How BTG came through the ultimate stress test

When Brazilian federal police knocked on the door of André Esteves’ Rio de Janeiro home on the morning of November 25, 2015, they were not only arresting one of the country’s most prominent bankers, they were also delivering a hammer blow to his bank, BTG Pactual. There followed a stress test that would threaten the collapse of the bank. Here’s the story of how the partners forged a business model for BTG in the glare of public scrutiny.

Roberto Sallouti was running on his treadmill at his home in São Paulo in the early morning of Wednesday November 25, 2015, when his mobile phone buzzed, out of his reach. The then senior vice-president and board member of BTG Pactual maintained his pace. It was only when the phone continued to buzz angrily over the next minute or so that he looked at it. There were many missed calls, including quite a few from the bank’s front desk. He returned the call.

“The federal police are here, lots of agents,” he was told.

Sallouti assumed the unannounced visit was in regards to a client matter – as the leading bank for Brazil’s richest families, legal issues tended to crop up from time to time. He switched off the treadmill, hoping to be able to resolve the matter and clear the bank’s reception of police agents before the office began to get busy for the day. But before Sallouti had been able to leave for the bank’s headquarters in São Paulo’s Faria Lima district, he got a call from one of the bank’s lawyers.

The news was blunt: “André has been arrested.” Huw Jenkins was sitting at his desk at the bank’s London office in Berkeley Square, two hours ahead and almost 6,000 miles away from the Brazilian HQ, when he received a call from Marcelo Kalim, senior vice-president and a member of the board. He in turn had been notified of Esteves’ arrest on arrival at Lugano’s airport.

The call was brief, sparking many more calls for each to make: “You’re never going to believe this…” Kalim began. Afterwards, Kalim cancelled all his meetings in Switzerland and headed straight back to São Paulo.

Meanwhile Jenkins, who was then vice-chairman of the board of directors, got on the phone to Sallouti and board member, Pérsio Arida. By 10am local time Sallouti says, the confusion was beginning to clear a little. By watching local TV and reading the newspapers’ websites, they had established some basic facts, as leaks to the local media had become a regular part of the arrest process and a faster route to the cause of arrest than official channels.

They learned that André Esteves, the bank’s chief executive, controlling shareholder and figurehead, had been arrested for allegedly obstructing justice after Delicidio Amaral, leader of the then ruling Workers Party in the Brazilian Senate, was recorded attempting to bribe an ex-Petrobras official not to sign a plea-bargain agreement with investigating authorities.

The recording, which was made public to local media, was made by the son of Nestor Cerveró, the former director of international operations at Petrobras.  In the recording, Amaral was heard offering to help Cerveró escape to Spain via Paraguay, as well as a stipend of R$50,000 ($15,650) a month, in return for Cerveró’s silence; Amaral also referred to Esteves as a channel for these payments.

The authorities also claimed that Esteves had an illegal copy of Cerveró’s previous testimony and was seeking to suppress information about bribes a petrol distribution company that some bank partners had invested in had allegedly paid to former president Fernando Collor.

It also transpired that Esteves’ arrest was valid for five days and was necessary, according to the Supreme Court, to allow for a search of his offices. After that it would need renewing and, unless evidence was produced in the interim, the consensus legal view among those advising BTG Pactual was that he would be released; there was no direct incriminating evidence.

Nevertheless, while hoping for the best, the bank’s senior management began to plan for the worst. Arida was proposed as acting CEO as his background as a former governor of Brazil’s central bank would be a valuable source of credibility with the regulators and the markets in the coming days. His first meeting at the central bank was 2pm that afternoon; many more were to follow.

The proposed new management structure was approved at a hastily convened board meeting early that evening.  The bank also established four war rooms, one each for communications (client and media), liquidity, regulatory relations and legal.

“This all happened on the Wednesday and went into Thursday and Friday, but we all thought that the arrest was a mistake and he would be freed at the weekend,” says Sallouti. “And that was, to some extent, also the working assumption of our clients. Yes, we had some withdrawals, but this wasn’t the heaviest period.”

The bank still activated contingency plans, underpinned by a couple of decisions that would prove to be crucial. The first was to communicate to clients that BTG Pactual would put up no gates, nor frustrate any attempts to liquidate positions clients held at the bank. Sallouti outlines the philosophy behind this first position:

“We took the view that it’s the clients’ money – we are just the fiduciary agent – and if they want an explanation, they will get one. If they want to talk to someone senior, they will do so. And if they want their money, they will get it.  “There will be no threats about not providing service if they withdraw funds. On the contrary, let’s give them an even better service so that clients will come back when things are clarified. No gates.”

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