Bloomberg News

Brazil Takes Control of Banco BVA for Violating Norms

October 19, 2012

Brazil’s central bank took control of Banco BVA SA (BVA), the seventh lender seized or bailed out by regulators since 2010, after finding violations of industry standards and deteriorating finances.

The central bank is taking “all possible measures to investigate,” the authority said today in a statement, adding that it had to act against BVA because of “the deterioration of its economic and financial situation and the violations of norms that discipline the institution’s activity.”

BVA, a Rio de Janeiro-based lender that specializes in loans to mid-size companies, accounts for 0.17 percent of assets and 0.24 percent of deposits in Brazil’s financial system, according to the statement. The central bank said last month it would liquidate Banco Cruzeiro do Sul SA, prompting the biggest Latin American bond default in more than 10 years and intensifying concern that more mid-size banks were at risk.

BVA declined to comment on the seizure, according to a spokesman who asked not to be named in accordance with bank policies.

The central bank named Eduardo Felix Bianchini the new manager of BVA, which has seven branches in Sao Paulo, Rio de Janeiro and Minas Gerais states.

“There are two solutions for the bank now: its liquidation or to find a new owner,” Luis Miguel Santacreu, an analyst at Brazilian rating company Austin Rating in Sao Paulo, said in a telephone interview. “The bank didn’t have sufficient capital levels.”

Rating Downgrade

Austin downgraded BVA in September to BB, meaning the bank “is vulnerable to the general and sector economic conditions,” according to the rating definition. Santacreu said the downgrade was because of a lack of information after BVA stopped reporting its earnings. The bank’s last financial statement was for the second half of 2011.

Regulators said they liquidated Cruzeiro do Sul and Banco Prosper SA, a bank Cruzeiro do Sul agreed to buy in December, after attempts to find a buyer for that lender failed. Cruzeiro do Sul was seized on June 4 and turned over to the deposit- insurance fund, known as the FGC, after regulators found violations of banking rules.

The central bank’s director for supervision, Anthero Meirelles, said on Oct. 2 that small and medium-sized banks were financially solid, and that cases like Cruzeiro do Sul were isolated incidents. Central bank stress tests showed that Brazil’s banking system would withstand sudden macroeconomic shocks.

‘Little Surprise’

“After the Banco Cruzeiro debacle, it will be of little surprise to read that additional small and medium-size banks are falling by the way-side,” Richard Segal, director of the emerging-markets team at Jefferies Group Inc., wrote in a note to clients today.

In August, BVA planned to sell 300 million reais ($148 million) in new preferred shares, according to a person with direct knowledge of the situation who asked not to be identified because discussions weren’t public. The bank declined to comment at the time.

BVA has dollar-denominated bonds due in 2014 and asset- backed receivables funds, known as FIDCs. The shareholders of its FIDC Multisetorial BVA Master II (FIDC471) will vote on Oct. 29 whether to liquidate the fund after Austin downgraded it, according to a regulatory filing yesterday. It had 107.4 million reais in assets as of September, according to data from the Brazil securities regulator’s website.

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editors responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net; David Scheer at dscheer@bloomberg.net


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