Brazil’s Stocks Lead World Losses as Real Approaches 12-Year Low

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Brazilian banks sent the Ibovespa to the biggest slide in the world after Banco do Brasil SA joined Itau Unibanco Holding SA in allocating more money for soured loans. The real approached the lowest level in 12 years.

Financial shares in the MSCI Brazil Index sank to a six-year low on speculation other lenders will be forced to bolster so-called provisions. The stock benchmark dropped for a third day, while the real extended this year’s plunge to 24 percent. Swap rates, a gauge of expectations for borrowing costs, rose.

Lenders have suffered from a slowdown in consumer purchases as financing gets more expensive with interest rates at a nine-year high. The selloff in banks has intensified since May on concern that President Dilma Rousseff’s decision to boost taxes on the industry’s profits will erode earnings.

“Banks are really getting hit,” Lauro Vilares, an analyst at brokerage Guide Investimentos, said in a telephone interview from Sao Paulo. “It’s another signal that the economic slump is hurting assets.”

The Ibovespa fell 0.8 percent to 48,009.57 at the close of trading in Sao Paulo, the most among global major benchmarks. The drop sent its valuation to the lowest level in six months, according to data compiled by Bloomberg based on estimated earnings. The real lost 1.1 percent to 3.5192 per dollar.

Brazilian equities have plunged 17 percent from this year’s peak in May as the government struggles to shore up the budget and revive growth amid a widening political crisis and a graft scandal at the state-controlled oil company. The deeper economic slowdown is already weighing on corporate earnings, with revenue trailing estimates at 60 percent of Ibovespa companies in the second quarter.

Biggest Bank

Banco do Brasil sank to a five-month low after Latin America’s largest bank by assets increased money set aside for bad loans 21 percent. Itau said Aug. 4 that delinquencies rose for the first time in 11 quarters and bad-loan provisions climbed.

“Delinquencies may rise from now to the end of year,” Marcelo Kopel, Itau’s head of investor relations, said last week on a conference call with journalists. Late payments by individuals are increasing because more people are out of work, he said.

Cia. Siderurgica Nacional SA tumbled to the lowest level in 12 years after posting earnings that trailed analysts’ estimates, hindering efforts to cut one of the heaviest debt loads among Latin American steelmakers.

Campaign Funds

The real slumped as much as 1.4 percent on Thursday after Valor Economico newspaper reported that a Brazil court minister asked to review a case involving an investigation over Rousseff and her vice-president’s 2014 campaign funds. Rousseff’s press office declined to comment on the case.

Calls for her ousting have regained momentum in recent weeks as her popularity sank amid an economic slump. In an interview with SBT TV on Wednesday, the president said she has never considered resigning.

With so much uncertainty on both the political and the economic fronts, investors are seeking safety and buying dollars, Jefferson Rugik, a currency trader at Correparti Corretora de Cambio in Sao Paulo, said by phone.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, increased 0.06 percentage point to 13.93 percent on the contract maturing in January 2017.

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