U.S. Banks Say Brazil's Troubles Mean Opportunity, Not Losses (fwd)

[Robert Weissman <rob@essential.org>]

American Banker    
                                                  Tuesday, January 19, 1999

                        U.S. Banks Say Brazil's Troubles
                          Mean Opportunity, Not Losses

                    By James R. Kraus

                    U.S. banks stand to benefit from the economic
turbulence in
                    Brazil, according to major banks operating there.

                    "We don't believe we will be negatively affected, and
this could
                    well mean increased opportunities for us," said Brian
D. O'Neill,
                    managing director and head of Latin American operations
for
                    Chase Manhattan Corp.

                    Mr. O'Neill cited corporate finance, capital markets,
mergers and
                    acquisitions, and privatizations as among the sectors
where
                    Chase stands to gain business as a result of economic
volatility.

                    In a similar vein, BankBoston Corp., the U.S. bank with
the most
                    extensive Brazil operations -- nearly $7 billion of
cross-border
                    and local assets -- said in a statement earlier last
week that it
                    was prepared to "take advantage of market turbulence"
in Brazil.

                    "We remain confident in our near-term performance in
Brazil,
                    and our outlook for the remainder of the year continues
to be
                    positive," the bank added.

                    On Friday, Brazil allowed its currency to float after
declining to
                    use central bank reserves to offset pressure caused by
a heavy
                    capital flight out of the country.

                    Though stock markets have reacted negatively to the
Brazilian
                    crisis and sent share prices of major banks crashing,
most big
                    U.S. banks -- including BankBoston, Chase, J.P. Morgan
& Co.,
                    and BankAmerica Corp. -- have dramatically decreased their
                    lending to Brazil over the last few quarters, reducing
exposure to
                    economic volatility in that country.

                    U.S. banks had a combined $25.6 billion in exposure to
Brazil at
                    the end of the second quarter last year, down from
$27.2 billion at
                    the end of the first quarter.

                    However, major banks have continued to cut their
exposure to
                    Brazil since then.

                    Chase, for example, reduced its Brazilian exposure to
$3.8 billion
                    at the end of the third quarter, down from $4.3 billion
at the end of
                    the second quarter and $4.9 billion at the end of 1997.

                    BankAmerica Corp. had $3.3 billion in exposure to
Brazil at the
                    end of the third quarter, down from $3.9 billion three
months
                    earlier, while J.P. Morgan reduced its exposure from $4
billion to

                    $2.2 billion. Executives at Citigroup, which had $4.5
billion in
                    disclosed exposure at the end of the second quarter, were
                    unavailable for comment.

                    "If we had anything material to announce we would have
                    announced it,'' said a Citigroup spokesman.

                    On Friday the Brazilian real plunged 11%, to 1.48 to
the dollar,
                    down 18% since the start of this year, after the
government
                    decided to let the currency float.

                    Brazil's stock market, however, reacted positively to
the decision,
                    rising 28%. Local interest rates also fell
significantly, easing
                    pressure on the local economy.

                    Bankers and analysts reacted with cautious optimism to the
                    Brazilian government's move. But they also emphasized that
                    unless Brazil moves soon to reduce its budget deficit,
the real
                    could decline further against the dollar, force
interest rates back
                    up, and trigger a further slowdown in the local economy.

                    "We could see a further deterioration if there is no
follow-up in the
                    fiscal process," said David Sekiguchi, vice president for
                    emerging market research at J.P. Morgan & Co.

                    Bankers predicted that the severe fall in the real will
have an
                    immediate effect on Argentina, which sends about a
third of its
                    exports to Brazil, but should not affect Brazil's
ability to repay its
                    foreign borrowings or trigger a chain reaction across
Latin
                    America.

                    "I'm not a big believer this is going to have a lot of
collateral
                    damage on other Latin American countries," Mr. O'Neill
said.

                    "It won't be good for Argentina, but it won't have the
same effect it
                    had in Asia, where the crisis tore around, hitting one
country after
                    the other."



                       Copyright ©1997, 1998, 1999 American Banker, Inc. All
                                       Rights Reserved.