MID-SIZED BRAZILIAN BANKS EXPERIENCING LIQUIDITY PROBLEMS,

UNCLAS RIO DE JANEIRO 000298 SIPDIS STATE FOR WHA/BSC, WHA/EPSC E.O. 12958: N/A TAGS: ECON EFIN BR SUBJECT: MID-SIZED BRAZILIAN BANKS EXPERIENCING LIQUIDITY PROBLEMS, FURTHER VOLATILITY EXPECTED REFS: A) Brasilia 1299, B) Sao Paulo 486 ¶1. Summary. Mid-sized banks in Brazil are experiencing liquidity problems since the onset of the global financial crisis, BBM Bank CEO Pedro Mariani Bittencourt told Amb. Sobel on October 20. Bittencourt predicted further global market volatility over the next few months, which will continue to affect the banking sector in Brazil. End Summary. ¶2. On October 20, Ambassador Sobel met with Pedro Henrique Mariani Bittencourt, President and CEO of Rio de Janeiro-based BBM Bank. BBM is Brazil's oldest private-sector bank and one of Brazil's leading mid-sized financial institutions. Mid-sized Brazilian banks play a significant role in making credit, especially structured credit, available to smaller and mid-sized companies who often cannot obtain such funding from larger banks or the capital markets. As such, BBM and other mid-sized banks play an important role in making additional credit resources available to Brazil's increasingly vibrant middle-market corporate sector. ¶3. Bittencourt said that most mid-sized banks in Brazil have been experiencing liquidity problems as a result of the global financial crisis. Corporations needing money have begun to exercise the put option, he said. Liquidity problems were alleviated in the second and third week of the crisis as money began coming in from the big banks and the public banks to the mid-sized banks. However, he said, this money will not be enough to solve the problem. Bittencourt predicted that the Brazilian banking sector will continue to be affected by further global market volatility over the next few months and identified key issues for the industry to consider, such as how to roll over debt and how to discount new loans. ¶4. Ambassador Sobel and Bittencourt also discussed the implications on the banking sector from the drop in consumer confidence. Bittencourt indicated that 10 percent of the finance in Brazil comes from trade finance, which will suffer when people do not want to spend money. The loss of confidence by consumers is becoming more evident by the fact that companies and the general public are moving to have their deposits on demand because of fears of a crash. ¶5. This message was cleared/coordinated with Embassy Brasilia. MARTINEZ