Meirelles Favors Credit Card Oversight in Brazil

Brazil’s central bank President Henrique Meirelles said he favors regulatory oversight of the credit-card industry after Banco Panamericano SA required a 2.5 billion-real ($1.5 billion) bailout last week in part because of debt owed from its card business.

A task force including officials from the central bank, Finance Ministry and Justice Ministry is studying whether the industry needs government supervision. A final decision will be made by the country’s Congress, Meirelles said.

“At this point it seems that some supervision could be proper, in the sense that the whole financial system in Brazil is fully regulated,” Meirelles said yesterday in an interview from his 20th floor office overlooking Lake Paranoa in Brasilia. “The case of Panamericano showed how this is important.”

Silvio Santos, the Brazilian media mogul whose Grupo Silvio Santos includes Panamericano, sought bailout funds from the deposit insurance agency to rescue the bank after he discovered his own credit card company owed it 400 million reais, Meirelles said. The central bank separately uncovered about 2.1 billion reais in losses from accounting irregularities connected to the sale of loan portfolios, he said.

Fraud Probe

Federal prosecutors began a fraud investigation after the central bank alerted them to the accounting irregularities, Meirelles said. Panamericano replaced its board of directors and named a new chief executive officer as part of the bailout.

The rescue used private money and put all the bank’s losses on the majority shareholder, Grupo Silvio Santos, without costing any money to depositors, the government or minority owners, including state-owned Caixa Economica Federal, Meirelles said. The insurance fund is financed by banks operating in Brazil.

“The system worked quite well,” said Meirelles, 65.

Brazil’s credit card industry currently has no oversight, while the central bank supervises financial institutions and pensions funds are regulated by the social security agency.

In the U.S., Congress created a Consumer Financial Protection Bureau this year which will research and write rules for credit-card issuers. Elizabeth Warren, the special White House adviser assigned to set up the bureau, has said that among her top priorities is regulating credit-card disclosures, which would affect issuers including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc.

Self-Regulation

Brazil’s credit card companies are adopting rules for self- regulation that should protect consumers, retailers, banks and card issuers, Paulo Rogerio Caffarelli, the head of the country’s Association of Credit Card and Service Companies in Sao Paulo, said in an interview. If the self-regulation works, there’s no need for separate oversight, he said.

Caixa, Brazil’s fourth-largest bank by assets, will provide “all the necessary support” to keep Panamericano functioning, President Maria Fernanda Ramos Coelho said.

“There is no funding problem for Panamericano to continue functioning,” Coelho said in an interview at the national savings bank’s headquarters in Brasilia yesterday. “Caixa will give Panamericano all the necessary support for its operations to be carried out normally.”

Panamericano shares rose 0.8 percent to 5.01 reais yesterday. The stock plunged about 30 percent last week after the bank disclosed the rescue loan. The bank’s bonds due in 2020 rose for the first time in nine days yesterday, pushing down the yield to 10.06 percent from 10.07 percent, according to prices on Trace.

Redemptions

Panamericano, which provides consumer finance and auto loans to lower-income clients, was losing as much as 200 million reais a day from redemptions of certificates of deposit and investment funds after last week’s bailout, according to a bank official who asked not to be named in accordance with company policy. The pace of redemptions slowed this week, he said.

Coelho, 49, said Caixa could purchase Panamericano loan portfolios to provide funding if necessary.

Meirelles told lawmakers last week that Grupo Silvio Santos may sell its majority stake in the bank to help repay the loan. Coelho said she’s unaware of any negotiations underway for the group’s stake. After the bailout, Caixa, which owns 49 percent of the total capital of Panamericano, took over a majority of the lender’s board, naming five directors. Coelho will serve as chairwoman.

“At this moment we have a very clear focus — implement our business plan for the institution and quickly arrive at positive results,” Coelho said.