Brazil Court Rules Against Banks in Delinquent-Interest Case

Brazil’s Superior Court of Justice ruled against banks in a case determining how much delinquent interest can be charged in class-action lawsuits. Banco do Brasil SA fell the most in more than five years after the decision was handed down late yesterday.

STJ, as the court is known, ruled that delinquent interest should be calculated starting when class-action lawsuits are filed, rather than when each plaintiff requests payment. The decision may triple or quadruple the amount banks can be held liable for in such cases, Itau Unibanco Holding SA (ITUB4) Chief Executive Officer Roberto Setubal estimated.

Companies including Itau and Banco do Brasil may also have to pay more in a separate lawsuit in which depositors sued for savings-account losses stemming from government policies adopted to fight hyperinflation in the 1980s and 1990s. Regulators have said bank losses in that case could be as much as 341.5 billion reais ($154.8 billion).

“It’s crazy to have this happening to banks 30 years after” the policies were put in place by the government, Setubal said in an interview with Bloomberg CEO Dan Doctoroff at Bloomberg’s Sao Paulo office. “What we did was what was asked of us to do.”

Brazil’s Supreme Federal Tribunal, known as STF, is scheduled to rule on the depositor lawsuit on May 28.

Shares React

Banco do Brasil tumbled 7.3 percent to 22.01 reais yesterday in Sao Paulo, its biggest decline since April 2009. The court’s decision was announced during the 15-minute settlement period after the close of regular trading. The shares gained 1.5 percent at 10:48 a.m. today.

“This is very negative for the banks and the financial system as a whole,” Joao Pedro Brugger, who helps manage 520 million reais at Leme Investimentos in Florianopolis, Brazil, said in a phone interview.

Febraban, the nation’s banking association, said it plans to appeal the decision.

The central bank will review it to see whether an appeal is possible, said Erasto Carvalho, an attorney for the monetary authority. He said the judges signaled yesterday that banks may be able to reimburse depositors in installments to avoid damaging the financial system.

“Each bank will have to make its own calculation now,” Carvalho told reporters in Brasilia.

HSBC Holdings Plc said in February its Brazilian unit may have to pay as much as $600 million if the court decisions go against banks.

To contact the reporters on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net; Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net; Giulia Camillo at gcamillo@bloomberg.net Steve Dickson, Dan Kraut

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