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BNDES Distressed-Debt Dumping Boosts Sales by 30%: Brazil Credit
Ter, 21 de Maio de 2013 20:05

By Cristiane Lucchesi and Blake Schmidt

     May 21 (Bloomberg) -- Brazil’s market for distressed-debt sales will grow as much as 30 percent this year, according to KPMG International, as two of the biggest state-owned banks prepare to sell non-performing loans for the first time.
     Sales will probably rise to about 20 billion reais ($9.8
billion) from 15 billion reais last year, as foreigners turn to Brazil for higher returns in the face of record low rates globally, said Nicolas Malagamba, restructuring director at the Sao Paulo firm affiliated with Zurich-based KPMG. Distressed assets can deliver annual returns of as much as 30 percent in Brazil, versus less than 20 percent in Europe, he said.
     “Investors seek returns as high as 30 percent in all emerging markets, but Brazil is where you can find the biggest corporate-debt deals with those yields, although they are as rare as crown jewels,” said Antonio Toro, a partner at PricewaterhouseCoopers LLP responsible for business restructuring in Brazil. “That is why the market is so secretive,” Toro said, adding that he expects sales in 2013 to be the highest since the global financial crisis in 2008.
     More lenders including Banco do Brasil SA and Brazil’s development bank, known as BNDES, are planning to take distressed debt off their books because the sales create room to make more loans and help the companies comply with capital ratios set by the Basel Committee on Banking Supervision.
President Dilma Rousseff has also pushed banks to increase lending to help stimulate economic growth, which slowed last year to 0.9 percent, capping the slowest two years of expansion in a decade. Lenders that set aside provisions to cover soured debt can book the value recovered on a sale as profit.
 
Highest Returns
 
     Toro said the highest returns are typically for corporate loans, at about 30 percent, and about 15 percent to 20 percent for consumer loans. Annualized returns on distressed emerging- market corporate debt globally have been almost 15 percent in the past three years, according to the Bank of America Merrill Lynch Distressed Emerging Markets Corporate Plus Index.
     BNDES said last month it would sell about 6.1 billion reais of non-performing loans this year. Banco do Brasil SA, Latin America’s biggest bank by assets, may sell 1 billion reais, two people with direct knowledge of the matter said last week. Non- performing loans in Brazil grew 11 percent to 87.4 billion reais in March from a year earlier as total credit grew 17 percent and delinquency rates fell 0.2 percentage point to 3.6 percent, according to central bank data.
 
Bankruptcy Fuel
 
     The growing number of corporate bankruptcies will also help fuel growth in the distressed market, according to Carlos Catraio, a partner and managing director at Sao Paulo-based Brasil Distressed, which has purchased about 400 million reais of corporate debt since its founding three years ago.
     “The market for companies’ distressed debt will grow as more companies are seeking legal protection against creditors,”
Catraio said.
     In the first four months of this year, 324 companies filed for protection from creditors, an increase of 26.6 percent from the same period last year, according to Serasa Experian, a credit-data provider. The number of companies that obtained legal protection against creditors has risen 53 percent in the first four months of this year from the same period in 2012, said Boa Vista Servicos SA, another credit-data provider.
     Selling consumer loans is a more competitive process that uses auctions, according to Guilherme Ferreira, a partner at Jive Investments Holdings Ltd., which has about 3 billion reais in non-performing loans in its portfolio and is planning to acquire 1 billion reais more in the short term.
 
Corporate Debt
 
     “Only a few investors buy company loans because the credit-recuperation process is more difficult than with consumer loans and takes more time, up to 10 years,” Ferreira said, adding that Jive just bought 180 million reais in non-performing loans from Banco BVA SA, the lender that central bank regulators seized in October.
     Agribusiness, utilities and petrochemicals are among the industries that are selling more non-performing loans from their clients, Ferreira said.
     Banco Santander Brasil SA, the Brazilian unit of Spain’s biggest bank, is one of the most active in selling distressed assets, according to a person familiar with the matter who asked not to be named because the matter is private.
     Grupo BTG Pactual SA, led by billionaire Andre Esteves, is one of the biggest buyers and uses the company called Recovery do Brasil, which provides debt-collection services for the bank, two people familiar with the matter said.
 
Itau Policy
 
     Itau Unibanco Holding SA, Brazil’s biggest bank by market value, and Banco Bradesco SA, the second-biggest, usually don’t sell their non-performing assets to the market, according to Malagamba at KPMG. Itau got a profit boost in the fourth quarter from the sale of 408 million reais in non-performing loans to one of its units, according to the bank.
     Banco do Brasil also sells distressed loans to its own company, Ativos SA. The planned 1 billion real sale would be the first sold to investors.
     Officials at Banco do Brasil, Itau, BTG and Santander declined to comment on their distressed asset strategies.
     “We have a very diligent team that has been able to recover a large portion of distressed assets,” BNDES President Luciano Coutinho said in a conference call April 25. “We have other, particularly small, credits in the past that we’ve been struggling to recover and maybe we should follow the example of many other banks in having adequate pricing for these, so we’re hiring expertise for how to better recover credit.”
 
Doing Business
 
     Luiz Antonio Rodriguez, who was in charge of debt collection and selling distressed assets as a former superintendent of credit recovery at Santander, said investors in Brazilian distressed debt demand higher returns to compensate for bureaucratic delays and legal wrangling involved with recovering debt in the country.
     “The Brazil market is a bit more complicated, where collecting on debt is more difficult, and the legal environment is pro-borrower with all the consumer protections,” Rodriguez, who is now managing partner at debt-recovery consulting firm Alpha Cephei Consultoria de Negocios Ltda., said in a phone interview from Sao Paulo. “That’s why you have higher returns”
with investors seeking as much as three times the nation’s benchmark interest rate, known as CDI.
 
Default Protection
 
     Rodriguez used to sell distressed debt twice a year to investors including Bank of America Corp.’s Merrill Lynch and Goldman Sachs Group Inc. Banks sell distressed assets because they don’t want to spend the time or money needed to collect them, he said.
     The extra yield investors demand to own Brazilian government dollar bonds instead of U.S. Treasuries widened two basis points, or 0.02 percentage point, to 180 basis points at 4 p.m. in New York, according to JPMorgan Chase & Co. index data.
     The cost of protecting Brazilian bonds against default for five years was little changed at 130 basis points, according to data compiled by Bloomberg. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.
     The real was little changed at 2.0368 per U.S. dollar.
Yields on interest-rate futures contracts due in January was unchanged at 8.13 percent.
     More international investors may turn to Brazil as interest rates rise locally. Economists expect the central bank to boost the basic interest rate in Brazil, called Selic, from 7.50 percent to 8.25 percent by year-end in a bid to slow inflation that is close to the upper end of the 2.5 percent to 6.5 percent target range, according to a central bank survey of about 100 analysts published yesterday.
     “We are seeing a lot of new international investors coming to Brazil with more appetite for yields,” Malagamba at KPMG said. “We have fewer buyers here and the prices are more attractive than in Europe.”
 
For Related News and Information:
Brazil’s BNDES Plans to Sell $3 Billion in Distressed Loans Banco do Brasil Said to Weigh $493 Million Distressed-Loan Sale Brasil Distressed Seeks Outside Investors to Boost Purchases Top Stories: TOP <GO> Top Latin American News: TOPL <GO> Bloomberg News in Portuguese: NH PBN <GO> News on BRIC countries: STNI BRICS <GO>
 
--With assistance from David Biller in Rio de Janeiro. Editors:
Steve Dickson, Robert Jameson
 
To contact the reporters on this story:
Cristiane Lucchesi in Sao Paulo at +55-11-3046-2017 or Este endereço de e-mail está protegido contra spambots. Você deve habilitar o JavaScript para visualizá-lo. ; Blake Schmidt in Sao Paulo at +55-11-3017-4809 or Este endereço de e-mail está protegido contra spambots. Você deve habilitar o JavaScript para visualizá-lo.
 
 
 

 
A long-awaited recovery still fails to materialise
Sáb, 08 de Dezembro de 2012 08:00

Brazil’s economy
Stalled
A long-awaited recovery still fails to materialise

FOR many months Guido Mantega, Brazil’s finance minister, has been forecasting that the economy is on the verge of vigorous growth that never seems to come. Even so, the third-quarter figures published on November 30th were a shock. The government had convinced independent economists that a weaker currency, lower interest rates, and a cut in sales tax on cars and white goods would prompt a healthy expansion of 1.2% compared with the previous quarter. In the event, the figure was just 0.6%. The national statistics institute also slashed its estimate of second-quarter growth, from 0.4% to 0.2%

The Economist

See full article

 
Bad or rubbish?
Sáb, 08 de Setembro de 2012 09:00

“Bad banks” seldom turn a profit but are still useful
Sep 8th 2012 | from the print edition ,  http://www.economist.com

“IT WILL be viable and will not post losses,” promised Luis de Guindos, Spain’s finance minister, on August 31st, as he unveiled plans for a “bad bank” to take over the dud property assets of Spain’s troubled lenders. Experience suggests that such pledges are not easily kept.

America’s Resolution Trust Corporation (RTC), for instance, was set up in 1989 to clean up savings-and-loans institutions with $394 billion in assets. The process cost taxpayers almost $76 billion.

The example of Sweden’s widely admired bad bank in the 1990s is even less encouraging. Sweden’s bank regulators vigorously marked down souring assets, forced banks to recapitalise (or be nationalised) and moved dud loans into specialised asset-management companies. This was to allow cleaned-up lenders to operate as “good banks” that lent to the real economy. Judged by its overall impact the Swedish bad bank was a success: growth bounced back quite quickly. But the cost to taxpayers was high. Sweden paid about 4% of its GDP to bail out its financial system, yet got back only about half of that from selling off loans and stakes in banks.

More reassuring to Spanish taxpayers is Maiden Lane, a vehicle created by the New York Federal Reserve to house assets owned by Bear Stearns and AIG that have turned out to be less toxic than expected. In June this year Maiden Lane repaid in full (and with interest) the money it had borrowed to fund its purchases. It still has some assets left to sell, so the government will probably turn a profit on the deal, in contrast to earlier estimates that it might lose as much as $6 billion on its $29 billion in assets from Bear Stearns alone.

Another relative success may be found in Britain’s bad bank, which took over some of the loans issued by Northern Rock, and all of the ones held by Bradford & Bingley. By the end of June 2012 it had £90 billion ($141 billion) on its books, on which it seems to be turning a profit thanks to cheap funding from the government. British taxpayers have fared rather worse with nominally good banks: the government’s equity stakes in Lloyds Banking Group and Royal Bank of Scotland have fallen in value by over £30 billion.

Ireland’s bad bank, the National Asset Management Agency (NAMA), also seems to be doing fairly well in managing the €74 billion ($93 billion) in loans it took over, mainly because it bought the assets from Irish banks for just €32 billion. Yet it is now in the invidious position of being a long-term manager of a large portfolio of state-owned properties with all the risks of political interference that this entails.

These precedents suggest a few lessons for Spain’s bad bank. The first is to be conservative when valuing the assets that will go into the bad bank, even if this imposes steeper losses on the banks handing them over. Cautious valuations will help set a floor for property markets and make it easier for the bad bank to sell assets quickly.

A second lesson is that borrowing costs matter. Bad banks in Britain and America turned good because they could borrow cheaply. Unless Spain’s borrowing costs fall sharply, the government will be hard-pressed to make a turn on even deeply discounted banking assets. Last is the lesson from Sweden and the RTC, that bad banks may be judged successful even if they incur large losses. Rather than promising profits, Mr de Guindos might do well to start reminding people of that.

 

 
Brasil Distressed Seeks Outside Investors to Boost Purchases
Qua, 07 de Março de 2012 00:00

Brasil Distressed Seeks Outside Investors to Boost Purchases
2012-03-07 19:44:17.70 GMT


By Cristiane Lucchesi
     March 7 (Bloomberg) -- Brasil Distressed, the two-year-old
financial firm also known as BrD, plans to raise as much as $100
million from investors to boost purchases of distressed assets
from mid-sized companies.
     Carlos Catraio, partner and managing director of the Sao
Paulo-based company, is on a promotional tour outside Brazil to
talk about BrD+10, which was set up to raise the new funds. The
company will start investing when it obtains $10 million,
Catraio, 53, said in an interview.
     "International players are more used to dealing with
distressed assets," said Catraio, who previously worked as a
managing director at Bank of America Corp. and Uniao de Bancos
Brasileiros SA. "This is an activity for qualified investors
who can understand this kind of risk."
     Total credit outstanding for Brazilian companies grew about
19 percent in the year ended January, to 548 billion reais ($310
billion) from 462 billion reais, according to Brazil’s central
bank. Loans with payments more than 90 days overdue increased to
20.3 billion reais from 16.6 billion reais.
     "We don’t want to grow too much because we want to take a
closer look at each investment we make and try to negotiate with
each company," he said. Until now, BrD has only invested capital
from the company’s partners.
     The goal is to obtain a yield equivalent to 200 percent to
300 percent of the Brazilian interbank rate, or about 20 percent
to 30 percent a year, said BrD partner and managing director
José Guilherme Lembi de Faria, 66, who previously worked as a
managing director at Banco Bradesco SA before retiring. The
maturity of the investment is 10 years.
     BrD only buys credit at a discount of more than 50 percent
of face value and after negotiations with creditors are already
complete, he said. The seller usually is a bank or the company’s
supplier.
     "We don’t invest in distressed equity, only credit," Lembi
de Faria said.

For Related News and Information:
Top Stories: TOP <GO>
For top financial news: FTOP <GO>
Banking industry: NI BNK <GO>
News on BRIC countries: STNI BRICS <GO>
Top Latin American news: TOPL <GO>
News on Brazilian banks: TNI BRAZIL BNK <GO>
Portuguese Bloomberg News: NI PBN <GO>

--Editors: Steve Dickson, Dan Reichl

To contact the reporter on this story:
Cristiane Lucchesi in Sao Paulo at +55-11-3046-2017 or

Este endereço de e-mail está protegido contra spambots. Você deve habilitar o JavaScript para visualizá-lo.



To contact the editor responsible for this story:
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Brazil, Country of the Future No More?
Qua, 29 de Fevereiro de 2012 00:00

Did you that know Project Syndicate is launching a new Web site? To read this article on the beta version of our new site, please click here.


SANTIAGO – During a visit to Rio de Janeiro last year, US President Barack Obama told a cheering crowd that Brazil is the country of the future no more. “For so long, you were...told to wait for a better day that was always just around the corner,” Obama said. “Meus amigos, that day has finally come.”
 
Is Obama right? At first blush, the answer would seem to be an unambiguous yes. Brazil today is democratic, and its president gets to sit next to Russian, Indian, and Chinese leaders at much-publicized “BRIC” summits. The economy weathered the crisis triggered by Lehman Brothers’ collapse in 2008, and mounted a vigorous recovery in 2010. Brazil not only remains a top football power, but it will host the World Cup in 2014 – and the Summer Olympics two years after that.
 
For a while, financial markets were engrossed in a torrid love affair with Brazil. In the aftermath of the crisis, capital poured into the country, bidding up asset prices. Oil giant Petrobras raised $67 billion in its IPO, which until then was the world’s largest.
 
But dig a little deeper and a more complex picture emerges. An apartment in a fashionable São Paulo neighborhood may cost as much as it would in London or New York, but, when it comes to competitiveness, Brazil ranks 53rd on the most recent World Economic Forum index – just ahead of Mauritius and Azerbaijan, and behind Malta and Sri Lanka.
 
Of course, Brazil’s macroeconomic situation is vastly better than it was a decade ago, when capital fled the country and the exchange rate collapsed in the months before Luiz Inácio Lula da Silva was elected President. Years of primary fiscal surpluses, which began under President Fernando Henrique Cardoso and continued after 2002 under Lula, have brought public debt under control and earned Brazil an investment-grade credit rating.
 
But how fast Brazil can grow, and for how long, remains in question. After the 2010 boom, economic growth slowed precipitously. Indeed, by the third quarter of 2011, growth had stalled. Economic activity has picked up a bit since then, but forecasts for 2012 put real GDP growth at only 3.5% or less.
 
The key growth constraint is lack of domestic savings. If Brazil raises its investment rate to 23% of GDP from today’s 19% (as it must to build all that World Cup infrastructure), it will have to run a current-account deficit and rely on external savings equivalent to 3-4% of GDP for years to come. That gap can be easily financed with today’s abundant global liquidity, but a disorderly European default or an eventual US monetary tightening (yes, it will happen one day) could change that.

Moreover, because investors do not view Brazilian and non-Brazilian assets as perfect substitutes, low domestic savings mean perennially sky-high (nominal and real) domestic interest rates. Brazil is a country where traders get excited whenever the Central Bank’s short-term interest rate drops below 10%.
 
To offset the impact on investment of such high capital costs, the state-owned Brazilian Development Bank (BNDES) offers tens of billions of dollars in long-term loans at zero or negative real interest rates. That certainly benefits the firms that can get such loans; unfortunately, those firms are not necessarily Brazil’s most productive.
 
Both the private and public sector in Brazil under-save, but the government’s dearth of savings is the bigger problem. It is not for lack of revenue: Brazil’s tax receipts as a share of GDP are the highest in Latin America. The problem is a state that invests far too little because it has locked up too much money in inflexible current expenditure.
 
Public-sector pensions are a good example. A recent report by the bank Itaú estimates that in 2010, the social-security system covering private-sector workers spent 6.8% of GDP on benefits granted to 24 million people. In the same year, the system for public-sector workers spent about 2.1% of GDP on benefits – but for fewer than three million people. In other words, the average government pensioner’s benefits are 2.5 times higher than what the average private-sector retiree receives.
 
President Dilma Rouseff is aware of the problem, and her government is shepherding through Congress an ambitious pension reform. But progress, perhaps inevitably, has been slow. The reform is expected to be approved by the lower House imminently, and then move on to the Senate – a mere 15 years after it was first introduced.
 
The point is to free up resources for the public investment that Brazil desperately needs. In a continent-sized country far from Asia’s markets, transport costs are key. Brazil must build new roads, ports, and airports, and not just for football-mad tourists in 2014. It must build them to create the new exports and the higher-paying jobs needed to reduce Brazil’s continent-sized income inequality. If and when that happens, Brazil will be the country of the present and the future.
 
Andrés Velasco, a former finance minister of Chile, is a visiting professor at Columbia University for 2011-2012.

Copyright: Project Syndicate, 2012.
 www.project-syndicate.org

 
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