Billionaire Esteves Buys Panamericano Amid Fraud Probe

Brazilian billionaire Andre Esteves’ Banco BTG Pactual SA agreed to buy a controlling stake in Banco Panamericano SA, the Sao Paulo-based lender that has rattled the nation’s markets since November as police probe alleged fraud.

BTG said in a statement late yesterday it will pay 450 million reais ($270 million) for 51 percent of Panamericano’s voting shares and place partner Jose Luiz Acar Pedro as the new chief executive officer. Silvio Santos, Panamericano’s founder whose holding took out a 2.5 billion real-loan from the nation’s deposit insurance fund on Nov. 9 to rescue the bank, said he sold to BTG on expectations it will help the lender grow.

“Now I’m free, the only company sold was the bank,” Santos, the 80-year-old host of a Sunday variety show, said after meeting with officials yesterday at BTG headquarters in Sao Paulo.

The purchase comes as the government continues its investigation, which has boosted funding costs for smaller banks, prompted increased scrutiny of Brazil’s 59 billion reais asset-backed fund industry and damped euphoria among investors in Latin America’s largest economy. The Bovespa stock index is down 8 percent since the probe started, compared with a 3 percent drop for MSCI Inc.’s developing-market index and a 5 percent advance for the Standard & Poor’s 500 Index.

Minority Shareholder Buyout

After the purchase, BTG will own 37.6 percent of Panamericano’s total capital while the state-owned savings bank, Caixa Economica Federal, which has been running the lender since the bailout, will have 36.6 percent, BTG said. On the day the transaction is completed, BTG will offer to buy out Panamericano’s minority shareholders for 4.89 reais a share, or 15 percent more than yesterday’s closing price.

By selling to Esteves, who became Brazil’s youngest self- made billionaire in 2006, Santos brings in a “well-respected” banker to the helm of Panamericano, said Saulo Sabba, who helps manage 1.3 billion reais as investment director at Banco Maxima SA in Rio de Janeiro. Esteves, 42, may treat the purchase more as a private equity investment and keep it separate from his BTG Pactual bank, Sabba said.

“He’s probably buying the opportunity, fixing it up and then will try to sell it at a premium, rather than merge the two banks,” Sabba said.

Asset-Backed Securities

Esteves led the sale of Rio de Janeiro-based Banco Pactual SA to UBS AG in 2006 for $2.6 billion. He bought UBS Pactual back amid the global financial crisis in 2009 for $2.5 billion and merged it with a bank he founded in 2008 to form BTG Pactual.

“The market may focus on Esteves taking over the management and he’s well respected,” Sabba said.

Shares of Panamericano, the biggest provider of used car loans in the country, have dropped 41 percent since Santos first bailed out the bank. The stock fell 3 percent to 4.26 reais in Sao Paulo yesterday after rising as much as 10 percent earlier.

Panamericano’s probe marks the first investigation into Brazil’s asset-backed securities industry, which has grown in the past decade to 312 funds. The central bank is probing Panamericano’s accounting of credit portfolios sold to other banks, which often re-packaged the assets into funds backed by future cash flow, known as FDICs.

The nation’s securities regulator proposed in January to step up disclosure requirements for the industry.

Capital Rules

Funding costs for small Brazilian banks increased after the investigation began. Yields on Banco Cruzeiro do Sul SA’s 2020 notes rose more than 150 basis points to as high as 9.56 percent on Jan. 28 from 8 percent on Nov. 8, while Banco Industrial e Comercial SA’s debt due in 2020 climbed as much as 140 basis points to 8.6 percent on Jan. 26, data compiled by Bloomberg show. Average yields on Brazilian corporate bonds rose 51 basis points, or 0.51 percentage point, since the probe started.

Brazil’s central bank tightened capital rules on Dec. 3 to head off what happened in the U.S. two years earlier after investors poured money into the subprime-mortgage market. The move further limited funding options for smaller lenders, like Panamericano, which helped fuel a five-fold expansion of consumer credit in Brazil to 743.5 billion reais in October from 137.9 billion reais in December 2002, according to the central bank.

As part of the probe, police conducted nine searches of former Panamericano executives, seizing documents and computers. Santos said yesterday he’s relieved to have sold his stake.

Santos agreed to the deal with BTG after Folha de S.Paulo reported that the bank’s losses rose to 4 billion reais. Panamericano hasn’t detailed its losses or reported its third- quarter earnings.

“I’m a TV man, not a money man,” Santos said. “My bank behaved well. It only had bad management, which led to what you know.”