By Marcela Ayres and Ricardo Brito BRASILIA (Reuters) -Brazil’s central bank effectively halted operations of mid-sized lender Banco Master, which had struggled in recent months with mounting liquidity pressures, on Tuesday as police arrested its controlling shareholder. The regulator named a liquidator to handle creditor claims and sell assets, closing a turbulent chapter for Master, […]
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Brazil central bank shuts Banco Master as police detain top investor
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By Marcela Ayres and Ricardo Brito
BRASILIA (Reuters) -Brazil’s central bank effectively halted operations of mid-sized lender Banco Master, which had struggled in recent months with mounting liquidity pressures, on Tuesday as police arrested its controlling shareholder.
The regulator named a liquidator to handle creditor claims and sell assets, closing a turbulent chapter for Master, which had grown rapidly through an aggressive strategy built on high-yield debt sold through investment platforms.
“The central bank is the regulatory authority of the financial system, and I’m certain that, to have reached this point, the process must be very robust,” Brazil’s Finance Minister Fernando Haddad told reporters after the announcement.
Separately, Brazil’s federal police said they had launched an operation against “the issuance of fraudulent credit securities by financial institutions”.
They did not name the targets of the raid, which sought to freeze 12.2 billion reais ($2.28 billion), but two sources with direct knowledge of the situation said that Master’s controlling shareholder Daniel Vorcaro had been arrested.
Master, Vorcaro and Vorcaro’s lawyer did not immediately respond to requests for comment on Tuesday.
BRB CEO REMOVED FROM OFFICE
The police investigation involves the sale of assets of Master’s loan portfolio to BRB since last year, a third source with direct knowledge said. The state-run bank had planned to acquire Master, but the deal was blocked by the central bank in September.
The monetary authority spent months assessing whether BRB, which is controlled by the government of Brazil’s Federal District, had sufficient capacity to support the new capital structure before deciding to block the sale.
BRB said in a statement on Tuesday that a local court had ordered the suspension of its CEO Paulo Henrique Costa from his position for 60 days. Costa did not immediately respond to a request for comment.
A fourth source said that the federal police had served search and seizure warrants at BRB’s headquarters.
“BRB emphasizes that it has always acted within transparency and compliance standards. … The bank continues to operate normally,” BRB added in its statement.
MASTER’S LIQUIDITY ISSUES
The central bank’s order of a so-called extrajudicial liquidation came just hours after a consortium led by Brazilian investment group Fictor and unnamed investors from the United Arab Emirates said they had agreed to buy Master.
Fictor did not immediately respond to a request for comment.
The proposed deal, according to the group, was for the entire Master stake held by Vorcaro and included an immediate injection of 3 billion reais.
Master’s high-yield debt was marketed as being covered by the FGC deposit insurance fund, which guarantees up to 250,000 reais ($46,926) per investor in the event of a bank’s failure.
Faced with liquidity pressures, Master needed fresh capital to meet upcoming maturities on the debt.
With Master in liquidation, a central bank-appointed administrator will now take over its management and assemble a detailed list of the bank’s debt holders.
Once that process is completed, the FGC will reimburse investors up to the insured limit.
($1 = 5.3435 reais)
(Reporting by Marcela Ayres and Ricardo Brito; Additional reporting by Luciana Magalhaes; Editing by Alexander Smith)