Brazil arrests top senator, bank CEO in Petrobras probe

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 countrys political and economic leadership and left the economy reeling in the deepest depression it has suffered in 80 years.

On Tuesday, police arrested businessman and rancher José Carlos Bumlai, a friend of former president Luiz Inacio Lula da Silva, in an investigation into loans benefiting his companies and president Dilma Rousseff’s Workers’ Party. But BTG Pactual has solid liquidity indicators and continues to operate normally, it said. 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.

The investigation into Brazil’s biggest-ever corruption scandal has already led to the arrest of several top Brazilian business and political figures, with dozens of convictions and prison sentences already handed down for corruption, criminal association and money laundering.

Supreme Court Justice Teori Zavascki said he authorised the arrest after prosecutors presented a taped conversation in which Amaral tried to bribe Petrobras’ former worldwide director, Nestor Cervero, out of taking a plea bargain that could implicate the senator and other politicians. During pre-market trading on Wednesday, the stock is trading down 3.14% at $5.39, while iShares MSCI Brazil Index (ETF) (NYSEARCA:EWZ) is trading down 4.08% at $24.20.

BTG Pactual’s balance sheet could come under strain if Esteves’ legal position worsens and the bank has to mark down or sell at a loss the value of assets connected to companies and industries involved in the Petrobras scandal.

Amaral was arrested for an indefinite period.

Still, the bank’s deals with Petrobras, the state company at the center of the probe, have drawn the attention of investigators. They include the bank’s stake in Sete Brasil Participações SA, a supplier of oil-drilling platforms.

Ratings agency Moody’s Investors Service warned the credit rating of Latin America’s largest homegrown investment bank could be at risk if Esteves’ absence from the helm is prolonged. That is the largest exposure among Brazil’s listed traded banks, according to Thomson Reuters data.

He is worth about $2.2 billion, according to Forbes Magazine. Deutsche Bank Securities cut the price target and recommendation on BTG Pactual shares, citing the “significant uncertainty” ensuing from Esteves’ arrest.