From WSJ more on Brazil.... sounds like trouble to me... better consider what you do with these money center bank stocks you may own...
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September 18, 1998
Wall Street Heavyweights
Speak of Supporting Brazil
By PETER FRITSCH and MATT MURRAY
Staff Reporters of THE WALL STREET JOURNAL
SAO PAULO, Brazil -- As Brazil talks to the International Monetary Fund about a possible multibillion-dollar support package, Wall Street appears ready to stand squarely behind the region's biggest potential domino.
Leading representatives of U.S. banks have informally agreed to back up any Brazilian bailout program if need be, according to several people familiar with a dinner meeting held Tuesday night at the New York headquarters of J.P. Morgan & Co. The dinner, organized and hosted by Stanley Fischer, deputy managing director of the IMF, was attended by about a dozen senior officers from U.S. commercial and investment banks. During the meeting, which was organized on Sept. 3 when dollars were pouring out of Brazil, Mr. Fischer sought to drum up private-sector backing for any IMF support plan for Brazil.
Among those in attending the dinner were J.P. Morgan Chairman Douglas A. Warner III, Chase Manhattan Corp. President Thomas Labrecque, Citicorp Vice Chairman William Rhodes, E. Gerald Corrigan of Goldman, Sachs & Co. and senior Merrill Lynch & Co. executive Jerome Kenney.
Too Important to Fail
Mr. Fischer called the meeting to discuss ways in which the IMF could talk to private-sector firms without violating rules on insider trading. But after the participants heard news reports that Brazil's finance minister was considering an IMF rescue package, Mr. Fischer turned the discussion to whether the banks would support such a plan, say some of the attendees.
Of the dozen or so at the dinner, only one, an investment banker, expressed reservations about backing the IMF with loans, according to a participant. Generally, the banks agreed that Brazil, the fifth-largest foreign market for U.S. commercial banks, was too important to fail. Some of the participants discussed the dinner conversation with officials at the U.S. Treasury, which hasn't yet endorsed a rescue package.
"The Rubicon now is basically Brazil, and if Brazil holds, so do the emerging markets," said Mr. Rhodes in an interview last week. The banks declined to comment Thursday.
Discussions between the IMF and Brazil, now in a preliminary stage, are expected to become more formal before Brazil's election Oct. 4. But it's far from clear how long such negotiations would take to conclude, or whether Brazil would be willing to accept the budget-cutting actions sought by the fund.
As of the end of June, Brazil's private sector owed a whopping $140 billion overseas, the most by far of any country in the developing world. Of that total, $32 billion comes due in less than a year, while $108 billion matures in more than a year. The overseas debt of Brazil's public sector stood at $86 billion in June. Some $4.4 billion is owed to Citicorp and another $4 billion to J.P. Morgan.
It wasn't immediately clear whether the bankers discussed any levels of potential funding. Brazil has said repeatedly in recent weeks that it doesn't necessarily need funds. Rather, it needs the seal of approval from international public and private institutions that its economic policies are moving in the right direction.
It wouldn't be the first time Wall Street got involved in trying to prop up a Latin American market in need. After Mexico's peso devaluation in late 1994, Mr. Rhodes and J.P. Morgan spearheaded an effort to put together a $3 billion line of credit from 18 international banks to complement bailout funds pledged by the U.S. Treasury, the IMF and others. In the end, Mexico balked at the interest rates demanded by the banks and the country was able to come up with the money to take care of its short-term financing needs as its foreign trade picked up.
At the time, Wall Street banks also worked to restructure billions of dollars -- linked Mexican debt, known as Tesobonos. That effort also bogged down in disputes over the amount of interest charged.
Increasingly Active Role
As Brazil's crisis has unfolded in recent weeks, Wall Street firms have taken on an increasingly active role in a country that isn't known for its close relationships with foreign investors. Indeed, just as talks between the Brazilian government and the IMF were getting under way this week, senior Merrill Lynch consultant Marcilio Marques Moreira led a team of a dozen or so foreign investors into a meeting with Finance Minister Pedro Malan. Mr. Moreira was a senior economic official in the administration of Fernando Collor de Mello.
Mr. Rhodes, for his part, has spoken to Mr. Malan repeatedly in recent days. "We are maintaining good contacts with international investors," said a Brazilian Finance Ministry spokesman.
Meantime, it was another mixed day for markets in Brazil.
The state government of Sao Paulo sold a controlling stake in electric distribution concern Empresa Bandeirante de Energia SA Thursday for the minimum asking price of $860 million to a group including Electricidade de Portugal SA and local investors. As in the sale earlier this week of a state electric generating company, only one consortium submitted a bid after other foreign suitors pulled out at the last minute. Enron Corp. has planned a run at Bandeirante, but decided against it. But analysts said the government was lucky to sell the company at all: An attempt to sell Bandeirante last April at the same minimum price failed to attract even a single bid.
Brazilian stocks fell, continuing their retreat from a 45% gain earlier in the week. Stocks on the Sao Paulo Stock Exchange gave up 4.8%, its main index closing at 6,432 points. Traders said hopes of a coordinated cut in world interest rates seemed to evaporate as did hopes for a quick definition as to the shape and size of a potential support package from the IMF.
---Anita Raghavan in New York and Bob Davis in Washington contributed to this article.
(c) The WSJ |
