(Recasts to include details on earnings, comments, share performance from paragraph 1)
By Guillermo Parra-Bernal
SAO PAULO, May 7 (Reuters) - The contribution of commodities sales and trading to Grupo BTG Pactual SA's
A move to extend the offering and trading of specialized products for fixed-income, equities and currencies to commodities more than a year ago "showed to be the right decision because we leveraged our synergies in a number of key areas," Esteves said in a conference call to discuss first-quarter earnings.
BTG Pactual is betting on commodities, taking advantage of regulatory hurdles afflicting rival, larger global banks. Some operations outside Brazil are being integrated rapidly, helping revenue and profits in areas from asset management to financial advisory, Esteves and other executives added.
Esteves, 45, who stressed BTG Pactual's business model is more stable than analysts think, weathered the toughest start to a year for Brazilian capital markets in a decade by cutting banker bonuses by 28 percent in the wake of lower private-equity and asset management income. Sales and trading thrived as the commodities drive bore fruit, making up more than half of first-quarter revenue.
The contribution of commodities sales and trading, which includes grains, oil and gas, energy and mining and metals, to profit will be incremental in spite of a tough market for the asset class, he added. He provided no guidance on the unit, but said its share in the sales and trading revenue line should be similar to that of currencies, fixed-income and equities.
"Not more, not less, just in line with the other legs of the business," Esteves said of the weight of commodities sales and trading on revenue.
While the bank has remained secretive over its foray into commodities, sources told Reuters BTG Pactual hired Ricardo Leiman from Noble Group Ltd and dozens of traders, analysts and managers in London, Geneva and New York to cover everything from freight to grains to natural gas. The bank has spent $300 million to assemble the area, the same sources noted.
Shares gained 0.2 percent to 31.67 reais on Wednesday.
'CONSERVATIVE SIDE'
On Tuesday, the S?o Paulo-based lender reported first-quarter net income of 832 million reais ($373 million), well above the 797 million estimate in a Reuters poll. Compared with the fourth quarter, profit rose 8.3 percent, while on an annual basis it soared 35.9 percent - the result of a tumble in taxes amid stable revenue and a slight decline in expenses.
The results could be seen as transitional, as Esteves' efforts to expand in areas such as commodities and in countries such as Mexico, Chile and Colombia are only likely to impact results in coming quarters. BTG Pactual and peers are struggling with rising risk aversion that is weighing on share and bond offerings throughout Latin America this year.
"The figures showed the resilience of the bank's business model," Carlos Firetti, head of equity research at Bradesco BBI, said on Wednesday. "Despite large quarterly variations in different business units, as a whole, the bank's revenue mix can sustain decent levels of return."
As a result of that, BTG Pactual is on the "more conservative side" in terms of risk allocation, Esteves said.
"We are happy that we could deliver in terms of return on equity in a very challenging market scenario," Esteves said.
Annualized return on equity was 20.2 percent in the first quarter, compared with the 19.4 percent estimate in the poll, and in line with Esteves' 20 percent target for the long run. Return on equity, or ROE, is a measure of how well a bank spends shareholder money.
Total revenue fell 5.2 percent to 1.71 billion reais on a quarterly basis, missing the poll's estimate of 1.74 billion.
Principal investments - or income from investing the bank's own money in hedge funds, buyouts and real estate - unexpectedly swung to a loss after real estate and private-equity investments flopped. The line has a 115 million real shortfall, compared with the poll's estimate of 385 million reais in gains in the quarter.
Wages and banker compensation in the first quarter fell to 384 million reais from 535 million reais in the fourth quarter, reflecting weaker capital markets activity and declining asset management revenues. General expenses fell 12.7 percent, despite the bank's expansion into different regions and markets.
($1 = 2.23 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Jeffrey Benkoe and Chizu Nomiyama)
((guillermo.parra@thomsonreuters.com)(+55-11-5644-7714)(+55-119 -8346-7153)(Reuters Messaging: guillermo.parra.thomsonreuters.com@reuters.net))
Keywords: BTGPACTUAL RESULTS/COMMODITIES
