(Adds comments, share performance throughout)
By Guillermo Parra-Bernal
SAO PAULO, Aug 2 (Reuters) - A slow Brazilian economic recovery and the need for lenders to offload souring credit from their balance sheets are propping up Grupo BTG Pactual SA's distressed debt unit, offering a chance to reverse weak quarterly results, executives said on Wednesday. Activity at BTG Pactual's special situations unit helped spur an 86 percent jump in corporate lending revenue in the second quarter, Chief Financial Officer João Dantas said in a conference call. It was the only one in BTG Pactual's seven revenue lines that did not fall or remained stable last quarter.
The special situations unit, led by partner Alexandre Camara, oversees about 30 billion reais ($9.6 billion) worth of bad corporate credit at face value. BTG Pactual has earmarked about 1 billion reais of proprietary capital to buy more of those assets, he told Reuters in April.
Profit, which sank 30 percent last quarter, should normalize as Brazil's political turmoil eases and Latin America investment banking activity recovers, Chief Executive Officer Roberto Sallouti said in the call. Shares of Latin America's No. 1 independent investment bank fell 2.4 on the profit miss.
Distressed debt stands out as Sallouti's most promising bet to bring back profitability up to the level left by his predecessor André Esteves, who quit after being ensnared in a corruption probe in November, 2015. The unit is buying more collateralized, non-performing corporate loans on hopes that cash-strapped companies will offload assets at fire-sale prices to raise money.
"We know this business and it has performed especially well in recent months," Dantas said.
Net income sank to a six-year low of 503 million reais ($161 million) last quarter, as Brazil's political crisis hampered the interest-rate trading desk. Return on equity fell for the fifth quarter in eight.
Brazilian bonds, stocks and currency tumbled in May, when a billionaire accused President Michel Temer of working to obstruct a corruption probe. The situation hurt Temer's efforts to pass deficit-cutting legislation needed to avert further sovereign debt rating downgrades and pull Brazil out of a three-year long recession.
Revenue plummeted 49 percent as BTG Pactual's trading desk struggled with higher rate market volatility and weak trading volumes. The bank also reversed an advisory fee for a deal that Brazil's antitrust watchdog blocked - apparently Kroton Educacional SA's failed takeover of education firm Estácio Participações SA.
The fee reversal was worth 37 million reais, Dantas said, without elaborating.
$1 = 3.1164 reais Editing by Bernadette Baum, Bernard Orr