SAO PAULO, Nov 25 (Reuters) - Brazil’s Grupo BTG Pactual SA scrambled to contain the fallout from the arrest of its billionaire boss on Wednesday, tapping cash reserves to cover client redemptions and announcing a stock buyback to prop up its plunging share price.
The moves dramatized investors’ doubts about whether the investment bank can thrive without savvy founder André Esteves, Brazil’s most influential dealmaker.
Clients withdrew funds equivalent to less than 1 percent of assets under management at BTG Pactual, according to a source with knowledge of the bank’s strategy and the bank had to tap more than 4 percent of its roughly 40 billion Brazilian real ($10.69 billion) in cash reserves to cover those redemptions.
The arrest of Esteves, who chairman, chief executive and the controlling shareholder of BTG Pactual sent its shares plunging as much as 39 percent and prompted the central bank to issue a statement saying it was monitoring developments.
Ratings agency Moody’s Investors Service warned the credit rating of Latin America’s largest homegrown investment bank could be at risk if Esteves’ absence from the helm is prolonged.
Its bond prices slid sharply, raising its cost of funding and underlining investors’ view that the bank’s fortunes are heavily dependent on Esteves’ dealmaking skills, including his ability to sell loans and renegotiate investments.
“Esteves is a key manager at BTG and a prolonged absence could be credit negative for the bank,” said Alcir Freitas, a senior bank analyst at Moody’s Investors Service in São Paulo.
Esteves was arrested in his home in Rio de Janeiro on suspicion of obstructing a sweeping corruption investigation at state-run oil giant Petroleo Brasileiro SA, or Petrobras. He can be held for five days, with a potential extension of another five.
Esteves’ lawyer, Antonio Carlos de Almeida Castro, told reporters that the banker “certainly” had not acted to obstruct the investigation.
Board members tried to act quickly and tapped Persio Arida, chairman of the bank’s asset management business and a former president of the country’s central bank, to replace Esteves on an interim basis. The bank also announced a repurchase of up to 10 percent of shares in circulation to prop up prices.
Over the past year, Esteves, 47, has steered BTG Pactual through Brazil’s deepest recession in a quarter century. He bought Swiss private bank BSI Group last year to reduce its reliance on Brazil, invested heavily in global commodities trading and has kept a tight lid on costs. ($1 = 3.7410 Brazilian reais) (Editing by Carmel Crimmins and Christian Plumb)