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Citigroup, BTG May See Sizable Batista Losses, Moody Says

A Citigroup Inc. Citibank sign stands outside their office building in the financial district of Sao Paulo, Brazil. Photographer: Dado Galdieri/Bloomberg
A Citigroup Inc. Citibank sign stands outside their office building in the financial district of Sao Paulo, Brazil. Photographer: Dado Galdieri/Bloomberg

July 8 (Bloomberg) -- Citigroup Inc.’s Brazil unit and Grupo BTG Pactual are among banks that may face “sizable” losses if companies controlled by Brazilian billionaire Eike Batista default, Moody’s Investors Service said.

Citigroup’s loans and other risks linked to Batista’s faltering commodities companies total 206 million reais ($91 million), or 42 percent of the profit generated by the New York-based bank’s Brazil unit for last year, Moody’s said today in a report. At Sao Paulo-based BTG, the exposure is 649 million reais, or 32 percent of profit.

Companies owned by Batista, 56, are grappling with stock and bond declines after his oil and gas business, OGX Petroleo & Gas Participacoes SA, said on July 1 it may halt output at its only producing field. OGX tumbled 29 percent after the announcement, and is down 88 percent this year. Batista’s iron-ore production company reduced output, it said in a filing last week, and his shipbuilding business has been asked by advisers to close, a person familiar with the proposal said.

Citigroup, BTG, the Brazilian development bank known as BNDES, Caixa Economica Federal and Banco ABC Brasil SA “could sustain sizable losses to their earnings and capital bases in a default,” Ceres Lisboa, a Moody’s analyst, wrote in the report.

Itau Unibanco Holding SA and Banco Bradesco SA, Latin America’s largest banks by market value, have manageable risks, according to Moody’s.

Caixa, BNDES

Batista’s companies have more than 11 billion reais of outstanding loans from major banks, based on first-quarter earnings filings, Moody’s said. Federally controlled Caixa and BNDES account for about 55 percent of the total, according to the report. BTG’s loans to Batista’s businesses are the largest as a percentage of total loans, at 7.4 percent, Lisboa wrote. Citigroup’s Brazil unit was next highest, at 1.4 percent.

“Poor disclosure regarding collateral, loan conditions and off-balance sheet and other non-lending exposures makes our assessment preliminary and possibly understated,” she wrote.

About 80 percent of BTG’s loans to Batista-linked companies are to MPX Energia SA, which got a cash injection last week from Germany’s EON SE, a person familiar with the matter said today.

An official at Citigroup declined to comment. BNDES and Caixa didn’t return calls and e-mails seeking comment.

Banco ABC, based in Sao Paulo, hasn’t had any exposure to Batista companies since May, when OSX Brasil SA paid back a 107 million-real loan, a person with direct knowledge of the matter said. The person asked not to be identified because the matter was private.

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

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Christine Harper at charper@bloomberg.net

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