(Bloomberg) — Individual investors are trying to dump Banco Master SA bonds, pushing yields higher and making it tougher for the struggling lender to raise cash needed for short-term obligations.
A total of more than 10 billion reais ($1.7 billion) in Banco Master time deposit certificates, called CDBs, are up for sale on retail online platforms at XP Inc. and Banco BTG Pactual SA, according to data compiled by Bloomberg. Investors are offering yields as high as inflation plus 11.5% for maturities in May 2026, compared to inflation plus 8.5% for CDBs from smaller rival Banco Pine that mature in June 2026.
The prices suggest Master would have to pay even more to sell new debt to the few investors still willing to buy.
Investors are unloading the debt after the bank in March announced a controversial deal to be bought by BRB SA, the bank owned by Brazil’s capital city. Critics of the deal say it’s tantamount to a government bailout of a firm that was allowed to take on too much risk for too long.
Representatives for Banco Master and BRB didn’t reply messages seeking comments.
Master has about 8.3 billion reais in deposits maturing in the first half of this year, and more than 4.6 billion reais in the second half, according to its 2024 balance sheet. A total of 16 billion reais of debt is set to mature this year.
Adding to the concern is the fact that most of the bank’s assets are tough to sell, including bonds linked to court-ordered payments and shares from small and midsize companies, some of which are struggling financially.
Two analysts who spoke to Bloomberg questioned whether the deposit insurance fund known as FGC should provide an emergency credit line to Master to ward off potential liquidity problems. They asked not to be identified discussing a sensitive matter. That could buy time while a longer-term solution is discussed by the central bank, BRB and the largest Brazilian lenders, which are the biggest contributors to FGC.
FGC declined to comment.
Banco Master’s expansion had been rapid. With its lending portfolio growing 86% a year on average, the bank leased a splashy office in Miami and began acquiring rivals. But to grow so quickly, Master borrowed money from individual investors relying heavily on an incentive offered by FGC, which insures time-deposit bonds in Brazil of as much as 250,000 reais per individual per bank. But a December 2023 central bank rule change threw the bank’s future into doubt, pushing it to seek a buyer.
Under the agreement with BRB, part of the bank would remain in a separate holding company that would not be part of the deal. It isn’t clear which assets and liabilities would be part of the holding or if the controlling shareholder of Banco Master, Daniel Vorcaro, would need to inject money into the transaction or receive money from it. Vorcaro would have 51% of the voting shares of Banco Master, which would remain as a separate entity under BRB.
The BRB transaction would also need to be approved by the Brazilian central bank, which is waiting for more details to decide, according to a person with knowledge of the matter.
A solution involving non-government owned lenders buying assets is also on the table, people familiar with the matter said.
FGC has 107.8 billion reais in liquidity, according to its financial statement, and would need as much as 50 billion reais to pay Master investors, including interest, according to analyst estimates.
More stories like this are available on bloomberg.com
