(Adds minister comments, loan sales, updates share performance)
By Guillermo Parra-Bernal and Tatiana Bautzer
SAO PAULO, Dec 4 (Reuters) - Embattled investment bank Grupo BTG Pactual SA has secured a 6 billion-real ($1.6 billion) lifeline from a deposit guarantee fund backed by Brazil’s top banks as it seeks to bolster cash and stem outflows following the arrest of founder André Esteves last week.
In a statement on Friday, BTG Pactual said it placed a pool of outstanding loans as collateral to back the credit facility from FGC, as the privately owned deposit guarantee fund is known in Brazil. The loan can be tapped immediately.
The announcement is a boost to BTG Pactual after clients pulled out and financing conditions deteriorated following the Nov. 25 arrest of Esteves, the bank’s former controlling shareholder. The three major credit rating agencies have downgraded the bank’s debt to junk status since his arrest.
Esteves faces indefinite detention after prosecutors accused him of working with Senator Delcídio do Amaral, head of the governing coalition in the Senate, to obstruct a bribery probe at state-run oil company Petroleo Brasileiro SA (Petrobras) . Esteves and Amaral have denied the allegations.
The head of Brazil’s ruling Workers’ Party, Rui Falcão, said on Friday Amaral had been suspended from the party for 60 days pending a decision on whether to expel him for allegedly obstructing the investigation.
The credit line from FGC, whose funding comes from a percentage of deposits held by banks, gives BTG Pactual some breathing space to meet 15 billion reais in borrowings due by year-end while proceeds from asset sales enter its coffers. BTG Pactual had 40 billion reais in cash as of end-September.
Still, shares tumbled while prices on the bank’s most widely traded dollar bonds jumped, a sign that the lifeline is temporarily allaying concerns of bigger problems down the road.
Finance Minister Joaquim Levy sought to reinforce confidence about BTG Pactual, saying the Brazilian financial system is “extremely solid” and there should be no concerns over the situation of the bank.
“Help comes in handy but the market remains quite wary” about the bank’s capital position, said Luiz Roberto Monteiro, a senior equity trader at Renascença Corretora brokerage in São Paulo.
BTG Pactual’s top seven partners, who replaced Esteves as the bank’s public face this week, are rushing to sell pools of loans, subsidiaries and private-equity investments to raise cash. With long-term debt and equity covering just 23 percent of BTG Pactual’s funding needs, the FGC facility gives the bank access to longer-termed money.
“The rationale behind this credit line is to help BTG Pactual’s situation stabilize: this ought not to be seen as a rescue,” Caetano Vasconcellos, a senior executive at São Paulo-based FGC, said in a telephone interview.
The announcement comes after BTG Pactual began talks with three international banks to sell its Swiss private bank BSI Group, two sources said on Friday. One of the banks, which the sources declined to name, is Italian and another is Swiss.
The decision to dispose of BSI, whose purchase was finalised only three months ago following Swiss regulatory approval, is part of the ongoing strategy to downsize the bank, said one source, who requested anonymity since the process is private.
Spokespeople for BSI and BTG Pactual declined to comment.
According to two sources with direct knowledge of the credit facility negotiations, BTG Pactual provided 8 billion reais in assets as collateral. FGC is funded with a percentage of the deposits held by the banking system, including private-sector majors Itaú Unibanco Holding SA, Banco Bradesco SA and Banco Santander Brasil SA.
Vasconcellos said BTG Pactual reached out to FGC on Tuesday evening and the facility was negotiated over 48 hours. BTG Pactual intends to repay the loan as soon as possible, though the parties agreed to keep it available for a period equivalent to the maturity of the collateral involved, the sources said.
The partners, led by Chairman Persio Arida and co-Chief Executive Officers Roberto Sallouti and Marcelo Kalim, negotiated the facility with the FGC.
“I am now comfortable with our liquidity position but will continue to push for further asset sales over the weeks to come,” Arida said in a letter to investors dated Friday obtained by Reuters.
State-controlled lenders Banco do Brasil SA and Caixa Econômica Federal are considering buying loans from BTG Pactual, sources told Reuters. BTG Pactual was negotiating 4 billion reais in loan sales to Itaú and Bradesco this week.
With investors a little less skeptical about the success of the strategy, prices of BTG Pactual’s $1 billion worth of 4 percent bonds maturing in January 2020, its most widely traded dollar note, climbed 12 cents on the dollar to 65 cents on Friday. At that price, the yield fell to 16 percent.
However, units, a blend of voting and non-voting shares in BTG Pactual’s investment banking and buyout divisions, fell 3.9 percent to 19.42 reais. The stock has shed 35 percent since Esteves’ arrest.
One source told Reuters that, so far, the bank’s strategy to rapidly get rid of non-essential assets other than banking is helping BTG Pactual preserve cash while slowing the pace of withdrawals.
Clients pulled out about a net 7 billion reais from the bank’s asset management unit the week after Esteves was jailed for allegedly seeking to obstruct the sweeping corruption probe in Brazil.
BTG Pactual’s main Brazil-registered, fixed-income funds on Wednesday lost nearly 250 million reais, or a tenth of the amount pulled the day Esteves was arrested, industry and Thomson Reuters data showed.
Two unidentified Chinese lenders also expressed interest in BSI, although Swiss regulatory authorities did not feel comfortable with them, the sources added. The Swiss financial industry watchdog declined to comment.
The sources did not give details of the size of a potential transaction, though BTG Pactual may seek between 1.6 and 1.8 times BSI’s equity. BTG Pactual paid about $1.3 billion to Italy’s Assicurazioni Generali SpA for BSI.
Ray Soudah, chairman of Swiss-based advisory firm MilleniumAssociates, said BSI’s lack of integration with the rest of the group would make it easier to sell.
Until Sunday, Esteves owned most of BTG Pactual’s voting shares, including a so-called golden share that gave him effective control and veto power over strategic decisions.
He relinquished control by trading his common shares for preferred stock, while his seven partners did the opposite. The partners formed a holding company with a majority of the bank’s common shares, a transaction the central bank approved on Friday.
BTG Pactual said the bank’s independent board members have begun an investigation into the events that led to Esteves’ arrest. Management vowed to impose no limit to that probe, to be conducted by an international law firm.
($1 = 3.7767 Brazilian reais)
Additional reporting by Steven Slater in London, Aluísio Alves, Priscila Jordão and Luciana Bruno in São Paulo, and Oliver Hirt and Joshua Franklin in Zurich; Editing by Bernadette Baum and James Dalgleish