Brasilia - As the six-month deadline agreed with the Central Bank for BRB to execute its recovery plan amid the Banco Master crisis approaches, tension is rising at the public bank in Brasilia, which would prefer more time to secure this capitalization, according to high-ranking sources interviewed by NeoFeed in recent days.
The internal climate, under the leadership of President Nelson de Souza, is one of intense pressure to "save the bank," three months after the Federal Police operation that removed its then-president and financial director.
“Time is our enemy. We need things fast, and I don’t know if we’ll be able to achieve it [in the short term],” says an inside source. “It’s a bombshell every day, one after another, stemming from the Master Case .”
In practice, besides avoiding the possibility of an injection of funds from the Federal District Government (GDF) – which controls the bank – that could reach up to R$ 6 billion, the worst-case scenario for BRB would be, after exhausting all other options, its liquidation by the Central Bank: the same fate as Master and funds and banks affected by the case, such as Reag , Will Bank , and Banco Pleno . This would be the most “traumatic” measure.
"From my perspective, the Central Bank has no interest in liquidating BRB due to the systemic risk and the potential crisis for the financial system. The largest contributors to the FGC [Credit Guarantee Fund] are the big banks. The last resort would be to liquidate the bank," says a source familiar with the negotiations.
However, in theory, if the capitalization plan fails, it could still be subject to intervention by the Central Bank, an alternative that the monetary authority could adopt before needing to liquidate the bank. In that scenario, the entire BRB management would be removed, including the board of directors, members of the Board of Administration, and the president.
This measure would be one of the most drastic, but there would still be the option of federalizing the bank, in which the federal government would take over the state-owned institution, which would then be managed by Caixa Econômica Federal. This hypothesis is treated as taboo within BRB and has not been discussed by senior management, two bank sources told NeoFeed .
The assessment is that federalizing a regional bank would be a huge burden given the enormous amount of risk involved, which would be even more serious in a presidential election year and a very high political risk for the government of President Luiz Inácio Lula da Silva (PT), in this case.
All efforts are currently focused on avoiding all the alternatives listed above. But before that, the bank is literally racing against time to sell assets acquired from Master (such as buildings, loan portfolios like payroll loans, etc.); negotiate a loan with the Credit Guarantee Fund (FGC); raise another loan through a consortium of private banks that is being formed; and create a Real Estate Investment Fund (REIT) made up of properties owned by the Federal District Government (GDF). There has even been consideration of selling GDF's outstanding debt to capitalize the bank. All of this would need to be approved by the local assembly.
On Friday, February 20th, Governor Ibaneis Rocha (MDB) submitted a bill to the Legislative Chamber of the Federal District (CLDF) to authorize this plan, but it is already causing distrust and friction within the government's base in the local legislature. If approved, the bill authorizes the local government to adopt measures to replenish, strengthen, or expand the net worth and share capital of BRB.
The district government holds a large majority among the district deputies (17 government supporters versus seven opposition or independents). However, NeoFeed has learned that even among Ibaneis' allies there is discomfort in voting for the bill. The main initial resistance would be the list of 12 properties that the GDF (Federal District Government) presents as collateral for part of the plan to replenish BRB's capital.
The list includes abandoned buildings and even environmental preservation areas. Furthermore, there is still doubt within the public bank itself as to whether the sale of all these properties would actually yield around R$ 2 billion, as estimated by the district administration.
Another BRB source consulted by NeoFeed also points out that the sale of real estate would not bring relevant financial relief effects according to the Basel index, a set of rules that financial institutions must follow worldwide. But the leadership of the Ibaneis government in the district chamber has already stated that if the project is not approved, there is a risk of federalization.
In a statement, BRB said that the request for authorization from the Legislative Chamber of the Federal District is in addition to measures that "are already being implemented by the new BRB board to guarantee liquidity and strengthen capital. The priority objective is to ensure the robustness of the Bank's financial indicators and guarantee the continuity of services provided to society."
"The Bank continues to operate normally, with solidity, transparency, and reinforced governance, maintaining constant dialogue with the Central Bank and other regulatory bodies. Communication with the market and society will continue to be transparent, monitoring the progress of procedures in the CLDF (Legislative Chamber of the Federal District) and the implementation of other initiatives foreseen in the plan."
