BTG Earnings Beat Estimates for First Time in Three Quarters

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Grupo BTG Pactual, the Brazilian investment bank controlled by billionaire Andre Esteves, reported profit that beat analysts’ estimates for the first time in three quarters, easing concern that losses on private-equity stakes will undermine the company’s finances.

First-quarter earnings climbed 2.6 percent to 854 million reais ($281 million), or 94 centavos a share, from 832 million reais, or 92 centavos, a year earlier, Sao Paulo-based BTG said Wednesday in a statement. That surpassed the 93-centavo estimate of five analysts surveyed by Bloomberg.

Esteves has been trying to contain the fallout from holdings linked to Petroleo Brasileiro SA, the state-owned oil company embroiled in a bribery scandal. The results included a provision for the impairment to BTG’s investment in Sete Brasil Participacoes SA, an oil-rig supplier to Petrobras, as the company is known, equivalent to approximately 25 percent of its book value. Revenue for the quarter topped analysts’ estimates even with that provision, which totaled 280 million reais.

“The consolidated results were positive, it was a good result,” Carlos Daltozo, an analyst at Banco do Brasil SA in Sao Paulo, said in an interview Wednesday, adding that he still expects the shares to come under pressure because more bad news might be coming. “The impairment on Sete Brasil wasn’t expected,” said Daltozo, who has a market perform rating on the shares.

Souring Investments

Esteves, who transformed BTG into the largest independent investment bank in Latin America and became a billionaire before turning 40, is being closely watched for any signs he’s struggling to withstand a weakening economic outlook and souring investments linked to the Petrobras scandal. BTG’s stock has recovered from losses earlier this year as investors regained confidence in the financier who’s joked his firm’s name stands for “better than Goldman.”

Revenue from sales and trading was 1.17 billion reais in the first quarter, up 34 percent from 874 million reais in the same period of last year.

“The sales and trading business had very strong numbers because of foreign-exchange trading and commodities,” Daltozo said.

The gains helped offset losses on principal investments, which include private equity, real estate and proprietary trading. That business posted negative revenue of 444 million reais in the first quarter, almost four times as much as in the three first months of last year.

Corporate Loans

Revenue from corporate lending increased 61 percent, to 317.8 million reais, due to a recovery on the non-performing loans portfolio, BTG said.

Esteves, 46, must also contend with projections that Brazil’s economy will contract 1 percent this year, after expanding an average 1.56 percent annually since 2012. Such a contraction, which would be the biggest in a quarter century, may trim demand for BTG’s investment-banking services, such as merger advice and initial public offerings.

Esteves missed his target of a 20 percent return on equity for the firm, posting ROE of 18 percent for the first quarter. That was down from 20.2 percent a year earlier.

Shares of the firm have dropped about 4.5 percent since April 2012, when it held its initial public offering, the worst performance among the nation’s biggest banks during the same period. The shares fell 13 percent in the fourth quarter and 9.3 percent in the first three months of this year. They’ve gained almost 17 percent since then.

Bonds Decline

Esteves, who’s worth about $3.2 billion, according to the Bloomberg Billionaires Index, is trying to reassure shareholders as BTG bonds posted the worst performance among any of the biggest Brazilian banks since Feb. 25, when the firm reported profit for the fourth quarter that missed analysts’ estimates.

BTG’s recent losing wagers contrast with one of Esteves’s biggest successes: In 2009 he bought back for $2.5 billion the firm he sold to UBS AG in 2006 for $3.1 billion. And BTG’s investment in medical-care provider Rede D’Or Sao Luiz SA gained 4.4 billion reais, a part of which will probably be booked during the second quarter, a person with direct knowledge of the matter said last week.

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