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13 Feb 2019
New York, February 13, 2019 -- Moody's Investors Service ("Moody's") has today
assigned a B1(hyb) rating to the USD-denominated contractual non-viability
7.75% Tier 2 subordinated notes issued by Banco BTG Pactual
S.A. -- Grand Cayman Branch (BTG Cayman). The
notes amount to $600 million and will be due in 2029 with a call
option in five years.
The capital securities are Basel III-compliant, and the terms
and conditions have been defined so as to qualify them for treatment as
Tier 2 capital pursuant to Brazilian regulation.
The B1(hyb) rating assigned to the new Tier 2 subordinated notes is positioned
two notches below the adjusted BCA of ba2 assigned to BTG Cayman´s
home office, Banco BTG Pactual S.A. (BTG, Ba2
stable, ba2). This reflects the risk of a full or partial
write-down of principal in the event that (i) BTG's common
equity Tier 1 ratio falls below 4.5%, (ii) the bank
receives a public sector capital injection, (iii) the Central Bank
makes a discretionary determination that a write-down is necessary,
or (iv) the central bank intervenes in the bank or establishes a special
administrative regime at BTG. As with BTG´s other ratings,
the instrument rating does not incorporate any uplift from either affiliate
or government support.
The rating is one notch below the Ba3 rating assigned to BTG Cayman´s
existing plain vanilla Tier 2 subordinated debt due in 2022. That
debt was issued under Basel II rules, and unlike the new notes,
does not have a contractual provision for equity conversion or principal
BTG´s ba2 baseline credit assessment (BCA) reflects the simplification
of the bank's business profile over the past three years, which
will improve earnings stability and help to reduce balance sheet volatility.
The bank has enhanced its funding and liquidity profile, while increasing
its focus on credit and fee-income activities. In addition,
earnings are supported by continued growth of assets under management
and the bank´s large share of capital market deals.
Despite a drop in earnings in the first nine months of 2018, net
income to tangible banking assets remained strong at 1.47%,
roughly in line with the system average. The decrease was mainly
driven by sales and trading, affected by the low interest rate environment
and reduced market risk appetite from BTG, which is part of its
current strategy. In addition, the third quarter was also
impacted by a slowdown in investment banking activity due to the presidential
election in October affecting business volumes in the period. These
decreases were partially offset by a 33% increase in earnings from
corporate lending in Q3, compared to the previous quarter,
helped by lower provisioning expenses. As a result, corporate
lending accounted for 19% of total earnings in the first nine months
of 2018, up from 14% for the entire year of 2017.
Income from asset and wealth management continued to growth as well and
accounted for 12% and 9% of total earnings, respectively,
in September 2018.
Despite a 21% increase in the loan book over the preceding 12 months,
BTG's tangible common equity to adjusted risk weighted assets stood
flat at 14.41% as of September 2018, a strong buffer
to support the continued growth of its balance sheet in the next quarters.
At the same time, the expansion of the bank´s digital platform
has driven strong growth of granular deposits from individuals and helped
to diversify the bank´s funding mix.
WHAT COULD MOVE THE RATINGS -- UP/DOWN
The B1(hyb) rating assigned to the Tier 2 instruments is unlikely to face
upward pressure, as BTG´s adjusted BCA, anchor credit
risk assessment for the instrument rating notching, is currently
at the same level of the Ba2 sovereign rating. Conversely,
the rating could be downgraded if Brazil's sovereign rating is downgraded,
if fast loan growth leads to a sharp increase in asset risk for BTG Pactual
or in case of a sharp drop in the bank's tangible common equity
(TCE)/risk-weighted assets (RWA). Downward rating pressure
liquidity weakens, increasing the bank's intrinsic vulnerability
to its institutional based funding structure.
LIST OF AFFECTED RATINGS
Issuer: Banco BTG Pactual S.A. -- Grand Cayman
Foreign Currency Subordinate Bond Rating, assigned B1(hyb)
The principal methodology used in this rating was Banks published in August
2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Banco BTG Pactual S.A. is headquartered in São Paulo,
and had consolidated assets in the amount of BRL163.9 billion and
shareholders' equity of BRL19.2 billion as of 30 September
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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Senior Vice President
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
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
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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