Scandal cost CEO of billionaire Brazilian bank his job, but not control


  • Andre Esteves makes key decisions for BTG Pactual
  • Esteves oversees BTG’s push into retail banking
  • Esteves does not intend to play a formal management role of BTG

SAO PAULO / NEW YORK, July 19 (Reuters) – Twenty-three days spent in a Rio de Janeiro prison and dismissed as chief executive were enough for billionaire banker Andre Esteves to consider leaving Brazil and BTG Pactual, the investment bank he founded.

Six years later, Esteves, whose stake in the bank is worth around 40 billion reais ($ 7.89 billion), is closing in on his return, four sources with direct knowledge of the situation told Reuters.

Far from resigning, the sources said Esteves increasingly controlled key decisions of the bank even though there was no official leadership role, shaping the public BTG after Goldman Sachs Group Inc (GS.N) at the time as a private partnership.

Esteves’ revival grew stronger after he was first cleared in one of Brazil’s July 2018 “Car Wash” corruption investigations. He has now put most of his others legal issues behind it and may soon get final regulatory approvals to reconstitute its controlling stake in BTG.

In the two years since Brazilian regulators allowed him to join a group of partners known as the “G7,” which owns a controlling stake in BTG but is different from the board, Esteves has overseen a push in retail banking, conducted negotiations on two acquisitions. and worked directly with clients on initial public offerings and other deals, the sources said.

The departure of some of the bank’s partners, including former co-CEO Marcelo Kalim, can be explained either by their resistance to his return or by their disagreement with his strategic impetus, the sources said.

Kalim, who left in December 2018 to found his own online bank, declined to comment on the circumstances of his exit.

While the bank’s shares have risen 130% in the past two years, some corporate governance scholars say Esteves’ control over strategic decisions as a shareholder without any management role is troubling. . This reflects poorly on the bank’s board of directors as well as the overall standards of Latin America’s largest economy, they said.

Francisco Reyes Villamizar, a Latin American corporate law expert and visiting professor at the University of Friborg in Switzerland, said the board should question Esteves’ role within the bank. “They become tolerant of this kind of behavior and that’s when things go wrong,” Villamizar said.

BTG’s board of directors is under pressure. Proxy companies ISS and Glass Lewis recommended in April to vote against some of the directors and said the board has fewer independent directors than the company claimed. A major shareholder, Norges Bank of Norway, has followed the advice and voted against some candidates in recent years, alleging a lack of independence.

BTG has, however, defended its corporate governance arrangements. “About 70% of the company is owned by its managing partners, which brings an unprecedented long-term alignment of interests with its shareholders,” he said. The bank rejected the proxy advisory firms’ claim and said it has four independent directors on the board.

Esteves is also comfortable taking control as he owns around 25% of BTG’s total capital and, as a major shareholder regulated by Brazil’s central bank, he can be held accountable if something goes wrong, he said. a person familiar with his thinking.

He has no plans to take an official leadership role or become the bank’s chairman because “everyone” knows him as the official, including BTG’s public investors, the person added.

The US Federal Reserve recently approved Esteves’ request to take back a controlling stake, while Brazil’s central bank approved it in late 2019. The final piece of the puzzle, the approval of the European Central Bank to allow Esteves to regain its 61.55% voting stake in The G7 could happen within a few weeks, said two sources close to the group.

The ECB and the Fed declined to comment.

(For a GRAPH on BTG’s assets, click on https://datawrapper.dwcdn.net/gYEE5/4/)

‘WITCH HUNT’

Esteves has told friends and clients that his arrest in 2015 was “absurd” and part of a “witch hunt,” based on false allegations by a politician. Former congressman Delcidio Amaral had accused the banker of offering to pay witnesses in the car wash investigation to prevent them from making plea deals. Amaral then retracted his testimony, admitting he was unsure of Esteves’ offer to pay witnesses and saying he had just “heard” about it.

BTG’s shares fell 21% on the day of his arrest and took their losses to around 50% in the first month following. Faced with a cash shortage, BTG took out a loan from Brazil’s deposit insurer and sold assets.

The bank eventually raised enough money to pay off treasures from investors who rushed to redeem the deposits. It also prepaid the loans from the Deposit Insurance Fund.

The 53-year-old Carioca, as the natives of Rio are called, spent the first four months after his release from prison under house arrest.

The reappearance of the man who joined Banco Pactual as an intern in 1989 met with resistance from former president Persio Arida and other partners worried about the potential effect on the bank’s reputation, have indicated two of the sources.

Arida, who left the bank in 2017, declined to comment.

Marcelo Kalim, BTG’s second-largest stakeholder who had become co-CEO after the arrest and who wanted to establish a full-service retail digital bank, clashed with Esteves over strategy, according to two sources.

Esteves wanted to launch a digital broker just to expand the bank’s existing wealth management business. When co-CEO Roberto Sallouti sided with him, Kalim resigned.

Esteves believes it is natural for some partners to leave the bank, according to the person familiar with his thinking.

OWNERS LIKE SAFRA

Today, Esteves is present at most of BTG’s retail banking strategy meetings, with or without Sallouti, and has led road shows for two BTG stock offerings, two of the sources said.

In the latter case, he told investors he hopes to roughly triple the funding BTG receives from retail to 40%, a source said.

To take on the big retail banks in Brazil, Esteves wants to target a distinct demographic with its Banco Pan unit (BPAN4.SA) by reaching out to low-income customers looking for credit and BTG +, its digital banking arm, in the serving people with higher incomes and more competitive. directly with rivals like Itau Unibanco (ITUB4.SA), according to a person familiar with his thinking.

If he needed more cash to fund his retail expansion, Esteves would rather do more stock offerings at parent company BTG than his digital bank’s IPO, despite high valuations for his digital peers. .

Esteves himself has no doubts about his role and three sources said he privately compared himself to the founders and owners of other Brazilian companies, including the late Joseph Safra of Banco Safra, saying his control had been good. for BTG.

“Having the owner setting the strategy is a clear advantage,” he told his colleagues at a meeting in September.

($ 1 = 5.0706 reais)

Reporting by Tatiana Bautzer and Carolina Mandl in Sao Paulo and Jessica DiNapoli in New York; Editing by Christian Plumb, Alexander Smith and Edward Tobin

Our Standards: The Thomson Reuters Trust Principles.


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