UPDATE 6-BTG Pactual bonds, shares down on worries over … – Reuters

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(Adds details on liquidity position from paragraph 3)
SAO PAULO, Dec 8 (Reuters) – Grupo BTG Pactual SA’s bonds and shares plunged on Tuesday after Brazilian prosecutors presented formal charges against the bank’s founder and former chief executive officer, André Esteves, for his alleged involvement in a corruption probe.
Investors have grown wary that a potential incrimination of BTG Pactual may further hamper the bank’s deal flow. A small number of international banks have slightly limited access to short-term funding for BTG Pactual, but the bank is offsetting the situation by rapidly cutting the need for financing, a source with knowledge of the matter said.
Esteves was arrested on Nov. 25 on suspicion of obstructing the largest graft probe in Brazil’s history. When presenting the charges late on Monday, prosecutors in the case did not say whether BTG Pactual, Latin America’s largest independent investment bank, might be investigated.
BTG Pactual’s liquidity position has stabilized after the bank promptly dismantled trading positions and began to sell pools of loans to rivals and non-essential assets outside banking, said the source, who requested anonymity to speak freely about the issue.
The bank declined to comment.
While executives and Esteves’ lawyer expressed confidence the São Paulo-based lender would be spared from the sweeping investigation known in Brazil as “Operation Car Wash,” the case is rattling BTG Pactual.
Units, a blend of voting and non-voting shares in BTG Pactual’s investment banking and private equity divisions, slumped 15 percent to an all-time low on Tuesday. The stock is down 50 percent since Nov. 24, the day before Esteves was taken into custody at his hometown of Rio de Janeiro.
The price of BTG Pactual’s $1 billion in 4 percent bonds maturing in January 2020, the bank’s most widely traded dollar note, slumped 6.25 cents on the dollar to 53.75 cents, while the yield climbed 5.6 percentage points to 21.63 percent from Monday.
BTG Pactual’s 8.75 percent perpetual bond dropped to a record low of 43 cents on the dollar. At that price, its yield hit 20.3 percent.
Both bonds have declined every day but one since Esteves was detained.
A group of co-founders known as the top seven partners took control from Esteves after he relinquished all his executive duties at the bank last week. They are rapidly shedding non-essential assets other than banking, curbing new loans and dismantling massive derivatives positions to help BTG Pactual preserve cash and lure clients back.
A source with direct knowledge of the bank’s strategy said on condition of anonymity that BTG Pactual is already being offered some financing facilities, even abroad. The source did not elaborate on the available funding lines, adding that the bank is not facing credit restrictions from international lenders.
The same source noted that BTG Pactual is prepared to operate in an environment of “no-financing roll-overs” for the coming months, partly because of the dismantling of trading positions and a decision to halt loan disbursements.
Last week, Brazil’s deposit guarantee fund FGC provided a lifeline worth 6 billion reais to BTG Pactual to bolster liquidity.
BTG Pactual has already drawn about 2 billion reais from the FGC credit line, said Caetano Vasconcellos, a key executive at the fund. The loan, for which BTG Pactual placed 8 billion worth of assets as collateral, should help the bank meet fundraising needs through mid-2016, he added.
The bank declined to comment on the implications of Monday’s decision against Esteves. Antonio Carlos de Almeida Castro, Esteves’ lawyer, said he had not had access to the documents supporting the charges and reiterated his client’s innocence.
Speaking at an event, Vasconcellos said the charges were focused on Esteves and not the bank. “It would have been terrible if more people were involved,” Vasconcellos said.
At the behest of its independent board members, BTG Pactual soon plans to announce the appointment of a law firm that will conduct an internal investigation into the events that led to Esteves’ arrest. Management vowed to impose no limits to that probe, according to a statement on Friday.
In the meantime, BTG Pactual continued to make headway in its plan to raise cash from the sale of some assets.
Earlier in the day, Equatorial Energia SA, an electricity holding company in which BTG Pactual had a 5.2 percent before Esteves’ arrest, said investment funds managed by the bank divested an undisclosed stake.
The bank’s brokerage will conduct the sale of 59 million shares of commercial real estate company BR Properties SA on Thursday at the São Paulo Stock Exchange, at the behest of an unidentified client. Traders said the client might be BTG Pactual itself.
BTG Pactual is the largest shareholder in BR Properties, with a 35 percent stake. The move could help the bank raise about 443 million reais ($117 million).
In another move to raise cash, BTG Pactual reduced its stake in Italy’s Banca Monte dei Paschi di Siena SpA to below 1 percent in recent days, a source close to the matter said on Tuesday. Before the divestment, it held 1.9 percent. (Editing by Frances Kerry and James Dalgleish)
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