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BTG Takes Cue From Blankfein With Digital Bank to Weather Storms

Felipe Marques and Cristiane Lucchesi

(Bloomberg) -- Andre Esteves once joked that Banco BTG Pactual SA, the Latin American investment bank powerhouse he helped create, would one day become “better than Goldman” -- a play on the firm’s name.

Now, BTG is chasing Goldman Sachs Group Inc. down another path, looking to build a digital retail bank for the masses.

The firm, under the BTG Digital brand, will offer credit and debit cards, checking accounts and loans to individuals by mid-next year, adding to the investment platform focused on high-income clients, Chief Executive Officer Roberto Sallouti said in an interview at the bank’s Sao Paulo headquarters. The plan remains on track after a new round of police investigations targeted the bank in August.

“Being a latecomer in this case is a benefit,” Sallouti said, adding that not having branches or old technology allows BTG to offer new products and better service. His five-year goal is to gain a 10% stake in the holdings of retail and private-banking clients, which totaled 2.8 trillion reais ($690 billion) last year.

Years after the global financial crisis, Goldman’s then-CEO Lloyd Blankfein set out to build an online bank called Marcus to help diversify his firm’s funding and sources of revenue. The idea is to offer personal loans and savings accounts online at better rates than brick-and-mortar competitors -- helping consumers save money while disrupting incumbents.

“The Brazilian middle class has now access to the same products millionaires have and at the same prices,” Sallouti said.

Both BTG and Goldman have learned the benefits of drawing low-cost, diversified funding from individuals. That was one of the takeaways of the 2008 financial crisis for New York-based Goldman.

For BTG, the lesson came later, in a 2015 crisis when Esteves, 51, was arrested in a probe known as Carwash, sparking withdrawals from big clients. Esteves was ultimately acquitted of all charges, with the prosecutor’s office saying there was “no sufficient proof” against him.

See also: BTG in turmoil anew as Esteves is circled by police again

Then in August, police searched the firm’s offices and Esteves’s home once again, sending shares tumbling and prompting the bank to react quickly to reassure investors that panic wasn’t warranted. Even after falling more than 20% from from their peak, BTG shares have more than doubled this year and are the second-best performer of Brazil’s benchmark Ibovespa index.

BTG Digital has already helped retail deposits jump from 3% to near 17%, bringing a “brutal change in the quality of our funding,” Sallouti said. Once again, there’s a parallel with Goldman Sachs, which said it expected to increase consumer deposits by more than $10 billion a year with Marcus.

BTG started its digital initiative in 2016 with a product similar to the one by XP Investimentos SA, which was offering middle-class clients deposits, bonds and stocks at lower fees. While BTG doesn’t disclose such details, Santander analysts Henrique Navarro and Olavo Arthuzo estimated in an Aug. 21 report that the digital unit would have 150 billion reais in assets under custody in three to five years, valuing the venture at around 18.7 billion reais.

Sallouti expects the digital platform to break even by mid-2020. Alongside all the new retail banking features, the bank’s digital push includes a new small and mid-size firm lending business, a data-analytics firm, an insurance platform and Banco Pan SA, a smaller lender BTG has a stake in that serves low-income individuals.

Fintech firms have multiplied in Brazil, attracting money from the likes of billionaire Warren Buffett, SoftBank and Goldman itself. The newcomers hope to challenge the dominance of the nation’s top five lenders, which hold 85% of total assets compared with 43% in the U.S. Leading the pack are Tencent-backed Nubank, a $10 billion digital bank with more than 10 million users, payments company StoneCo, and XP Investimentos.

“We’re moving forward in a way I never thought would be possible for BTG, talking to a client that was once out of our reach,” Sallouti said.

Another sign of change? A recent roadshow presentation by BTG included not only the usual financials like ROE or FICC revenues -- but also a chart on the growing number of the bank’s Instagram and YouTube followers.

To contact the authors of this story: Felipe Marques in Sao Paulo at fmarques10@bloomberg.netCristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: Michael J Moore at mmoore55@bloomberg.net, Dan ReichlDavid Scheer

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