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Thursday, March 28, 2024

CEO Of Brazil’s “Goldman Sachs” Is Arrested

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Several years ago, when Brazil’s economy was roaring on the coattails of the Chinese commodity boom, the country’s Grupo BTG Pactual was transformed into the largest independent investment bank in Latin America by the golden boy of Brazil’s finance – billionaire Andre Esteves.

Alas, over the past year as Brazil’s economy imploded, BTG had been grappling with fallout from his firm’s loans and investments in companies linked to the nation’s biggest-ever corruption scandal.

According to an old Bloomberg profile of Esteves, having disrupted an entrenched industry dominated by old-line banking dynasties, traditional banks and foreign lenders, Esteves became a billionaire before turning 40, then joked that his firm would become “better than Goldman”, a play on the company’s name.

It was not meant to be, not because of rising concerns about the bank’s financial health but because unlike executives linked to Goldman in every way imaginable, earlier today the CEO of “better than Goldman” was arrested in the corruption probe touching everyone from the country’s petrol-producing giant Petrobras, to president Rouseff herself, one which has shaken the country’s political and economic leadership and left the economy reeling in the deepest depression it has suffered in 80 years.

Televised images showed Esteves being escorted by a police officer into the federal police office in Rio de Janeiro. He sported a white button-down shirt, no tie and light stubble on his face as he walked past reporters to an elevator.

Sandra Goncalvez Pires, a partner at law firm Rao & Pires Advogados, said the banker is accompanied by a lawyer at the police station in Rio. She said his defense team is researching the arrest order, which allows for Esteves to be held for as many as five days and can be extended. BTG Pactual said in an e-mailed statement that it is cooperating with the investigation and is willing to explain whatever is necessary to authorities.

Nope, sorry, that would never happen to Lloyd Blankfein.

According to Bloomberg, the Supreme Court authorized the warrant to detain the financier on suspicion he and the leader of the government coalition in the Senate, Delcidio Amaral, allegedly tried to interfere in testimony related to a pay-to-play scheme at the state-run oil giant, Petroleo Brasileiro SA, according to a court document. BTG and Petrobras are partners in a troubled oil-rig supplier. Amaral was also arrested, making him the highest-ranking politician so far to be ensnared in the scandal.

Esteves has been involved in various deals with Petrobras over the years, most notably Sete Brasil. BTG teamed up with Petrobras and other partners in 2010 to create the rig-supplier whose former operating chief admitted in plea bargains to crimes of corruption.

The arrest came as a surprise for most Brazil watchers and ushers in a new phase of a massive graft scandal that has “crippled Brazil’s economy and left President Dilma Rousseff fighting for her political survival. The nation’s currency and stocks, which had stabilized in recent weeks after being in a freefall for much of the year, posted the worst drop among major markets Wednesday amid concern the scandal will prolong political gridlock and the longest recession since the Great Depression.

The stock of BTG promptly plunged on the news to the lowest in years, losing a third of its value in seconds after the news, making a mockery of a March 30 analysis by Morgan Stanley which said that “we think the market is significantly underestimating BTG’s earnings recurrence,” with analysts Jorge Kuri and Felipe Salomao adding that “black-box” concerns “one of the key misconceptions that the market has had on the company.” Turns our the “black box” concerns were quite warranted.

But why would Brazil take such a draconian step as arresting like arresting one of its most prominent bankers? According to Leme Investimentos fixed income manager Paulo Petrassi, this took place because the “CEO believed he was too powerful to be arrested.”

Yet another way BTG never quite made it to “better than Goldman” status.

He added that BTG is very active in swaps market, one of biggest players in the mkt, so volume will fall, even more. It will also impact the Brazilian economy even further as Brazil’s velocity of money is set to slow down even more now that its largest banks is incapacitated indefinitely.

More details from Bloomberg:

The sweeping investigation into Petrobras — dubbed “Carwash” by prosecutors after a gas station used to launder money — has helped make Brazil’s real the world’s worst-performing major currency this year. Brazil’s economy is forecast to shrink more than 3 percent this year, according to a central bank survey of economists.

Esteves has been involved in various deals with Petrobras over the years, most notably Sete Brasil. BTG teamed up with Petrobras and other partners in 2010 to create the rig-supplier whose former operating chief admitted in plea bargains to crimes of corruption.

New arrests suggest the full impact of Carwash, or Lava Jato in Portuguese, “is still to come,” Joao Augusto de Castro Neves, director of Latin America for political consulting firm Eurasia Group, said in a note to clients Wednesday. “BTG Pactual has exposure to the oil and gas sector, and the arrest of its CEO is the first time the Lava Jato probe raises the earnest prospect of financial contagion.”

Even so, many Brazilians were stunned by the unexpected arrest of the CEO: “The arrest of Mr. Esteves, the most high-profile figure in Brazilian finance, takes the Petrobras probe to a whole new level and shows the depth and breadth of a scandal that’s engulfing Brazil’s political and corporate establishment,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy, in London. “The scandal is becoming more debilitating by the day and is severely undermining the prospects for any kind of meaningful economic reform.”

Amaral allegedly tried to convince former Petrobras director Nestor Cervero, who was arrested in January, to not mention him or Esteves in testimony to federal prosecutors, according to a document of the accusations read aloud in Brasilia Wednesday by Judge Teori Zavascki. Cervero’s family would have received 50,000 reais ($13,000) every month in the proposal, and Esteves “would bear the burden of financial aid,” according to the document. The offer also included a promised 4 million-real payment to Cervero’s lawyer.

Eduardo Marzagao, a spokesman for Amaral, said he was “surprised” by the arrest. “It must be a big mistake,” he said.

Well, yes, when rich and powerful people are arrested for embezzling billions, it is usually a “big mistake” as it means that someone’s palms were not greased enough.

Now compare to the US, where any executives working for the “one and only” original Goldman will never be threatened with the perp walk shown above. Just in case there is any confusion which the banana republic truly is…

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