BTG Pactual, a once highflying Brazilian investment bank that stumbled badly during a brush with scandal last year, is reinventing itself with more modest aspirations.
Gone is the brash desire to outdo the US investment bank Goldman Sachs — some once joked that BTG stood for “Better Than Goldman” as the bank expanded to Hong Kong, the US and Europe.
Today, simply getting back into the game may be as meaningful for BTG, given the tumultuous nine months it has endured since its former chief executive and guiding force, Andre Esteves, was arrested in November last year on charges of obstruction of justice in the sprawling Petrobras corruption investigation, accusations he has denied.
BTG’s share price immediately took a beating and clients withdrew 33 billion reais (US$10.13 billion at current exchange rates) of their money from its funds in November and December last year, according to the Brazilian consulting firm Economatica, sparking a crisis of confidence that executives scrambled to fix.
Since then, the bank has showed signs of stability. Although profit in the second quarter, reported last month, came in below market estimates, the company no longer faces net withdrawals by clients or pressure to prove liquidity.
BTG’s flagship hedge fund, GEMM, shrank to US$150 million from US$5 billion after Esteves’ arrest, but has since bounced back to about US$500 million, Roberto Sallouti, one of the bank’s joint chief executives, said in an interview at the bank’s headquarters in Sao Paulo.
The bank also now has excess capital after selling assets.
BTG, said Sallouti, a Wharton graduate who joined the bank in 1994 and became a partner in 1998, is now in the final steps of what he called a strategic repositioning that it was forced to undertake.
“Clearly the worst is over and we’re back to the normal course of business,” he said.
The firm is even considering expansion in Latin America, particularly in Mexico and Argentina, and is seeking to acquire nonperforming loan portfolios, he said.
BTG has abandoned plans to expand operations in wealthier markets abroad.
The bank’s income is going to be mostly Latin America-related, “with the exception of asset management, where you will have fees coming from our hedge fund business,” Sallouti said.
Specifically, he added: “I would expect that Mexico and Argentina become more relevant every month and every year as a percentage of our revenues,” and he estimated that only about 25 percent of the bank’s revenue would come from outside Brazil.
That the bank even reached this point has surprised some observers.
The arrest of Esteves shook up Brazil’s business establishment. He was then the most prominent nonpolitician to be snared in the Petrobras investigation, which has affected a wide array of industries in Brazil.
Over the past two years, investigators have uncovered an elaborate bribery and money-laundering ring centered on the state-controlled oil giant. An influential senator from the Workers’ Party, then governing, who was arrested on the same day accused Esteves of helping an important witness flee the country.
In April, Esteves was freed from house arrest in Sao Paulo.
He did not waste a minute, showing up unshaven and in jeans at the bank’s headquarters the same day to address employees at an afternoon meeting. He has since been a regular presence at the bank.
“I talk to him almost every day,” Sallouti said.
Esteves does not have a management role, because he is still under investigation, but his lawyer said in an interview that he continues to claim his innocence and hopes to be cleared soon.
The Petrobras investigation shows no signs of slowing. Moreover, it appears likely to focus increasingly on the financial industry.
The lead federal prosecutor, Deltan Dallagnol, said in an interview that many banks facilitated the movement of illicit money in overseas accounts, so investigators were closely scrutinizing that.
He said that the information the authorities had uncovered so far “demands a deeper analysis that will be done at the opportune moment.”
A separate investigation into Brazil’s pension funds also presents risks for the bank and finance sector. While BTG is not being targeted, in the past its private-equity operations obtained capital from some of those funds.
Still, for now, many give BTG credit for surviving.
“They were trying to get back into the game very rapidly and vigorously,” said Luiz Cezar Fernandes, the founder of Pactual. “They made the right decisions.”
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