Brazil central bank liquidates Banco Master’s Will as Mastercard suspends cards

SAO PAULO/BRASILIA, Jan 21 (Reuters) – Brazil’s central bank ordered on Wednesday the liquidation of Will Financeira SA, a unit of troubled lender Banco Master, in the latest drastic step involving illiquid institutions tied to the conglomerate.

Mastercard said on Tuesday it had suspended Will Bank cards from its network due to non-compliance with settlement schedules under its payments arrangement.

The liquidation adds to the already heavy burden on Brazil’s private deposit guarantee fund FGC following Banco Master’s financial collapse. The fund, financed by contributions from financial institutions, said on Wednesday that about 6.3 billion reais ($1.18 billion) held at Will are eligible for coverage.

Banco Master’s liquidation had already triggered roughly 40.6 billion reais in FGC payouts, which began this week.

As the fund guarantees up to 250,000 reais per investor per financial group, investors who have already received that amount and still hold positions at Will are not eligible for any additional compensation.

Will’s liquidation, the central bank said in a statement, stemmed from the firm’s worsening financial condition, insolvency, and conflicts of interest related to its control by Banco Master, which itself was liquidated in November.

Amid a severe crisis marked by a large volume of short-term liabilities and illiquid assets, the Master group had since last year faced funds being blocked as collateral by Mastercard to meet payment settlement requirements.

INEVITABLE MOVE, CENTRAL BANK SAYS

The central bank late last year had opted not to liquidate Will alongside Master – a harsher measure that would have effectively closed operations – citing “the concrete possibility of a solution that would preserve the functioning” of the unit.

At a November 17 meeting with central bank officials, a day before Master’s shutdown, controlling shareholder Daniel Vorcaro said he expected to sign a deal to sell Will Financeira the following day, which did not happen.

On Wednesday, the regulator said the liquidation had become “inevitable” after attempts at a market solution failed.

Master, a mid-sized lender, was liquidated amid a federal police probe into alleged fraud involving the trading of non-existent credit securities, in addition to what the central bank described as a severe liquidity crisis, sharp financial deterioration and serious rule violations.

($1 = 5.3223 reais)

(Reporting by Isabel Teles, Gabriel Araujo, Marcela Ayres and Luciana Magalhaes; Editing by Chizu Nomiyama and Nia Williams)