Colombia’s financial regulators seized Interbolsa SA’s brokerage, the country’s largest, after the company said it faces a “temporary” funding shortage.
The stock exchange suspended trading in Interbolsa for five working days, according to a statement on its website, after the shares plunged a record 30 percent yesterday because of concern about the company’s financial situation.
The takeover will protect Colombians who have savings with the brokerage, and authorities expect to decide within two months whether it should be liquidated, Gerardo Hernandez, the chief financial regulator, told reporters in Bogota. Regulators may search for a potential buyer of the brokerage, he said.
“There’s the possibility of seeking a merger, of a transfer of assets and liabilities,” Hernandez said. “In the last few weeks we followed very closely as the brokerage tried to solve its liquidity problem definitively through bank lending, finally turning to an alternative of a potential sale and other mechanisms.”
Officials stepped in after Interbolsa said last night that it couldn’t make a payment on a 20 billion peso ($11 million) loan. Taking into account Interbolsa’s market share, the number of clients and operations, the seizure is “the most appropriate measure to protect, in an effective manner, the rights of investors, confidence and the security of the public in the market,” the regulator said in the resolution posted on its website.
The brokerage’s liquidity crisis came about when it was unable to secure funding to cover obligations including for repurchase agreements it had structured on shares of textile company Fabricato SA, Interbolsa’s Chief Executive Officer Rodrigo Jaramillo told reporters in Bogota today.
“Interbolsa searched for additional funds to guarantee at every moment the repurchase of the shares,” Jaramillo said. “For this we turned to the main banks in the country. These bank loans were added to those that in a normal manner you request for daily brokerage activities and which are paid at the end of the day. This was possible until yesterday when, once all our obligations were paid with our clients and counter parties, we were unable to pay a bank loan.”
Colombia’s benchmark IGBC equity index fell 1 percent at the close of trading in Bogota. Thirty stocks were down, while six were unchanged and one gained.
“This will lead to uncertainty for sure whilst everyone waits for any announcements,” said Rupert Stebbings, the managing director for Colombia at Celfin Capital. “Short-term, volumes will be affected, not because physically people can’t trade but because people are going to want to see what’s going on.”
Interbolsa tumbled to the lowest since 2005 yesterday, extending its decline this year to 58 percent. The company said in a statement yesterday it’s working to remedy the cash squeeze as the brokerage “faces a temporary liquidity shortage.”
Interbolsa “may not have the financial strength to help out this broker that represents such a big part of the Colombian market,” said Alejandro Reyes, the head analyst at Ultrabursatiles brokerage in Bogota. “Nobody but Interbolsa and the regulator knows the extent of the problem.”
Clients’ assets were never at risk, Jaramillo told reporters in Bogota. “Neither the solvency nor the strength of the brokerage are in question, and more importantly, the resources and assets of all our clients are duly safeguarded.”
Interbolsa also has an investment fund unit that had more than 2 trillion pesos of assets under management as of April, according to its website.