BTG Pactual: Goldman With a Dash of Pinga?
B3: BPAC11
Today we are going to talk about a Brazilian Investment Bank, or rather, the Brazilian Investment Bank: BTG Pactual S.A. (B3: BPAC11).
If you don't have an account in Brazil, you can buy shares in B3 using Interactive Brokers or ask your brokerage house to open a custody account in Brazil for you.
Who will I be a partner with?
I'm going to simplify the answer so it doesn't get too boring, as the corporate structure is a little complex.
Whoever actually runs the Bank needs to have common shares (with voting rights) in the controlling vehicle.
These shares belongs to:
30.00%: André Santos Esteves. Coming from Rio's middle class, he was an only child raised only by his mother, a university professor, with the help of his grandmother. Graduated in Mathematics at UFRJ with a specialization in Computing, he joined the Bank in 1989, at the age of 21, as a systems analysis intern. In 4 years, he already became a partner. He developed his career as a Fixed Income Trader and became the CEO of the Bank. He is currently the Chairman. His former boss at the Bank even said about Esteves: “I was always aware that he would sell his mother to gain power.”
26.22%: Roberto Balls Sallouti. From the upper middle class of São Paulo, he studied at Graded American School and graduated in Economics from Wharton (UPenn). Recently graduated, he joined the Bank in 1994 and 4 years later he became a partner. Like Esteves, he also developed his career as a Fixed Income Trader. In 2008, he became the Bank's COO. Since 2015 he has been the CEO. Skilled with people, he was one of the main people responsible for creating the Bank's Digital Retail segment, the fastest growing area in the institution. This one has balls.
19.36%: Renato Monteiro dos Santos. Graduated in Administration from FGV and in Economics from USP. He is currently the Senior Vice President responsible for LatAm Treasury, as well as Fixed Income, Foreign Exchange and Commodities. He joined the Bank in 1997 as a Trader, having become responsible for Fixed Income in 2004.
12.71%: Antonio Carlos Canto Porto Filho (Totó). He is the oldest of the group, at 79 years old. He studied at Colégio Dante Alighieri in São Paulo and graduated in Business Administration at FGV-SP. He worked for 28 years at Banco de Crédito Nacional (BCN), becoming responsible for the areas of Financial Management, Leasing, Insurance, Real Estate, Legal and Marketing. He then joined Banco Pactual in 1997. He is currently the Senior Vice-President responsible for the Institutional Area. He says: "The secret is to hire better guys than me, train and train. This way, the bank perpetuates itself.”
11.71%: Guilherme da Costa Paes. Brother of the current Mayor of Rio de Janeiro, Eduardo da Costa Paes. Graduated in Administration from Universidade Santa Úrsula (RJ), he has an MBA with a focus on finance from IBMEC. He joined the Bank in 1994. He is currently the Executive Director responsible for the Investment Banking Area. He was previously Senior Director of Investment Analysis at Chase Manhattan Bank.
The Bank has many other partners, but they only have preferred shares, that is, they only have economic rights (profit distribution), but no decision-making power in the controlling holding company.
A little about the history of BTG Pactual:
It all started with Pactual DTVM, founded in 1983 by André Jakurski (former Unibanco), Paulo Guedes (until then an academic) and Luiz Cezar Fernandes (former Bradesco and Garantia), focused on trading and already with a partnership culture meritocratic, hard-working, hands-on and entrepreneurship.
In 1997, disagreeing with Cezar's plan to transform Pactual into a retail bank, Jakurski and Guedes sold their shares and left the institution to create JGP, a hedge fund manager.
In 1998, the bank's junior partners, including André Esteves, acquired the stake from Cezar, who was short of capital due to bad deals he had made. Therefore, the founding partners no longer have a stake in the Bank.
In 2006, Switzerland's largest bank, UBS, purchased Banco Pactual, which was renamed UBS Pactual.
In 2009, André Esteves and other important partners of Banco Pactual re-acquired the bank from UBS, then shaken by the American subprime crisis, through the vehicle BTG Investments, thus creating BTG Pactual.
In 2012, BTG Pactual made an IPO on B3.
Since then, the Bank has been growing at an impressive speed, both organically and through strategic acquisitions.
BTG Pactual Business Lines:
As previously stated, it started as a trading DTVM. A few years later, they set up the Wealth Management area and then Asset Management. The Bank is increasingly diversifying its sources of revenue.
Currently, BTG Pactual is the main Investment Bank in Latin America, operating in the following areas:
Sales and Trading (31% of Revenue): Financial products and services offered to a diverse group of institutional clients in Brazil and abroad, including market making, brokerage, clearing and Research services. It also includes proprietary trading desks for shares, derivatives, interest rates, foreign exchange, energy and commodities, as well as insurance and reinsurance products and services.
Corporate & SME Lending (16% of Revenue): Financing, structured credits and guaranteed loans to large, medium and small companies.
Wealth Management & Consumer Banking (15% of Revenue): Investment management and financial planning services, as well as financial products aimed at individuals, focused on the private and high-income retail segments. Additionally, we have a complete transactional platform in the Consumer Banking area, offering an integrated and customizable set of products and services.
Investment Banking (11% of Revenue): Financial and capital market advisory services.
Asset Management (9% of Revenue): Asset management and administration services across a broad portfolio of products in the main international asset classes, especially in Latin America, for local and global clients.
Participations (2% of Revenue): Shareholding in financial institutions in the Brazilian and international market – Banco Pan, Too Seguros and EFG.
Others (16% of Revenue)
Some more information about the bank:
ROE: 21% (great)
Low credit default
Basel: 15% (healthy)
Immobilization index: 27.3% (good)
Efficiency index: in line with the best banks
Growth in profits, dividends and net worth of ~12% p.a.
My Point of View:
It's an owner's bank, fundamental in my opinion.
The main asset, differentiating it from any other, is its unique and strong culture. It's almost like a sect, where the employee has a carrot in front and another behind...
For those who work at BTG, I don't know if it's the best job, as fixed salaries tend to be low, but the bonuses are high if you deliver good work. For BTG itself, as an employer, it is excellent.
The close relationship they maintain with the Government certainly facilitates business, just as Goldman Sachs does in the United States. Many members of the Government go to work at the Bank, and vice versa.
BTG Pactual is Goldman Sachs' best representation for Latin America.
They increasingly create more avenues for growth. We don't know which ones will emerge, but the more, obviously the better.
It is a very important bank for the National Financial System, being classified as S1, together with Bradesco, Banco do Brasil, Itaú, Caixa and Santander.
Of the large banks, it is the one with the greatest growth. And it has good profitability.
It is not a good stock for dividend investors as they only pay out 25% of profits and the stock trades at quite a premium due to the high expected growth.
If it doesn't meet investors' growth expectations, the stock could melt down.
Is it cheap?
After all, is it to buy this stock or not?
What is the price to buy and sell BPAC11 after all?
I'll show you all the rationale, in detail.
Let's go.