As UBS AG’s losses from subprime-mortgage bets swelled in early 2008, Andre Esteves, already a billionaire as he neared 40, approached his 150-year-old employer with a deal.
The Rio de Janeiro native would supply UBS with much-needed capital two years after the Swiss giant had paid him and his partners $3.1 billion for their Brazilian investment bank. In return, Esteves sought a controlling stake, people familiar with the plans say. UBS’s board rejected the proposal, and Esteves soon quit as global head of fixed income.
With UBS’s cash crunch deepening in 2009, Esteves and some former partners offered $2.5 billion to repurchase their firm. This time, UBS accepted. Since then, Esteves, 44, has fashioned what’s now Grupo BTG Pactual into a regional power to challenge weakened global rivals and still-sturdy local institutions, Bloomberg Markets magazine reports in its October special issue on the 50 Most Influential people in global finance.
With his bank No. 1 in Brazilian equity underwriting, Esteves jokes that BTG -- officially Banking and Trading Group - - stands for Better Than Goldman.
Esteves is leading a shift from a Wall Street-dominated universe as he amasses clout in the largest emerging economy after China. Aiding him is what he calls global finance’s worst moment: misbehavior ranging from JPMorgan Chase & Co.’s multibillion-dollar derivatives loss to the rigging by Barclays Plc and other firms of the London interbank offered rate.
‘Courage and Guts’
Goldman Sachs Group Inc., once Wall Street’s most profitable firm, posted a 5.4 percent second-quarter return on equity; BTG returned 30.8 percent.
“He’s got a lot of courage and guts, and he makes things happen,” says Arthur Byrnes, who oversees almost $1 billion as chairman of New York-based Deltec Asset Management LLC and who doesn’t own BTG shares. “My only advice is, don’t go too fast.”
Esteves, who peppers his rapid-fire Portuguese with such English phrases as “value proposition,” says he still admires chief executive officers Jamie Dimon of JPMorgan and Lloyd Blankfein of Goldman.
Alejandro Vollbrechthausen, president of Goldman Sachs in Brazil, says the feeling is mutual.
“These guys are fantastic,” he says of BTG. “Sometimes they are our clients; sometimes they are competitors; sometimes, trading partners.”
Even so, Esteves compares major banks to mastodons.
“The big global banks -- without going into specific names -- were very out of control, very unregulated, very ownerless,” Esteves says at BTG’s Sao Paulo headquarters.
“We’ll still see years of transformation, and part of that transformation is a certain contraction. Obviously, that’s an opportunity.”
Since 2008, Esteves, as BTG chairman and CEO, has moved to capitalize on the big banks’ upheaval. He has tripled assets under management to more than $85 billion. He has opened Hong Kong, London and New York offices and acquired brokerages in Chile and Colombia.
BTG earned the biggest chunk of its $1.6 billion in revenue in the first half of 2012 by speculating with its own capital -- especially betting on declines in Brazilian borrowing costs and an improving U.S. mortgage market. The next-largest slice came from brokerage operations.
The billionaire’s time at UBS was like an MBA, says Marcelo Mesquita, a former co-head of Brazilian equities for the Swiss bank.
“The internationalization of the business was very much a consequence of this global experience,” says Mesquita, who now runs Rio-based asset management firm Leblon Equities.
Esteves overcame turbulent global markets in April to hold an initial public offering in Sao Paulo and Amsterdam that valued BTG at $14.5 billion. With the stock little changed as of Sept. 10, his 22.5 percent stake was valued at about $3 billion.
Dismissing as temporary the rising defaults that have accompanied Brazil’s recent slowdown, Esteves says his country is like the U.S. five decades ago, when baby boomers joined an urbanizing job market. Along with investments in energy and infrastructure, BTG pours private-equity funds into companies that stand to gain from Brazil’s growing middle class: pharmacies, clothing retailers and real estate firms. Partly because the economy is starving for capital, as he puts it, Esteves doesn’t need the huge gambles that humbled his northern colleagues. Brazil’s interest rates, historically the highest among major economies, also make leverage expensive.
‘Dictatorship of Argument’
Esteves blasts the excessive compensation in the U.S. and Europe, which he says divorces risk from reward.
“A guy would screw everything up, switch jobs and not lose a thing,” he says.
He’s upending that approach by inviting the best performing of more than 160 partners to buy, at book value, more shares in BTG each year. The worst performers must sell back some holdings. Persio Arida, a former Brazilian central bank president who joined Esteves in 2008 and helped prepare for the Pactual repurchase, says that a partner’s persuasiveness trumps seniority -- what he calls a “dictatorship of argument.”
Esteves sits at a workstation in the proprietary-trading pit, facing a beige hallway unadorned by art. BTG didn’t buy the private jet he uses for business trips and doesn’t pay to fuel or maintain it. He spent one of two weeks of vacation time this year in Turkey with his wife and three small children in July; his face, framed by graying temples, glows from the sun.
Every Sunday, he invites executives to his home to order pizza and debate deals. It’s a culture that Arida, now chairman of the asset management arm, acknowledges may be difficult to sustain as the bank grows.
Esteves credits two mentors with bringing meritocracy to Brazil’s financial industry: Jorge Paulo Lemann -- the 73-year-old mogul who arranged the Anheuser-Busch InBev NV merger in 2008 and is Brazil’s second-richest man -- and Luiz Cezar Fernandes, 67, who founded Pactual in 1983.
In a 2009 interview with Brazilian magazine “Epoca,” Lemann said he and Esteves had discussed injecting capital into UBS, without taking their talks further. Esteves says today they didn’t attempt to buy control.
Fernandes hired Esteves, who was then a student at Rio’s Federal University, as a computer technician in 1989. Raised by his mother, a professor who lectured on education psychology, Esteves needed the job to repay the loan for his car -- which got stolen on his first day of work. He was promoted to fixed-income trader by 1990 and headed a nascent asset management division soon after.
As he won a larger slice of the bonus pool, he boosted his stake in the bank. To capture a bigger share, he took advantage of his mentor’s misfortune. Fernandes had amassed outside debts from diversifying into textiles, packaging and orange juice.
In 1998, Esteves and his partners demanded that he hand over a stake in return for loans. Fernandes accepted and then quit. In an interview with Brazilian magazine “Piaui” in 2006, Fernandes said Esteves would sell his own mother to achieve power; he now praises his former protege’s ambition.
Esteves has had run-ins with regulators. In three separate cases since 1999, Brazil’s central bank and securities commission alleged Pactual had illegally transferred profits to foreign funds to disguise gains and avoid taxes.
Esteves and his partners received warnings in the first two incidents. In the third, he and another partner were ordered to pay a combined settlement of 100,000 reais ($50,000), with Pactual paying another 4 million reais. The case closed in 2007 without any admission of guilt.
‘Competing as Equals’
This year, before BTG’s IPO, Italy’s stock market regulator confiscated 4.2 million euros ($5.4 million) in assets and fined Esteves 350,000 euros for suspected insider trading. The agency alleged he’d bought shares of meatpacker Cremonini SpA in November 2007 while knowing of its impending joint venture with Brazil’s JBS SA. He appealed, saying the allegations were baseless, and the fine was canceled. The case was pending.
As his influence expands, Esteves is hiring talent from the old guard.
“What we do here in Brazil and in much of Latin America, I think we do as well or better than the best global banks,” he says.
Esteves predicts a new financial landscape in a decade.
“We’re going to have a few truly global banks competing with regional champions and competing as equals,” he says.
As banking’s mastodons lose public trust and watch once-outsize profits fade, Esteves, the brash emerging-markets insurgent, may find that BTG stands for something rare these days: Bank That Grows.