Banco de Brasilia Shares Slide After Deal for Banco Master Nixed

(Bloomberg) -- Banco de Brasilia SA stock slumped the most since April after Brazil’s central bank rejected its acquisition of the troubled lender Banco Master SA, leaving the target of the proposed acquisition with few options as it looks for fresh capital.

BRB, as Banco de Brasilia is known, said it would review the decision but still believed in the merits of the transaction. Banco Master, which isn’t publicly traded, said it would also look into it, adding that “the bank remains confident in its strategy and operations.”

The rejection sent BRB stock down as much as 17% in Sao Paulo, to 9.01 reais, the biggest intraday decline since April 7. The shares had soared about 72% from the date of the announcement in March through Wednesday.

BRB is seeking meetings with the central bank and analyzing how it could address the regulator’s concerns, according to a person familiar with the discussions. BRB and Banco Master didn’t say why the transaction was rejected. The central bank didn’t reply to a request for comment.

Because BRB is owned by Brazil’s capital city, critics have argued that the takeover would amount to a government bailout with little business logic. 

Announced in late March, the transaction had already been scaled down in an attempt to win central bank approval. BRB lowered the value of assets it would have acquired to 25 billion reais ($4.58 billion) from 40 billion reais, leaving 51.2 billion reais in Master assets excluded from the deal.

BRB had also guaranteed Master’s controlling shareholders wouldn’t be part of the new bank’s management.

Until recently, Master had been a high flier, expanding its lending portfolio by 86% a year on average, leasing a splashy office in Miami and acquiring rivals. But to grow so quickly, Master relied heavily on an incentive offered by the deposit-insurance fund, known as FGC. 

A December 2023 rule change affecting that strategy threw the bank’s finances into doubt and raised concern that the situation could pose a broader risk to the industry.

Since the announcement, some investors have tried to flee Master, which is using a liquidity credit line of about 4 billion reais from the FGC.

In June, Banco BTG Pactual SA bought about 1.5 billion reais of assets from Master’s main shareholder, Daniel Vorcaro, who agreed to inject all the proceeds into the bank.

As the deal with Banco de Brasilia languished in regulatory review, Master started looking for funding options. Bloomberg News reported in late August the lender was seeking a new credit line of as much as 12 billion reais from the FGC to keep its operations running while it tried to sell assets.

In recent days, Vorcaro traveled abroad to meet with potential investors as the central bank’s resistance to the deal became apparent, according to a person familiar with the matter.

--With assistance from Leda Alvim.

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