Brazil’s State Run Banks Getting Tapped Out

Kenneth Rapoza – Forbes, 01/31/2016

Brazil’s public banks are the only game in town. Not only do they have subsidized rates they can offer home owners and small business, but they are the only banks in Brazil willing to take on risk. Last year, 56% of credit circulating nationwide was from the public sector banks. That’s up from 34% six years ago. The problem is that these banks are getting stretched out and will not be able to offer as much credit this year.

“The situation for capital at state banks is very tight. They cannot do a lot of anti-cyclical moves at the moment,” an executive at one of the banks told Estado de Sao Paulo newspaper on Sunday. “Either the Central Bank injects capital or Brazil breaks with the Basil accords.”

Brazil is still a ways away from being a risky lender, however.The Basil agreement among world banks, pushed forward after the Great Recession in order to avoid a global banking meltdown, requires signatories to hold between 7% and 9.5% in cash in relation to its credit portfolio.

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Brazil Announces R$83 Billion Plan to Jumpstart Economy

Lise Alves – The Rio Times, 01/29/2016

The Brazilian government announced on Thursday measures to boost production and recover the country’s growth, including a credit injection of R$83 billion (US$20.4 billion) into the economy. Among the measures announced are investments in infrastructure and more available credit from state-run banks to small and medium sized companies and for important economic sectors such as agriculture and construction.

According to Finance Minister, Nelson Barbosa, the measures will not incur extra costs for the government. “The greater part of the initiatives is administrative. There will be no additional cost for Brazilian taxpayers. We want to make better use of the available resources,” said Barbosa during a press conference to announce the measures.

In addition to freeing up credit for industry and agriculture, the government will also ask Congress to approve a measure that would allow laid off workers to use their FGTS (workers’ pension fund) as a guarantee to obtain loans. According to Brazil’s Central Bank the total volume of credit offered by banks last year increased by only 6.6 percent, to R$3.21 trillion, the lowest annual growth ever registered.

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Brazil a Bright Spot for Debt Restructuring Advisors as Recession Bites Hard

Tatiana Bautzer, GuillermoParra-Bernal – Reuters, 01/28/2016

Debt restructuring firms are poised to pull in record amounts of business in Brazil this year as the country’s worst recession in decades and a corruption probe that has cast a shadow over dozens of companies leads to a surge in defaults.

While a slump in prices is squeezing commodities producers – from sugar mills to oil producers and miners – the “Operation Car Wash” investigation into political kickbacks at state oil firm Petroleo Brasileiro SA is also hitting many of its suppliers.

Soaring consumer delinquencies as Brazil’s interest rates hit their highest levels for nearly a decade are also putting some major retailers and homebuilders in line for painful reorganizations. Scenting an opportunity, U.S. restructuring shops including FTI Consulting Inc, Houlihan Lokey Inc, and Moelis & Co have set up shop in Brazil over the past three years to vie for mandates with local banks and independent advisors.

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Barclays Retreats from Asia, Brazil and Russia

Martin Arnold, Don Weinland – The Financial Times, 01/21/2016

Barclays has told staff it aims to remain a “bulge-bracket investment bank” while outlining plans to cut up to 1,200 staff by closing many operations in Asia, Brazil and Russia and exiting precious metals trading.

Tom King, head of Barclays’ investment bank, said in a memo seen by the Financial Times: “By focusing our business on areas where we have sustainable competitive advantage, we are putting ourselves in a position where we cannot just survive but thrive in a dynamic, complex operating environment.”
The retrenchment comes as many of the world’s biggest investment banks are cutting staff and pulling out of non-core countries in response to growing pressure from regulators and declines in fixed income trading.

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Brazil’s Real Weakens After Central Bank Abandons Rate Increase

Paula Sambo – Bloomberg Business, 01/21/2016

Brazil’s real sank to a four-month low and traders priced in faster inflation after the central bank surprised economists by keeping interest rates unchanged even with consumer-price increases running at more than twice the target.

Policy makers said in a statement accompanying Wednesday’s decision that the global economic outlook was increasingly uncertain, signaling they’re prioritizing economic growth over taming consumer-price increases. Central bank President Alexandre Tombini, in an unusual statement released Tuesday, said he would take into account the International Monetary Fund’s forecast for a deeper recession in Brazil this year.

While forecasts for Brazil’s deepest and longest recession in more than a century could justify a decision to keep interest rates unchanged, the central bank didn’t communicate its strategy clearly in the weeks leading up to the meeting, said Nicholas Spiro, a London-based managing director at Spiro Sovereign Strategy. The decision to hold interest rates at 14.25 percent, when most economists expected an increase, stokes concern that it’s susceptible to political influence.

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Brazil’s Bust is Worse Than We Thought

Patrick Gillespie – CNN Money, 01/19/2016

The International Monetary Fund sharply downgraded its economic forecast for Brazil Tuesday. It was by far the largest revision of all major countries, according to its World Economic Outlook.

Brazil fell deep into a self-inflicted recession last year — the longest downturn for the country since the 1930s. The IMF and other forecasters thought Brazil would still be in a recession this year, but it wouldn’t be as bad as 2015.

Nope.

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Brazil Recession Deepening With Three Lost Years, IMF Says

David Biller – Bloomberg Business, 01/19/2016

Brazil won’t return to growth until at least 2018 after two years of recession and one of stagnation, marking the first time in over a century that Latin America’s largest economy fails to expand for that long, the International Monetary Fund said.

The IMF cut Brazil’s 2017 economic forecast to stagnation from 2.3 percent growth as it updated its World Economic Outlook, last published in October. Gross domestic product will shrink 3.5 percent this year after contracting 3.8 percent in 2015, it said Tuesday. That would be the first time since 1901 that Brazil has back-to-back recessions deeper than 3 percent, according to data from the government’s economic research institute, known as IPEA.

The estimates mean the Washington-based lender is now more pessimistic than all but four of the 23 economists surveyed by Bloomberg, whose median estimate is for Brazil to expand 1 percent next year.

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