Chavez Crackdown on Brokerage `Thieves' Leaves Traders Jobless

Trader Jofmar Heredia was thrown out of work when Venezuelan President Hugo Chavez shut the unregulated currency market in May and seized about 40 brokerages, accusing them of setting artificial rates, capital flight and money laundering.

Heredia, 31, said she’s worried she may never find a job at a bank again because of Chavez’s crackdown.

“I’m unemployed and leaving my resume in banks but no one is calling,” said Heredia, who worked at Proinversion Sociedad de Corretaje CA in Caracas. “A lot of my friends in brokerages taken over by the government have been let go.”

The brokerage business is in danger of becoming obsolete in this socialist nation, said Noris Aguirre, a director at the clearing firm Caja Venezolana de Valores. Since November, Venezuela’s securities regulator has taken control of about 35 percent of the 112 trading firms and closed four after they were blamed for the 27 percent drop in the bolivar through May 18. That may leave up to 2,500 without jobs even as Chavez says his biggest economic priority is preserving employment.

Chavez, a 55-year-old former paratrooper who’s been in power for 11 years, says the country doesn’t need such companies and accuses them of exploiting loopholes to become rich. The government banned investment instruments known as mutuos in February -- which are akin to repurchase agreements, or repos -- and prohibited brokers from trading in a new currency market established last month. Securities firms use repos to borrow money to finance positions in bonds and other securities.

Photographer: Chris Ratcliffe/Bloomberg

Venezuelan President Hugo Chavez. Close

Venezuelan President Hugo Chavez.

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Photographer: Chris Ratcliffe/Bloomberg

Venezuelan President Hugo Chavez.

Chavez Takes Control

In a speech on May 23 to supporters, Chavez said his country should eliminate brokerages.

“We’re going to respond strongly against these thieves that are trying to wash their hands now,” Chavez said. “There’s no economic reason for the weakening of the bolivar. It’s a huge fraud against the republic.”

The government took control of the country’s largest brokerage, Econoinvest Casa de Bolsa, after raiding it on May 24, arresting four directors and ordering it to cease operations for a week pending an investigation. Of the 420 workers at the company, 126 have resigned, according to the nation’s regulator. The directors are being held at the national intelligence service in Caracas awaiting final charges against them for illegally trading foreign currency and association with delinquency.

Authorities are investigating “irregularities” at Econoinvest and are trying to guarantee the investments of its 44,000 clients, the Finance Ministry said today in a statement.

No Opportunities

Rene Buroz, the lawyer for the directors, declined to comment, as did an Econoinvest public relations official, who asked not to be identified in accordance with company policy.

The government took control of Finalca Casa de Bolsa today for failing to prove the origin of funds and putting its clients’ investments at risk after a raid on June 2, according to a resolution published in the Official Gazette.

Nelson Venero, a 32 year-old accountant, lost his job at the end of May after working for five years in the brokerage industry. After securing a job at AVC Valores Sociedad de Corretaje and a pay raise with a dollar bonus in October, he said he was fired after the government seized the company in May.

“This limits operations so much for brokerages that I don’t see any opportunities for them,” Aguirre of Caja Venezolana de Valores, which helps manage bonds and equities owned by brokerage houses, said in an interview. “They’re allowed to buy and sell company shares, but all of the companies that traded on the stock market have now been nationalized.”

Nationalizations

Chavez nationalized Cia Anonima Nacional Telefonos de Venezuela, the phone company known as Cantv, in 2007 to boost the state’s hold on the economy. The government has also taken over assets from Exxon Mobil Corp., ConocoPhillips, Ternium SA and Mexican cement maker Cemex SAB, which listed on the Caracas Stock Exchange.

The brokerage industry boomed between 2005 and 2010, growing 42 percent to more than 100 institutions, according to the securities regulator. Traders were hired to perform bond swaps as a means of obtaining dollars for companies that failed to receive government authorization to buy at the official exchange rate.

The bond trading set an implicit unregulated rate. That rate plunged to 8.2 per dollar on May 11, seven days before Chavez shut down that market.

‘Destined’

The central bank re-opened the market on June 9, setting the maximum rate and limiting the amount of dollars for purchase. The average rate is now about 5.3 bolivars per dollar. In addition, there are two official exchange rates of 2.6 bolivars per dollar and 4.3 per dollar for imports.

“This was destined to happen,” said Roberto Gonzalez, 39, a former partner at a Caracas-based brokerage who left the firm last year. He declined to identify the company.

Tomas Sanchez, president of the securities regulator known as CNV, said the number of brokerages will likely be cut to less than 20 and that most of the unemployed traders may be able to live off savings since they earned commissions in dollars.

“We know some workers will be affected by this situation but they enjoyed exorbitant benefits and have savings,” Sanchez said in an interview in Caracas on June 9. “Maybe the secretaries and couriers can be incorporated into the public banking system.”

‘Blackmail’

Heredia said that she wasn’t paid in dollars and received a commission of about 10 percent of the value of bolivar transactions.

Raul Maestres, a consultant at Korn/Ferry International, an executive search firm, said their offices in Caracas have been inundated with resumes.

“It’s not the best moment to find work,” Maestres said.

Venezuela’s unemployment rate rose to 8.1 percent in May, from 7.7 percent a year earlier, as the economy slid into the first recession in seven years. Gross domestic product shrank 3.3 percent last year and will likely contract 2.5 percent this year, according to the median forecast in a Bloomberg survey.

Brokers are “not going to blackmail us with the idea that this is going to hurt employment,” Ricardo Sanguino, the president of the congressional finance committee, said in an interview. “Many of them acted outside the law and created more problems than benefits.”

Venero, the unemployed accountant, said that he feels powerless to find work and that he may take a broker course in Panama, where Venezuelan banks have opened branches.

“I don’t think I’ll find work in the capital markets because they’ve been very hard hit,” he said in a phone interview. “A lot of friends are out of work.”

To contact the reporters on this story: Corina Rodriguez Pons in Caracas at crpons@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.

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