BTG Bets on New Commodities Business as Big Banks Exit

Grupo BTG Pactual (BBTG11), the Brazilian investment bank led by billionaire Andre Esteves, said its new commodities business will start adding to revenue as some of the world’s biggest lenders retreat.

“We expect to have some revenue from the area in coming quarters,” Marcelo Kalim, chief financial officer for the Sao Paulo-based company, told analysts on a conference call today. “This is the appropriate moment to start this business.”

Increased regulatory scrutiny and falling revenue have prompted banks including New York-based JPMorgan Chase & Co. (JPM) to pull back from commodities. Revenue from the business sank 25 percent in the first half, to about $2.7 billion, at the 10 largest investment banks, according to data from analytics firm Coalition Ltd.

Esteves, 45, previously ran the fixed-income, currencies and commodities business at Zurich-based UBS AG. BTG hired Shon Loth, Noble Group Ltd.’s former head of metal warehousing, for its commodities business, a person with direct knowledge of the matter said this week. Loth is a vice chairman of the London Metal Exchange’s warehousing committee and a member of the bourse’s steel committee, according to data on its website.

Goldman Sachs Group Inc., which has said it remains committed to the business, previously warned potential rivals that getting involved in commodities can be dangerous.

Smart People

“A lot of very smart people have gotten into a lot of trouble or lost a lot of money by getting into the commodities business,” the New York-based company’s former CFO, David Viniar, said at a 2007 investor conference in Florida. Goldman Sachs has a “very long history of watching our competitors get into the commodities business at the top of the market, and buying their businesses at the bottom.”

U.S. lawmakers have questioned whether banks should be allowed to own physical commodities businesses and the Federal Reserve said it’s reviewing a decision it made a decade ago that allowed commercial banks to enter the industry.

JPMorgan said last month that it’s considering exiting the business of owning and trading physical commodities ranging from metals to oil. That marks a reversal of its push into the practice of owning raw materials with its 2010 purchase of parts of RBS Sempra, a joint venture between Royal Bank of Scotland Group Plc and Sempra Energy. (SRE)

BTG said yesterday that second-quarter net income declined to 650 million reais ($283 million), or 72 centavos a share, from 822 million reais, or 93 centavos, a year earlier. That missed Deutsche Bank AG’s estimate of 881 million reais and Banco Bradesco SA’s 669 million-real forecast.

BTG rose 2.8 percent to 27.44 reais at 5:06 p.m. in Sao Paulo. The shares dropped 14 percent this year through yesterday, compared with a 22 percent decline for Brazil’s Ibovespa benchmark index.

To contact the reporter on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Christine Harper at charper@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.