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Rating Action:

Moody's places BTG's ratings on review for upgrade; upgrades the NSR to A1.br

 The document has been translated in other languages

29 Nov 2017

New York, November 29, 2017 -- Moody's Investors Service ("Moody's") has today placed on review for upgrade all of Banco BTG Pactual S.A.'s long-term global scale ratings, including its Ba3 local currency deposit and foreign currency senior debt ratings, except its Ba3 foreign currency deposit rating, which was affirmed. BTG's NP and BR-1 global and Brazilian national scale short-term ratings were also affirmed. At the same time Moody's upgraded the bank's long-term national scale deposit rating to A1.br from A2.br and placed it under review for further upgrade. Moody's also placed on review for upgrade all long-term ratings assigned to Banco BTG Pactual S.A., Grand Cayman and Luxembourg branches.

In addition, Moody's assigned a (P)Ba3 debt rating to the USD 5 billion senior unsecured EMTN Program of Banco BTG Pactual S.A. (BTG), acting through its Luxembourg branch, and a Ba3 long-term foreign currency senior unsecured debt rating to the proposed USD 400 million takedown. The notes, which will be denominated and settled in USD and due in January 2023, will rank pari passu in right of payment with all of BTG's existing and future senior unsecured and unsubordinated liabilities. The rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents that Moody's has reviewed.

The following ratings and assessments will be placed on review for upgrade:

Issuer: Banco BTG Pactual S.A.

.... Long-term global local currency deposit rating of Ba3

.... Senior Unsecured MTN Program (foreign currency) of (P)Ba3

.... Adjusted Baseline Credit Assessment of ba3

.... Baseline Credit Assessment of ba3

.... Long-term Counterparty Risk Assessment of Ba2(cr)

The following ratings and assessments will be upgraded:

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

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

.... Long-term foreign currency senior unsecured debt of Ba3

.... Senior Unsecured MTN Program(foreign currency) of(P)Ba3

.... Subordinate debt (foreign currency) of B1

.... Long-term Counterparty Risk Assessment of Ba2(cr)

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

.... Pref. Stock Non-cumulative debt (foreign currency) of B3 (hyb)

.... Long-term Counterparty Risk Assessment of Ba2(cr)

The following ratings have been affirmed:

Issuer: Banco BTG Pactual S.A.

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

.... Short-term global local and foreign currency deposit rating, at NP

.... Short-term Senior Unsecured MTN Program (foreign currency), at (P)NP

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

.... Short-term Counterparty Risk Assessment, at NP(cr)

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

.... Short-term MTN program (foreign currency), at (P)NP

.... Short-term Counterparty Risk Assessment, at NP(cr)

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

.... Short-term Counterparty Risk Assessment, at NP(cr)

The following ratings were assigned to Banco BTG Pactual S.A., Luxembourg Branch

(P)Ba3 rating to the USD 5 billion EMTN Program, under review for upgrade

Ba3 long-term foreign currency senior unsecured debt rating, under review for upgrade

RATINGS RATIONALE

The upgrade of the national scale rating (NSR) reflects the bank's lasting improvements in capitalization and liquidity over the past year even as it has repositioned its business and dealt with an unfavorable market environment. Recognizing these improvements, the review for upgrade of the banks' global scale ratings (as well as the review for further upgrade of the NSR) will consider the permanence of the reduction in the bank's market risks and the sustainability of its new business model.

The improvement in its capitalization was driven by BTG's decision to narrow the scope of its activities and delever its balance sheet. As a result of these changes, which included the divestment of the bank's interest in BSI, a Swiss bank that it acquired in 2015, and its exit from the commodities trading business, tangible common equity rose 300 basis points to 14% of risk weighted assets (TCE / RWA) in the fourth quarter of 2016 and has remained relatively stable since. While the bank's regulatory CET1 ratio has declined somewhat more than the TCE ratio over the first three quarters of 2017, it too remained strong at 11.2% as of September. Even though capital consumption will increase as loan growth resumes in the next 12 months, we do not anticipate a significant reduction in the bank's capital ratios given the still slow business environment and ongoing economic uncertainty, coupled with the bank's robust capital replenishment capacity.

While the bank's narrower focus has led to an 56% year on year reduction in revenues in the 12 months ended September 2017, the bottom line has remained strong, supported by significant expenditure reductions; net income averaged a still robust 1.7% of tangible banking assets in the 6 months through September 2017, despite declining from 2.1% in the same period a year earlier. Moreover, as a result of the business realignment, a larger proportion of the bank's revenues derive from more stable sources, including asset & wealth management, although the bank continues to depend heavily on more volatile earnings streams as well, with sales and trading, principal investments, and investment banking still representing more than a third of total revenues.

Despite Brazil's recession and the bank's own reputational and governance challenges, BTG's access to unsecured domestic funding has remained stable, as the bank was able to renew most deposits and refinance debt issuances. At the same time, BTG has maintained a high level of liquid assets; as of September 2017 these equaled 96% of unsecured funding maturing in the next 12 months, significantly reducing its exposure to funding risk.

Notwithstanding its exit from commodities trading, however, BTG's market risk remains high and is again rising. Although they remain 28% below their June 2016 peak, market risk related risk-weighted assets (RWAs) increased by 60% in the nine months through September 2017 after a sharp drop in the second half of 2016. As a result, they account for nearly half of the bank's total RWAs in September 2017. However, credit risk is considerably lower than historical levels, equaling just 1.7x its adjusted capital, and we do not expect loan growth to accelerate rapidly given the business environment and the bank's more cautious risk appetite.

WHAT COULD MAKE THE RATING GO UP

The review could result in a upgrade if Moody's determines that the market risk and earnings are likely to stabilize at current levels if not improve.

WHAT COULD MAKE THE RATING GO DOWN

While downward pressures on the bank's ratings are unlikely given the review for upgrade, the ratings could be confirmed at current levels if Moody's determines that market risk is likely to continue rising and earnings will continue to decline. The ratings could also be confirmed if Brazil's sovereign rating is downgraded, in line with its negative outlook, before the review is concluded.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating 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 May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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
VP - Senior Credit Officer
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
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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