Fitch Cuts BTG Pactual to Junk, Warns of Further Downgrades

  • Fitch follows Moody's, S&P in downgrading lender this week
  • Chairman Arida told clients bank is comfortable with liquidity

Banco BTG Pactual SA was cut to junk by Fitch Ratings, the third downgrade this week for the largest independent investment bank in Latin America as it confronts the fallout from the arrest of its billionaire founder Andre Esteves.

Fitch cut the grade by three steps to BB-, citing the deterioration of the bank’s liquidity position and the damage caused by the arrest. The rating was kept on watch negative, which means more cuts could come, according to a statement Friday.

BTG Pactual said Friday it received a 6 billion-real ($1.6 billion) credit line from Brazil’s privately backed deposit-guarantee fund Fundo Garantidor de Creditos, the latest move to shore up cash after Esteves’s arrest on Nov. 25 prompted a rout in the bank’s securities. The lifeline from FGC comes one day after BTG said it’s considering whether to raise as much as 1 billion reais issuing debt securities known as DPGEs.

"These measures, if successfully completed, could help the bank withstand this turbulent period and restore liquidity to more stable levels,” Fitch said. “Even so, the deterioration on the bank’s funding franchise seems clear."

BTG Pactual Chairman Persio Arida told clients Friday that he is pleased with the steps the firm has made in the “face of unprecedented events."

Esteves, who this week lost control of the firm he helped build, resigned as BTG’s CEO and chairman on Nov. 29. He was jailed on suspicion of trying to obstruct a corruption probe tied to the state-controlled oil producer. Esteves has denied any wrongdoing through his lawyers. BTG has said it isn’t being investigated and is cooperating with authorities.

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. Standard & Poor’s cut the lender’s grade to BB- from BB the next day, also saying it could downgrade further.

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