• Business posts 211 million-real loss after year-earlier gain
  • BTG says internal funding costs affected principal investments

Grupo BTG Pactual, the Brazil investment bank whose founder was arrested last year in a corruption probe, said profit fell 8 percent, missing analysts’ estimates as it lost money on principal investments.

Second-quarter adjusted profit declined to 940 million reais ($300 million), or 1.07 real a share, from 1.02 billion reais, or 1.13 real, a year earlier, the Sao Paulo-based bank said in a regulatory filing late Tuesday. That was less than the 1.19 real per-share estimate of three analysts surveyed by Bloomberg.

Principal investments, a segment including private-equity, real estate and global markets, had a loss of 211 million reais in the second quarter “mostly due to internal funding costs,” while the company continued reducing exposures, according to the filing. A year earlier, the division posted a gain of 508 million reais.

“Results reflected a sharp decline in revenue generation,” Tito Labarta, an analyst at Deutsche Bank AG, wrote in a report to clients Wednesday.

Many investors withdrew funds managed by BTG after the November arrest of then-Chief Executive Officer Andre Esteves for allegedly interfering with the testimony of a former Petroleo Brasileiro SA executive caught up in the probe. To maintain liquidity, the bank sold assets, including a stake in Swiss private bank BSI, and tapped a credit line from Brazil’s privately owned deposit-insurance fund.

Esteves Returns

Esteves, who has denied wrongdoing through his lawyers, was released in December and put under house arrest until April, when he returned to the bank as a senior partner. Last month, Esteves was formally charged by a federal judge for allegedly interfering in the case, while his lawyer said again that the billionaire did nothing wrong. BTG has said it’s not part of the investigations.

The bank said it has 1.8 billion reais left outstanding on the 6-billion-real credit line, after repaying 2.6 billion reais during the second quarter. BTG intends to retire the debt by the end of this year using proceeds from the sale of BSI, Chief Financial Officer Joao Dantas said in a phone interview.

BTG’s Basel ratio, which includes Tier 1 and Tier 2 capital, may reach about 20 percent once the bank concludes the sale of BSI and the spinoff of its commodities unit, Engelhart CTP Group SA, Dantas said on a conference call with analysts. Both transactions are expected to be completed in the third quarter, he said. The bank’s Basel ratio was 14.2 percent in the second quarter, down from 16.9 percent a year earlier, according to company financial statements.

A capital ratio of 20 percent “is clearly above what we consider good,” Co-CEO Marcelo Kalim said on the call, adding that 15 percent is an “adequate” level. “What are we going to do with the extra capital? We haven’t made a decision yet.”

BTG is still holding talks to sell assets, including its 50 percent stake in an African joint venture with Petroleo Brasileiro SA, Dantas said in the interview, adding that the sale won’t be concluded in the “near term.” He declined to give any specifics on timing or potential buyers.

Banco Pan SA, in which BTG has a 51 stake of voting shares, may hold sale talks in the future, though it isn’t a favorable time to sell, he said.

The bank expects to post return-on-equity well above 20 percent as it sells assets, Dantas said. In the second quarter, ROE fell to 16.1 percent from 21 percent a year earlier.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE