JPMorgan says Brazil probe unlikely to hit Caixa debt near term
SAO PAULO, April 13 (Reuters) - The latest probe of government corruption in Brazil is unlikely to affect state-controlled Caixa Econômica Federal in the short term as the nation's largest mortgage lender does not need to tap bond markets at this stage, JPMorgan Securities said on Monday.
Prosecutors found that advertisement agencies hired by Caixa used front companies to funnel part of contract money into ruling coalition parties.
There is no evidence that the scheme, known in Brazil as "Origin," is linked to the "Operation Car Wash" scandal that engulfed state oil producer Petróleo Brasileiro SA and the nation's largest engineering firms.
In a note, JPMorgan analysts led by Natalia Corfield said that Origin is unlikely to trigger material increases in the cost of funding, hamper deposits or slow loan disbursements at Caixa. Given current levels of capital and the outlook for slower loan growth, Caixa does not need to tap international bond markets at this point.
Still, Caixa's U.S. dollar-denominated bonds, especially the 7.25 percent subordinated bond maturing in July 2024 could experience some volatility as more information related to the corruption scandal turns up. Corfield recommended investors keep a neutral stance on the debt as new developments emerge.
"In the very near term, we do not see a direct impact of the investigations on Caixa's operations," Corfield said. "In the medium-term, nonetheless, there could be consequences, although it is difficult at this stage to assess the full implications."
Corfield and her team believe that Caixa is a "systemically important financial institution with a strategic role of funding Brazil's housing deficit," which somehow warrants government support in an event of financial stress. (Reporting by Guillermo Parra-Bernal; Editing by Leslie Adler)
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