BTG Pactual misses profit view, in sign asset sales biting

(Adds details, BSI outflows throughout)

By Guillermo Parra-Bernal

SAO PAULO, Aug 9 (Reuters) - Grupo BTG Pactual SA on Tuesday missed second-quarter profit estimates for the first time in almost two years, as downsizing efforts by Latin America's largest independent investment bank curbed trading and money management income.

Net income totaled about 940 million reais ($299 million) in the second quarter, below an analysts' consensus estimate of 1.1 billion reais. Profit dropped 12 percent from the prior three months, falling below the 1 billion-real threshold for net income for the first time in five quarters.

Income from wealth management activities sank as São Paulo-based BTG Pactual sold control of Swiss subsidiary BSI SA and trading suffered with the spin-off of a commodities platform to ease capital needs. The downsizing also drove expenses down, yet at half the pace of revenue, which also suffered from weak asset management activity.

Return on equity (ROE) slumped to 16.1 percent in the quarter, the lowest in three years and below a 18.1 percent estimate.

Founder André Esteves, who steered the bank through an aggressive global expansion until his arrest in November in a corruption probe, had set a long-term goal for ROE of 20 percent. Esteves has denied allegations of his involvement.

The results suggest that BTG Pactual's decision to shed assets and dismantle risky but very profitable trading positions in the wake of Esteves' arrest may hamper the bank's ability to generate a more stable stream of revenue in coming quarters.

Esteves' arrest forced his partners to dispose of assets in the wake of massive client fund withdrawals. He returned to BTG Pactual in a senior advisory role in April, after a Brazilian judge freed him from months of house arrest.

"We went through a very stressful situation, although we were up to the task," Chairman Persio Arida said in a statement with the results. Once the BSI and commodities unit deals are finalized, BTG Pactual will see net equity reduced by about $1 billion, the statement said.

BSI OUTFLOWS

Revenue totaled 2.595 billion reais last quarter, missing an estimate of 2.889 billion reais. Income from sales and trading dropped a bigger-than-expected 41 percent last quarter, while gains from wealth management activities plummeted 54 percent, more than expectations of a 47 percent decline.

However, corporate lending, as well as interest and other revenue lines, rose above expectations in the second quarter, despite a 15 percent reduction in BTG Pactual's loan book from the prior three months.

Assets fell 20 percent to 203.4 billion reais at the end of June, while potential loan losses remained at bay as BTG Pactual kept a coverage ratio of 192 percent last quarter.

Proprietary investments lost money for the fourth straight quarter. However, BTG Pactual's sharp balance sheet downsizing since November helped cut costly fund-raising and debt-servicing expenses.

BTG Pactual also said that BSI, now being bought by Switzerland's EFG International AG, saw net second-quarter new money outflows of 6.3 billion Swiss francs ($6.4 billion) amid sanctions over business ties to a scandal-hit Malaysian government fund.

Management led by co-CEO Marcelo Kalim will discuss the BTG Pactual results on a conference call early on Wednesday.

($1 = 3.1455 Brazilian reais) (Additional reporting by Joshuia Franklin in ZURICH; Editing by Sandra Maler and Richard Chang)