Thu May 22, 2014 11:27am EDT
(Reuters) – Brazilian banks vowed on Thursday to challenge any unfavorable rulings by the nation’s top two courts in a landmark case on the amount of interest paid on savings accounts dating back two decades, a move that helped limit the banks’ share price losses.
In a statement, industry group Febraban said it is confident an upcoming ruling by the Federal Supreme Court, or STF, on the matter will be favorable for banks. The STF could decide next week whether four policy packages implemented by the government in the late 1980s and early 1990s to fight inflation were constitutional. The packages forced banks to limit interest payments on savings deposits.
Still, Febraban stressed that banks are ready to appeal a decision made on Wednesday by the second-tier Superior Justice Court, or STJ. That court found that additional interest payable to savers must be calculated from when class-action suits were first filed in the early 1990s, and not, as banks have argued, from when individual claims were made in 2010.
In Brazil, parties can make additional arguments to even the country’s top court and ask it to review its own decisions.
The savings-account case highlights the legal uncertainties that abound in Brazil, where tax and regulatory disputes with the government can force companies into years of costly litigation. Government officials have warned of potential litigation losses for state-run and private-sector banks stemming from the lawsuits.
“It is still too soon to determine the final impact of the claims and we need to wait for a final ruling from the STF,” said Tito Labarta, an analyst at Deutsche Bank Securities. “Nonetheless, the ruling (Wednesday) creates additional uncertainty, and will likely remain as an overhang risk until a final decision is reached.”
If the STF also rules in favor of depositors, it could hurt President Dilma Rousseff’s efforts to revive Brazil’s sagging economy ahead of a re-election bid in October. State-run lenders would suffer the most and might be forced to turn to the government for fresh capital, analysts said.
Shares in state-controlled Banco do Brasil SA, and private-sector peers Itaú Unibanco Holding SA and Banco Bradesco SA seesawed between gains and losses in early trading on Thursday.
Banco do Brasil gained 1.5 percent in late morning trading, after shedding 7 percent on Wednesday. Itaú was unchanged after falling 2.1 percent a day earlier. Bradesco dropped for a second day, shedding 1.4 percent.
The STJ ruling assessed who qualifies for compensation and the time period for which additional interest should be calculated, two crucial items in estimating potential losses. Febraban estimates banks could face paying up to 341 billion reais ($154 billion) in compensation if the ruling goes against them.
Banks’ capital positions could be eroded too. A reduction in the supply of credit of about 1 trillion reais is the worst-case scenario, Brazil’s central bank said last year.
“More than ever, any decision taken by the STF will have to carefully consider the impact on the banking system of an unfavorable ruling, particularly for public banks,” wrote Marcelo Telles, an analyst with Credit Suisse Securities.
The STF is expected to turn to the case on May 28, though it has postponed examining it several times in the past.