BTG Pactual's reliance on market funding poses challenge for new boss

viernes 27 de noviembre de 2015 16:29 GYT

By Guillermo Parra-Bernal and Tatiana Bautzer

SAO PAULO Nov 27 (Reuters) - The reliance of Brazil's Grupo BTG Pactual SA on market funding may pose an immediate challenge for new boss Persio Arida, who sought to calm clients on Friday after its shares fell for a third straight day.

The São Paulo-based investment bank tapped Arida, a former president of Brazil's central bank, as acting chief executive officer following the arrest of founder and controlling shareholder André Esteves in a sweeping corruption probe earlier this week.

Shares and bonds in Latin America's largest independent investment bank have slumped and some clients have pulled money from the bank's asset management unit since Esteves' detention.

Against that hostile market backdrop, BTG Pactual has to refinance 15.3 billion reais ($4 billion), or about 55 percent of its banking arm's funding, within 90 days. With long-term borrowing and equity covering only 23 percent of BTG Pactual's funding needs, Arida must convince investors to park their money in the bank for a longer period, even if that means paying more for it.

As a bank that makes most of its revenues from trading, including investments using the banks' own funds, solid funding is crucial for BTG Pactual to reassure trading partners and investors that it can thrive despite Esteves' arrest. Brazil's most savvy dealmaker, Esteves wanted to build BTG Pactual into the largest independent investment bank in emerging markets.

"The ability of BTG Pactual to fund operations, and at what cost, is among the most important things to monitor in the coming days and weeks," said Saúl Martínez, an analyst at JPMorgan Securities.

According to a source with direct knowledge of the bank's strategy, a conservative use of cash and a balance sheet with about 25 billion reais in highly liquid securities provide a buffer against short-term funding needs.

The source added that new loan origination has been halted to protect cash. External funding so far remains available and stable, said the source, who requested anonymity to discuss the issue freely.   Continuación...