BTG Pactual plummets after Esteves arrest

Andre Esteves was completing his first day in jail on Thursday after being accused of obstructing a probe into corruption at the state oil company, Petrobras.

The arrests mark a new stage in the investigation into allegations that construction companies paid huge bribes to Petrobras officials and politicians – many from the governing coalition – in exchange for lucrative contracts.

Executives at the São Paulo-based bank had been negotiating exiting Rede D’Or since August, although the arrest last week of BTG Pactual’s chairman, André Esteves, sped up talks, two other sources said.

Esteves is the controlling shareholder of BTG Pactual. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. Folha de S. Paulo reported the arrest on its website earlier.

BTG Pactual declined comment, as did representatives for Carlyle and GIC. The Brazilian Federal Police is also investigating.

The secret recording shows “a concrete and intense effort by Senator Delcidio Amaral and the banker Andre Esteves to prevent the sealing of a cooperation agreement”, Prosecutor General Rodrigo Janot said in the court filing.

Authorisation for both arrests was given by Brazil’s Supreme Court.

Esteves, 47, has drawn on powerful connections in politics and global finance to steer BTG Pactual through turbulent times as Brazil’s economy plunged into a sharp recession. Antonio Carlos de Almeida Castro, the lawyer for the former director, disclosed to Bloomberg in a phone interview that the arrests have been carried out based on a taped conversation, in which Mr. Amaral used Mr. Esteves’ name improperly.

BTG Pactual’s major deals with Petrobras have drawn the attention of investigators, including the bank’s stake in Sete Brasil Participacoes SA, a supplier of oil-drilling platforms that has been swept up in the probe. It will also impact the Brazilian economy even further as Brazil’s velocity of money is set to slow down even more now that its largest banks is incapacitated indefinitely.

The rating firm said BTG has held “a fairly large amount of liquid assets” to balance its dependence on market funding.

Following his arrest, clients took at least 4.2 billion reais ($1.1 billion) out of some of the bank’s most liquid fixed-income funds.