Don’t-Buy-Those-Bonds Call Showing Lawsuit Risk: Brazil Credit

As Brazilian state-owned bank Caixa Economica Federal prepared to sell bonds this month, Marco Aurelio de Sa, the head of trading at Credit Agricole SA, told his clients to stay away.

The securities are too risky because Caixa is the lender most vulnerable to losses after a court ruling against the nation’s banks in May fueled concern they may also lose related lawsuits that would put them on the hook for an estimated 341.5 billion reais ($151 billion). The costs could force the government to re-capitalize Caixa, causing the bank to exercise a clause in the bonds to write off the principal and interest.