Brazil’s leading investment bank may need to sell itself to survive in the wake of a corruption scandal and the arrest of its co-founder and former CEO.
BTG Pactual’s stock has been crippled by the investigation into Andre Esteves, with the shares falling by about 30% in a matter of days.
Esteves, who had been CEO, chairman and the firm’s biggest shareholder, was charged with hindering a corruption investigation on November 25.
Esteves was replaced Sunday, and Reuters reported Monday that BTG Pactual is considering a possible sale of its commodities unit, while other reports suggest that the bank’s partners are working on a plan to buy out Esteves’s stake.
But it might take an all out sale to a bank or a wealth fund looking to boost its exposure to emerging markets — and at a steep discount to where BTG Pactual shares used to trade — to bolster confidence in the Brazilian bank’s shares, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
“The bank needs an acquirer with capital and credibility to save it,” he said. “The bank’s short-term capital structure relies on investor confidence, and investors can be confident of nothing until there is more clarity on the bank’s involvement in alleged wrongdoing and the bank’s ability to remain profitable without Esteves and whatever he did to make the bank profitable.”
BTG Pactual itself has not been implicated in the corruption and bribery investigation. The bank declined to comment when reached by Business Insider.
“One of the key risks for BTG Pactual is the reliance on its CEO,” Goldman Sachs analysts said in a note late last week after news of the investigation broke.
Persio Arida, who was named interim CEO in the wake of Esteves’ arrest last week, was voted in by shareholders November 29 as executive chairman and a pair of longtime BTG Pactual executives, Marcelo Kalim and Roberto Sallouti, were named co-CEOs of the firm over the weekend.
Gordon says the firm may have to rely on an international acquirer to support it. The bank had a market capitalisation of about 19.5 billion Brazilian real, or around $5 billion, as of Monday November 30.
“The best prospects are non-Brazilian banks that want to get into the market,” Gordon said. “The Brazilian government would prefer a local buyer but a local buyer has less incentive to pay a high price and already has the connections it needs to do business in Brazil.”
Though the firm’s ‘BTG’ acronym stands for ‘banking and trading group,’ BTG Pactual’s investment banking prowess have also earned it a second definition: ‘Better than Goldman.’