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By Guillermo Parra-Bernal and Sarah McFarlane
SAO PAULO/LONDON, April 8 (Reuters) - Grupo BTG Pactual SA has spun off a fast-growing commodities sales and trading unit, allowing the Brazilian investment bank to free up capital in the wake of a recent balance sheet downsizing.
In a securities filing published on Friday, BTG Pactual said the move will give shareholders of the São Paulo-based ownership of 65 percent of the unit, which will be renamed Engelhart Commodities Trading Partners. The transaction, which vales the business at $1.6 billion, is expected to be concluded by September, the filing said.
Bloomberg News reported earlier Friday that the unit would be separated in a deal valuing the business at about $1.6 billion. A source with direct knowledge of the situation had told Reuters that an announcement was due on Friday.
According to the same source, management at BTG Pactual was still deciding on a formula for compensation, equity and executive retention for the unit’s top managers and traders. The unit was led by Brazil-born trader Ricardo Leiman, also a former chief executive officer of Noble Group Ltd.
The deal helps insulate the fast-growing unit from the capital and reputation-linked impact of a scandal that hurt BTG Pactual last year. Founder André Esteves was arrested in November in connection with a corruption probe in Brazil, sparking massive client fund withdrawals and asset sales.
An independent probe found no sign of illicit practices by Esteves, the bank or any employee, in relation to the so-called “Operation Car Wash” that led to the billionaire financier’s arrest. Esteves remains on house arrest in his São Paulo home.
When he created the unit four years ago, Esteves wanted commodities to help steer BTG Pactual through global diversification as stricter capital rules drove larger rivals away. Returns in the London-based unit have, since then, outperformed rivals and profitability in some fixed-income, currency and equity trading activities within BTG Pactual.
Units in BTG Pactual, a blend of voting and non-voting shares in the firm’s investment-banking and buyout divisions, rallied on the news, adding 10.2 percent to 18.92 reais. The stock has dropped 39 percent over the past six months.
BTG Pactual Commodities, as the unit was originally called, was backed by $1 billion in proprietary capital from the bank, and had about 700 employees at the end of last year. Sources told Reuters that the unit reported a gross margin of around $650 million in the first 11 months of last year.
Globally, U.S. and European bulge-bracket banks have generally pulled back from commodities trading in recent years, making BTG Pactual a notable exception in the business. With an “asset-light” model, the unit made profits from market volatility and prospered at a time when rivals struggled with falling market prices from oil to copper.
Leiman quickly built a team including ex-Noble colleagues Nick Brewer, now chief operating officer of the unit, and Chief Risk Officer Dean Morris. Engelhart starts with the legacy of a particularly active firm in Latin American agriculture markets, U.S. power and gas, and the European power, gas and coal markets. (Additional reporting by Tatiana Bautzer in São Paulo and Sruthi Shankar in Bengaluru; Editing by Bernadette Baum and Bernard Orr)