SAO PAULO, Feb 13 (Reuters) - Brazilian President Dilma Rousseff's recent move to replace Caixa Economica Federal's chief executive is aimed at pushing the big state-controlled bank closer to an initial public offering but a flotation still faces serious obstacles.
Rousseff's decision this week to tap former Budget and Planning Minister Miriam Belchior to replace Jorge Hereda as Caixa's CEO is likely intended to take the IPO plan a step forward, a senior vice president at the lender told Reuters.
Belchior is seen as loyal to Rousseff, who in her first term instructed state banks to boost access to credit and slash borrowing costs to jumpstart economic growth. Now Rousseff is looking for ways to plug a yawning budget deficit, a task that would be helped by the up to 20 billion reais ($7 billion) government officials estimate a flotation could bring.
But workers at Brazil's No. 1 mortgage lender are resentful at the prospect of facing investor scrutiny, and their objections could slow, if not entirely halt, the process.
Beyond their objections, investor wariness about a company as vulnerable to government intervention as scandal-hit Petróleo Brasileiro SA makes Rousseff's stated timetable of 18 months look unrealistic, according to bankers with five of Brazil's top-ten equity underwriters.
In what is being called the country's worst corruption scandal in history, prosecutors allege that politicians from Rousseff's ruling coalition used Petrobras to skim billions of reais through overpriced contracts for over a decade.
"Without more clarity on the Petrobras scandal and its consequences to the company and minority shareholders, the IPO of any public institution in Brazil could be a difficult task," Natalia Corfield, an analyst with JPMorgan Securities, wrote in a recent client note.
Rousseff's December announcement that her government planned to list the bank took Caixa's more than 104,000 workers by surprise, irking many among both among its senior management and rank-and-file. Outgoing Chief Executive Hereda already voiced his opposition to the IPO, saying Caixa serves Brazilians better as a state entity.
"My personal opinion? I am against it," he said at an event in São Paulo on Thursday. "There's still room for a fully-owned state bank in Brazil and the need for a public policy agent to preserve equilibrium in the system is huge."
Three of Caixa's other senior managers, speaking on condition of anonymity, said they believed a listing would deprive Rousseff of a powerful policy tool to revive the economy after a downturn in growth.
The union representing Caixa employees is likewise warning that the productivity gains implied by an initial public offering - likely of about a quarter of the company's shares - would endanger workers' benefits.
"We have no doubt that a plan to transform Caixa into a publicly listed company will impact the vested right of workers," Jair Pedro Ferreira, president of the 58,000-strong Fenae, said in an interview.
The union is planning to hold a protest in front of Caixa's Brasilia-based headquarters on Feb. 25 to "tell the president that we disapprove of her plans for Caixa," he said.
Union objections in the past have tended to slow, but not stop other big Brazilian state asset sales from proceeding, with companies from former state-telecoms monopoly Telebras to state banks like Sao Paulo's Banespa having been privatized.
Even Banco do Brasil, which like Caixa Economica is essentially an arm of the government, has 25 percent of its shares quoted on the Bovespa exchange.
None of the investment banks contacted by Reuters had been consulted by the federal government about a possible Caixa flotation.
But apart from the implications of the Petrobras scandal, there are several reasons for investors to be wary of a Caixa IPO without a thorough overhaul of the lender's business model, a senior investment banker told Reuters on the condition of anonymity.
Cleaning up the bank's books, creating a culture where profit takes precedence over government policy goals and upgrading technology to catch up with private-sector peers "could simply take years," another banker said.
To gain investors' acceptance, Caixa must boost profitability metrics. Caixa has the highest cost-income ratio among Brazil's five largest commercial lenders, at 56 percent, compared with an average 41 percent at peers, Thomson Reuters data showed.
Fourth-quarter return on equity at Caixa was 15.2 percent, compared with 24.7 percent at private-sector giant Itaú Unibanco Holding SA and 16.2 percent at state peer Banco do Brasil SA.
Revenue per employee at Itaú was an average 960,000 reais last year, compared with Caixa's 650,000 reais and around 800,000 reais at Banco do Brasil.
The numbers underscore Caixa's "heavy cost structure and, importantly, its role as an agent of policy interests," Corfield wrote.
$1 = 2.843 Brazilian reais Editing by Christian Plumb