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.
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