Justice Luiz Fux of Brazil's Supreme Court (STF) ordered the Bahia state court (TJBA) to keep, for 90 days, its judicial deposit management contract with Banco de Brasília (BRB), the lender controlled by the Federal District government. The contract brings the bank about R$ 394 million a month in new deposits. The injunction was granted on Tuesday (25), one day before the contract expired, according to Metrópoles.
The agreement ended this Wednesday (26) and included an option for a 12-month extension. On the eve of the deadline, however, TJBA signed an emergency contract with state-owned Caixa Econômica Federal to take over new judicial deposits in the state. The Federal District government appealed to the Supreme Court, arguing that the switch violates the rescue agreement ratified by Fux in May and that the BRB contract expressly allowed the exceptional extension.
According to the district government, without the renewal BRB would stop receiving roughly R$ 394 million a month in new deposits while remaining obliged to process withdrawals from the accounts under its management, at an estimated operating cost of R$ 395 million. BRB manages about R$ 30 billion in judicial deposits for five courts: Bahia, the Federal District, Alagoas, Paraíba and Maranhão, CNN Brasil reported.
The BRB crisis
BRB has faced capital and liquidity problems since the scandal involving Banco Master, from which it bought credit portfolios at a billion-real loss. In May, Fux ratified an agreement enabling a loan of up to R$ 6.6 billion from the Credit Guarantee Fund (FGC), Brazil's privately financed deposit insurance fund, to recapitalize the bank, an operation that still faces hurdles. In his ruling, Fux said the 90 days should be enough to carry out that agreement and called the emergency hiring of Caixa an "enormous risk" to the ongoing capitalization measures.
"This is not just about potential economic losses to BRB, with an increased risk of liquidation, or to the Federal District as majority shareholder and controller. It is about a grave systemic risk, since a deepening of the crisis can cause irreparable harm to the economy and the financial system," Fux wrote, noting that deposits held by the courts are not covered by the FGC.
The injunction will be reviewed by the court's Second Panel in a virtual session between September 4 and 14, and it stays in force only while BRB and the Federal District keep meeting their obligations under the ratified agreement. For the bank and its controller, the ruling preserves the inflow that underpins the recovery plan. For the five courts holding funds in BRB custody and for the bank's thousands of account holders, it avoids a forced migration of resources in the middle of a crisis.