November 30, 2015 / 11:48 AM / 4 years ago

Brazil's BTG Pactual looks to new leadership after Esteves jailed

SAO PAULO (Reuters) - Grupo BTG Pactual SA looked to new leadership to steer it out of crisis on Monday after controlling shareholder André Esteves resigned as CEO and chairman following his jailing as part of Brazil’s sweeping corruption probe.

Andre Esteves, CEO Brazilian BTG Pactual bank is pictured during an interview in Sao Paulo July 22, 2014. REUTERS/Nacho Doce

Shares and bonds in Latin America’s largest independent investment bank plummeted, reflecting concerns about the impact of the investigation on operations after the Supreme Court extended Esteves’ detention indefinitely.

The financier, jailed since last Wednesday, quit as the bank’s head late on Sunday, as prosecutors prepared to file charges against him. Prosecutors suspect the billionaire dealmaker, along with a senior senator, tried to obstruct a long-running graft probe involving state-controlled oil giant Petroleo Brasileiro SA, or Petrobras. Esteves, through his lawyer, has denied the allegations.

In a new twist to the nearly two-year probe, Brazilian newspapers said police found documents allegedly linking BTG Pactual to the payment of bribes to ruling coalition lawmakers.

It was the first time the bank, whose fortunes have been closely tied to Esteves’, has been directly implicated in the bribery scandal. Prosecutor General Rodrigo Janot used evidence and other suspects’ testimony to persuade the country’s Supreme Court to extend Esteves’ detention on a preventive basis.

Documents suggested BTG Pactual had paid 45 million reais ($12 million) to Eduardo Cunha, speaker of the lower house of Congress, in exchange for passing legislation favoring the bank, the newspapers said.

BTG Pactual denied making such payments in a statement on Sunday, and pledged to cooperate with authorities. Cunha, who is already under investigation in the scandal, also denied the allegations.

A source familiar with the matter said the allegations and extended detention of Esteves convinced him and his business partners that he had to resign, cutting short the meteoric rise of the 47-year-old dealmaker who made a fortune from Brazil’s once-booming economy.

BTG Pactual named two founding partners, Chief Operating Officer Roberto Saloutti and Chief Financial Officer Marcelo Kalim, as co-CEOs. Persio Arida, who became acting CEO after Esteves’ arrest, is now chairman, with Huw Jenkins, head of the bank’s international arm, becoming vice chairman.

“It’s hard to separate the bank’s image from Esteves,” said Paulo Petrassi, who oversees 600 million reais in assets at Leme Investimentos in Florianópolis, Brazil.


Esteves still owns more than 28 percent of the bank, and his stake includes a “golden share” giving him veto rights on any board decisions.

BTG Pactual has almost 70 partners, including Esteves, who control a combined 80 percent of the bank’s capital, according to bank data. New co-CEOs Kalim and Saloutti each have about 5.5 percent.

The main partners, a group of seven executives including Kalim, Saloutti and Jenkins, with whom Esteves founded the bank in 2008, are considering buying their former leader out, among several options, the source said. Esteves’ stake is valued at around 6 billion reais.

Over the past year, Esteves had steered BTG Pactual through Brazil’s deepest recession in a quarter-century. He engineered last year’s purchase of Swiss private bank BSI Group to cut BTG Pactual’s reliance on Brazil and invested heavily in global commodities trading as rivals retreated from the segment.

Shareholder returns have long outperformed those of Wall Street rivals, and a longstanding internal joke says “BTG” stands for “Better than Goldman,” a reference to Goldman Sachs Group Inc.

Esteves’ arrest has entangled his bank, Brazil’s sixth-largest, in the country’s biggest corruption scandal ever, tying his name to a sprawling bribery and political kickback scheme that toppled a series of powerful politicians and businessmen.

In almost two years of investigation, 75 executives, money launderers and political operatives have been convicted as investigators unraveled more than 6 billion reais of bribes paid for contracts with Petrobras.

In the latest twist, police last week arrested Esteves and veteran lawmaker Delcídio do Amaral, head of the governing coalition in the Senate, along with a lawyer and political aide, under suspicion of obstructing the investigation.

The banker’s arrest focused new scrutiny of BTG Pactual’s dealings with Petrobras, including the bank’s stakes in Sete Brasil Participações SA, a supplier of oil-drilling platforms, and the oil giant’s Africa unit.

“Nobody knows when or where will this stop,” Nuria Jorba Arimany, who helps manage $2.7 billion for UBP in Zurich.


Shares and bonds of BTG Pactual have skidded since Esteves’ detention. Units, a blend of common and preferred shares in BTG Pactual’s investment banking and private equity divisions, shed 10 percent to 20.60 reais on the São Paulo Stock Exchange.

The price on BTG Pactual’s 8.75 percent perpetual junior bond slumped 21 cents on the dollar on Monday to 69 cents, yielding 20.7 percent. A day before Esteves’ detention, the bond was paying 11.5 percent in interest.

With Esteves in a prison cell in Rio de Janeiro, the bank’s main partners gathered on Sunday to finalize the sale of a 12 percent stake in Rede D’Or São Luiz SA, Brazil’s largest hospital chain, to Singapore sovereign wealth fund GIC Pte Ltd.

The stake will be sold for almost 2.5 billion reais, a source directly involved in the deal told Reuters. The bank had been negotiating the Rede D’Or deal since August, but Esteves’ arrest sped up talks, two other sources said.

GIC had paid 3.3 billion reais for a 16 percent stake of Rede D’Or in May.

BTG Pactual is also negotiating the sale of around 4 billion reais in loans to rivals Itaú Unibanco Holding SA and Banco Bradesco SA, three sources with direct knowledge of the situation told Reuters.

They said the loan sale could be struck as early as this week.

Both deals could help shore up BTG Pactual’s balance sheet after Esteves’ arrest prompted clients to pull more than $1 billion in investments held at the bank’s asset management division.

A partial sale of its commodities unit is also a possible option for it to raise capital, according to a source familiar with the matter. BTG Pactual declined to comment.

Heavily dependent on short-term market funding and 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.

Worries about liquidity and funding availability after Esteves’ arrest led Moody’s Investors Service and Fitch Ratings to put the bank’s investment-grade rating on review for a possible downgrade.

The bank’s proprietary investments unit controls more than two dozen companies. Some of them are in the middle of corporate reorganizations and requiring capital injections, like drugstore chain Brasil Pharma SA and Sete Brasil.

Another source with direct knowledge of the bank’s strategy said BTG Pactual had stopped offering new loans. Until Friday afternoon, external funding remained available and stable, that source said.

In an emailed letter to clients and trading partners on Friday, Arida said the bank was not a target of the investigation. The bank also denied on Friday that it was discussing selling itself to Banco Bradesco SA or UBS AG, as a local magazine reported that day.

Additional reporting by Bruno Federowski in São Paulo and Jeb Blount in Rio de Janeiro; Writing by Carmel Crimmins and Brad Haynes; Editing by Frances Kerry and Christian Plumb

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