Brazil’s corruption probe widens – Senate leader, BTG Pactual CEO arrested

Several years ago, when Brazil’s economy was roaring on the coattails of the Chinese commodity boom, the country’s Grupo BTG Pactual was transformed into the largest independent investment bank in Latin America by the golden boy of Brazil’s finance – billionaire Andre Esteves.

Supreme Court Justice Teori Zavascki said he authorized the arrest because prosecutors presented evidence that Amaral had planned the flight of Petrobras’ former global director, Nestor Cervero, in return for his silence.

The government’s leader in the Senate, Delcidio Amaral, was also arrested, the police press official said, declining to provide details on the specific allegations against Esteves or Amaral.

Analysts have said redemptions at BTG Pactual pose no systemic risks for Brazil’s banking system and noted the bank’s robust liquidity and solvency indicators.

It was just the latest in Brazil’s biggest corruption scandal that began unraveling previous year. 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.

The bank tried to calm investors with the appointment of Persio Arida, chairman of the bank’s asset management unit and former Central Bank governor, as interim CEO. Amaral was also arrested, making him the highest-ranking politician so far to be ensnared in the scandal. News channels showed images of Mr. Esteves being ushered by a police officer into the federal police office. Under Brazil’s constitution, the Senate can approve or overturn the Supreme Court decision to arrest a senator.

The arrests are part of the so-called Lava Jato corruption investigation into bribes paid between Petrobras and big builders. Antonio Carlos de Almeida Castro, one of the billionaire’s defense lawyers, said by phone that nothing more can be done until November 29, when the temporary arrest order for Esteves expires.

One such firm, oil-drilling rig supplier Sete Brasil Participacoes SA, 27 percent-owned by BTG Pactual, faces an uncertain future as Petrobras is refusing to enter a long-term ship leasing contract with it, sources with knowledge of the situation have told Reuters.

The impact of the investigations could be felt in every business related to BTG Pactual, according to Silvio Campos Neto, an economist at consultancy firm Tendencias.

Eduardo Marzagao, a spokesman for Amaral, said he was “surprised” by the arrest. He’s now less than half as wealthy, as his net worth dipped below $2 billion on Wednesday, according to the Bloomberg Billionaires Index.