Fitch: Superior Justice Court Decision Negative for Brazilian Banks; Final
Impact Still Unknown
RIO DE JANEIRO -- May 23, 2014
Fitch Ratings believes that the May 21st ruling by the Brazilian Superior
Court of Justice (STJ) may have negative implications for large banks in
Brazil. The STJ ruled in favor of a group of saving accounts holders disputing
the remuneration of their saving deposits during the implementation of several
economic plans during late 80's and early 90's. More specifically, the STJ
ruled that saving account holders related to the Verao Plan are entitled to
receive interest from the time the lawsuits were filed.
This ruling does not necessarily encompass all the plans under dispute and
also does not result in a final decision about the final amount to be paid (if
any) to the plaintiffs. Even though this decision could be appealed and the
final outcome of such claims remains uncertain, this decision may have
negative implications for many large banks in Brazil.
An unfavorable final Supreme Federal Court (STF) decision in favor of savings
deposits holders could potentially trigger a rating review of larger Brazilian
banks depending of the extent of the final impact of such contingencies and
the financial strength of each bank. More specifically, this contingency may
have the greatest impact on two government-owned banks and the three largest
privately-owned commercial banks. Medium and small size banks are not affected
by this decision given their limited participation on saving deposits
management during the application of those economic plans.
Even though the timing, size and overall impact of possible rulings are
uncertain, Fitch acknowledges that a ruling against the banks may result in
pressures on their financial strength in terms of additional expenses,
possible charges against their equity base and may result in more conservative
growth in order to compensate the possible burden of the contingency.
Even when the range of possible outcomes is too wide to make an individual
judgment for each bank today, Fitch acknowledges that above average
profitability and capitalization of private owned banks (Banco Bradesco, Itau
Unibanco Holding S.A. and Banco Santander (Brasil) S.A.) will bode well to
confront the possible outcome. However, depending on the size of a possible
judgement it may become a significant burden to short- and medium-term
results. In the case of publicly-owned banks (Caixa Economica Federal and
Banco do Brasil) the buffers to compensate a possible negative outcome from
the court are significantly lower and may result in additional capital need to
be provided by the government.
In any case, a significant reduction on a bank's capital base due to overall
net losses or a larger-than-expected period of limited earnings due to this
unfavorable event risk, or any other related cause, may trigger a negative
review of the ratings of any of the affected banks.
Fitch will keep monitoring future decisions from the courts and incorporate
such results in the surveillance of our ratings.
Additional information is available at 'www.fitchratings.com'.
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Maria Rita Goncalves
+55 21 4503-2621
Fitch Ratings Brasil Ltda
Praca XV de Novembro 20, 401B - Rio de Janeiro - RJ - Brazil
Elizabeth Fogerty, +1-212-908-0526 (New York)
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