BTG Gets $1.6 Billion Lifeline From Brazil's Deposit Fund

  • Credit from privately backed FGC fund available immediately
  • Deal strengthens liquidity for normal operations, firm says

BTG Pactual SA received a 6 billion-real ($1.6 billion) credit line from Brazil’s privately backed deposit-guarantee fund Fundo Garantidor de Creditos to shore up cash as the investment bank tries to stem a rout after the arrest of its founder.

The credit line from FGC, as the fund is known, “serves to strengthen the liquidity required for the normal operations of the institution” and will be available immediately, Sao Paulo-based BTG said in a statement Friday.

The FGC line “is guaranteed by a portion of the credit portfolio of the bank, as well as by assets and a guarantee provided by the controlling shareholders,” and is meant to “complement the measures adopted in recent days,” BTG said in the statement.

Shares of the company fell 2.1 percent to 19.78 reais at 12:06 p.m. in Sao Paulo, compared with a 2.3 percent decline for the Ibovespa benchmark index. The shares have slumped 36 percent since former Chairman and Chief Executive Officer Andre Esteves was arrested on Nov. 25 in a corruption probe. The lender’s $1 billion of bonds due 2020 rose 9.8 cents to 62.44 cents on the dollar, after reaching a record low of 52.6 cents Thursday.

BTG has rushed to shore up cash as concerns about the bank’s liquidity mount. The lifeline from FGC comes one day after BTG said it’s considering whether to raise as much as 1 billion reais issuing securities known as DPGEs, debt securities linked to a portfolio of loans. FGC also acts as a backer of the notes, guaranteeing as much as 20 million reais per investor.

“BTG is doing whatever they can to boost liquidity, whether selling assets or issuing debt,” Max Bohm, an analyst at Sao Paulo-based consulting firm Empiricus Research, said in a phone interview. “The bank may have been facing a lot of withdrawals.”

Esteves, 47, lost control of the firm he helped build as the bank’s partners try to stem the rout in bonds and shares. He resigned as BTG’s CEO and chairman on Nov. 29 after being jailed on suspicion of trying to obstruct a corruption probe related to the so-called Carwash case. Esteves has denied any wrongdoing through his lawyers.

Asset Sale

BTG also said this week it sold a stake in Brazil’s biggest hospital chain for 2.38 billion reais. The bank plans the sale of some assets including BSI, the Swiss private-banking unit it acquired three months ago, a person with knowledge of the situation said this week.

The DPGE program was created by the central bank in 2009 to help small- and mid-size banks facing liquidity problems during the global financial crisis. Banks had 15.5 billion reais in DPGEs as of Thursday, down from 22.9 billion reais a year earlier, according to Cetip SA, Brazil’s biggest fixed-income clearinghouse. BTG also sold 822 million reais of local bonds from its portfolio to Banco Bradesco SA, it said Thursday.

On Tuesday, Moody’s Investors Service cut BTG to junk and warned of further downgrades on concern the investment bank will struggle to keep enough cash on hand and maintain its franchise. Standard & Poor’s cut the lender’s grade to BB- from BB the next day, also saying it could downgrade further. Fitch placed BTG’s BBB- rating on watch negative on Nov. 26.

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