Brazil: BTG enters retail lending market

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Jason Mitchell
Published on:

Takes controlling stake in troubled lender PanAmericano; Investment expected to be treated as private equity

In February, BTG Pactual, the Brazilian independent investment bank, acquired a controlling stake in Banco PanAmericano, the country’s largest provider of used-car loans, which is at the centre of one of the biggest scandals to hit Brazil’s asset management industry.

BTG, which is controlled by Andre Esteves, Brazil’s youngest self-made billionaire, is not paying any cash for the 38% stake – which includes 51% of voting rights – but will assume R$3.8 billion ($2.3 billion) of debt to cover the bank’s losses, according to the federal deposit insurance fund.

By taking over the 17.5-year debt with the deposit fund, BTG is paying the equivalent of R$450 million as measured in net present value terms. Caixa Econômica Federal, the state-owned federal savings bank, which has been running the lender since the central bank bailed it out in November, will have a 36.6% stake. Final approval of the deal is expected shortly from the central bank.

BTG acquired its stake from Grupo Silvio Santos, the holding company of Silvio Santos, an 80-year-old better known in Brazil for hosting a Sunday TV chat show.

Fourth business line

Until now, BTG has specialized in investment banking, asset management and wealth management but, following the deal, will add a fourth business line of distributing retail banking products and credit. José Luiz Acar Pedro, a BTG partner, will be the new chief executive of PanAmericano, which will operate independently from the investment bank and is likely to be treated more as a private equity investment by BTG.

In November, Brazil’s central bank was forced to bail out PanAmericano and started to investigate its accounting of credit portfolios sold to other banks, which often repackaged the assets into funds backed by future cashflow, known as FIDCs. It is not yet clear if any of PanAmericano’s directors will have to face fraud charges.

The central bank had originally estimated PanAmericano’s losses at R$2.5 billion but local experts say the number has climbed to closer to R$4 billion.

In January, in the wake of the bank’s collapse, Brazil’s securities regulator introduced more rigorous disclosure requirements for the country’s asset management industry, which has been badly rattled by PanAmericano’s problems.

In December, BTG sold an 18.65% stake to a consortium of 10 of the world’s most important investors for $1.8 billion. The consortium included affiliates of the Government of Singapore Investment Corp, China Investment Corp, Ontario Teachers’ Pension Plan Board, Abu Dhabi Investment Council, JC Flowers & Co, RIT Capital Partners and Lord Rothschild’s family interests.

Grupo BTG Pactual and Banco BTG Pactual have net equity of about R$7.3 billion and R$5.6 billion, respectively.

Synergy

"Caixa, with its extensive retail network and long-standing retail tradition, and BTG Pactual are synergic partners," says Esteves. "This partnership creates enormous potential to originate credit and create and distribute products."

Maria Fernanda Ramos Coelho, chief executive at Caixa, says: "From Caixa’s perspective, the partnership with BTG Pactual will maintain the equity conditions that led it to acquire 49% of PanAmericano’s voting shares, a decision firmly grounded on the evidence of synergies and common business potential between the two, while providing continuity to Caixa’s strategy to expand further into the Brazilian credit market."

Santos says that he is a "TV man, not a money man" and blames PanAmericano’s problems on bad management at the bank. He says he will not have any financial liabilities following the deal with BTG.

Caixa has also agreed to enter into a strategic alliance with PanAmericano, under which it will acquire credit originated by the troubled bank. It and BTG will also expand their product and service offerings, by leveraging on both banks’ distribution channels.