Engelhart CTP is set to cut almost 20 per cent of its global workforce as the commodity trader calls an end to its turbocharged expansion and prepares to be spun out of Brazilian bank BTG Pactual.
The London-based trader, which employs 800 people, has experienced four years of rapid growth, generating almost $1bn of net income over this period from trading grains, coffee and sugar, among other things.
But after a volatile year in which BTG Pactual decided to spin off Engelhart to its shareholders after the bank’s founder was arrested over the scandal at Brazilian oil company Petrobras, Engelhart is due to separate from its parent this month, and overhaul its operations.
Engelhart insiders said the company had grown a lot quicker than expected and entered markets that were highly competitive and not conducive to strong trading results.
Metals, minerals and energy are expected to be the hardest hit in the cutbacks, added these insiders, although Engelhart plans to remain active in these markets. Agricultural trading will remain the biggest part of the company’s operations.
“A number of operations have not generated the returns … that Engelhart’s management expected,” said one person familiar with the restructuring. “Agriculture will remain at the core of what they do.”
In recent weeks Engelhart has been the subject of intense speculation about the future of its chief executive Ricardo Leiman, as rumours swirled in the market of a large trading loss.
But in an interview last week, Englehart chairman Huw Jenkins dismissed the rumours of a loss as “totally without foundation”, and reiterated his backing for Mr Leiman.
“We absolutely deny the rumours. Ricardo is working downstairs as we speak,” said Mr Jenkins, adding the company had decided to pause for breath after several years of rapid expansion.
“We had a fantastic period of growth. Cumulative net income of close to a $1bn in around four years, a balance sheet of nigh on $4bn and 800 staff. You can’t maintain that growth indefinitely.”
While the third quarter of 2016 had been “tough”, Mr Jenkins, who is also a vice-chairman at BTG and a former head of UBS’s investment banking unit, said Engelhart was still profitable for the year.
“The last couple of weeks have been pretty good,” he added. In the six months to June, Engelhart reported net income of $213m, up 79 per cent compared with the same period last year.
Engelhart recorded $369m of net income last year, up 30 per cent compared with 2014, according to a regulatory filing.
Previously called BTG Pactual Commodities, Engelhart was set up in March 2013 with the idea of developing commodities into another of BTG’s international businesses. The move came at a time when many large US and European banks were retrenching from commodities.
Under Mr Leiman, the former chief executive of Noble Group, the company has established trading hubs in London, Singapore and Stamford, Connecticut, in the US.
Engelhart has a different business model to many of its rivals, combining physical and proprietary trading. In effect, it uses its knowledge from buying and selling raw materials, backed up by research, to place directional bets on markets.
While the business, named after an amalgam of its trading desks, is “asset light” by not producing commodities, it moved 15m tonnes of agricultural goods around the world last year. It claims to be among Brazil’s top 20 exporters.
BTG decided to spin-off Engelhart after founder André Esteves was arrested last November and accused of obstructing investigations into the Petrobras scandal. He resigned as chief executive, but denied wrongdoing.
His detention prompted clients to pull money from the bank, forcing BTG to sell assets to avoid a liquidity crisis.
Mr Esteves was freed in April by Brazil’s supreme court, and his lawyer predicted at the time he would be cleared of the charges against him. The same month BTG said Mr Esteves would rejoin the bank as a senior partner.
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