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Rating Action:

Moody's downgrades BTG Pactual's ratings; negative outlook

11 Mar 2016

New York, March 11, 2016 -- Moody's Investors Service today downgraded Banco BTG Pactual S.A.'s (BTG) long-term global and national scale local-currency deposit ratings to Ba3 and A2.br, from Ba2 and A1.br respectively, its senior unsecured MTN program (foreign currency) rating to (P)Ba3 from (P)Ba2, and its baseline credit assessment (BCA) to ba3 from ba2. Moody's also downgraded the foreign currency senior unsecured debt and subordinated ratings assigned to Banco BTG Pactual S.A., Grand Cayman Branch to Ba3 and B1, from Ba2 and Ba3 respectively, as well as the Luxembourg Branch's foreign currency preferred stock non-cumulative debt rating to B3(hyb) from B2(hyb). At the same time, Moody's confirmed the long-term global foreign-currency deposit ratings of Ba3. The short-term global local- and foreign-currency deposit ratings of Not Prime were not affected by this action. In addition, Moody's placed a negative outlook on all ratings.

This action concludes the review for downgrade which was opened on 25 November 2015.

RATING RATIONALE

The downgrades reflect Moody's view that BTG's financial profile has been lastingly weakened following the arrest of its former chairman and CEO. While the bank has managed to stabilize its liquid assets position following a significant withdrawal of short-term funding and its capital levels are expected to improve behind the recently announced sale of its Swiss bank, BSI Group (BSI, unrated; BSI AG: deposits A3 on review for upgrade, BCA baa2 on review for upgrade), Moody's anticipates that the bank's recurring earnings will decline as a result of client defection in certain business lines. Brazil's deteriorating operating environment will compound the pressures on revenue generation stemming from the harm inflicted on the bank's franchise by recent events. At the same time, BTG's historically strong operating efficiency coupled with its flexible cost structure and the initiatives it has implemented to reduce operating expenses are expected to sustain its profitability at still reasonable levels.

BTG's capital position is expected to improve as the bank continues to sell assets and deleverage. In particular, the completion of the sale of BSI to EFG International AG (Issuer rating A2 on review for downgrade), expected to occur by the end of Q2 2016, will be crucial to achieving enhanced capital ratios. The precise impact on capital will also depend on the ultimate terms of the sale -- specifically how much BTG receives in cash and how much it receives in shares of the purchaser. While the bank's capital is expected to be higher than it was before the current crisis began if the sale closes successfully, it will nevertheless not be sufficient to offset the reduction in earnings and increased funding risk, especially in the context of a weaker operating environment and reduced geographic diversification.

BTG's other asset sales have also allowed it to shore up its liquidity position following a sharp drop in late November. However, the bank is still working to rebuild its customers' and counterparties' confidence and consequently its capacity to rollover and raise new unsecured funding remains somewhat limited. If investor confidence does not continue to recover, pressure on the bank's liquidity is likely to increase.

The negative outlook incorporates the risk of additional damage to the bank's franchise and liquidity should BTG's internal audit investigation into the allegations against its former CEO find any wrongdoing on the part of the bank itself, or its executives. Also, it incorporates risks to the bank should the case against its former CEO proceed.

The negative outlook also captures execution risks related to the bank's sale of BSI and other assets, as well as its strategy for stabilizing profits, funding, and liquidity.

WHAT COULD CHANGE THE RATING DOWN/UP

The rating could face further downward pressure if: (1) BTG's liquidity position begins to deteriorate again; (2) profitability declines more than anticipated; (3) capitalization does not improve as much as anticipated; or (4) internal or external investigations implicate the bank or its other executives in wrongdoing.

Upward pressures on BTG's ratings are unlikely, as they have a negative outlook. However, the outlook on BTG's ratings could be stabilized if investigations find no wrongdoing on the part of the bank and its executives, and the bank is able to increase capitalization as anticipated, as well as stabilize its earnings and liquidity as expected.

The following ratings and assessments will be Downgraded:

..Issuer: Banco BTG Pactual S.A.

...Long-term global local currency deposit rating to Ba3, from Ba2

....Senior Unsecured MTN Program (foreign currency), to (P)Ba3 from (P)Ba2

....Long-term Brazilian national scale Deposit Rating, to A2.br from A1.br

.... Adjusted Baseline Credit Assessment, to ba3 from ba2

.... Baseline Credit Assessment, to ba3 from ba2

.... Long-term Counterparty Risk Assessment, to Ba2(cr) from Ba1(cr)

..Issuer: Banco BTG Pactual S.A., Grand Cayman Branch

....Senior Unsecured MTN Program(foreign currency), to (P)Ba3 from (P)Ba2

...Long-term foreign currency senior unsecured debt, to Ba3 from Ba2

....Subordinate debt (foreign currency), to B1 from Ba3

.... Long-term Counterparty Risk Assessment, to Ba2(cr) from Ba1(cr)

..Issuer: Banco BTG Pactual S.A., Luxembourg Branch

.... Long-term Counterparty Risk Assessment, to Ba2(cr) from Ba1(cr)

....Pref. Stock Non-cumulative debt (foreign currency), to B3 (hyb) from B2 (hyb)

The following ratings have been confirmed:

..Issuer: Banco BTG Pactual S.A.

.... Short-term Brazilian national scale Deposit Rating, at BR-1

....Long-term foreign-currency deposit rating, at Ba3

The following ratings and assessments assigned to Banco BTG Pactual S.A. were not affected:

- Short-term global local currency deposit rating of Not Prime

- Short-term global foreign-currency deposit rating of Not Prime

- Short-term MTN program (foreign currency) rating of (P)Not Prime

- Short-term counterparty risk assessment of Not Prime(cr)

The following ratings and assessments assigned to Banco BTG Pactual S.A., Grand Cayman and Luxembourg Branches were not affected:

- Short-term MTN program (foreign currency) rating of (P)Not Prime

- Short-term counterparty risk assessment of Not Prime(cr)

Outlook Actions:

..Issuer: Banco BTG Pactual S.A.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Banco BTG Pactual S.A., Grand Cayman Branch

....Outlook, Changed To Negative From Rating Under Review

LAST RATING ACTIONS & METHODOLOGIES

The last rating action on BTG Pactual was on 25 February 2016 when Moody's downgraded BTG's foreign currency bank deposit rating to Ba3 to reflect the rating's constraint by Brazil's country ceiling. This rating action followed the downgrade of Brazil's bond rating and the changes in the country ceilings on 24 February 2016. Also, all other ratings were not impacted by this action, including the ratings assigned to Banco BTG Pactual S.A., Grand Cayman and Luxembourg branches, which remained on review for downgrade.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

Banco BTG Pactual S.A. is headquartered in São Paulo, Brazil and had total consolidated assets of BRL254.5 billion ($65.2 billion) and equity of BRL19.7 billion ($5.0 billion) as of 31 December 2015.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alcir Freitas
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

M. Celina Vansetti
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades BTG Pactual's ratings; negative outlook
No Related Data.
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