BTG Arrest Reverberates in Chile as Withdrawals Boost Swap Rates

  • Chile's 1-year swap rate reaches 19-month high Friday
  • BTG's money market fund suffers the most withdrawals

Andre Esteves’s arrest is pushing up Chilean interest rates.

Swap rates in the country have been climbing since the billionaire founder of Grupo BTG Pactual SA was detained as investors withdraw funds from the mutual funds offered by its local unit. That’s forced money managers to sell the most liquid instruments to raise cash, according to Felipe Alarcon, an economist at Euroamerica Corredores de Bolsa SA.

Since the day before Esteves was arrested Nov. 25 for allegedly interfering in a corruption probe in Brazil, Chile’s one-year swap rates have increased 13 basis points to 3.86 percent, the highest since May 2014. The 2-year swaps and 10-year swaps have jumped by similar amounts.

"The local market has seen a lot of sales, with lots of mutual funds having to raise cash and selling securities tied to base interest rates," Alarcon said, adding that rates also increased because of a drop in local sovereign bonds following the European Central Bank’s announcement Dec. 3 that it was planning less stimulus than investors had anticipated.

BTG’s former chief executive officer has denied any wrongdoing through his lawyer. BTG Chile has said that its brokerage, banking and asset-management units continue to operate normally.

BTG Chile’s assets under management have fallen to 631 billion pesos ($890 million) Thursday from 982 billion pesos on Nov. 24. Assets at its biggest fund, the BTG Pactual Money Market fund, have fallen to 188 billion pesos from 276 billion pesos in the same period of time.

An official at BTG’s local press relations department didn’t answer an e-mail seeking comment on the effect on swap rates.

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