Brazil Urges Court to Be Sensible on $65 Billion Threat to Banks
Brazil’s cabinet chief, Gleisi Hoffmann, urged the Supreme Court to be reasonable as it begins deliberations today on lawsuits dating back two decades that threaten to cost the nation’s lenders a quarter of the capital in the banking system.
“This wouldn’t be a loss for the banks, it would be a loss for the country,” Hoffmann said in an interview at her office yesterday. “I want the Supreme Court to be sensible and rule in favor of the country.”
STF, as the high court is known, will begin voting on five cases at around 2 p.m. in Brasilia, a court official said yesterday. It’s unlikely judges will render a final decision today, the official said.
Banks including Itau Unibanco Holding SA (ITUB4) and Banco do Brasil SA (BBAS3) are being targeted by depositors seeking reimbursement for losses stemming from government policies adopted to fight hyperinflation in the 1980s and 1990s. The central bank estimates banks would have to pay 149 billion reais ($65 billion) to depositors and may reduce lending by as much as 1 trillion reais if the court rules against them.
“A cut of 1 trillion reais in credit would be bad not only for the banks, but for the whole economy,” Andre Riva Gargiulo, an analyst at brokerage GBM Grupo Bursatil Mexicano SA in Sao Paulo, said in a telephone interview yesterday. “There is a massive mobilization by the government and former officials to favor the banks.”
President Dilma Rousseff asked her cabinet to persuade the court to delay a ruling, arguing a reduction in credit would worsen an economy already cooling because of higher inflation and a widening budget gap, according to two government officials briefed on the matter.
Banco do Brasil has dropped 13 percent since Nov. 8, when the court set the date for a ruling, compared with a 2.5 percent loss for the Ibovespa benchmark index.
Officials at Banco do Brasil and Itau declined to comment.
Federally controlled Banco do Brasil and Caixa Economica Federal “are likely the most impacted banks since they are the largest holders of savings accounts in the country,” analysts at JPMorgan Chase & Co. including Natalia Corfield wrote in a note to clients Nov. 25. An official at Caixa declined to comment.
The Brazilian Institute of Consumer Defense, which submitted a brief in support of the claims against the nation’s banks, said lenders benefited from the government’s actions, according to a statement on its website. Febraban, the nation’s banking association, said lenders complied with the law that was in effect at the time, according to an e-mailed statement.