BTG Pactual isn’t new to winning Euromoney’s regional awards for excellence – but previous successes have been for the bank’s investment banking franchise. This year, Euromoney recognizes BTG Pactual’s successful reversal of the orthodox model of business evolution from retail and corporate banking to investment banking.
Instead, BTG has grown the other way: always a force in advisory, capital markets and treasury, the bank then developed balance sheet and broader corporate services while also developing its other key business of private banking and asset management.
This all changed when the bank’s senior management, led by chief executive Roberto Sallouti, spotted the potential revolution that smartphones would bring to emerging markets in Latin America and Brazil in particular. Powerful ‘tech in pockets’ opened up wireless capabilities and pointed to new infrastructure-lite banking technology.
The strategy has been deliberate and relatively slow. BTG hasn’t rushed to market with an online digital model; rather it has slowly extended its existing platform into new areas.
The wealth management business was extended beyond high net-worth individuals to the mass affluent – and latterly engaged in a war for affiliated independent financial advisers with rival XP. It was only in 2021 that the bank launched a transactional retail bank for individuals and small and medium-sized enterprises. Although through its subsidiary Banco Pan, the bank has been offering a digital retail offering for the lower socio-economic groups in the country. So, as it builds out the BTG retail brand from the mass-affluent segment, it will meet Pan in the middle and the bank will have comprehensive offering for the whole Brazilian retail market.
As always, the bank proceeded with caution – with soft launches at each new product stage to friends and family – to ensure service quality before building momentum. Execution risk has trumped speed to market – a differentiation in the market as radical as its demand for immediate profitability.
The results have been remarkable. BTG Pactual has always deployed a strategy that’s orientated by return on equity, but in the past year the operating leverage of the digital platforms has really kicked in. In the first quarter of 2022 total revenues grew 56% to R$4.4 billion ($860 million) and net income leapt 72%, thanks to that operating leverage, to $2.1 billion.
Return on equity hit 21.5% – and that includes the dilution effect of two follow-ons, worth R$5.5 billion combined, that the bank executed in the past year to keep its tech investment run-rate on track. What senior management don’t say publicly – but is a tantalizing prospect nonetheless – is that at some point the IT spend should ease as building turns to maintenance. What will ROE look like then?
BTG Pactual couldn’t have timed its run more perfectly. Not only is it now in a position to be a universal bank – linked to one of Brazil’s leading asset management, corporate and wholesale and investment banking teams – but it is hitting its stride when its competitors, skewed to short-term and unprofitable growth strategies, begin to face existential threats. BTG Pactual will face no such fundamental questions.