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Pain trades

19 January 2016 By Antony Currie

BTG Pactual’s bosses are talking a positive game. Co-Chief Executive Marcelo Kalim reckons the Brazilian investment bank may be past the worst of the fallout from the November arrest of previous boss André Esteves. He and his colleagues deserve credit for swift action. As U.S. rivals can attest, though, recovering from a franchise-threatening event often takes years.

The headline number from BTG Pactual’s fourth-quarter earnings is consistent with past performance. The bank cranked out an annualized return on equity of 22 percent for the three months to December. The results relied entirely, though, on special efforts to shore up the firm.

Some 2.6 billion reais ($643 million) came from the sale of stakes in three businesses owned by BTG Pactual’s principal investments unit and a fourth held in the corporate lending arm. Another 650 million reais resulted from a buyback of some of the bank’s own liabilities at a price below face value. That amount found its way into the trading division’s top line. Without those sales, revenue would have been just 278 million reais, and pre-tax earnings about 1.6 billion reais in the red.

Kalim understandably believes sales and trading, investment banking and money management can keep the bank humming. Even stripping out the one-off gain from buying back debt, BTG Pactual traders had a good quarter, especially in commodities. BSI, the Swiss private bank that BTG Pactual bought last year provided most of the juice for money management, too.

The trouble is, the bank’s directors may yet decide to sell BSI. Even if they don’t, core expenses are currently too high, which means a couple of rounds of cost cutting are probably around the corner.

Even then, it won’t be easy for the bank to regain momentum. Morgan Stanley, Citigroup and Bank of America, for example, have still not managed to earn enough to consistently cover their cost of capital seven years after their own near-death experiences. Kalim and his team may find their own recovery taking longer than they expected.



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