André Esteves’ Brazilian Rollercoaster

Vladimir Volkov

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After building the largest independent investment bank in Latin America and making billions in the process, André Esteves became an embodiment of Brazil’s economic miracle of the last decade. Today a victim of the Petrobras corruption scandal, he runs the risk of becoming a symbol of the new Brazil, caught in an unprecedented political and economic crisis.

On the sunny morning of 25 November 2015, the countenance of André Esteves, the founder and CEO of BTG Pactual, a financial group, appeared cloudy. In a departure from his habitual daily routine, there was no stretch limo waiting by the entrance of Cap Ferrat, a prestigious high-rise condominium in Rio de Janeiro with luxurious apartments overlooking the Atlantic. In its place, there was a standard issue police car. Rather than taking him to his office, located in one of Rio’s prestigious neighborhoods, it drove away, accompanied by the deafening sound of sirens. Mr. Esteves’ destination was one of the city’s remote suburbs – Gericinó, made notorious by its brutal gangs and illegal smuggling running rampant – where he one of the richest men in Brazil, whose personal net worth was estimated by Forbes Magazine at $2.9 billion – was processed into a single prison cell with a concrete bed in Block 8 of the Bangu Penitentiary Complex.

The 47-year-old Esteves, who made a powerful impression on Brazil’s financial world and beyond, was arrested on charges of being involved in a high-profile corruption scandal around Petrobras, an oil company. In March 2014, Brazil’s Prosecutor General’s office opened an inquiry into a number of suspicious construction contracts implemented as a part of the oil giant’s investment program. Investigators believe that to secure their contracts, developers paid Petrobras’ top brass a bribe to the tune of three percent of the total contract amount of $3.7 billion. The Prosecutor General’s office also believes that a portion of this money was used to bribe government officials and provide illicit funding to political parties.

At the same time, the Prosecutor’s office released a black list of 54 high-ranking politicians suspected of being involved in this case. The list contained the name of Brazil’s former President, Senator Fernando Collor de Mello, who was officially indicted last summer, as well as Delcídio do Amaral, Senate Majority Leader from the ruling Workers’ Party, who was arrested on the same day as Esteves.

According to the investigators, both Esteves and Amaral attempted to pay off Nestor Severo, former CEO of Petrobras, to buy his silence about Fernando Collor’s involvement in the corruption schemes. Mr. Amaral’s arrest proved to be all the more shocking in light of the position that one of his fellow party members – sitting President of Brazil Dilma Rousseff – found herself in. As the former chair of the Petrobras Board of Directors between 2003 and 2010, the scandal triggered her impeachment procedure.

Even though Mr. Esteves did not stay behind bars for too long – he was released on bail as early as 17 December – the banker’s month in Bangu was not spent in vain. To avoid conflicts with the investigators, Mr. Estevez had to resign from all of his executive positions at BTG Pactual while still in prison. During this time, the bank’s market capitalization fell by more than a third and the former executive’s personal wealth, which peaked at $4 billion in 2013, was reduced to $1.9 billion. The terms of Mr. Esteves’ house arrest prohibit him from occupying any executive office in any company involved in the corruption investigation

Even though Ms. Rousseff faces no direct corruption charges in this investigation, an inquiry was re-opened late last year into the allegations that the dirty Petrobras money could have been used to finance her presidential campaign. But most importantly, the corruption scandal made a significant dent and undermined the President’s ratings, giving the opposition a chance to launch the impeachment procedure and provoking popular protests in the streets demanding a real fight against the corruption symbolized by crooked politicians and crony oligarchs, such as Esteves, whose arrest ordinary Brazilians met with visible enthusiasm. “He deserves it,” said Roberto Duarte, 25, who sells beverages and snacks on the beach in Ipanema, where Esteves has an ocean-view apartment.

It is hardly an accident that the legal counsel defending the banker (who denied any wrongdoing) claimed that the decision to detain him was directly related to the government’s desire to play to the popular sentiment. “He is in prison because he is rich. People tend to hate bankers,” said Almeida Castro, the businessman’s lawyer, on the day of his arrest.

Even though Mr. Esteves did not stay behind bars for too long – he was released on bail as early as 17 December – the banker’s month in Bangu was not spent in vain. To avoid conflicts with the investigators, Mr. Estevez had to resign from all of his executive positions at BTG Pactual while still in prison. During this time, the bank’s market capitalization fell by more than a third and the former executive’s personal wealth, which peaked at $4 billion in 2013, was reduced to $1.9 billion. The terms of Mr. Esteves’ house arrest prohibit him from occupying any executive office in any company involved in the corruption investigation. He would only be able to leave his apartment in Sao Paolo subject to finding a new job. Thus, Mr. Esteves’ incredible ascent to the top, which coincided with Brazil’s economic upsurge, came full circle.

Growth aggressor

Despite the fact that his wealth remains enormous even after these events and all of the attributes that go with it, causing thinly veiled irritation amongst ordinary Brazilians, Mr. Esteves can hardly be categorized as a classic oligarch – whatever he managed to achieve in life spanning less than half a century was thanks to his tenacity, talent, and good fortune.

In the beginning, nothing could foretell that Mr. Esteves, a native of Rio de Janeiro and a graduate of the local Federal University with a degree in mathematics, would make such a head-spinning career as a banker. It all began in 1989, when, while still a student, he went to work as an intern at Pactual’s IT Department – then a small investment bank in Rio de Janeiro. The world of finance caught his fancy. Mr. Esteves worked as a computer technician, but he quickly found an interest in trading. “He taught himself, in his spare time, how bond trading worked,” the bank’s founder, Luiz Cezar Fernandes, said. “In a year, he knew more than the traders did. So I made him one.”

Having succeeded in this new endeavor at a time when Brazil’s economy was going through a protracted period of hyperinflation, Esteves started spending the bonuses he earned to buy the shares of his bank. In 1999, he joined forces with a number of young partners and organized a veritable coup d’état at Pactual, removing Mr. Fernandes, the bank’s CEO and his former mentor.

Mr. Esteves got lucky again – his rise as CEO at Pactual coincided with the beginning of Brazil’s economic upsurge that President Lula, elected in 2003, came to symbolize. Pactual’s business began to show explosive growth as well. “We grew together with the country. We had a good position. We had the right corporate culture, great ambitions, we worked hard and thought big. So, as things got better in the country, we did better too,” he later recalled.

However, in 2006 in a surprise move, Pactual was sold to UBS, which paid $3.1 billion for this asset. According to the terms of the deal, Mr. Esteves went to work for the bank and moved to Switzerland. He later admitted that he had been planning to acquire a minority stake in UBS but changed his mind and decided to move back to Brazil, where he went on to found BTG, an investment bank. In 2009, he bought Pactual back from UBS for $2.5 billion. At the peak of the global financial crisis, the Swiss group preferred not to waste any efforts on integrating the bank and accepted the proposal to sell it to its previous owner. Thus, Mr. Esteves’ financial group acquired its new name: BTG Pactual.

Why did he opt for this complicated stunt? “In the mid-2000s we realized that in order to gain traction in our development we needed capital. We tried to get it by striking a deal with UBS,” Esteves explained in an interview. “However, when we bought Pacutal back, we knew for certain that we had made a mistake. We could have raised the money on our own and did not need an international partner. Brazil had already given us ample opportunities to do that.”

Indeed, in 2010, the bank successfully completed a partial public offering of its shares to the tune of $1.6 billion, which not only enabled it to raise the funds it required to finance its expansion plans but also find new strategic investors. At the time Mr. Esteves’ stake in the bank was acquired by GIC, a Singapore-based investment fund; CIC, a Chinese investment corporation; Abu-Dhabi’s sovereign investment fund; as well as several families from Europe and Latin America who were close to Pactual. In 2012, Mr. Esteves led BTG Pactual to the stock market and managed to raise an additional $2 billion through an IPO. “Thus we became a well capitalized bank and were ready for a new wave of growth,” said the financier.

However, before that happened, it took Mr. Esteves several years to prove to investors that he was worthy of their trust. BTG Pactual’s CEO admitted that when he was buying the bank back from UBS at the height of the global financial crisis, he was running a major risk. Initially, things were off to a sluggish start. However, a new economic upsurge, which enabled the country to overcome the recession with relative ease, blew new wind into the sails of his financial group and its business did not merely start showing growth, it did so aggressively.

Thus, in order to acquire new assets across various industries – from finance to pharmaceuticals and parking management companies – Mr. Esteves proactively used the bank’s own equity, which was not typical for financial institutions in Brazil. In addition, he had a good nose for changes in the market environment, which enabled him to partner up with state-owned companies to work on various projects, including in the oil industry, which was going through a veritable boom after Petrobras discovered large pre-salt oil and gas fields on the continental shelf in the southeast and south of the country in 2007-2008.

In 2010, the state-owned oil company announced plans to invest in the development of these resources the gigantic amount of $224 billion over five years. This would enable it to double its oil production to reach 3.9 million barrels per day, which would put Brazil squarely among the top five largest oil producers in the world. With this in mind, during September of the same year, Petrobras held the largest secondary public offering in the world, raising $70 billion. The company subsequently announced plans to raise an additional $60 billion in the space of five years. According to the government’s plan, most of these funds were not to be spent on services offered by foreign companies but rather on building a more robust native oil industry and oilfield service capabilities, spurring on the development of adjacent industries and the entire economy.

Even though Ms. Rousseff faces no direct corruption charges in this investigation, an inquiry was re-opened late last year into the allegations that the dirty Petrobras money could have been used to finance her presidential campaign. But most importantly, the corruption scandal made a significant dent and undermined the President’s ratings, giving the opposition a chance to launch the impeachment procedure and provoking popular protests in the streets

Such intentions dovetailed nicely with Mr. Esteves’ plans. In late 2012, BTG Pactual owned a stake in a joint venture with Petrobras that specialized in oil exploration and production in Africa. It was also a majority shareholder in Sete Brasil, an oilfield services company created to service projects on the shelf run by Petrobras. Again, in this regard, Esteves was no different from numerous other stakeholders who wanted to share in the profits from contracts generously awarded by the government. The events that followed showed that these measures proved a fertile soil for corruption. Sérgio Lazzarini, a professor at the Insper business school in São Paulo, was quoted by the New York Times as saying: “For years, the public sector here was growing, giving out more and more contracts. If a business wanted to grow quickly, it looked to the government. Corruption was just part of the rules of the game.”

A cruel twist of irony

It was ironic that at the time Mr. Esteves was arrested, his contacts with Petrobras and other state-owned companies did not play any significant role for BTG Pactual. The bank’s earnings forecast showed that its owner managed to turn it into a large international financial group with extensive operations in Latin America and Europe with more than 60% of its revenues to come from overseas in 2016.

In today’s environment, this profit structure would undoubtedly be a major leg-up for any Brazilian company. However, a line was drawn heralding an end to Lula’s golden age, during which Brazil’s GDP went up 3.8 times; today, the largest economy in Latin America has entered a period of protracted recession. In 2015, its GDP dropped 3.8% – the greatest fall since 1990 – and IMF forecasts released in January predict that this year its GDP is likely to further fall 3.5%.

The fact that Dilma Rousseff – a follower and successor to Lula the superstar – bet so heavily on developing the exports of raw materials came back to play a nasty trick on her government. The economic downturn, coupled with collapsing prices of raw materials, food, and energy resources across global commodity markets, fuelled protest sentiments, with the Petrobras corruption scandal further fanning the flames.

The latter is equally ironic for Ms. Rousseff. At the time she took office, she had the reputation of a stalwart fighter against corruption; today, however, she is forced to fight to stay in power against the backdrop of an extremely acute political crisis brought about by an inquiry into corruption allegations. In mid-April, Brazil’s Congress voted to initiate the President’s impeachment procedure. Formally, Ms. Rousseff is charged with obscuring the federal budget deficit in the run-up to the presidential elections in 2014, following which she was re-elected for a second term. Even though Ms. Rousseff has consistently denied any wrongdoing, accusing her political opponents of an attempted coup d’état, the procedure has been launched and it may cost her the presidency. On Thursday, 12 May, following a discussion that lasted 21 hours, the upper house of Brazil’s Parliament supported the impeachment. With 55 Senators voting in favor and 22 against, this decision means that Ms. Rousseff’s presidential powers will be automatically suspended pending a judicial investigation that may legally last up to 180 days. In the meantime, Michel Temer, 75, was asked to step in as the acting President of Brazil. The bitter irony of this situation is that he may be impeached on exactly the same grounds as Rousseff. Should this be the case, according to legislation, the speaker of the lower house, Eduardo Cunha, would be sworn in as acting President. He is one of the architects of the impeachment drive against Ms. Rousseff and her principal political rival. However, he is also a suspect in the corruption scandal around Petrobras, and Brazil’s Supreme Federal Court suspended him from office and stripped him of his mandate. He is suspected by Petrobras investigators of receiving a bribe totalling $5 million. Mr. Cunha considers himself a victim of Ms. Rousseff’s political retaliation. “It is clear that I am and will be a target for those who are trying to get back at me for initiating the impeachment process. It is obvious that there are political interests behind all this. The Workers’ party wants someone to keep its members company on the felon’s dock. This was to be expected. They are counting on me going to prison with them,” said Cunha at the time – his suspension enabling President Rousseff to announce her plans to appeal the impeachment procedure.

Finally, the third man in line for presidency – President of Brazil’s Senate Renan Calheiros – is also being investigated as a potential suspect for his alleged involvement in the Petrobrus corruption affair.

In this respect, André Esteves finds himself in a good company, even though the probability of his involvement in corruption schemes appears remote and not just to him alone. One thing that remains a certainty is the incredible ambition of the former CEO of BTG Pactual CEO. “If André Esteves did engage in illicit activity, then he took an enormous risk for what, in the end, would have been a modest benefit,” said João Augusto Salles, a financial sector analyst at a Rio de Janeiro investment consultancy. “But he ran the bank very aggressively and his ambition seemed to have no limits.”

The question of whether Mr. Esteves still has the same level of ambition or where its limits lie will probably be answered in the not-so-distant future. Whatever they are, this time around, he will have to pursue it in a far less conducive environment. Irrespective of whether Dilma Rousseff manages to salvage her presidency, Brazil will feel the repercussions of this unprecedented political crisis for a long time. Given this situation, the government (regardless of who forms it) will soon have to find a way to get the economy back on the growth track. This will have to be done against the backdrop of a global recession and China’s record economic slowdown. Entrepreneurs who belong to the same generation as Esteves and made their huge fortunes during the economic boom of the 2000s will find it a daunting task to prove their ability to succeed during a recession, which means that their desire to rise to that challenge should be all the greater.

Oil of discord

The discovery of large hydrocarbon reserves by Petrobras on the continental shelf in the middle of the last decade was supposed to become a powerful impetus driving Brazil’s growth and economic diversification. However, in reality, it led to an unprecedented corruption scandal, profound political crisis, and made the country more dependent on exports of raw materials and global market conditions.


Petrobras, Brazil’s state-owned oil company, announces discovery of hydrocarbons in pre-salt strata as a result exploration drilling at the Tupi field on the continental shelf.

August 2007

A consortium of companies, comprising Petrobras, BG Group, and Petrogal, confirms the discovery of large oil and gas fields at the water depth of approximately 9,000 meters and estimated to hold 5-6 billion barrels of oil equivalent. Further geological surveys showed large pre-salt hydrocarbon reserves in the Santos, Campos, and Espiritu-Santo oil basins.

August 2009

Brazil’s government releases plans to reform the oil industry to increase the revenues from new shelf fields.

Among other measures, the plan provided for increasing the state’s stake in Petrobras by way of exchanging undistributed reserves in the pre-salt horizon for additional company shares. The market responded to the government’s drive to strengthen its role in Petrobras’ management, and the company’s market capitalization fell $7 billion in one day.

September 2010

By selling 4.27 million shares in the world’s largest SPO in history, Brazil’s government is set to raise 120.4 billion reals (approximately $70 billion). Earlier during the same year, the company announced plans to invest nearly $224 billion over five years to develop the new shelf fields

January 2011

Dilma Rousseff, Chair of the Board of Directors at Petrobras in 2003-2010, is sworn in as President of Brazil.

January 2012

Maria das Graças Silva Foster is appointed Petrobras’ CEO, becoming the first woman in history to take the helm of one of the largest oil companies in the world.

August 2012

Petrobras reports its first quarterly losses in the last 13 years, totalling $665 million, which came as a result of the real devaluation and the government’s refusal to increase domestic gasoline prices in line with the growing global oil prices.

March 2014

Brazil’s Prosecutor General’s office announces the launch of an inquiry into corruption allegations after Petrobras awards construction contracts. A list of 54 names is published, including the oil giant’s top managers, CEOs of contractor companies, and politicians suspected of involvement in corrupt practices. Former Petrobras director Paulo Roberto Costa is arrested in connection with the investigation and later sentenced to 12 years.

April 2014

Brazil’s Supreme Court authorizes a congressional inquiry into alleged corruption at Petrobras. Dilma Rousseff says Petrobras has become the target of a biased political campaign.

September 2014

After reaching a plea bargain agreement with the authorities, Paulo Roberto Costa agrees to name members of Parliament and other politicians potentially involved in the corrupt practices around Petrobras.

October 2014

PricewaterhouseCoopers, Petrobras’s external auditor, refuses to sign off on the company’s reporting for Q3 2014. Ms. Rousseff is re-elected as Brazil’s President.

November 2014

Police raid Petrobras’ offices and those of some contractors in six states.

December 2015

André Esteves is released on bail and placed under house arrest.

February 2015

Maria das Graças Silva Foster and several other Petrobras top managers are forced to resign.

March 2015

Massive popular demonstrations begin in the streets of Brazil protesting corruption and the country’s deteriorating economic situation.

June 2015

Several CEOs of large construction companies are arrested, including Marcello Odebrecht, Brazil’s most prominent construction tycoon and owner of Odebrecht S.A.

August 2015

Police arrest Jose Dirceu, Lula’s chief of staff in the early 2000s on charges of corruption, racketeering, and money laundering, amid growing calls for Dilma Rousseff’s impeachment.

November 2015

André Esteves, BTG Pactual CEO, and Delcidio Amaral, Senate majority leader from the ruling Workers’ Party, are arrested on the same day. Mr. Amaral became the first sitting senator to be put behind bars in connection with the Petrobras scandal. By that time, more than 100 people were arrested in connection with the investigation.

March 2016

Brazil’s former President Lula da Silva is detained in connection with the corruption investigation, his house searched.

Approximately three million people take part in demonstrations in 18 cities across Brazil calling for Ms. Rousseff ’s resignation and stepping up the fight against corruption.

Petrobras reports losses totalling $9.6 billion in October-November 2016, setting a new record in its 140-year history, citing falling global oil prices and real devaluation as root causes. At the same time, the company announces its decision to sell a number of assets, including three shelf fields for $2 billion.

April 2016

Brazil’s Congress votes to impeach Dilma Rousseff with 367 voting yay, 137 nay, and seven abstentions.

For the first time in the last eight months, Petrobras releases audited accounts showing that 6.2 billion reals ($2.1 billion) were written off in Q4 2015 as losses resulting from corruption factors; other losses totalling 44.6 billion reals ($14.8 billion) were written off on account of overestimated value of assets.

May 2016

Brazil’s Supreme Federal Court confirms the decision to suspend Eduardo Cunha, speaker of the lower house. President of Brazil Dilma Rousseff announces plans to appeal the launch of the impeachment process due to the suspension of Cunha, one of its chief architects. Waldir Maranhão, the acting speaker of the lower house declares the impeachment vote null and void; Renan Calheiros, President of Brazil’s Federal Senate, refuses to carry out Maranhão’s order and says that the impeachment procedure will continue.

On Thursday, 12 May, the upper house of Brazil’s Parliament supported Ms. Rousseff’s impeachment with 55 votes in favor and 22 against, suspending her presidential powers pending the judicial investigation, which may last up to 180 days. Brazil’s Vice President Michel Temer is appointed interim head of state.

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