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1、,Credit,GlobalMarketsResearch,EmergingMarkets,Global Emerging Markets BrazilFinancial Services22 October 2012,BTG PactualA distinctive player in LatinAmericaInitiate with a HOLD based on valuationWe initiate coverage of BTG Pactual(BTG)with a Hold on BTGPBZ 4.875%seniornotes due in 2016.We believe t
2、he notes could tighten 20bps further although thespread compression is not compelling enough at this stage to support a Buyrecommendation.The 16s should,nonetheless,trade in tandem with marketconditions and could well continue to benefit from current favorable marketsentiment.In addition,while we do
3、 not see positive near-term catalysts that coulddrive outperformance in relation to peers,we believe BTGs strong 1H12 resultsand upcoming 3Q12 earnings should continue to provide grounds for a solidperformance of the banks notes.Strong franchise and leadership position in the local marketBTG Pactual
4、 is a Brazilian privately owned financial institutional with a leadingfranchise in investment banking,wealth management and asset management.Thebank started as a small broker dealer in Rio de Janeiro in 1983 and has become aninternational franchise.BTGs leadership position is particularly demonstrat
5、ed bythe banks consistent high rankings among the top equity and debt underwriters inthe local market.Most importantly,the bank seems well placed to maintain itsstrong position in Brazil and to consolidate its expansion abroad.Its recentlyconcluded IPO and private placement in 2010 are,for instance,
6、some of theinitiatives taken by BTG to strengthen its balance sheet,accommodate its growthplans and,ultimately,support its competitive position.Unique partnership model defines BTGs operational framework and strategyThe bank operates under a partnership model that largely differentiates BTG frommost
7、 other leading franchises and that broadly defines the banks operations,corporate structure and risk culture with an emphasis on meritocracy,long-termcommitment,talent development,entrepreneurship and cost efficiency.Thismodel has translated into solid results over the years with BTG consistentlydel
8、ivering high returns.Solid track record despite volatile earnings streamWe see the inherently volatile nature of BTGs activities,with a large portion of itsrevenue stream deriving from Sales and Trading and Principal Investments,as themain downside risk to our recommendation and to BTG in general.Ho
9、wever,BTGs solid track record with a history of strong profitability even in times ofsignificant stress contributes to partially mitigate this risk and indicates,in ourview,the banks strong risk culture and expertise in all of its business segments.Upside risks to our recommendation would derive at
10、this stage mainly from asignificantly better than expected credit performance in the short-run that triggersan upward price movement.Other risk factors are discussed inside this report.Outstanding Issues,Coverage ChangeResearch TeamNatalia CorfieldResearch Analyst(+1)212 Denis ParisienResearch Analy
11、st(+1)212 250-,Issue4.875%Notes due 16,Maturity08-Jul-2016,PrincipalUSD500m,Mdy/S&P/FitchBaa3/NA/BBB-,Mid Price106.00,Mid Yield3.15%,Z Spread255,Source:Deutsche BankDeutsche Bank Securities Inc.All prices are those current at the end of the previous trading session unless otherwise indicated.Prices
12、are sourced from localexchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subject companies.DeutscheBank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firmmay have a conflict of interest that
13、could affect the objectivity of this report.Investors should consider this report as only a singlefactor in making their investment decision.DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,Mar12,Jul12,Oct11,Apr12,Oct12,Nov11,Jan12,Feb12,May12,Dec11,Sep12,Jun12,Au
14、g12,Jul12,Aug12,Sep12,Oct12,22 October 2012,Financial Services BTG PactualValuationWe initiate coverage of BTG Pactual(BTG)with a Hold on BTGPBZ 4.875%senior notes duein 2016(BTGPBZ 4.875%16).Following a relative strong performance,notably in the pastmonth,we expect the notes to trade in tandem with
15、 market conditions.In addition,while wedo not see positive near-term catalysts to drive outperformance in relation to peers,webelieve BTGs solid 1H12 results and upcoming 3Q12 earnings should continue to providegrounds for a solid performance of the banks notes.For valuation purposes,we have compare
16、d BTGs notes to bank notes from other Brazilian,Colombian and Peruvian banks with similar maturity profiles.Although none of them have acomparable business model,they are all Latin American banks and share some similarities interms of country risks.BTG issued BTGPBZ 4.875%16 in June 2011 in the amou
17、nt of USD500m with the aim ofdiversifying and extending the banks funding.BTGPBZ 4.875%16 were assigned a Baa3rating by Moodys and BBB-by Fitch at the time of the issuance and these ratings remaincurrent with a stable outlook.They presently trade at an indicative mid yield of 3.15%,mid-price of 106
18、and mid z spread of 255.At current levels,the notes trade approximately 80bpswider than peer BRADES 4.125%16(Baa1/BBB/NR)and are tighter only to BCOCPE5.75%17(NR/BBB/BBB+)and AVALCB 5.25%17(Baa3/NR/BBB-)within the Latin Americanuniverse.While we believe they could tighten 20bps further,we initiate w
19、ith a Hold since thetightening potential is not compelling enough to support a Buy recommendation at this stage.,Figure 1:Senior notes 1 yr price evolution110106,Figure 2:Senior notes 3m price evolution110108,106102104,9894,102100,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoSa ntanderBrasil4.2516AVALCB
20、5.25 17BCOCPE5.7517,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoSa ntanderBrasil4.2516AVALCB5.25 17BCOCPE5.7517,Source:Deutsche BankPage 2,Source:Deutsche Bank,Deutsche Bank Securities Inc.,Jan12,May12,Jun12,Jul12,Mar12,Dec11,Aug12,Oct12,Jul12,Aug12,Oct11,Apr12,Sep12,Nov11,Feb12,Mar12,Jul12,Oct11,Oct12
21、,Apr12,Jul12,Sep12,May12,Nov11,Dec11,Aug12,Feb12,Sep12,Aug12,Sep12,Oct12,Jan12,Jun12,Oct12,22 October 2012,Financial Services BTG Pactual,Figure 3:Senior notes 1 yr yield evolution6.05.0,Figure 4:Senior notes 3m yield evolution4.54.0,3.54.03.0,3.02.0,2.52.0,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoS
22、a ntanderBrasil4.2516AVALCB5.25 17BCOCPE5.7517,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoSa ntanderBrasil4.2516AVALCB5.25 17BCOCPE5.7517,Source:Deutsche BankFigure 5:Senior notes 1 yr spread evolution500450400350300250200150,Source:Deutsche BankFigure 6:Senior notes 3m spread evolution400350300250200
23、150,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoSa ntanderBrasil4.2516AVALCB5.25 17BCOCPE5.7517,Bradesco16BTGPBZ4.87516BBVASM4.516,Ba ncoSa ntanderBrasil4.2516AVALCB5.25 17BCOCPE5.7517,Source:Deutsche BankDeutsche Bank Securities Inc.,Source:Deutsche Bank,Page 3,Yield,3,2.5,2,22 October 2012,Financial
24、Services BTG PactualFigure 7:Senior notes yield vs duration4,3.5,AVALCB5.2517,BTGPBZ4.87516SANBBZ4.2516BANVOR6.7516,BCOCPE5.7517,BANBOG5.017,1.51,Ba norte4.37515,BCP4.7516BBVASM4.516Bra desco16BANCOL4.2516,2.5,2.7,2.9,3.1,3.3,3.5,3.7,3.9,4.1,DurationSource:Deutsche Bank3Q12 earnings unlikely to act
25、as near-term catalysts,but shouldprovide solid grounds for the performance of BTGs notesWhile we do not see near-term catalysts for peer outperformance,BTGs 3Q12 results arethe main event in the short-run that could impact the banks notes.That said,unless theresults are significantly below expectati
26、ons,we believe the most likely scenario is of a neutraleffect with the earnings continuing to support the overall performance of the notes,but nottriggering significant price upside.BTG delivered strong 1H12 results with a considerable increase in revenues yoy and solidprofitability despite one-off
27、expenses related to the banks IPO and acceleration of goodwillamortization.The banks Sales and Trading unit as well as its Principal Investmentsoperations were the main positive surprises in 1H12 recording revenues multiple timeshigher than a year ago.In particular,revenues from Principal Investment
28、s were nearly 8xtimes higher yoy and revenues from Sales and Trading 2.5x higher yoy.In addition,the banksbalance sheet benefited greatly from the proceeds of BTGs IPO with a positive impact on itsliquidity position and improved capitalization.Following this strong performance,we believe there is li
29、ttle room for upside and expect BTGto deliver good,but more modest 3Q12 results than the figures posted in the first half of theyear.In particular,DB equity analysts forecast a drop in revenues and net income of 16.0%to18.0%in relation to 2Q12 and a 2.0%increase in BTGs assets and deposit base qoq.T
30、hey forecast the banks annualized ROE at 21.2%.BTGs 3Q12 results are expected to beannounced on November 6,2012.,Page 4,Deutsche Bank Securities Inc.,-,-,-,-,22 October 2012,Financial Services BTG PactualFigure 8:Total revenues and operating expenses(BRLm),1Q11,2Q11,3Q11,4Q11,1Q12,2Q12,LTM,qoq,yoy,I
31、nvestment bankingCorporate lendingSales and tradingAsset managementWealth managementBanco PanAmericanoPrincipal investmentsInterest and otherTotal revenuesBonus,1056920911232142150819(149),132119147113412422150748(113),945944212936(68)(90)73675(87),4611921415341(8)108286959(172),5010256217137(21)572
32、1301,603(333),12914033417836(98)6872321,638(280),3194201,552631150(195)1,2777214,875(872),158.0%37.3%-40.6%4.1%-2.7%366.7%20.1%78.5%2.2%-15.9%,-2.3%17.6%127.2%57.5%-12.2%-508.3%3022.7%54.7%119.0%147.8%,Retention expenses,(18),(15),(20),13,(6),(13),-100.0%-100.0%,Salaries and benefitsAdministrative a
33、nd,(54)(68),(55)(85),(59)(81),(68)(93),(70)(68),(74)(99),(271)(342),5.7%46.0%,34.5%16.8%,other,Goodwill amortization,(9),(8),(5),(9),(5),(170),(189),3300.0%2025.0%,Tax charges,other than,(42),(45),(43),(51),(50),(58),(202),16.0%,28.9%,income tax,Total operating,(340),(321),(296),(380),(532),(681),(1
34、,890),28.1%,112.2%,expensesSource:Deutsche Bank,Company DataFigure 9:Summarized balance sheet(BRLm),AssetsCash and bank,2Q11374,4Q11545,1Q12148,2Q12354,qoq139.2%,yoy-5.3%,deposits,Interbank investmentsMarketable securities,27,44160,028,22,57962,037,27,47073,063,28,70778,070,4.5%6.9%,4.6%30.1%,and de
35、rivatives,Interbank transactionsLoansOther receivablesOther assetsPermanent assetsTotal assetsLiabilitiesDepositsOpen market fundingFunds from securities,2735,68216,19268847110,9052Q1112,77947,8795,638,8775,04219,977271,405112,4894Q1114,13848,9773,775,1,0674,90524,841192,651134,1641Q1215,08164,8064,
36、303,9185,72020,224242,882136,8992Q1216,30160,9965,012,-14.0%16.6%-18.6%26.3%8.7%2.0%qoq8.1%-5.9%16.5%,236.3%0.7%24.9%-64.7%240.3%23.4%yoy27.6%27.4%-11.1%,issued and accepted,Interbank transactions,46,7,33,371.4%,-28.3%,(liabilities),Loans and onlendingsDerivativesSubordinated liabilitiesOther liabil
37、itiesDeferred incomeTotal liabilitiesShareholders equityNon-controlling interestTotal liabilities+,1,5361,97233,25033103,1337,74823110,904,1,0273,1824,15828,44832103,7378,540212112,489,1,5184,4134,23130,36829124,7569,31891134,165,1,4977,5364,48628,55955124,47512,33391136,899,-1.4%70.8%6.0%-6.0%89.7%
38、-0.2%32.4%0.0%2.0%,-2.5%282.2%NM-14.1%66.7%20.7%59.2%295.7%23.4%,shareholders equitySource:Deutsche Bank,Company Data,Deutsche Bank Securities Inc.,Page 5,22 October 2012Page 6,Financial Services BTG PactualRisks related to our recommendationThe main downside risk related to BTG derives,in our opini
39、on,from the inherently volatilenature of the banks activities with a large portion of its revenue stream deriving from Salesand Trading and Principal Investments(58.0%of the banks total LTM revenues in 2Q12).This could lead to sizeable and unexpected losses if risks are not carefully monitored.Inadd
40、ition,BTGs wholesale concentrated funding base and the competitive landscape in Brazil,that could ultimately erode the banks margins,are also sources of concern.Overall marketconditions leading to times of significant stress with a long interruption of the equity and debtcapital markets could also h
41、urt BTGs business.Those risks are somewhat mitigated by the banks proven track record with a history of highprofitability,strong franchise and brand name as evidenced by its leadership in several of itsbusiness segments,partnership model that fosters a strong risk culture,ample access to thecapital
42、markets with a recently concluded IPO,adequate liquidity management and strongcapital base with its Tier 1 ratio currently at 12.3%.Upside risks to our recommendation include(but are not limited to):significant better thanexpected credit performance in the short-run that triggers an upward price mov
43、ement andnew capital measures that do not include issuance of dollar denominated subordinated notes.Deutsche Bank Securities Inc.,Goldman,Sachs,Morgan,Stanley,Bancodo,Brasil,ItauUnibanco,ItauUnibanco,CreditSuisse,Bancodo,Brasil,Votorantim,BradescoBBI,BradescoBBI,Santander,Santander,BTGPactual,BTGPac
44、tual,JPMorgan,RBCapital,BofAML,CEF,HSBC,JPMorgan,22 October 2012,Financial Services BTG PactualBTG PactualStrong franchise and brand nameBTG is a Brazilian investment bank,asset manager and wealth manager with a dominantfranchise in Brazil and expanding operations abroad.In Brazil,the bank is a lead
45、er in many ofthe business areas in which it operates,including equity and debt capital markets,M&A,sales and trading as well as asset and wealth management.In particular,BTG has beenamong the top banks in underwriting in Brazil over the past years and ranked as the secondlargest equity and debt unde
46、rwriter in 2011.In 2H12,the bank maintained its leadershipposition and ranked first larger equity and second larger debt underwriter.In addition to itswell-established and strong brand name in Brazil,the bank has recently completed strategicacquisitions in Chile and Colombia,which will contribute to
47、 the expansion of its businessoperations in Latin America.,Figure 10:ECM market share as of 2011,Figure 11:DCM market share as of 2011,32%29%21%,13%,15%,12%,9%,7%,5%,4%,4%,2%,2%,8%,7%,6%,6%,6%,2%,2%,Source:Deutsche Bank,Company Data,ANBIMA*Based on value of transactionsFigure 12:BTG equity capital m
48、arkets volume(BRLm),Source:Deutsche Bank,Company Data,ANBIMA*Based on value of transactionsFigure 13:BTG debt capital markets volume(BRLm),94%,93%,59%,75%,152,180,72%,75,391,86,272,50%,44%,14,824,31,182,75,500 19%34,811,47,131,59%19,167,15,857 10,385,19,4238%,30,9367%,17,75210%,32,5756%,48,0865%,7%,
49、9%,38,2507%,46,03710%,2005,2006,2007,2008,2009,2010,2011,1H11,1H12,2005,2006,2007,2008,2009,2010,2011,1H11,1H12,BTGPactual,Total,%BTGPactual,BTGPactual,Total,%BTGPactual,Source:Deutsche Bank,Company Data and Comisso de Valores Mobilirios,Source:Deutsche Bank,Company Data and Comisso de Valores Mobil
50、irios,Business description Seven business units with a broad offer of financial productsBTG operates through seven business units and offers a broad range of financial services to aBrazilian and global client base.The seven business units comprise:investment banking,corporate lending,sales and tradi
