Bond investors are starting to lose confidence in billionaire Andre Esteves’s Grupo BTG Pactual.

The bank’s $1 billion of notes due 2020 have lost 5.9 percent since Feb. 25, when the Sao Paulo-based firm missed analysts’ profit estimates because of principal investments and bad-loan provisions. The slump, the biggest among 80 major emerging-market banks, pushed borrowing costs to a 19-month high of 6.95 percent on Wednesday, Bloomberg data show.

Investors are concerned that BTG, run by Chief Executive Officer Esteves, will face even deeper losses at businesses such as private equity, where there’s less transparency, said Rodolfo Amstalden, an analyst at investment-consulting firm Empiricus Research. Among Brazil’s five biggest banks, BTG’s loan portfolio is also the most exposed to oil and infrastructure industries roiled by the corruption probe at Petroleo Brasileiro SA.

“BTG is a black box,” Amstalden said from Sao Paulo. “The level of visibility is horrible. Most of the investments I can see are doing bad, so what about those that I can’t see?”

BTG Pactual’s bond curve moved in line with Brazilian banks, which is to be expected given the volatility in Brazilian financial markets, a bank official said in an e-mailed statement. “Investors still do not understand” that BTG Pactual has less Brazil risk, with 50 percent of revenue expected to come from outside the country in 2015, according to the e-mail.

Principal Investments

Brazil’s only publicly traded investment bank reported fourth-quarter net income of 848 million reais ($296 million), or 94 centavos a share. That was less than the 1.02-real estimate of four analysts surveyed by Bloomberg.

Principal investments, which include private equity, real estate and proprietary trading, posted a loss of 132 million reais, compared with revenue of 474 million reais a year ago.

BTG’s corporate lending revenue fell by almost 50 percent after the bank set aside more money for loan losses. Esteves said in a Feb. 26 conference call that the provision increase was mostly related to BTG’s exposure to Eneva SA, the Brazilian utility controlled by EON SE and former billionaire Eike Batista. The company, formerly MPX Energia SA, filed for bankruptcy protection in December.

BTG’s lending to petrochemical, oil, gas and construction industries is equal to about 14 percent of its loans, Deutsche Bank AG said in a March 8 report. Tito Labarta, an analyst at Deutsche Bank, chopped his net income estimate for BTG by 8 percent, citing its “limited transparency and wholesale funding risks.”

Sete Brasil

Several builders and energy-related companies have been implicated in an investigation into allegations that executives at Petrobras, the state-controlled oil company, took bribes in exchange for contracts.

Sete Brasil Participacoes SA, a Petrobras supplier in which BTG has invested less than 1 billion reais, is one of the companies allegedly involved in the kickbacks.

Pedro Barusco, a former Petrobras executive and ex-Sete Brasil chief operating officer who has confessed that he took bribes, said this week in a congressional probe hearing that Sete may go bankrupt without bank financing.

Sete Brasil’s press office said in an e-mail that the company is working to get long-term financing.

Gaining Recognition

Just last month on the Feb. 26 conference call, BTG’s Esteves said he’s prepared to deliver a 20 percent return on equity even if Sete Brasil collapses. He said he’s “shocked” by the allegations against Sete Brasil and that BTG has “very low” exposure to Petrobras.

“The bank’s credit portfolio is very focused on corporate lending, mostly focused on Brazilian companies, and we recognize that there is pressure on the local market,” Eduardo Ribas, an analyst at Fitch Ratings, said by telephone from Sao Paulo. “Provisions should continue to rise.”

The drop in BTG’s bonds comes as Brazilian securities in general are under pressure, said Gonzalo Borja, a money manager at Credit Suisse Asset Management that hold BTG bonds.

“The economy is slowing down, there are concerns over the sovereign rating and the move of U.S. Treasuries,” he said in a telephone interview from Zurich. “All this is having an impact.”

Esteves, 46, gained recognition after joining former partners in 2009 to buy back UBS Pactual, the Brazilian bank they had sold to UBS AG in 2006, at a discount.

The value of the investment bank, which he renamed BTG, has soared to $7.3 billion. Esteves, Brazil’s youngest self-made billionaire, used acquisitions to help boost assets.

Yields on BTG’s 2020 notes have jumped 1 percentage point since Feb. 25 to 6.8 percent, well above the 0.1 percentage point average for high-grade banks. BTG is rated BBB- by Fitch, the lowest investment grade.

The bonds advanced 0.1 cent to 88.62 cents on Friday.

“At the end of the day, you do not see many reasons to be excited,” Empiricus’s Amstalden said.