Brazilian banking star puts $15 bln value to test
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Brazilian banking star André Esteves is ready to samba like it’s 1999. BTG Pactual’s boss and part-owner has just signaled his intention to sell shares in the investment bank to the public later this year. In just three short years since he bought the business back from UBS for $2.5 billion, Esteves has dealt his way to a six-fold increase in the firm’s price. At some three times book value, Pactual is on the same multiple Goldman Sachs fetched in its IPO 13 years ago.
Those were heady days before the dot-com bubble burst. Not only could Goldman command such a premium; a year later, Bear Stearns boss Jimmy Cayne claimed he would only sell his now-gone bank if offered four times book value. Share prices briefly touched those multiples in 2007, but these days Wall Street can only dream of such riches.
Goldman’s stock, for example, doesn’t even trade at the value of its assets minus liabilities. A combination of sluggish business, higher capital requirements and looming bans on risky, and lucrative, businesses like prop trading and private equity have undermined the earnings power of U.S. and European investment banks.
Pactual doesn’t have that problem. A booming local economy, no Volcker Rule and foreign investors stampeding into the country have propelled the firm. So have Esteves’ deal-making skills. In 2010, he sold almost a fifth of Pactual to a who’s who of international investors at an eye-watering $10 billion valuation.
And just last month, Esteves bought Chilean rival Celfin for $600 million. He funded $355 million of the deal with stock, giving Celfin’s owners a 2.4 percent stake in Pactual, which escalated Pactual’s market value to almost $15 billion. UBS executives must be quietly weeping over its all-but-forced sale of Pactual in 2009.
With an arguably higher-growth business than Brazilian universal banking rivals like Itaú Unibanco, which trades at 2.5 times book, Pactual could achieve its heady private value publicly. But the scrutiny of selling shares to a far broader base of investors will put the bank and its resident hotshot to the test.