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(Recasts to add details on earnings, background)
By Guillermo Parra-Bernal
SAO PAULO, Nov 4 (Reuters) - Grupo BTG Pactual SA missed third-quarter profit estimates on Tuesday as Latin America's largest independent investment bank grappled with an unexpected jump in taxes and a shortfall from proprietary investments that weighed on revenue.
Net income at the São Paulo-based bank, controlled by billionaire financier André Esteves, declined for the first quarter in six, driving annualized return on equity to the lowest level since the first quarter of last year. On the other hand, the bank grew its loan book at the fastest pace this year.
BTG Pactual earned 769 million reais ($308 million) in the quarter, below the average estimate of 864 million reais in a Reuters poll. Return on equity, the most widely watched gauge of profitability in the banking industry, slipped to 17.3 percent, compared with the poll's 19.4 percent estimate.
Under the stewardship of Esteves, who is also the firm's chief executive officer, BTG Pactual has expanded in global reinsurance, commodities trading and wealth management over the past year. Fee-related revenue lines, with the exception of investment banking, performed in line or slightly better than expected in the poll.
"In a quarter marked by volatility and adverse conditions in credit and equity markets, we reduced risk and exposure and remain confident that steps towards consolidating our business platform will broaden our revenue base," Esteves was quoted as saying in a securities filing.
As such, value at risk, or the maximum level of risk that a financial firm can take in a specific period, fell to 88.5 million reais in the quarter. Management will discuss earnings at a conference call on Wednesday.
Operational revenue fell 2.3 percent on a quarter-on-quarter basis to 1.702 billion reais, below the poll's estimate of 1.863 billion reais. Investment-banking revenue plunged 41 percent sequentially, in line with estimates, as mergers and acquisitions advisory as well as equity offerings struggled with the impact of Brazil's presidential election.
Esteves's drive to trade more physical commodities helped sales and trading income rise an unexpected 21.2 percent. That line, which totaled 784 million reais, stood above last year's quarterly average, a sign of healthy revenue generation.
Principal investments, or income from investing the bank's own money in hedge funds, private-equity investments and real estate, had a shortfall of 164 million reais, compared with the poll's estimate of a gain of 302 million reais. The global markets line was the driver behind the gap, while merchant banking and real estate recovered from weak performance in recent months.
Income tax payments rose almost six-fold to 231 million reais on a quarterly basis, following the booking of interest on equity and after a significant portion of recurring revenues were subject to higher levies in the period.
Expenses fell 4.7 percent, more than the 1.8 percent decline the poll predicted.
$1 = 2.4959 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Chris Reese and James Dalgleish