August 2, 2017 / 12:45 AM / a year ago

UPDATE 1-BTG Pactual profit sinks as political turmoil hurts trading desk

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SAO PAULO, Aug 1 (Reuters) - Profit at Grupo BTG Pactual SA sank the lowest in six years in the second quarter as mounting political turmoil in Brazil drove down sales and trading income at Latin America’s largest independent investment bank.

In a Tuesday securities filing, São Paulo-based BTG Pactual said net income totaled 503 million reais ($161 million) last quarter, down 30 percent from the prior three months. Profit and revenue fell to the lowest level since the third quarter of 2011, driving return on equity down to 13.3 percent.

Revenue plummeted 49 percent as BTG Pactual’s trading desk struggled with rising political turmoil in May that sparked higher interest-rate market volatility and weighed down trading volumes. The bank also reversed an advisory fee for a deal that Brazil’s antitrust watchdog blocked - Kroton Educacional SA’s failed takeover of education firm Estácio Participações SA.

Brazilian bonds, stocks and currency tumbled in May, when billionaire Joesley Batista accused President Michel Temer of working to obstruct a corruption probe. It hurt Temer’s efforts to pass deficit-cutting legislation needed to avert further sovereign debt rating downgrades and pull the economy out of a three-year long recession.

BTG Pactual wants to regain earnings power in core activities after a drastic balance sheet downsizing last year. Cost controls and a cautious increase in risk-taking across Latin America had helped increase the bank’s “operational leverage” earlier in the year, Chief Executive Officer Roberto Sallouti said in May.

Assets fell to 119.113 billion reais at the end of June. For most of last year, BTG Pactual had to dismantle profitable trading positions and cut assets by two-thirds to cope with massive client fund withdrawals stemming from a corruption probe ensnaring founder André Esteves.

Revenue totaled 851 million reais, while expenses dropped 29 percent to 498 million reais from the prior three months. Income from investment banking dipped 88 percent in the period, while income from sales and trading slumped 74 percent to 154 million reais.

Regulatory capital ratio at BTG Pactual’s core banking unit fell to 19 percent in the quarter, but remained the highest among Brazil’s largest banks. Such a level is key to promote expansion in investment banking and money management without straining costs, Sallouti has repeatedly said.

Management plans to discuss results at a conference call on Wednesday.

$1 = 3.1260 reais Reporting by Guillermo Parra-Bernal; Editing by Lisa Shumaker, Bernard Orr

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