units of bigger financial conglomerates such
as Itaú Unibanco Holding SA, which are pursuing
growth in fee-based businesses as weak credit growth and lower
borrowing costs in Brazil hurt revenue.
Hampering profit, banker compensation surged 19 percent in a
quarter-on-quarter basis, to 387 million reais - an unusual
result given that bonuses only rise when revenue increases. The
number however came below the 439 million reais estimate in the
In addition, a smaller portion of revenues coming from
Bermuda-based unit BTG Investments Ltd drove an increase in the
bank's income tax rate.
Compared with the previous fourth quarter, net revenue fell
10 percent to 1.69 billion reais after asset management proceeds
plummeted 60 percent and investment-banking fees slipped 14
percent, the poll found. The poll expected net revenue at 1.61
billion reais, with asset management tumbling 57 percent and
investment-banking receipts about 4.5 percent.
Mergers and acquisitions activity in Brazil this year got
off to its worst start since 2005 as buyers, fretting over
growing state intervention and a weak economy, held off on some
sizeable deals to get better terms.
As for principal investments - or income from investing the
bank's own money on hedge funds, buyouts and real estate -
proceeds dropped 67 percent after management cut the value of a
28 percent stake in BR Properties SA. Grim
performance of the real estate and global markets units also
contributed to the hefty decline in that revenue line.
Sales and trading income recovered, growing 212 percent from
the prior quarter, helped by BTG Pactual's active trading of
interest rate futures in Brazil.