BTG Pactual, Brazil's sole listed investment bank, could beat its own estimates for profitability this year as it expands corporate lending while keeping a lid on expenses, executives said on Friday.

Core return on equity, a gauge of profitability for banks that excludes some one-time items, could come "a little above" the 25 percent forecast for this year, executives led by Chief Executive André Esteves said on a conference call to discuss second-quarter earnings.

Units, a blend of common and preferred shares of BTG Pactual's investment-banking and private equity divisions, rallied for a third day on Friday, one day after the bank's second-quarter profit beat analysts' estimates and return on equity posted a strong showing despite a jump in expenses and the impact of market turmoil on trading-related revenue.

"We are very confident that we can still deliver good numbers even as the market environment remains challenging," Esteves, 44, the billionaire financier who is also the bank's controlling shareholder, said in the call.

ROE, as the indicator is known, jumped to 30.4 percent in the second quarter from 16.3 percent a year earlier, topping an average estimate of 21.9 percent in a Reuters poll. In the first quarter ROE was 25 percent.

Esteves' remarks underscore his efforts to diversify BTG Pactual's revenue stream, seeking to reduce its dependence on trading-related income, which tends to be more volatile than other sources of revenue. A robust ROE also highlights the bank's resilience as growing state involvement, rising loan defaults, and an abrupt economic slowdown weigh on profits at other lenders.

"Much like the last two quarters, ROE was once again well above 20 percent, showing remarkable consistency," Goldman Sachs Group analyst Carlos Macedo wrote in a client note. "This consistency could reduce concerns of volatility, leading multiples to re-rate."

Units surged as much as 5.7 percent to 31.67 reais, the second time the price has topped the 31.25 reais price set on the bank's initial public offering in late April.

"MASSIVE OPPORTUNITIES"

BTG Pactual earned 822 million reais ($407 million) in the second quarter, up from 310 million reais a year earlier. The result came in well above the average profit estimate of 586 million reais in a Reuters poll of five analysts.

Profit climbed 4.6 percent from 786 million reais in the first quarter.

The results are the first since BTG Pactual became a listed company. Esteves is steering the bank through turbulent times by using BTG Pactual's strong franchise to bet more on risky investments and win more investment-banking mandates in segments where activity is stronger.

Revenue more than doubled year-on-year to 1.637 billion reais, beating the average estimate of 1.175 billion reais. Net revenue climbed 2.1 percent from the first quarter.

Esteves wagered more of the bank's capital on local interest rate instruments, U.S. real estate investments and reinsurance deals, driving a 30-fold jump in revenue from so-called principal investments, to 687 million reais. The number was five times the estimate of 131 million reais in the Reuters poll.

The bank, seeking to overcome a weak economy and global market turmoil, ramped up lending in the second quarter after gaining firepower from its successful $1.96 billion IPO. The shop used some of the proceeds to grow the bank's loan book as peers retrenched.

The expansion of BTG Pactual's loan book, which rose 11 percent on a quarter-on-quarter basis, helped interest income rise to 232 million reais from 150 million reais a year earlier.

In contrast, Itaú Unibanco Holding, Brazil's largest bank by market value and the parent company of arch-rival investment bank Itaú BBA, and Banco Bradesco expanded lending by an average 3.6 percent in the quarter.

Esteves said he sees "massive opportunities" in lending to the largest corporations in Brazil.

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