Brazilian financier André Esteves resigned as chief executive officer and chairman of Grupo BTG Pactual SA late on Sunday after he was jailed as part of a corruption probe rapidly ensnaring Latin America’s largest independent investment bank.
Prosecutors are preparing to file charges against the billionaire dealmaker, who they suspect, along with a senator, of trying to obstruct a long-running graft probe at state-controlled Petroleo Brasileiro SA, or Petrobras. Esteves, through his lawyer, has denied the allegations.
In a fresh twist to the near two-year probe, Brazilian newspapers said police found documents allegedly linking BTG Pactual to the payment of bribes to ruling coalition lawmakers.
It is the first time the bank, whose public face has for years been Esteves, was directly implicated in the bribery scandal. Prosecutor General Rodrigo Janot used evidence and testimony from others under investigation to persuade the country’s Supreme Court to extend Esteves’s detention.
It is the first time the bank was directly implicated in the bribery scandal
The documents contained information alleging that BTG Pactual paid 45 million reais (€11.6 million) to Eduardo Cunha, speaker of the lower house of Congress, in exchange for the passage of legislation favouring the bank, the newspapers said.
BTG Pactual denied the payments in a statement on Sunday and pledged to cooperate with authorities. A source familiar with the matter said the revelations and the extension of Esteves’s detention convinced him and his business partners that he had to resign.
Esteves still owns over 28 per cent of the bank and his stake includes a so-called golden share which gives him veto rights on any board decisions.
BTG Pactual named two founding partners, Roberto Saloutti and Marcelo Kalim, currently the bank’s chief operating officer and chief financial officer, respectively, as co-CEOs.
Persio Arida, who was named acting CEO after Esteves’s arrest on Wednesday, is now chairman, with Huw Jenkins, head of the bank’s international arm, becoming vice chairman.
BTG Pactual has almost 70 partners, including Esteves, who control a combined 80 per cent of the bank’s capital, according to bank data. The new co-CEOs Kalim and Saloutti each have about 5.5 per cent.
The main partners, a group of seven executives including Kalim, Saloutti and Jenkins with whom Esteves founded the bank in 2008, are considering buying their former leader out, the source said, adding that Esteves’s stake is currently valued at 6.05 billion reais.
Over the past year, Esteves, 47, had steered BTG Pactual through Brazil’s deepest recession in a quarter century. He engineered the purchase of Swiss private bank BSI Group last year, aimed to reduce BTG Pactual’s reliance on Brazil, and invested heavily in global commodities trading as larger global rivals retreated from the market.
Shareholder returns long outperformed those of Wall Street rivals and internally, the longstanding joke has been that BTG stands for ‘Better than Goldman’.
While Esteves sat in a jail cell in the Bangu VIII prison north of Rio de Janeiro, the bank’s main partners gathered at the bank’s headquarters on Sunday to finalise the sale of a 12 per cent stake in Rede D’Or São Luiz SA, Brazil’s largest hospital chain, to Singapore’s sovereign wealth fund GIC Pte Ltd.
The stake will be sold for almost 2.5 billion reais, a source directly involved in the deal told Reuters. The bank had been negotiating the Rede D’Or deal since August but Esteves’s arrest sped up talks, two other sources said.
GIC had paid 3.3 billion reais for a 16 per cent stake of Rede D’Or in May.
The new deal could help shore up BTG Pactual’s balance sheet after Esteves’s arrest prompted clients to pull over $1 illion in investments held at the bank’s asset management division.
His detention has sent the bank’s shares and bonds skidding as investors fretted about its ability to thrive in his absence.
The price on BTG Pactual’s four per cent bond due in January 2020 rose 0.25 cent on the dollar yesterday to 77.25 cents, yielding 11 per cent. A day before Esteves’s detention, the bond was paying 6.8 per cent interest.
Worries about liquidity and funding availability in the wake of Esteves’s arrested led Moody’s Investors Service and Fitch Ratings to put the bank’s investment-grade rating on review for a possible downgrade.
Heavily dependent on short-term market funding and with about 55 per cent of its banking arm’s funding due to be refinanced over the next 90 days, BTG Pactual has sought to assure clients that it is operating normally.
BTG Pactual’s proprietary investments unit, known as principal investments, also controls over two dozen companies, some of them in the middle of corporate reorganisations and requiring capital injections, like drugstore chain Brasil Pharma SA and oil drilling rig producer Sete Brasil Participações SA.
Another source with direct knowledge of the bank’s strategy said BTG Pactual has stopped offering new loans. Until Friday afternoon, external funding remained available and stable, said the same source.
In an e-mailed letter to clients and trading partners on Friday, Arida said the bank was not a target of the investigation. The bank also denied on Friday that it was discussing selling itself to Banco Bradesco SA or UBS AG, as media reported that day.