May 11, 2016 / 1:07 AM / 2 years ago

UPDATE 1-BTG Pactual Q1 profit beats estimates as downsizing yet to hurt revenue

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SAO PAULO, May 10 (Reuters) - Grupo BTG Pactual SA topped first-quarter profit estimates on Tuesday, as efforts to sell assets and cut funding needs in the wake of the November arrest of founder André Esteves failed to slow the earnings momentum of Latin America’s largest independent investment bank.

Net income totaled 1.071 billion Brazilian reais ($308.25 million) last quarter, above the average consensus estimate of 980 million reais compiled by Thomson Reuters. Despite the 13 percent drop from the prior three months, profit remained above the 1-billion-reais threshold for a fourth straight quarter.

Income from wealth management soared in the quarter, while corporate lending proceeds recovered even as BTG Pactual’s loan book was trimmed by 10 percent. Expenses remained under control, with compensation falling slightly, after BTG Pactual fired about 18 percent of its Brazil-based staff early this year.

Return on equity, a gauge of profitability, hit 18.8 percent, beating a consensus estimate of 17 percent. Esteves, who steered BTG Pactual through an aggressive global expansion plan until his arrest, had set a long-term target for ROE, as the gauge is commonly known, of around 20 percent.

Esteves was arrested in November in connection with a corruption probe in Brazil, forcing his partners to sell assets and dismantle trading positions in the wake of massive client fund withdrawals. He returned to São Paulo-based BTG Pactual in a senior advisory role last month, after a Brazilian judge freed him from months of house arrest.

Revenue totaled a record 3.612 billion reais in the quarter, well above the consensus estimate of 2.518 billion reais. Still, revenue is slated to fall when BTG Pactual’s recent decision to sell Swiss private banking Unit BSI SA and spin off a commodities trading unit translates into lower proceeds in the coming months.

The bank’s proprietary investments lost money last quarter after dismantling positions to honor withdrawals in the wake of Esteves’ arrest and booking losses in Brazil-based oil and retail industry investments. However, BTG Pactual’s sharp balance sheet downsizing since November helped cut costly fundraising and debt-servicing expenses.

Management led by co-Chief Executive Officer Marcelo Kalim will discuss results at a conference call early on Wednesday. ($1 = 3.4744 Brazilian reais) (Reporting by Guillermo Parra-Bernal, editing by G Crosse)

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