Brazil banks face uncertainty in landmark deposit-interest case

miércoles 26 de febrero de 2014 13:46 GYT

By Aluísio Alves and Guillermo Parra-Bernal

SAO PAULO Feb 26 (Reuters) - Brazil's second-highest court was set on Wednesday to resume hearing a landmark case dating back two decades that could significantly reduce the capital of the country's biggest banks and further trip up an already flagging economy.

Justices at the Supreme Court of Justice (STJ) will discuss the scope and time frame of lawsuits claiming that banks failed to pay fair interest on deposits between 1987 and 1992, when hyperinflation led the government to peg savings rates to a number of consumer price indexes.

The STJ will assess who qualifies for compensation and the time period for which additional interest should be calculated, which are crucial to estimate potential losses. Banks could pay up to 341 billion reais ($145 billion) in compensation if the ruling goes against them, banking industry group Febraban said.

The case underpins the legal uncertainties that abound in Brazil, where tax and regulatory disputes with the government can force companies into years of costly litigation.

Discussions at the STJ precede hearings at Brazil's highest court, the STF, which in November delayed a ruling on the constitutionality of the case. The aspects the STJ will debate on Wednesday will not be addressed by the STF, which will later assess the constitutional issues of the case.

"There is no consolidated legal jurisprudence in any of these aspects, which raises uncertainty about the potential outcome," Credit Suisse Securities analyst Marcelo Telles wrote in a recent client note.

More than two-thirds of the losses potentially faced by banks relate to two failed economic stabilization plans during Fernando Collor de Mello's scandal-plagued 1990-1992 presidency. Other lawsuits stem from the so-called Bresser and Verão plans during José Sarney's 1985-1989 administration, which also failed to tame runaway inflation.

The failed policies pushed Brazil further into an economic tailspin, until the creation of a new currency, the real, in 1994 finally brought stability.   Continuación...