BRB is racing against the clock, and privatization is already on the menu to save the bank.

Brasilia — With the deadline of the end of May approaching for executing the capitalization plan submitted to the Central Bank, the possibility of privatization is already being discussed within BRB (Banco de Brasília) in an attempt to save the state-owned bank from the deep crisis it finds itself in after the revelation of the Banco Master case.

Privatizing the public bank of Brasília would be the last resort and one of the most drastic options on the menu for its financial recovery. President Nelson de Souza had been completely denying this solution for the past two months.

Given the market's lack of appetite for lending to BRB or buying its portfolios, the Central Bank has been demanding concrete measures to recapitalize the bank, and privatization is emerging as an alternative, albeit a bitter one, in an attempt to avoid a future liquidation—the same fate as Master Bank— NeoFeed has learned.

The independent asset manager Quadra Capital, which manages ports in Espírito Santo, even signed an agreement to purchase R$ 15 billion in assets from Master held by BRB, with a promise to pay R$ 4 billion upfront.

But while the funds are not yet accounted for in the state bank's coffers, the Central Bank continues to demand concrete capitalization measures, according to sources familiar with the negotiations.

There have even been recent meetings between the president of the Central Bank, Gabriel Galípolo, and technicians from the monetary authority, with the president of BRB and other representatives of the public bank in Brasília. One of them even took place on Labor Day, Friday, May 1st.

The short window of opportunity (less than a month), in an election year, is the main factor pressuring BRB to work with more radical scenarios, unthinkable a few months ago. Internally, the top management of the bank in the federal capital has always treated words like "federalization," "privatization," and "liquidation" as taboo.

As NeoFeed has shown, however, the risk of liquidation, previously unthinkable, has grown since the latest phase of the Federal Police's Operation Compliance Zero, despite having the potential to cause some systemic risk in the market.

Federalizing BRB is an option that has been repeatedly ruled out by federal government authorities. On Monday, May 5th, in an interview on the TV Cultura program "Roda Viva," the Minister of Finance, Dario Durigan, echoed this sentiment, reinforcing that the BRB problem lies with the GDF (Government of the Federal District), indicating that Treasury approval was out of the question. The GDF controls BRB.

Private banks such as BTG Pactual, for example, according to information obtained by NeoFeed , have even privately admitted that without a Treasury guarantee, they would not enter into a consortium with other private banks to grant loans to BRB.

In recent weeks, this was the "Plan A" attempted by the president of the state bank and the governor of the Federal District, Celina Leão, in their persistent visits to the financial sector during trips to São Paulo. The local government of Brasília and BRB are mainly betting on the real estate credit portfolios of the Federal District, which is the fourth largest in the country, and argue that they are healthy.

A senior source at BRB believes that these same private banks would be among the potential buyers of the bank. This is because it has already been identified that private financial institutions would be more interested in buying the public bank than in financing it (an operation seen as high-risk at this time).

"If the measures [to recapitalize the bank] are not implemented by the end of May, the inevitable solution is privatization," reveals this source.

However, privatization, which is normally preceded by intervention by the Central Bank, would involve certain burdens: the possibility of layoffs, even if voluntary, of around 5,000 employees, and it would also need to be approved by the Legislative Chamber of the Federal District, in the middle of an election year.

The political difficulty for the Federal District government to privatize its public bank could stem, for example, from resistance from parliamentarians, many of whom are pre-candidates for re-election or running for other mandates in the October elections, to vote to authorize a privatization project. Furthermore, liquidations of state or regional banks are not common in the market.