(CORRECTS spelling of Gallina in 16th paragraph)
By Paul Kilby
NEW YORK, Nov 30 (IFR) - BTG Pactual's bonds were lower on Monday as investors scrambled to assess the impact on the Brazilian bank's liquidity and fretted about the prospect of more negative headlines after Andre Esteves stepped down as CEO over the weekend.
The bank's 2016s and 2020s were down two points at 90.00-92.00 and 73.00-75.00, while the subordinated 2022s and perps were down about five points since Friday to be quoted at 60-65 and 67-70, said a trader.
Esteves's arrest last Wednesday, as part of the corruption investigation at oil company Petrobras, is seen having broad implications for what is now the country's largest independent investment bank.
"Liquidity is a major risk but if other people at the bank were involved that would make the situation much worse," said Omar Zeolla, a credit analyst at Oppenheimer.
Fitch put the bank on rating watch negative on Friday following a similar move by Moody's, which placed the credit's Baa3 rating on review for downgrade on Thursday.
Fitch, which has the bank at BBB-, said it could downgrade BTG if its business is materially impacted by higher funding costs, liquidity levels or drop in assets under management.
"The wholesale funding nature of the bank and the dependence on its franchise to perform its normal business may be undermined," Fitch said on Friday.
"...there is not enough clarity on the reactions of the bank's fund providers, clients and counterparties; but Fitch will assess the material impact..."
S&P, which already has a BB rating on BTG, said Thursday it was monitoring the bank's net stable funding and broad liquid asset to short-term wholesale funding ratios, which respectively stood at 105.6% and 1.6x as of September.
About 55% of the banking arm's funding is up for refinancing over the next 90 days, Reuters reported on Monday.
The bank is in the process of selling a 12% stake in Brazilian hospital chain Rede D'Or for about R$2.5bn - a move that will help strengthen its balance sheet following outflows of over US$1bn at its asset management division, according to Reuters.
Some traders feel that the bank is large enough to warrant central bank support in the event it runs into trouble. "If things worsen, the Central Bank would provide all the support necessary," said one trader. "This is too big to fail."
Fitch says that its ratings does not assume sovereign support.
"The bank is a very relevant player in the trading market, but being a wholesale funded bank they are not necessarily systemically important," said Eduardo Ribas, director of financial institutions at Fitch in Brazil.
That said, the rating agency sees a very active central bank following up the case.
"We see the central bank monitoring closely the banks in Brazil and being proactive whenever there is a risk that could threaten the system" said Claudio Gallina, senior director and head of Brazilian financial institutions at Fitch.
Founding partners Marcelo Kalim and Roberto Sallouti have been appointed as joint CEOs following the announcement of Esteves's resignation on Sunday.
Arcos Dorados, the largest McDonald's franchiser in South America, held a Swiss roadshow in the week ended November 6 via Credit Suisse. The Argentina-based, NY-listed company is rated Ba3/NR/BB+.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Brazilian airline Gol (B3/B-/B-) has completed roadshows with Morgan Stanley, Credit Suisse and Citigroup. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)