LatinFinance - January/February 2015 - 14

equity of around 20% for 2014, despite Brazil's year of almost zero
economic growth, very few IPOs, and violent swings in equities and
rates. "If we can deliver 20% ROE in a year with these characteristics,
it is a good signal of the strength of the franchise," he says.
Rebalancing to more stable revenue sources, venturing into
overseas markets, and reducing the proportion of earnings derived
from investment banking and principal investments may help. After
the completion of a $1.7 billion acquisition of Swiss private banking
group BSI (expected early this year), asset and wealth management
revenues will rise from around 25% to around 40% of BTG's
revenues, Esteves says.
ESTEVES: "The secret of our business is the
combination of the different units"

economic and corporate earnings growth potential. Political and
economic uncertainty have led to large swings in the index over the
past two years. For companies, raising capital in the stock market
has become more difficult. Helping firms issue equity has been a
core business for Esteves and his team.
The firm has come to the rescue with its own equity in some
innovative ways. Funds managed by the bank have been known
to buy big chunks of BTG-managed IPOs, providing heft to launch
issues that might otherwise struggle. While Esteves does not hesitate
to defend such arrangements, rivals voice doubts.
A senior figure at a large US investment bank allows that BTG's
ability to make quick decisions and provide capital can be good
for business. "They [BTG] have their role in the market," says the
banker. Yet he says its use of equity, including backstops, could also
pose dangers to the bank's profitability and reputation.
Such criticism seemed to increase last year, as the share price
of telecom firm Oi plummeted after a capital raising in April. BTG

ANDRÉ ESTEVES

gettyimages ®

"KEEPING HIGH RETURN ON
EQUITY ON A LARGER CAPITAL
BASIS - THAT'S THE CHALLENGE
AND THAT'S WHAT WE'RE DELIVERING AND WILL STILL DELIVER"

"The contribution [to BTG's profitability] of stable revenues
will increase with the acquisition of BSI," says Ceres Lisboa, senior
credit officer at Moody's in São Paulo. The bank has a good record in
sustaining profitability, despite almost half of revenues previously
coming from principal investments and investment banking, she
says.
BTG's sales and trading unit performed exceptionally well in the
first nine months of 2014, with revenues of more than $900 million,
75% higher than the same period in 2012 and 2013. Esteves says it is
not as volatile an earnings source as critics often assume. "The sales
and trading business is quite stable, with high earnings power," he
says.
On the investment banking side, meanwhile - the business for
which BTG is perhaps best known - in the year to end-November,
the firm held a top five position in Dealogic's Brazilian fee league
table. BTG reported investment banking revenues of around $150
million in the first nine months of 2014, down slightly from 2013, but
above 2012 figures.
The business area will grow in the next two years not just thanks to
regional growth, says Guilherme Paes, head of investment banking.
Hot areas include project finance and, above all, M&A. He points to
"a profound reorganization going on" in Brazilian telecoms and sees
"lots of potential consolidation" in education.
Yet there is no getting away from the fact that Brazil's stock
market, in contrast to developed market peers, is still well below
its 2008 peak. Low valuations reflect concerns about short-term

14 L ATINFINA NCE.COM - January/February 2015

was exclusive financial advisor to Oi on its merger with Portugal
Telecom. BTG also led a follow-on offering, needed to facilitate the
merger and representing by far the biggest public equity issuance in
Brazil in 2014, at $3.7 billion.
To help get the deal done, a fund managed by BTG Pactual
subscribed to part of the transaction, equivalent to $450 million,
according to an SEC filing. "There was a decision to invest some
money in the company with the shareholders," says Paes.
Not only did the shares fall 11% the day after the public offering
was priced, they lost a further 40% in the following months as
Portugal Telecom became caught up in the collapse of Portugal's
Banco Espírito Santo. That led senior investment bankers at other
firms to assume BTG lost money on the deal.
Esteves says the Oi deal has, in fact, been profitable, although
he won't say how or whether the firm still holds shares. He says Oi
renegotiated the terms of the merger with Portugal Telecom in light
of its $1.2 billion exposure to a defaulted Espírito Santo unit. BTG
Pactual has since been advising Oi on a possible acquisition of TIM
Participações, a Brazilian telecom firm owned by Telecom Italia.
"Up to today, the relationship with Oi has been profitable," he
says.
Skin in the game
BTG's use of its own capital in the Oi deal followed similar structures
in 2013. Then, it backstopped IPOs of around $400 million each
for CPFL Renováveis and Biosev, and a follow-on offering for MPX
Energia, the former electricity generation unit of Eike Batista's EBX
group, now known as Eneva.
At 50% of the deal, the backstop for Biosev, a sugar firm, was
so high that it required an exemption from the regulatory limits
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