Banco do Brasil Leads Banks Down Before Supreme Court Ruling

Banco do Brasil SA fell to a 10-week low, leading a decline among Brazilian lenders before the Supreme Court starts ruling on depositor lawsuits that could cost the country’s banks 149 billion reais ($65 billion).

Banco do Brasil, Latin America’s largest lender by assets, slipped 2.6 percent to 24 reais at the close of trading in Sao Paulo, the lowest since Sept. 13. It was the worst performer on the MSCI Brazil/Financials Index, which lost 1 percent as 12 of its 15 member stocks fell.

STF, as the country’s highest court is known, is set to start ruling Nov. 27 on depositor lawsuits stemming from Brazil’s efforts to stem hyperinflation from 1986 to 1994. The government froze bank deposits, introduced new currency and reduced returns on savings accounts.

“The ruling should be the driver for banks in the short term,” Felipe Rocha, an analyst at brokerage firm Omar Camargo said by phone from Curitiba, Brazil. “It’s hard to assess the risk. And when in doubt, the market is selling the stocks. It will continue to pressure banks until we get a clearer picture.”

Itau Unibanco Holding SA and Banco Bradesco SA, Latin America’s largest banks by market value, slumped 1.5 percent and 0.9 percent.


A ruling in depositors’ favor may cost lenders 149 billion reais collectively and reduce by 1 trillion reais the amount of credit available nationwide, according to Isaac Ferreira, the central bank’s prosecutor.

“One-quarter of the financial-system capital would be impacted,” he told reporters in Brasilia on Nov. 22 after meeting with Chief Justice Joaquim Barbosa.

Brazil’s bank association, Febraban, said in an e-mailed statement that lenders complied with the law that was in effect and shouldn’t be penalized. The group declined to comment on the central bank’s estimated losses.

A ruling against the banks would create legal and financial “chaos,” former Finance Minister Marcilio Marques Moreira, who now runs research firm Conjuntura e Contexto Consultoria in Rio de Janeiro, said in telephone interview today.

“If it’s 100 billion reais or 600 billion reais, its absurd, and it would imply systemic risk,” Rodolfo Amstalden, an analyst Empiricus Research in Sao Paulo said by phone. “The banks can’t afford to pay that much. Caixa Economica Federal and Banco do Brasil would be the most affected.”

Before it's here, it's on the Bloomberg Terminal.