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SAO PAULO, Jan 19 (Reuters) - Brazilian investment bank Grupo BTG Pactual SA's ability to generate deal flow remains unscathed despite fallout from the November arrest of founder André Esteves, with management expecting recurring revenue to rise this year and clients to pour money into its funds.
The outlook for revenue from sales and trading, investment banking and money management remains solid even as Brazil's economy braces for a second year of recession and the Esteves situation weighed down confidence, co-Chief Executive Officer Marcelo Kalim said in a Tuesday conference call to discuss fourth-quarter results.
The bank unexpectedly released unaudited results earlier in the day in an effort to show that the management team that replaced Esteves wants to bolster transparency, especially in light of events that followed the billionaire financier's arrest, Kalim said.
Net income at BTG Pactual fell last quarter as provisions, charges and operating expenses surged, and Esteves's arrest for allegedly interfering in a sweeping corruption probe led to massive client fund withdrawals and curtailed access to funding.
The São Paulo-based bank earned net income of 1.23 billion reais ($304 million) in the fourth quarter, down from 1.51 billion reais in the third quarter.
According to Kalim, mergers and acquisitions and debt capital markets will propel investment-banking revenue while sales and trading activities should continue to thrive amid a surge in volatility in commodity markets. Non-recurring revenue from the sale of assets and pools of loans are expected, although that might take longer to happen that they did in the prior quarter, he added.
Quarterly revenues jumped to 3.52 billion reais, up from 2.56 billion reais in the third quarter.
Operating expenses rose to 1.89 billion reais from 1.37 billion reais in the third quarter. The 38 percent jump in expenses on a sequential basis was triggered by the slump in the Brazilian currency, as BTG Pactual has a significant portion of costs tied to the U.S. dollar.
The investment banking firm has begun aggressively selling assets and dismantling trading operations in order to bolster liquidity. It is still unclear from the earnings how much of the company's profit is due to non-recurring earnings.
Total assets under management of BTG Pactual fell to 266.5 billion reais in the last quarter of 2015 from the third quarter's 302.8 billion reais. Kalim said that outflows have stopped and that a potential net inflow could be recorded this quarter. (Reporting by Guillermo Parra-Bernal; Additional reporting by Reese Ewing; Editing by Mark Potter, David Evans and Nick Zieminski)