UPDATE 1-BTG Pactual expects commodities bulk-up to help profit soon
* Commodities area 'practically operational' at this point
* Association with EBX to yield dealmaking revenue 'soon'
* Shares climb as earnings show no spillover from EBX woes
(Recasts to add details on commodities expansion plan, adds comments by CFO and analyst, adds stock price)
SAO PAULO, Aug 7 (Reuters) - Grupo BTG Pactual SA , the Brazilian investment bank expanding heavily into commodities sales and trading, expects the area to begin contributing to earnings soon, Chief Financial Officer Marcelo Kalim said on Wednesday.
BTG Pactual, Latin America's largest independent investment bank, is making a bold push into the global commodity markets just as other banks bow out, betting it can avoid the regulatory pressure rattling rivals.
BTG Pactual has given few details of its planned expansion. However, sources told Reuters on Wednesday that the bank has hired Ricardo Leiman from Noble Group Ltd to lead the drive. The same sources have also said that BTG Pactual has recruited nearly a dozen traders, managers and analysts in London, Geneva and New York to cover everything from freight to grains to natural gas. The bank has spent $300 million to assemble the area, they said.
The bank would not comment on specifics on Wednesday.
"We are practically operational at this point. We are very confident that the steps taken so far in that area will help us leverage presence in that sector," Kalim said on a conference call to discuss second-quarter earnings. He did not elaborate on whether potential acquisitions could be in the offing.
BTG Pactual's bulk-up of its commodities arm stands out in an industry that has seen attrition from big banks in recent years, a trend that threatens to accelerate as U.S. regulators tighten oversight of banks' commodity operations. The move comes at a time when tough financial and economic conditions in Brazil and global market turmoil weighed down earnings at BTG Pactual for a second straight quarter.
On Tuesday, Grupo BTG Pactual SA reported quarterly earnings that missed analysts' forecasts as sagging global bond and equity markets weighed down revenue and a weak economy in Brazil forced the country's largest independent investment bank to rein in lending to clients.
Shares were up 2.4 percent at 27.33 reais on Wednesday afternoon, as results showed no significant impact from lending exposure to struggling energy and mining conglomerate Grupo EBX. The stock has shed 11 percent of its value this year.
The bank earned 650 million reais ($284 million) in profit in the second quarter, compared with 612 million reais in the previous three months. The result was below the average 775 million reais estimate for net income in a Thomson Reuters survey of four analysts.
The result was BTG Pactual's second straight quarterly drop - the first back-to-back decline in earnings since the second and third quarters of 2011. Only two of the bank's eight main revenue lines rose on a quarter-on-quarter basis; a further drop in profit was prevented only because losses in a real estate subsidiary allowed BTG Pactual to claim a sizzling tax rebate.
A 23.4 percent drop in Brazil's stock market and a surge in local bond yields hurt proceeds from trading of financial securities. Widespread market turmoil took its toll on trading of global currencies, commodities and bonds, driving the so-called principal investment line to lose money for the first time in more than two years.
Chief Executive André Esteves, 45, has steered the bank through turbulent times in Brazilian capital markets by sharing investment risks with clients in sectors from oil and gas to logistics and agribusiness. The bank is also ramping up bets on riskier investments such as U.S. mortgages, global credit markets and emerging market assets.
Some analysts have for months questioned BTG Pactual's aggressive drive into certain areas of financial markets and rising exposure to risky areas including oil and gas in Brazil, investments in Africa and a recent association to advise and finance EBX, a group controlled by Brazilian tycoon Eike Batista.
"The second-quarter results do, on some level, show the fragility of the bull investment thesis, which relies on the notion that the company will find ways to post good results continually in different markets," said Sául Martínez, an analyst with JPMorgan Securities. "When it doesn't, it cuts to the core of that thesis."
BTG Pactual expects no impact on earnings from its exposure to Grupo EBX, a key financial client and borrower, Esteves said in the same call. The association with EBX could produce income from M&A activities as EBX downsizes, Esteves added, without elaborating.
Executives expect that the expansion into commodities will escape similar scrutiny. BTG Pactual has repeatedly declined to comment on its commodities plan in public, and Kalim's comments represent the bank's first statement on the status of its commodities operations.
"We are very optimistic about this new line of revenue," Kalim added.
BTG is not subject to Federal Reserve oversight because it does not operate any commercial U.S. banks, potentially allowing it to benefit from what may be the biggest reshuffling of financial players in a decade.
The Fed surprised much of the investment-banking industry on July 19 when it said it would review a 2003 decision that first allowed commercial banks to trade raw materials. That was followed by a scathing review of banks operating in commodities markets by the Senate Banking Committee in Washington. ($1 = 2.29 Brazilian reais)
(Additional reporting by Natalia Gómez; editing by Gerald E. McCormick and Matthew Lewis)