Brazil Ruling on Banks Could ‘Ruin’ Economy, Moreira Says

Brazil’s economy would be shaken and credit might contract by as much as 1 trillion reais ($437 billion) if the nation’s high court rules against banks this week on depositor lawsuits, former Finance Minister Marcilio Marques Moreira said.

“An unfavorable ruling could ruin our economy as it would cost between 100 billion reais and 150 billion reais in capital to banks,” Moreira, who was Brazil’s finance minister from 1991 to 1992, when the country was fighting hyperinflation, said in an interview from Rio de Janeiro. “A ruling against banks would create legal and financial chaos.”

Brazil’s Supreme Court said earlier this month it would start ruling Nov. 27 on depositor suits related to losses from government plans adopted to stem hyperinflation from 1986 to 1994, when the nation froze bank deposits, introduced new currency and reduced returns on savings accounts. The central bank estimated lenders would have to pay 149 billion reais to depositors if they lose the court cases.

Brazilian banks, led by federally controlled Banco do Brasil SA, declined today in Sao Paulo trading on concern the ruling would reduce their capital. Banco do Brasil, based in Brasilia, dropped 2.6 percent to 24 reais, the lowest level since Sept. 13. Itau Unibanco Holding SA (ITUB4) and Banco Bradesco SA (BBDC4), Latin America’s largest banks by market value, slumped 1.5 percent and 0.9 percent.

Lenders complied with the law that was in effect at the time and shouldn’t be penalized, Brazil’s bank association, Febraban, said in an e-mailed statement. An official at Banco do Brasil declined to comment on the Supreme Court cases.

The Brazilian Institute of Consumer Defense, which submitted a brief in support of the claims against the nation’s banks, said money was taken from depositors as a result of the government’s actions and lenders benefited from those moves, according to a statement on its website.

“Banks didn’t profit from the economic plans” of the government, said Moreira, who now runs research firm Conjuntura e Contexto Consultoria in Rio de Janeiro.

To contact the reporter on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net

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