![]() Yet some analysts think that the size of the write-down at Cruzeiro - and the fact that it was less systemically important than Panamericano - means that this situation is different. Speculation about the fate of Cruzeiro has made for volatile price action, as many investors bet that the bank would meet a fate similar to that of Panamericano, where the discovery of accounting discrepancies sent its paper south in 2010 before BTG Pactual stepped in to buy a stake the following year. ![]() FATE CONTROLLING SUB INDO FREE“A lot of people buying thought it was a Panamericano story, a free lunch - and it was not.” “If anyone had looked at Cruzeiro’s balance sheet, they would have seen there was something wrong,” one analyst said. Some analysts wonder if investors have been negligent by ignoring clear signs that the bank was facing severe problems - and misreading how regulators would tackle the fourth Brazilian bank bankruptcy in recent years.įGC has revealed that Cruzeiro would have to take a R$3.11bn write-down after accounting discrepancies were found earlier this year. Yet with close to 60% of the bank’s unsecured debt obligations in the form of international bonds, it is hardly surprising that foreign accounts are feeling particularly exposed. “There must be other creditors involved with Cruzeiro, but the FGC is only asking bondholders to take the hit.” MISREADING THE SIGNS? “There are deposits, credit lines that banks gave to Cruzeiro, there are interbank deposits and CDBs (bank deposit certificates),” said the trader. While FGC is also offering to pay discounted prices on the bank’s local unsecured obligations that are not guaranteed, some investors are arguing that international bondholders are bearing the brunt of the pain - and that the burden could be shared more broadly, given that the R$2.45bn in securities issued abroad is just a small portion of the approximately R$11bn in liabilities. The tender is conditional on participation from local and international creditors holding at least 90% of the principal amount, so Bingham is said to be trying to get 10%-plus on board to gain some leverage against the FGC proposal. Law firm Bingham McCutchen is trying to organize a critical mass of investors to contest a tender offer for some US$1.6bn in outstanding dollar bonds. “Clients think they have to pay for the lack of work that the central bank should have done,” noted one US-based trader. Cruzeiro is the fourth Brazilian mid-tier bank to go bankrupt in recent years. ![]() The move has left much of the buyside up in arms, feeling they are taking the fall for what they see as poor oversight by the central bank. This is the stark choice facing bondholders after the local deposit insurance fund, FGC, unveiled plans to cover capital shortfalls at Cruzeiro and prepare the bank for a possible sale. ![]() Aug 17 (IFR) - Investors holding Banco Cruzeiro do Sul bonds may have to accept substantial haircuts or take their chances with a liquidation of the Brazilian mid-tier bank. ![]()
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