SÃO PAULO, Brazil — André Esteves is not the only rich and powerful Brazilian to be swept up in a corruption investigation that has rocked the country.
Police officials here say they have found evidence that scores of politicians and business executives siphoned off funds from the government-controlled petroleum company Petrobras and some of its contractors.
But what sets the case of Mr. Esteves — who built and led the investment bank BTG Pactual — apart from those of the other accused men and women is its apparent senselessness.
“The deals BTG Pactual had with Petrobras and the government were relatively small and had nothing to do with the bank’s core business, which was very profitable,” said Luis Miguel Santacreu, a financial sector analyst with the Brazilian credit ratings agency Austin Rating. “They didn’t need any of these deals to keep on growing.”
Indeed, BTG Pactual’s collaborations with the government and Petrobras were mostly producing losses. The bank’s trading, sales and asset and wealth management divisions — none of which has much to gain from government connections — had been making more and more money. These areas were responsible for 84 percent of revenue in the third quarter of 2015.
Still, the deals in question have led to a stunning fall for Mr. Esteves, a 47-year-old who in less than two decades built an investment banking powerhouse that in Latin America rivals Wall Street and European banks.
Mr. Esteves has denied any wrongdoing, but after he was arrested in November on accusations of plotting to obstruct a police investigation, he resigned as BTG Pactual’s chief executive and gave up all his voting shares in the firm.
Mr. Esteves was released in December from a communal cell in one of Brazil’s most notorious prisons, the giant Bangu complex in Rio de Janeiro, but the Supreme Court of Brazil has imposed house arrest on him and forbidden him from taking any management role in the bank he personified.
The downfall of Mr. Esteves has rattled the financial community here. More than any other financier, he was the face of Brazil’s global ambitions during its recent, short-lived boom — in a hurry to grow and unafraid to compete against anyone, anywhere.
He entered the financial world by chance. In 1989, while studying computer science in college, he took a job as a computer technician in a Rio de Janeiro investment bank, Pactual. Once there, he decided that he liked the business.
“He taught himself, in his spare time, how bond trading worked,” the bank’s founder, Luiz Cezar Fernandes, said. “In a year, he knew more than the traders did. So I made him one.”
Mr. Esteves earned big bonuses, which he did not spend. Instead, once he became a partner, he used the money he earned to increase his stake in the bank a little more each year until, in 1999, he led a group of other young partners in pushing out Mr. Fernandes and taking control of Pactual.
Mr. Fernandes, now a partner in the São Paulo merchant bank Invixx, was bitter for a time, but he has since made peace with his former protégé.
“His skill is strategy. He has vision. He also inspires incredible loyalty in people,” Mr. Fernandes said. “He’s driven, but it’s not money or power he’s after. It’s success.”
He soon had all three. With its harsh work ethic and big bonuses for big earners, Pactual grew. In 2006, Mr. Esteves and his partners sold the firm to the Swiss banking giant UBS for $3.1 billion. As part of the deal, he went to work for UBS.
Two years later, as UBS staggered in the global financial crisis, reports circulated in Zurich and São Paulo that Mr. Esteves, with the help of Brazil’s richest man, Jorge Paulo Lemann, was trying to buy the Swiss banking company.
Nothing ever came of the reports. Mr. Esteves subsequently said he had merely considered buying a minority stake in UBS.
But Mr. Lemann, who has since led the buyouts of Burger King, Heinz, Kraft and SABMiller, told a Brazilian business magazine in 2009 that “André Esteves is the most ambitious person I know.”
Mr. Esteves left UBS and returned to Brazil, where he founded a new bank, BTG, which then bought Pactual back from UBS for $2.5 billion.
With the two firms combined into BTG Pactual, the new bank’s profits grew rapidly. It held an initial public offering that raised nearly $2 billion. It expanded throughout Latin America and into Europe, as Mr. Esteves sought to turn BTG Pactual into a global player.
Mr. Esteves become a double and perhaps triple billionaire along the way, but he never indulged in ostentation. At BTG Pactual, he had no office but worked at a table in the bank’s wide-open operations room, along with the bank’s other partners and associates.
He expressed pride in media articles and in chats with college students at how his bank gave young people of modest means, such as he had once been, a chance to work hard, become partners and get rich.
And as so many others did this decade when Brazil was growing rapidly, he started to bet that this growth would continue indefinitely.
Unlike most Brazilian banks, which shy at the risk, BTG started to use its own money to buy stakes in a range of businesses, including pharmacies, parking lots, power plants and fitness centers.
Some of these investments put the bank in business with the federal government.
By the end of 2012, BTG was running a retail bank, whose strength is selling car insurance, in partnership with a government-owned bank. It had a joint venture with the government-owned Petrobras to explore and produce petroleum in Africa. It was also the biggest shareholder of the offshore driller Sete Brasil, created to fulfill one of President Dilma Rousseff’s priorities: a domestic oil services industry to supply Petrobras, which would be required to buy locally.
“For years, the public sector here was growing, giving out more and more contracts,” said Sérgio Lazzarini, a professor at the Insper business school in São Paulo. “If a business wanted to grow quickly, it looked to the government. Corruption was just part of the rules of the game.”
But the game changed. Brazil’s economy first stagnated, then fell into a deep recession; the government slashed spending; and prosecutors’ investigations started to punish corruption in several companies in which BTG had partnered with the government.
Mr. Esteves was arrested along with a leading senator after the senator was recorded discussing plans to pay a witness in the Petrobras corruption investigation to flee the country. Although Mr. Esteves was not present, the other suspects referred to him as part of the plot.
A police search found a note indicating that in 2013, BTG may have paid a congressman, who is now the speaker of the lower house of Congress, about $12 million for legislative favors. Investigators are looking at several deals Mr. Esteves’s bank made with Petrobras and other companies under investigation.
Brazil’s prosecutor general has asked the Supreme Court to charge Mr. Esteves with obstruction of justice, a crime that, if he is found guilty, could lead to eight years of prison time. And the prosecutor general is reportedly preparing further charges.
Mr. Esteves, BTG Pactual and the speaker deny all the accusations, and the court has yet to rule on the prosecutor general’s request.
Mr. Esteves’s lawyer, Antonio Carlos de Almeida Castro, said that his client would not appeal his house arrest, but that the defense “will prove him innocent.”
Investors in BTG Pactual appear less certain.
Since Mr. Esteves’s arrest, BTG’s shares have fallen almost 50 percent, its bonds have been downgraded to junk, and it has been selling assets to ensure it has the cash to survive.
An irony of Mr. Esteves’s downfall in Brazil’s national corruption scandal is that his bank had been becoming un-Brazilian. BTG’s third-quarter earnings release said that more than 60 percent of its revenue would come from overseas in 2016.
“If André Esteves did engage in illicit activity, then he took an enormous risk for what, in the end, would have been a modest benefit,” said João Augusto Salles, financial sector analyst at the Rio de Janeiro investment consultancy Lopes Filho. “But he ran the bank very aggressively and his ambition seemed to have no limits.”
Source: The New York Times Online – 05/01/2016
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