Fitch Affirms Banco BTG Pactual & Related Entities' Ratings; Removes Ratings from Neg Watch

SAO PAULO--()--Fitch Ratings has affirmed Banco BTG Pactual S.A. (BTG Pactual) and its related entities' ratings and removed them from Rating Watch Negative. A Negative Outlook was assigned to Banco BTG Pactual, BTG Investments LP and BTG Pactual Holding S.A.'s Long-Term Issuer Default Ratings (LT IDRs). A Negative Outlook was also assigned to Banco Pan and its subsidiaries (Brazilian Finance & Real Estate S.A. [BFRE]), mirroring the outlook of its main source of support, Caixa Economica Federal (Caixa). At the same time, Fitch has affirmed BTG Pactual's national ratings at 'A-(bra)' and Pan's national ratings at 'A+(bra)'. A Stable Outlook was assigned to all National Long-Term Ratings. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

BTG Pactual Group (BTG Pactual, BTG Investments and BTG Pactual Holding)

The removal of the rating of BTG Pactual from Rating Watch Negative reflects Fitch's recognition of the stabilization of the bank's liquidity, its comfortable capitalization and the successful management of its crisis situation. Its financial profile remains solid with good earnings generation, controlled asset quality while signs of a slow rebuilding of its funding franchise can already be perceived. As such, Fitch believes that no further deterioration of its ratings and risk profile are expected and Rating Watch Negative is no longer necessary.

Management has demonstrated its ability to address its liquidity crisis, by building a large liquidity cushion, reducing the bank's leverage and addressing concerns regarding possible implications of rumoured suspicious transactions through a thorough review made by a legal counsel formed by leading law firms, consultants and investigators that were hired by independent members of its Administrative Board.

The review found no evidence of any wrongdoing or any potential exposure to litigations stemming from these transactions. This has somehow helped the bank to isolate itself from the accusations faced by its main controller and former CEO, which are now being reviewed by a lower court after being transferred from Brazil's Supreme Court after former Senator Delcidio do Amaral was impeached due to his involvement in this scandal. A resolution on Mr. Esteves case given this change could take longer than previously anticipated.

The Negative Outlook assigned to BTG Pactual's IDRs capture the challenges imposed by the current operating environment, which in Fitch's view continues to present a negative trend.

From a corporate governance standpoint, the bank took measures to address the negative impacts on its franchise, caused by the arrest of its former CEO and main shareholder, Andre Esteves. The steps included well-succeed reorganization of its ownership structure, reducing Mr. Esteves power to return to the bank without the concurrence of the group of main partners.

The asset sale of non-core assets was also successful and helped to improve the bank's liquidity position and should help it to repay the remaining portion of the funding facility obtained with FGC during the liquidity crisis. The current exposure stands at BRL1.8 billion and should be fully repaid once the sale of BSI is finalized.

In terms of risk appetite and credit risk exposures, an active sale of loan portfolios at market prices helped to restore the bank's liquidity but also reduced the bank's credit risk exposure to some sensitive names at an opportune time as credit profiles of several large corporate names have deteriorated over the year.

The reduction of BTG's global markets and merchant banking exposures at the group level were already part of the group's strategic plan and were accelerated by the push to improve liquidity levels and bode well in terms of reducing the bank's risk exposures and leverage.

SUBSIDIARIES AND AFFILIATED COMPANIES

PAN, BFRE, BM, BS

Pan and its subsidiaries LT IDRs were affirmed at 'BB-' and its Rating Watch Negative was also removed, following BTG's Negative Rating Watch removal announced today. The long-term International ratings Outlook is now Negative, mirroring that of Caixa's IDRs, its main source of support, which in turn is aligned with the outlook for Brazil's sovereign ratings. Pan's ratings are notched one level from Caixa LT IDRs.

Pan's Viability Rating (VR) at 'b' factors in that the bank's business plan has been largely constrained over the last years by the weak operating environment, which has limited a complete turnaround of its operating performance. The operational losses also stem from Pan's heavy legacy costs, which include expensive funding structures.

An unfavourable market scenario has further deteriorated and not allowed the bank to grow as fast as necessary to achieve targeted profitability improvements. In fact, the economic recession scenario has led to additional cost control measures, such as the reduction of the number of executives, aimed at matching the bank's team to a continued weak economic environment, which should have a positive effect on the bank's results in the medium term.

Fitch believes that Pan's subsidiaries (BFRE, BM and BS) will also receive the same support from Caixa in case of need. This is justified by the subsidiaries' active role, synergies and full integration with Pan. BFRE, BM and BS are fully owned subsidiaries of Pan that operate in an integrated manner with the bank and are fully consolidated in the bank, being subject to same regulatory oversight.

RATING SENSITIVITIES

BTG Pactual Group's IDRs and VR

The potential for an upgrade on BTG Pactual's IDRs is limited in the short and medium term due to the challenges imposed by the current operating environment.

The bank's ratings could be downgraded in case of a steep deterioration of its profitability metrics to levels below an operating profit ROAA of 1% and Fitch Core Capital falls below 10%.

Though there is a lower risk of this scenario materializing, BTG Pactual's ratings could be downgraded in the event of any accusation of wrongdoings and/or official investigations are unveiled related to the bank's business and operations that result in pressures on the bank's reputation and further weaken its franchise and financial profile.

BTG Pactual Group's National Ratings

BTG Pactual's National Ratings could be revised in the near term depending on the stabilization of the improvements already observed on its financial profile, mainly considering its funding and liquidity profile and maintenance of its profitability.

Pan and Subsidiaries

Pan's IDRs could be downgraded if Caixa reduces its ability or propensity to provide support to Pan. Changes in funding and credit sales agreements provided by Caixa, or in Pan's shareholder's structure, could also trigger a negative rating action. Also, changes on the sovereign rating that lead to changes in Caixa's ratings would directly affect Pan's IDRs.

In addition, Pan's ratings will remain sensitive to those of BTG, as the latter continues to equally share control of Pan meaning that potential downgrades of BTG's ratings can impact Pan's ratings, too - which is not our current base case scenario.

A downgrade to Pan's VR could be triggered by successive net losses combined with a backdrop of capital ratios falling to even lower levels (Fitch Core Capital ratio stood at 8.7% in June 2016).

The following ratings were affirmed and have been removed from Rating Watch Negative and where applicable the respective Outlooks assigned:

Banco BTG Pactual S.A.

--Long-Term Foreign and Local Currency IDRs at 'BB-', Negative Outlook;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Viability Rating at 'bb-';

--Long-term National Rating at 'A-(bra)'; Stable Outlook;

--Short-term National Rating at 'F2(bra)';

--Senior unsecured notes, due in September 2017, foreign currency rating at 'BB-';

--Senior unsecured notes due in January 2020, foreign currency rating at 'BB-';

--Senior unsecured notes due in January 2034, foreign currency rating at 'BB-';

--Subordinated notes due in September 2022, foreign currency rating at 'B';

--Perpetual non-cumulative junior subordinated notes, foreign currency rating at 'B-'.

BTG Investments LP

--Long-Term Foreign and Local Currency IDRs at 'B+'; Negative Outlook;

--Support Rating at '4';

--Senior guaranteed notes at 'BB-'.

BTG Pactual Holding S.A.

--Long-Term Foreign and Local Currency IDRs at 'BB-', Outlook Negative;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Long-term National Rating at 'A-(bra)'; Outlook Stable;

--Short-term National Rating at 'F2(bra)'.

Banco Pan S.A.

--Long-Term Foreign and Local Currency IDRs at 'BB-', Outlook Negative;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Viability Rating at 'b';

--Support Rating at '3';

--Long-term National Rating at 'A+(bra)'; Outlook Stable;

--Short-term National Rating at 'F1(bra)'.

Brazilian Finance & Real Estate S.A.

--Long-Term Foreign and Local Currency IDRs at 'BB-', Outlook Negative;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Long-term National Rating at 'A+(bra)'; Outlook Stable;

--Short-term National Rating at 'F1(bra)'.

Brazilian Mortgages Cia Hipotecaria

--Long-Term Foreign and Local Currency IDRs at 'BB-', Outlook Negative;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Long-term National Rating at 'A+(bra)'; Outlook Stable;

--Short-term National Rating at 'F1(bra)';

Brazilian Securities Cia de Securitizacao

--Long-Term Foreign and Local Currency IDRs at 'BB-', Outlook Negative;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Long-term National Rating at 'A+(bra)'; Outlook Stable;

--Short-term National Rating at 'F1(bra)'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884128

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/site/re/720082

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010666

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010666

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst (BTG Pactual, BTGI and BTGH)
Eduardo Ribas
Director
+55-11-4504-2213
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst (BTG Pactual, BTGI and BTGH)
Claudio Gallina
Senior Director
+55-11-4504-2216
or
Primary Analyst (PAN, BFRE, BM and BS) and Tertiary Analyst (BTG Pactual, BTGI and BTGH)
Raphael Nascimento
Associate Director
+55-11-3957-3664
or
Committee Chairperson
Alejandro Garcia, CFA
Managing Director
+52 81 8399-9146
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.comp

Contacts

Fitch Ratings
Primary Analyst (BTG Pactual, BTGI and BTGH)
Eduardo Ribas
Director
+55-11-4504-2213
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst (BTG Pactual, BTGI and BTGH)
Claudio Gallina
Senior Director
+55-11-4504-2216
or
Primary Analyst (PAN, BFRE, BM and BS) and Tertiary Analyst (BTG Pactual, BTGI and BTGH)
Raphael Nascimento
Associate Director
+55-11-3957-3664
or
Committee Chairperson
Alejandro Garcia, CFA
Managing Director
+52 81 8399-9146
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.comp