LatinFinance - January/February 2015 - 18

trading over the past two years, BTG grabbed "the opportunity of
being contrarian", says Esteves.
But the pending acquisition of BSI is the biggest way in which BTG
is moving away from principal investments, towards less volatile
revenue flows - and away from Brazil. "Asset management will
bring an important impact in terms of geographic distribution of our
revenues and in terms of the nature of those revenues," says Esteves.
Indeed, although Brazil will remain by far BTG's biggest market
for investment banking, more than 50% of the group's revenues
and around two thirds of staff will be outside Brazil after the BSI
purchase, he says.
The acquisition is BTG's biggest ever. The resulting hit to its capital
ratio pushed the bank into to the fixed-income market last year,
where it sold a $1.3 billion Basel III-compliant hybrid security to
bolster its solvency ratio. Nonetheless, analysts greeted the BSI deal
positively. Fitch noted "the recurring nature of wealth management
fees" would not increase BTG's profitability, but would help the bank
reduce income volatility and diversify geographically.
The Swiss acquisition - as with the move into commodities -
underscores the institution's ability to jump in where others are
constrained. Italy's Generali wanted to sell BSI to bolster its equity,
as European regulators push up capital requirements. "This was a
deal made for a big emerging markets player to step in," says Rogério
Pessoa, BTG's head of wealth management.
Esteves says the deal was also well timed because of Swiss regulatory
changes around tax secrecy - which Pessoa says will make it tougher
for Switzerland's many smaller boutique wealth managers to survive.
Although the BSI brand will remain, BTG thinks the firm, under its
ownership, will outperform competitors in the new landscape.
"There's a very interesting turning point in the Swiss market, a
transition from secrecy to service. The edge will be your capability of
providing service," says Esteves. "This, combined with being at the
bottom of the valuation cycle, meant [BSI represented] a very good
opportunity."

True to style
Changing US and European regulations on investment banking,
also, make BTG's strategy rare. Investment bankers at US firms in
São Paulo say such regulatory hurdles are a factor in why they do not
deploy their own capital.
Persio Arida, BTG Pactual's chairman of asset management,
provides a similar explanation. "All major banks are pressured
because of capital requirements," he says. "There's pressure from
the regulator to run as little risk as possible, especially in the capital
markets. Because of regulatory constraints, and less-than-ideal
capitalization, banks prefer to keep the investment banking platform
totally separate."
Any risk deployment should be profitable in itself, he says, before
taking investment banking fees into account. "The two decisions
should have logic of their own," he says. Yet like his colleagues, Arida
sees continued use of equity backstops at BTG.
From the beginning of his conversation with LatinFinance at the
bank's São Paulo headquarters, Esteves insists that, although BTG is
diversifying outside Brazil and in areas like wealth management, size
has not changed its culture. Nor has it, or will it, change its approach to
its use of capital. "BTG continues to be a very nimble organization. We
like to think of ourselves as a small place. We are less small these days,
but we keep the mind-set of an entrepreneurial organization," he says.
The use of backstops and the expansion in commodities, then,
are perhaps illustrative of an institution that retains a style other
investment banks have had to change, especially since 2008. BTG
may still mix risk and investment banking, and attend to the needs
of the super-rich, with sales and trading at its core - for as long as
regulation and capital allow.
Esteves, in fact, compares BTG's historically inspired business
model, and its profitability in Brazil's downturn, to the firms the
merchant banking has bought: He expects both to thrive. "Good
companies don't need good scenarios," he says. "They can do well in
bad scenarios." LF

Business diversification

Going global

BTG Pactual is soon to shift from being a Latin American
institution, to a global one in the wealth management business,
with the acquisition of Swiss private bank BSI.
Before the purchase, BTG Pactual's wealth management
business had already more than quadrupled since 2008, with
most assets under management in Latin America. The Swiss
acquisition almost doubles the firm's holdings in its asset and
wealth management division, to more than $200 billion.
"It's an excellent deal that allows us to navigate these turbulent
times in Brazil," says Rogério Pessoa, BTG's head of wealth
management.
A bigger wealth management base will help BTG's other units,
says Pessoa. BTG assesses its wealth management bankers, in part,
on referrals to the merchant and investment bank. "We've had a
lot of [investment banking] deals where the clients were initially
wealth management clients," he says. "All the investments that the

18 L ATINFINA NCE.COM - January/February 2015

merchant bank has done had wealth management money."
Meanwhile, BTG has also expanded its commodities division
globally as US and European banks have shrunk back over the past
two years. The Brazilian bank's advance fits the geography of the
business, says Esteves.
"We are in the most important commodities hub globally.
None of the global banks [active in commodities] are based here,"
Esteves says. "We always did commodities on a smaller scale in
Latin America. We always had the plan of doing it on a bigger
scale; now the moment arrived."
The sales and trading unit's strong performance in the first nine
months of the year was partly thanks to the commodities unit.
Esteves appears to have even higher hopes for the commodities
business after September's volatility. He says it has been "the best
time I could imagine" to have recently bolstered his commodities
sales and trading franchise. LF
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