December 2, 2015 / 11:56 AM / 5 years ago

UPDATE 5-BTG Pactual partners take control from jailed founder Esteves

(Adds comments from chairman)

By Guillermo Parra-Bernal and Tatiana Bautzer

SAO PAULO, Dec 2 (Reuters) - Founding partners in Grupo BTG Pactual SA took control of the Brazilian investment bank from jailed financier André Esteves on Wednesday in an attempt to distance the firm from the most sweeping corruption investigation in the country’s history.

After two rating companies downgraded the bank to junk status in as many days, BTG Pactual said Esteves, until now the public face of Latin America’s largest independent investment bank, had agreed to a share swap ceding control to the other seven founding partners.

Esteves stepped down from his role as chairman and chief executive on Sunday, following his arrest on Nov. 25 in a graft scandal that has splintered President Dilma Rousseff’s coalition and deepened a severe economic recession. Lower House Speaker Eduardo began on Wednesday impeachment proceedings against Rousseff.

Esteves’ departure comes as the bank’s new management, which includes three of the top seven partners, is rushing to sell stakeholdings, pools of loans and other assets to shore up cash levels and restore investor confidence. Chairman Persio Arida told Reuters on Wednesday that the bank will exit non-essential investments in segments other than banking.

Those negotiations include an effort to sell the bank’s stake in Recovery do Brasil SA, Latin America’s largest debt collector, according to three people involved in the talks. The Recovery stake could fetch as much as $450 million, depending whether it includes a platform that Recovery uses to price loans, two of the sources said.

Another source said the search for a potential buyer for BTG Pactual’s 68 percent stake in parking lot company Allpark Empreendimentos Participações e Servicos SA has begun, adding that potential parties have yet to be contacted.

“The process of exiting non-core assets has begun,” Arida said in a phone interview.

Clients at Grupo BTG Pactual SA’s asset management unit withdrew a net 9.15 billion reais ($2.4 billion) between Nov. 25 and Nov. 27 from the 114 investment vehicles registered at fund industry group Anbima. The withdrawals accounted for 4 percent of the 230 billion reais the unit managed as of September.

Traders and fund managers said BTG Pactual is also shedding proprietary holdings of Brazilian government debt, with foreign investors snapping up a great part of the position.

Moody’s Investors Services added urgency to negotiations when it stripped BTG Pactual of its investment-grade rating late on Tuesday, cutting it two notches to Ba2 from Baa3, on concerns that liquidity could be under pressure after Esteves’ arrest.

Standard and Poor’s followed suit on Wednesday, cutting the bank’s ratings to B from BB-, and warning that a further downgrade may follow.

With about 55 percent of its banking arm’s funding due for refinancing over the next 90 days, BTG Pactual has tried to assure clients that it is operating normally.

“They have very short-term funding ... a very different profile than the rest of the market. It definitely raises counterparty concerns,” said Alfredo Mordezki, head of Latin America fixed income at Santander Asset Management in London.


Esteves faces indefinite detention after prosecutors accused him of working with veteran lawmaker Delcídio do Amaral, head of the governing coalition in the Senate, to obstruct a political bribery probe at state-run oil company Petrobras.

Esteves and Amaral have denied the allegations.

Until recently Esteves owned almost 29 percent of the bank, including a so-called golden share that gave him effective control and veto power over strategic decisions.

BTG Pactual said that he relinquished control of the bank by trading his common shares for preferred stock, while his seven partners did the opposite. The so-called “top seven partners” formed a holding company with a majority of the bank’s common shares, the bank said, without giving further details of its new capital structure.

The deal involved no cash disbursements, according to a source briefed on the matter. Esteves would no longer take part in decision-making and will become a mere dividend-earner, Arida said.

The top seven partners - Arida, Marcelo Kalim, Roberto Balls Sallouti, Antonio Carlos “Totó” Porto, James de Oliveira, Renato dos Santos and Guilherme Paes - will split Esteves’ stake in equal parts, said the source, who requested anonymity because of the sensitivity of the issue.

The São Paulo Stock Exchange suspended trading in BTG Pactual shares for more than four hours while it clarified details of the operation, which requires central bank approval.

The bank’s units, a blend of common and preferred shares in its banking and buyout units, closed down 1.5 percent. They have shed 33 percent in the past week.


With investors uncertain about the change of control and the future of the bank, prices of BTG Pactual’s $1 billion worth of 4 percent bonds maturing in January 2020, its most widely traded dollar note, slipped 6.75 cents on the dollar to 61 cents on Wednesday.

The price of BTG Pactual’s 8.75 percent perpetual junior bond fell 1 cent on the dollar to 57.5 cents, yielding 27 percent. The day before Esteves’ detention, the yield was 11.5 percent.

The bank announced the sale of a 12 percent stake in Rede D’Or Sao Luiz SA, Brazil’s largest hospital chain, to Singapore sovereign wealth fund GIC Pte Ltd for about 2.4 billion reais ($619 million), confirming a Reuters report last week.

GIC had bought a 16 percent stake in Rede D’Or in May.

The bank could raise another 4 billion reais from a planned sale of loans to rivals Itaú Unibanco Holding SA and Banco Bradesco SA, sources told Reuters this week. The deal could be announced later on Wednesday.

($1 = 3.8556 Brazilian reais)

Additional reporting by Brad Haynes, Cesar Bianconi and Aluísio Alves in São Paulo, Carolyn Cohn in London and Olivia Oran in New York; Editing by Lisa Von Ahn, Cynthia Osterman, Frances Kerry and Bernard Orr

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