BTG Pactual Says Unaudited Profit Rose After Founder Arrest

  • Bank released preliminary earnings to maintain 'transparency'
  • Revenues from commodities, currency trading boost result

Grupo BTG Pactual, the Brazilian investment bank that’s struggling after the arrest of its founder, said unaudited profit rose 45 percent in the fourth quarter on rising sales and trading revenue.

Net income advanced to 1.23 billion reais ($305 million), or 1.34 real a share, in the fourth quarter from 848 million reais, or 94 centavos, a year earlier, according to an e-mailed earnings preview Tuesday. That’s above the 1.18-real median analyst estimate in a survey by Bloomberg.

A BTG press official said the bank will report its audited fourth-quarter earnings by March 30, which is the Brazilian deadline for the company to release it.

BTG has sold assets and secured a credit line from Brazil’s depositor insurance fund to maintain liquidity after its then-Chief Executive Officer and Chairman Andre Esteves was arrested in November amid the nation’s biggest corruption scandal. Esteves, who was released from jail last month, remains under house arrest. He has denied any wrongdoing through his lawyers, while BTG said it isn’t part of the investigation.

“Given the bank’s situation, it was very positive BTG surprisingly disclosed preliminary fourth-quarter earnings,” Rodrigo Martin, an analyst at Porto Alegre, Brazil-based Quantitas, said in an interview. However, the unaudited figures lack details on BTG’s funding maturity, which would give a clear view of the firm’s solvency and liquidity, he said. “Sales and trading results were very strong, while principal investments were the negative highlight.”

Revenue at the bank’s sales and trading unit, which includes commodities, fixed income and foreign exchange, jumped more than fourfold to 2.29 billion reais from 527 million reais a year earlier, according to statement. Adjusted revenue more than doubled to 3.52 billion reais. Principal investment, which includes BTG’s private-equity investments, had a loss of 773 million reais, compared with losses of 132 million reais a year earlier.

BTG released an earnings preview that it doesn’t usually provide in order to maintain “transparency” after going through an “unprecedented stress test,” Chairman Persio Arida said in a separate e-mailed statement. The bank’s assets under management fell to 192.5 billion reais in the quarter, from 230.5 billion reais in the previous three months.

The bank has secured almost 90 percent of the funds it needs to pay its maturing liabilities in 2016, Co-Chief Executive Officer Marcelo Kalim said on a conference call with investors and analysts Tuesday. BTG’s ability to finance itself has been increasing and funding costs are stable, he said.

The firm’s broader lending book declined to 80.8 billion reais in the fourth quarter, down from 98.2 billion reais in the third quarter, following the sale of some of the lending portfolio. BTG has tapped about 5 billion reais of the 6 billion-real credit line FGC, as the nation’s depositor insurance fund is known, provided in December, Kalim said in the same conference call.

BTG’s shares have lost about half of their value since Esteves was arrested on Nov. 25, compared to a 21 percent decline for the Ibovespa benchmark index. The bank bought back 565 million reais worth of shares between Esteves’s arrest on Nov. 25 and Dec. 30, according to reports filed to securities regulator CVM. Co-CEO Kalim said on the conference call that BTG aims to continue having its stock buyback program as it’s a “very good use” of capital and liquidity.

BTG said in its earnings statement that it also bought back some of its perpetual bonds as the market value "does not adequately represent the credit worthiness of BTG Pactual."

The shares rose 3.5 percent to 14.38 reais at 2:50 p.m. in Sao Paulo, while the Ibovespa gained 1 percent. The bank’s $1.3 billion of perpetual bonds traded at about 70 cents on the dollar, compared to 92 cents before Esteves was jailed.

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