Grupo BTG Pactual shares and bonds plummet, ratings downgraded after billionaire CEO Andre Esteves detention extended by court

Andre Esteves, the 13th richest billionaire banker in Brazil, stepped down as CEO and Chairman of Banco BTG Pactual SA ( Banco BTG) on 30 November, four days after his arrest in connection with the biggest graft probe involving state-owned oil giant Petrobras.

In a report by Bloomberg, Moody's Investors Service has done two downgrades on the bank. First, Moody's lowered its baseline credit assessment down to two levels, from Baa2 to Ba2.

It also downgraded two levels to below investment grade the long-term global local and foreign currency deposit rating. And that ratings are to remain on review for further downgrades.

Forbes estimates Andre Esteves fortune to be worth USD 1.82 billion. Esteves holds a BSc in computer science and mathematics from the Federal University of Rio De Janerio. He is reputed as the golden boy who built the largest independent bank in South America i.e. BTG which is part of Grupo BTG Pactual SA of which Esteves is the controlling shareholder.

Forbes credits Esteves' foray into the banking world by his entry into Bank Pactual as an IT intern who then took advantage of Brazil's high inflation and managed to eventually acquire Bank Pactual and sold it to UBS in 2006 and thus forming the Brazilian subsidiary UBS Pactual. Esteves then engineered the sale of the UBS Pactual to investment firm BTG.

Moodys' basis for downgrading stems from the risk of BTG failing to conserve liquidity and preserve its franchise in view of Esteves' arrest, reported Bloomberg.

Bloomberg also noted that BTG's bonds and stocks slumped in the past week with benchmark notes due 2020 increasing two-fold as compared to the day before Esteves' arrest and BTG's shares lost one-third value on Brazilian stock exchange.

Meanwhile, Reuters report confirmed the shares and bonds of BTG having taken a beating after Esteves' detention is extended indefinitely by the Brazilian Supreme Court.

Other reports stated the same was done on a preventive basis on application by the prosecution to ensure material evidence allegedly in possession of Esteves is persevered.

Reuters report noted that Esteves has denied all charges through his lawyers.

Brazilian newspapers, however, reported that police have discovered documents linking BTG to the payment of bribes to the ruling lawmakers. The documents according to Reuters indicate that USD12 mil was paid to the speaker of the Lower House of Congress to pass legislation in favor of BTG.

Esteves still owns 28% of BTG and his stake includes a golden share giving him a veto right on any board decision.