Fitch downgrades BTG Pactual

Fitch Ratings downgraded Brazilian investment bank BTG Pactual to 'BB-' from 'BBB-' and kept it on its Rating Watch Negative.

The ratings agency cited the bank's deteriorating liquidity position and funding franchise, which are closely linked to damage done to BTG's reputation following the arrest of its former CEO and chairman André Esteves.

"If they [BTG] were to lose all their liquidity but then are able to mend it by selling assets, they would not be as exposed to liquidity risks," director at Fitch and primary BTG analyst Eduardo Ribas told BNamericas before announcing the bank's downgrade. "We will be looking much more into the whole picture and the impact on business, origination and the perception of the bank."

Fitch now said in its release regarding the downgrade that the measures BTG has taken to boost its liquidity and reinforce its coffers after a significant withdrawal of funds following Esteves's arrest, including selling its shares in Rede D'Or for 2.38bn reais, "could help the bank withstand this turbulent period and restore liquidity to more stable levels."

"Even so, the deterioration on the bank's funding franchise seems clear and its ability to repair its funding base will be a key aspect to be monitored over the immediate future," the release said. "More importantly, the bank's ability to continue originating business on its areas of activity will be monitored."

Fitch's downgrade of the bank follows the same ratings action taken by both Moody's and Standard & Poor's a week prior. Both ratings agencies also cited BTG's liquidity problems as the main reason for their decision.