February 15, 2017 / 3:21 AM / a year ago

UPDATE 2-Brazil's BTG Pactual to keep high capital ratios to fan growth

(Adds share performance, comments throughout)

By Guillermo Parra-Bernal

SAO PAULO, Feb 15 (Reuters) - Grupo BTG Pactual SA will keep high capital ratios in coming quarters to prepare Latin America’s No. 1 independent investment bank to grow in core activities, following a dramatic balance sheet downsizing last year, Chief Executive Officer Roberto Sallouti said on Thursday.

The regulatory capital ratio at BTG Pactual’s core banking unit rose to 21.5 percent in the fourth quarter, the highest among Brazil’s top banks. Such a level is key to promote expansion in investment banking and money management without straining costs, Sallouti said on a conference call to discuss quarterly results.

Sallouti, who became CEO late last year after a broad management reshuffle, reiterated a long-term target for annualized return on equity above 20 percent. He expects organic growth to help triple assets under management and double the bank’s loan book over the coming years.

His remarks highlighted how BTG Pactual is trying to reassure investor confidence after the November 2015 arrest of former CEO and billionaire founder André Esteves in a corruption probe in Brazil. The scandal sent the lender’s shares and bonds into a tailspin, forcing it to dismantle trading positions and sell assets to cope with massive client fund withdrawals.

“Little by little, our strategy has taken shape, and we can now say that we’re ready to undertake growth in each of our main business franchises without triggering expenses,” Sallouti said.

Fourth-quarter profit fell as revenue in most core activities declined following the year-long balance sheet downsizing triggered by the arrest. Net income totaled 652 million reais ($211 million) in the quarter, down 1 percent from the prior three months and 47 percent from the same quarter of 2015.

Revenue fell 35 percent, touching a five-year low, after both income from trading and fees from wealth management sank 90 percent. While Sallouti managed to cut expenses sharply, the spin-off of a commodities unit and the sale of Swiss private bank BSI Ltd hurt BTG Pactual’s ability to generate revenue.

Analysts had warned that fourth-quarter results would make it clear whether BTG Pactual was on track to return to healthy recurring operational numbers.

“Despite the miss, results provided a clearer picture of the what should be the forward path of earnings for BTG Pactual,” said Carlos Macedo, an analyst with Goldman Sachs Group Inc.

Return on equity rose slightly to 12.7 percent in the fourth quarter, after a large interest-on-equity payment and the spin-off of the commodities unit led to a 17 percent reduction in shareholder equity.


BTG Pactual’s capital ratio could at some point return to historical levels around 15 percent, Sallouti said, without specifying a timetable.

Units, a blend of common and preferred shares in BTG Pactual’s investment banking and private equity divisions, shed 0.7 percent to 17.62 reais.

The stock is up 29 percent this year, in light of an expected segregation of shares of the two divisions, Banco BTG Pactual SA and BTG Pactual Participations Ltd.

Late on Tuesday BTG Pactual laid out the basics for a segregation of stock trading of its two main business divisions in order to enhance transparency and regain investor trust.

Under the plan, units of Banco BTG Pactual and BTG Pactual Participations would be offered to holders of Grupo BTG Pactual’s units. Investors can opt for the split or keep their current Grupo BTG Pactual units.

The plan underscores Grupo BTG Pactual’s steps to reignite growth and boost trading of its stock, Sallouti said.

For years, many investors criticized Grupo BTG Pactual’s structure, saying it encouraged Esteves and his partners to take on excessive risk in sectors highly exposed to Brazil’s struggling economy.

Some questioned whether the investment bank and the private equity divisions incurred conflicts of interest with clients that they advised or with which they competed for deals.

$1 = 3.0840 reais Reporting by Guillermo Parra-Bernal; Editing by Leslie Adler and Meredith Mazzilli

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