(Rewrites, adds share performance, CEO comments)
SAO PAULO, Aug 6 (Reuters) - Grupo BTG Pactual SA is trimming assets and increasing regulatory capital ratios in an effort to weather a protracted economic downturn and political crisis in Brazil that could last for another 18 months, Chief Executive Officer André Esteves said on Thursday.
Last quarter, Esteves cut total assets and the loan book of the largest independent emerging markets-based investment bank by 6.7 percent and 0.6 percent, respectively. He also took extra provisions for problem loans and proprietary oil and gas investments, which executives said may happen again if conditions deteriorate.
Esteves' more conservative tack aims to insulate BTG Pactual from Brazil's steepest downturn in 25 years, marked by declining commodity prices and weak capital markets. Yet, shares sank as much as 4.5 percent, with analysts including JPMorgan Securities' Saúl Martínez listing limited disclosure of loan book risks and reliance on short-term funding among investor worries about BTG Pactual.
Last quarter, net income at São Paulo-based BTG Pactual rose to a 3-1/2 year high as unusually low taxes and rising revenue from proprietary investments - using the bank's own money rather than customers' - helped offset a rise in banker bonus costs. Profit totaled 1.02 billion reais ($291 million) in the quarter, topping a Reuters poll estimate of 905 million reais.
Esteves, 46, told investors on a conference call to discuss earnings that risk-taking will only increase when conditions permit. The bank's credit portfolio could deteriorate as Latin America's largest economy slips further into recession, Esteves said, but not to the extent that future earnings suffer significantly.
"Our business model has us prepared to face the adverse scenario in Brazil, where the worst is not over yet," Esteves said on the call. "We have ramped up cash, reduced risk-taking, taken every necessary step to de-risk our balance sheet."
Economic woes in Brazil, which is struggling with rising unemployment and a political crisis stemming from the corruption scandal at state-run oil company Petrobras, could last for another 18 months, executives on the call said.
Despite the gloomy economic outlook, sluggish capital markets and rising borrowing costs, Esteves is confident BTG Pactual can deliver annual return on equity of around 20 percent.
And while Brazil will remain a key market for BTG Pactual, its non-Brazilian operations will account for most of its income and staff once the acquisition of Swiss private banking firm BSI Group deal is finalized, they added.
$1 = 3.5349 Brazilian reais Editing by Bernadette Baum, Jeffrey Benkoe and Bill Rigby