Bloomberg News

Banco Cruzeiro do Sul’s Credit Rating Reduced by Moody’s

November 18, 2011

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Nov. 18 (Bloomberg) -- Banco Cruzeiro do Sul SA, the Sao Paulo-based payroll-deductible lender, had its foreign-currency credit rating lowered one level by Moody’s Investors Service, which cited funding difficulties.

Moody’s cut the rating to Ba3, three steps below investment grade, from Ba2, and said “volatile earnings,” increased competition in the payroll loan industry and difficulty obtaining financing to match the maturity of longer-term assets led to the downgrade. The outlook on the rating is negative, Moody’s said.

“Increasing competition in the segment has led the bank to defend its market position by lengthening the tenor of its loans,” Moody’s said in the statement. “To finance this portfolio, the bank increased its reliance on higher-cost guaranteed deposits and on expensive foreign funding, which in turn pressured margins.’

The bank’s profitability will also be hurt by higher charges for loan-loss provisions being taken as a result of upcoming accounting changes, according to the statement.

The yield on Cruzeiro do Sul’s 8.875 percent subordinated bonds due in 2020 rose four basis points, or 0.4 percentage point, to 14.02 percent at 11:26 a.m. in New York.

Cruzeiro do Sul is transferring management of 50 percent of the assets in its asset-backed receivables fund to Banco Bradesco SA in an effort to raise more money in the domestic market by improving transparency for investors, Chief Executive Officer Luiz Octavio Indio da Costa said on a conference call with investors yesterday.

A call to the bank’s press department in Sao Paulo wasn’t immediately returned.

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--Editor: Laura Zelenko.

To contact the reporter on this story: Gabrielle Coppola in Sao Paulo at

To contact the editor responsible for this story: Jessica Brice at

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