Banco Panamericano SA, the Brazilian lender controlled by media mogul Silvio Santos, sank 30 percent and bonds tumbled as the central bank began probing accounting irregularities after a 2.5 billion reais ($1.5 billion) rescue.
The stock dropped to 4.77 reais in Sao Paulo, a fourth straight decline. The yield on Panamericano’s 8.5 percent bonds due in 2020 soared 182 basis points, or 1.82 percentage points, to 9.22 percent, according to Trace. Shares of the smallest publicly-traded banks in Brazil fell as the investigation raised concern over industry accounting norms.
“People don’t know what the extent of the case is,” said Cornel Bruhin, who oversees $600 million of emerging-market corporate bonds in Zurich at Clariden Leu AG. “Is there more to come? What are the potential risks? It’s too early to tell.”
The central bank is investigating whether Panamericano executives could face liability, said an official who asked that his name not be used in accordance with government policy. Brazil’s central bank found “inconsistencies” in Panamericano’s accounts during its routine supervision of the financial system, according to a statement posted on its website today.
Bank regulators first identified a problem six weeks ago based on June 30 accounts when they noticed discrepancies between the volume of credit the bank said it sold and other banks said they bought, central bank Supervision Director Alvir Hoffmann said at a press conference in Brasilia. The central bank probe may cover as much as four years, he said, adding that the central bank hasn’t determined when the irregularities began.
The investigation will lead to an internal study on how banks negotiate the sales of groups of loans to ensure a bank doesn’t sell them more than once or sell and then keep them on its books, Hoffmann said. The central bank has no evidence of similar problems at other banks, he said.
Panamericano, a Sao Paulo-based bank focused on personal credit and mortgages, received funding yesterday from its controlling shareholder Grupo Silvio Santos, which tapped Brazil’s bank-financed deposit insurance fund, known as FGC. Panamericano replaced its chief executive officer and shuffled its board after uncovering “accounting inconsistencies” that misrepresented the company’s assets, according to a statement to regulators.
With the funds, the bank’s cash position rose to 3.8 billion reais, enough to maintain solvency, according to an e-mailed statement from the bank today. Credit and investment operations are continuing as normal, the bank said.
The loan is the second-largest in FGC’s history after a bailout of 3 billion reais to Banco Bamerindus do Brasil SA in 1997. That same year, London-based HSBC Holdings Plc acquired control of Bamerindus in a transaction worth $1 billion.
No public funds are being used in the operation to stabilize Panamericano, the central bank said.
Securities regulators and shareholders are also conducting investigations, said a person familiar with the matter, who declined to be identified because the probes are confidential.
Brazil’s Senate Justice Committee called central bank President Henrique Meirelles to a hearing on Panamericano, according to a statement posted on the senate’s website. The committee also invited Caixa Economica Federal’s President Maria Fernanda Ramos Coelho. The central bank called a press conference in Brasilia for 2:30 p.m. New York time.
“We would expect investors to become concerned with other bank’s shares, particularly mid-sized banks, until there is more clarity if this is contained to Panamericano, or if other banks might also be subject to central bank’s scrutiny,” analysts Roberto Attuch and Fabio Zagatti from Barclays Capital wrote in a report today.
The analysts said they expect the fallout from Panamericano’s rescue to be limited because the controlling shareholder acted in time to restore liquidity, a state-owned bank is an owner and Panamericano is small in size.
Caixa paid 739 million reais for a 35 percent stake in Panamericano in December. Panamericano had total assets of 11.8 billion reais at the end of the first quarter, and a credit portfolio of 10.5 billion reais, compared with 9.9 billion reais in the previous quarter, according to its website. The lender ranks as Brazil’s 21st largest bank by assets, according to the central bank.
The cash injection aims to “preserve current levels of capital,” Panamericano said in a filing yesterday. Panamericano named Celso Antunes da Costa as chief executive officer, replacing Rafael Palladino, and seven new executive directors, according to the filing.
An official at Brasilia-based Caixa who asked not to be identified declined to comment. The securities regulator based in Rio de Janeiro and known as CVM said in a statement it doesn’t comment on specific cases. Deloitte & Touche LLP, Panamericano’s auditor, declined to comment, according to an e-mailed statement.
Banco Industrial e Comercial SA tumbled 5.4 percent to 15 reais, Banco Pine SA fell 2.6 percent to 13.50 reais, Banco Cruzeiro do Sul SA slid 1.3 percent to 14.95 reais and Parana Banco SA lost 4.4 percent, the most since June, to 14 reais.
“The market could start challenging their accounting practices, provisioning criteria,” Marcelo Telles, an analyst at Credit Suisse, wrote in a note to clients today. Smaller banks “will be under the scrutiny of regulators to adopt more conservative accounting practices, requiring extra capital and limiting their growth capacity,” he said.
The country’s bigger banks rose, with Itau Unibanco Holding SA, Latin America’s largest bank by market value, increasing 1.2 percent to 42.85 reais. Banco Bradesco SA, Brazil’s second-biggest bank by market value, rose 1.4 percent to 36.50 reais.
Grupo Silvio Santos said yesterday it sought funding from FGC, which was set up by Brazil’s Monetary Council in 1995 with financing from banks that operate in Brazil and can be tapped in the event of intervention, liquidation, bankruptcy or central bank-declared insolvency, according to its website.
The Sao Paulo-based group, whose holdings include television stations, a cosmetics company and an electronics retailer, put up assets as collateral for the loans from the deposit insurance fund, according to the Panamericano statement.
Silvio Santos, 79, known for his appearances on Sunday afternoon variety shows such as a Brazilian equivalent of “Name That Tune” on his SBT TV chain, is willing to sell assets if necessary to repay the loan to rescue the bank, Antonio Carlos Bueno, director of Brazil’s deposit insurance fund, said at a press conference in Sao Paulo today.
Santos, the son of a Greek immigrant who came to Brazil in the 1920s, started selling plastic document holders at 14 in the streets of downtown Rio de Janeiro, and later sold watches, pens, books and other items on the ferries that link cities along Rio’s Guanabara Bay.
Moody’s Investors Service placed Panamericano on review for a possible downgrade of its credit rating today because of the “rapid drop in market valuation” over the past few days, the announcement of the capital injection and the replacement of the management team, according to an e-mailed statement.
The stock dropped 11 percent in the two days before the bank released last night’s statement to regulators. The company’s bonds due in 2020 fell 11.9 cents to 95.5 cents on the dollar today after sinking as low as 80 cents earlier. Panamericano sold $500 million of the notes in international markets in April at a price of 99 cents.