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"People Are Afraid": Market Panics As Brazil's "Goldman Sachs" Scrambles To Raise Cash, Junk'd By Fitch

Tyler Durden's picture




 

There aren’t many things we know for sure about Brazil these days. As Gabriel Petrus, a political analyst at business consulting firm Barral M Jorge, told Bloomberg last week, “never before in history have we had so little certainty about tomorrow." 

That said, we do know one thing with absolute certainty: BTG Pactual is most assuredly not “Better Than Goldman”, as its billionaire CEO Andre Esteves once joked.

How do we know this? Because Lloyd Blankfein would have never been arrested at his home and then hauled off to jail with “no tie and light stubble on his face” like Esteves was last Wednesday. 

As we documented in “CEO Of Brazil's ‘Goldman Sachs’ Is Arrested” and then further in “Market Panics After Arrest Of Brazilian Lawmaker”, Esteves, along with prominent lawmaker Delcidio Amaral, is accused of attempting to bribe a former Petrobras director who was set to give testimony to federal prosecutors in connection with the Carwash probe. Esteves resigned his post last Sunday. 

As we went on to detail, BTG clients pulled nearly a third of their money (around $1.1 billion) from the bank’s fixed income funds in the space of 48 hours after news of Esteves’ arrest hit the wires. By Thursday of this week, BTG’s 10 fixed-income funds had lost half of their AUM, or around $1.8 billion. 

The equity:

And the debt (which rallied this morning after the news of the credit line hit):


Although outflows have slowed to a little over BRL200 million per day, the cash crunch caused the firm to sell its stake in Rede D’Or Sao Luiz SA, Brazil’s biggest hospital chain, for some BRL2.4 and has prompted the bank to seek a buyer for its private banking arm, BSI, and for a debt collection business it owns. On Friday, we learn that bank has tapped a $1.6 billion lifeline from Brazil’s deposit guarantee fund. "Credit from the deposit-guarantee fund will help BTG gain time to weather the crisis as it sells assets to raise funds", a person with direct knowledge of the company’s strategy told Bloomberg earlier today.

But that likely won't be sufficient, some say. Wholesale funding is apparently drying up, causing BTG to pull back on trading in an attempt to preserve cash. And before you start thinking JPM-Bear of BofA-ML, note that some manner of shotgun merger isn't likely here. As Bloomberg puts it, "there simply aren’t many Brazil lenders with the heft to take on BTG." 

Needless to say, a government bailout at this point is a laughable proposition. The country is in a state of legislative gridlock as Rousseff desperately tries to shore up the budget while facing impeachment calls from lower House Speaker Eduardo Cunha, who the Workers' Party is attempting to remove before he gets a crack at ousting the President. “As we saw from the credit line, the bank is trying whatever it can to raise money and they seem to be doing it in an effective way,” a fixed income strategist who spoke to Bloomberg said, before adding that no matter how "effective" BTG is at securing funds, people "don’t like to see the headlines and that is why they are withdrawing their money - it shows the panic that is going on from the investors’ perspective.”

“It all boils down to the liquidity on one side of their balance sheet versus the other. The reality is that people often make investments that are less liquid than their liabilities,” said Wilbur Matthews,San Antonio-based Vaquero Global Investment LP. 

Well yes, Wilbur, that's how the system works or, in cases like this, doesn't work. From giant investment banks to your friendly neighborhood lender, everyone is borrowing short to lend long. The whole thing is one giant, duration mismatched ponzi scheme and when some exogenous or endogenous shock takes the "confidence" out of the "confidence game," it's liquidation time as people come wanting their money which naturally, is tied up in illiquid "investments." 

It's BTG now, but as we saw in 2008, it can just as well happen anywhere when something suddenly spooks investors and, more importantly, counterparties. What happens next for BTG is anyone's guess but you can be sure that considering that fractious political environment, and considering the state of the economy, finding a "solution" will not be easy. 

And just to underscore how dire the situation truly is, moments ago Fitch just cut the bank to junk:

  • BANCO BTG PACTUAL CUT TO JUNK BY FITCH, MAY BE CUT FURTHER
 

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Fri, 12/04/2015 - 15:39 | 6876923 buzzsaw99
buzzsaw99's picture

don't worry about esteves, he got plenty.

Fri, 12/04/2015 - 15:40 | 6876926 TalkToLind
TalkToLind's picture

Don't be scurred.  Just BTFD!

Fri, 12/04/2015 - 15:53 | 6877000 bamawatson
bamawatson's picture

"may be cut further" ?

further than junk; lighter than air

Fri, 12/04/2015 - 17:49 | 6877641 tarabel
tarabel's picture

 

 

That thought crossed my mind as well. What's in between junk and zero?

Sat, 12/05/2015 - 02:43 | 6879287 Oracle of Kypseli
Oracle of Kypseli's picture

Two IQ points

Sat, 12/05/2015 - 08:53 | 6879551 Pipetex
Pipetex's picture

Hope?

Fri, 12/04/2015 - 15:59 | 6877027 Albertarocks
Albertarocks's picture

"Credit from the deposit-guarantee fund will help BTG gain time to weather the crisis as it sells assets to raise funds."

And that my friends, is exactly how deflation happens on a larger scale.  In order to 'raise funds', they have to sell something... anything... at any cost.  Otherwise they default and everybody down the line is forced to do the same thing.  Currency that was loaned into existence simply vanishes off the face of the earth.

When we see this starting to happen in the US, or anywhere for that matter as long as it is in US funds, the USD will skyrocket due to immense and growing pressure to "get our hands on some US dollars, pronto".

Deflation first, hyperinflation later.

Fri, 12/04/2015 - 17:48 | 6877636 tarabel
tarabel's picture

 

 

Very good point.

I might add that they are undoubtedly also calling things in that they hold paper on and spreading the pain on down the line.

Hi, your mortgage is due.

What are you talking about? I just made this month's payment.

Yes, thank you for that, but now your mortgage is due. All of it. Now. Today.

Fri, 12/04/2015 - 21:58 | 6878670 Albertarocks
Albertarocks's picture

You bet... the next time we see a big corporate default, or maybe even something like a default by teeny Puerto Rico, once that snowball starts downhill there is no stopping it.  With each default those dollars which were created out of thin air in the first place will simply get sucked back into the imaginary void that they were birthed from in the first place.  They just vanish forever.

The Fed is powerless against deflation too, because the size of the derivatives and loans markets that we are talking about here are in the trillions... 555 trillion in derivatives alone at last report.  When the cork is finally popped off that bottle (where the deflation genie resides), anybody who is owed money 'will' call that loan back if he has to.  That is... if he can.  I think in some cases he can't call it back except until a specified date.  Not sure.

Fri, 12/04/2015 - 17:52 | 6877647 NoTTD
NoTTD's picture

Is "credit" realyy what bankrupts need?   There is always some Goddamn government "fund" standing  by to waste other people's money on these assholes.  Let them fall.

Fri, 12/04/2015 - 16:04 | 6877068 Salah
Salah's picture

GITR here is $11 trillion in US dollar carry trades waiting to explode

Fri, 12/04/2015 - 16:37 | 6877248 Herdee
Herdee's picture

And you see how Goldman came out with their misleading statements just before slamming the USD and pushing the EUR/USD spread up to record heights in one trading day.This is the way desperate assholes make money off of suckers that listen to these goddamn basturds.It shows they are hard up for money.Regulators have tightened everything up so that it isdifficult for all these crooks to manipulate and make money the easy way illegally.Hundreds of millions,even billions in fines was and is the only way they get it.They're con-artists that understand that now they can easily go to jail if caught the second time.

Fri, 12/04/2015 - 16:39 | 6877264 Analog
Analog's picture

Big pictures of pensive-looking white men.

Big graphs with big arrows.

Yeah, I'm afraid.

.......

Or was I supposed to panic??

https://www.youtube.com/watch?v=06Ml8fHd4MA

My neighbor came by while ago to tell me our long-time mutual acquantance had a stroke this week and isn't going to make it.

If you are reading this you are also on the green side of the grass.

Life is good.

Fri, 12/04/2015 - 16:53 | 6877353 wanderer9641
wanderer9641's picture

A little perspective is always nice.

Fri, 12/04/2015 - 17:53 | 6877642 NoTTD
NoTTD's picture

What's below "junk"?  Is there a "shit" rating?

 

Also:  Bullish!

Fri, 12/04/2015 - 18:32 | 6877842 BurningFuld
BurningFuld's picture

Junkier?

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