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Moody's concludes BTG Pactual review with upgrade

Moody's on March 20 upgraded its ratings on Banco BTG Pactual SA, citing the Brazilian bank's shift to a simpler business profile and the resulting stabilization of its balance sheet and revenue generation.

Moody's raised the company's long-term local currency deposit rating to Ba2 from Ba3, long-term national scale deposit rating to Aa2.br from A1.br, and counterparty risk assessment to Ba1(cr) from Ba2(cr). The bank's stand-alone baseline credit assessment and adjusted baseline credit assessment were both upgraded to "ba2" from "ba3."

At the same time, Moody's affirmed BTG's long-term foreign currency deposit rating at Ba3 and its short-term local and foreign currency deposit ratings at NP. The bank's short-term national scale rating deposit rating was affirmed at BR-1.

The outlook on the ratings is now negative, in line with the same outlook on Brazil's sovereign ratings.

These rating actions, which reflect Moody's expectation that the bank's revenue mix and future growth potential are centered on more balanced business segments, conclude a review of BTG's ratings launched in November 2017.

"BTG's consistent income generation from steady fee and interest accruing businesses such as asset and wealth management and corporate lending have helped to soften the more volatile stream coming from its sales and trading operation in 2017," Moody's said.

It added that "while volatile earnings from sales and trading remain relevant to BTG's bottom line, we expect revenues from steady sources to contribute a similar 50% share of total revenues as reported in 2017, supporting the sustainability of the bank's new business model."

BTG took a number of steps to narrow the scope of its activities during the past few years, including the divestment of its interest in Switzerland-based BSI SA and its exit from the commodities trading business. With the upcoming sale of BTG's Petro Africa investment, expected to be finalized this year, the bank will conclude its deleveraging strategy, which should help market risk stabilize at lower levels, the rating agency noted.

Additionally, BTG's management plans to address the bank's intrinsic dependence on institutional clients for funding through investments in a new digital platform that is currently under development.