Fitch: Banco Panamericano's Capital Increase Positive but No Immediate Impact on VR

SAO PAULO--()--Fitch Ratings considers Banco Panamericano's (Pan) announcement of a capital injection of up to BRL3 billion, led by its two controlling shareholders - Banco BTG Pactual S.A. (BTG Pactual) and Caixa Economica Federal (Caixa) - as positive for the bank's financial profile but neutral to the bank's current Viability Rating (VR) in the short term. Pan's Fitch VR is 'b' and Foreign Currency (FC) and Local Currency (LC) long-term (LT) Issuer Default Rating [IDRs] are both 'BB+'; Outlook Positive, since January 2014.

On June 13, Pan announced a capital increase of BRL3 billion via two tranches: One consisting of new shares to be issued in an amount up to BRL1.5 billion, and the second through the issuance of redeemable preferred shares in an amount up to BRL1.5 billion, which is still subject to shareholders' approval.

BTG Pactual (FC LT [IDR] of 'BBB-'/Outlook Positive) and Caixa (FC LT IDR of 'BBB'/Outlook Stable) are committed to subscribe to both tranches up to their 71% ownership stake and eventually to all remaining unsubscribed shares. The first tranche would have a positive impact on the bank's regulatory capital ratio and on Fitch Core Capital. The second tranche cannot be used as capital for regulatory purposes nor would it be deemed as capital or receive any equity credit, as per Fitch's criteria.

In Fitch's view, the capital injections should allow Pan to accelerate the achievement of its operational breakeven point through the retention of a larger portion of its loan originations and reduce its reliance on credit sales under the agreements with Caixa. Also, the bank should be able to use its large tax-credit base (BRL2.8 billion as of December 2013), as it should start posting more robust results.

Fitch believes this announcement will have a positive effect on Pan's current capital base but with a neutral impact on the bank's VR in the short term. In the agency's opinion the bank's profitability and capital ratio improvements will need to be sustained in order to trigger a positive VR action. As stated in January 2014 (Please refer to Fitch's last Rating Action Commentary 'Fitch Affirms BTG Pactual Group's Ratings; Outlook Revised to Positive', dated Jan. 27, 2014) Fitch believes that a positive rating action would depend on a sustained improvement in the bank's operating profitability (ROAA above 0.5%) along with the maintenance of a Fitch Core Capital higher than 7.0%.

Pan's IDRs remain driven by the support of BTG Pactual and already factors in shareholders' ability to maintain ordinary support. Its Positive Outlook is aligned with an eventual upgrade of BTG Pactual's IDRs.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- Global Financial Institutions Rating Criteria

-- Rating FI Subsidiaries and Holding Companies

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

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Contacts

Fitch Ratings
Primary Analyst
Eduardo Ribas, +55-11-4504-2213
Director
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor -
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Claudio Gallina, +55-11-4504-2216
Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Eduardo Ribas, +55-11-4504-2213
Director
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor -
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Claudio Gallina, +55-11-4504-2216
Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com