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Rating Action:

Moody's upgrades BTG's ratings to Ba2, concludes the review; outlook negative(m)

 The document has been translated in other languages

20 Mar 2018

New York, March 20, 2018 -- Moody's Investors Service ("Moody's") has today upgraded Banco BTG Pactual S.A.'s (BTG) long term local currency deposit to Ba2, from Ba3 and senior unsecured MTN to (P)Ba2 from (P)Ba3. Its standalone baseline credit assessment (BCA) was raised to ba2, from ba3. At the same time Moody's upgraded the bank's long-term national scale deposit rating to Aa2.br from A1.br. BTG's long term foreign currency deposit rating of Ba3 as well as short term local and foreign currency deposit rating of NP and the short term Brazilian national scale rating of BR-1 were affirmed. The outlook on its ratings is now negative(m), in line with the negative outlook on Brazil' sovereign ratings.

Moody's also upgraded BTG's Grand Cayman Branch's foreign currency senior unsecured debt rating to Ba2, from Ba3, and the subordinate debt rating to Ba3, from B1; BTG's Luxembourg Branch's preferred stock non-cumulative debt rating was upgraded to B2(hyb), from B3(hyb).

Today's rating action concludes the review of BTG's ratings which was initiated on 29 November 2017.

Upgrades:

..Issuer: Banco BTG Pactual S.A.

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

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

.... Counterparty Risk Assessment, Upgraded to Ba1(cr) from Ba2(cr)

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

....Long term local Deposit Rating, Upgraded to Ba2, negative, from Ba3

....Long term NSR Deposit Rating, Upgraded to Aa2.br from A1.br

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

.... Counterparty Risk Assessment, Upgraded to Ba1(cr) from Ba2(cr)

....Subordinate Regular Bond/Debenture, Upgraded to Ba3 from B1

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

....Senior Unsecured Debt Rating, Upgraded to Ba2, negative, from Ba3

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

.... Counterparty Risk Assessment, Upgraded to Ba1(cr) from Ba2(cr)

....Pref. Stock Non-cumulative, Upgraded to B2(hyb) from B3(hyb)

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

....Senior Unsecured Debt Rating, Upgraded to Ba2, negative, from Ba3

Affirmations:

..Issuer: Banco BTG Pactual S.A.

.... Counterparty Risk Assessment, Affirmed NP(cr)

....Short term local Deposit Rating, Affirmed NP

.... Short term foreign Deposit Rating, Affirmed NP

....Short term NSR Deposit Rating, Affirmed BR-1

....Senior Unsecured MTN Program, Affirmed (P)NP

....Long term foreign Deposit Rating, Affirmed Ba3, stable

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

.... Counterparty Risk Assessment, Affirmed NP(cr)

....Senior Unsecured MTN Program, Affirmed (P)NP

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

.... Counterparty Risk Assessment, Affirmed NP(cr)

Outlook Actions:

..Issuer: Banco BTG Pactual S.A.

....Outlook, Changed To Negative(m) From Rating Under Review

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

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

RATINGS RATIONALE

The upgrade of BTG's ratings reflects the bank's move to a less complex business profile and resulting stabilization of its balance sheet, particularly funding and liquidity, and revenue generation. The rating action also incorporates Moody's expectation that its revenue mix and future growth potential are centered on more balanced business segments with contained risk taking in terms of market, credit and liquidity risks.

BTG's consistent income generation from steady fee and interest accruing businesses such as Asset & Wealth Management and corporate lending have helped to soften the more volatile stream coming from its Sales and Trading operation in 2017. The growing assets and wealth under management and good ranking in capital markets deals attest to the gradual recovery of BTG's franchise, and the volumes are on track to reach 3Q2015 levels. At the same time, BTG's cost cutting discipline has helped support profitability at sound levels, with net income to tangible assets reaching 1.9% in 2017, despite declining sharply from 3.1% in 2016. The bank's ample operational leverage should benefit from increased business volumes. While volatile earnings from sales and trading remain relevant to BTG's bottom line, we expect revenues from steady sources to contribute a similar 50% share of total revenues as reported in 2017, supporting the sustainability of the bank's new business model.

BTG's risk profile in 2017 was also supported by the sale of assets and investments in past years and cautious corporate lending. With the upcoming sale of its Petro Africa investment, expected to be finalized in 2018, BTG will conclude its deleveraging strategy of prior years. We expect market risk to stabilize at lower levels, despite potential rapid swings at times, while credit risk -- a modest 1.8x of adjusted capital in December 2017 -- will gradually increase, as focus turn to corporate lending as a contributor to stable earnings. However, it is unlikely that leverage will return to the 6.7x peak observed in Q3 2015.

In terms of capitalization, BTG has held a considerably improved position for the past 12 months, with Moody's tangible common equity to risk weighted assets (TCE / RWA) of 14.5% in December 2017. Its regulatory capital has been similarly strong, with CET1 ratio at 12.4%. The expectation of consistent internal earnings generation will reflect in increased capital, which will support the bank's asset growth.

BTG's increasing ability to tap unsecured funding and extend maturities has positively reflected in improved liquidity, as reflected in the holdings of large volume of liquid assets, which also reduces its exposure to funding risk. Nevertheless, BTG remains reliant on its institutional client base for funding, an intrinsic dependence that management plans to address with investment in a new digital bank platform, now under development. The bank restored its access to capital markets following the USD 500 million senior note placement in December 2017.

The negative outlook on BTG's global scale long-term local deposit and senior unsecured debt ratings reflects the negative outlook on Brazil's Ba2 sovereign rating and considers the high credit interlinkages banks have with their sovereigns, directly via holdings of government bonds, and indirectly, via lending book exposure to the real economy.

WHAT COULD CHANGE THE RATING UP/DOWN

In line with the negative outlook, the rating does not face upward pressure at this time. However, the outlook could be stabilized if and when the sovereign outlook returns to stable.

BTG's ratings could be downgraded if Brazil's sovereign rating is downgraded. Also, the bank's ratings could face downward pressure if 1) asset risk faces a sharp deterioration; 2) TCE/RWA records a meaningful decline; 3) profitability pressures arise from consistently lower revenue generation; and 4) access to unsecured funds and/or the volume of liquid resources is insufficient to counterbalance its intrinsic market funds reliance.

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_1113601.

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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