Brazil Court Delays Ruling on $153 Billion Depositors’ Case

May 28, 2014 4:51 pm ET

(Updates share prices in fifth paragraph and bond prices in eighth.)

May 28 (Bloomberg) -- Brazil’s highest court postponed a decision on lawsuits depositors filed against banks to recover losses from government policies to fight hyperinflation in the 1980s and 1990s.

STF, as the court is known, agreed to a request for a delay by the nation’s prosecutor general, Chief Justice Joaquim Barbosa said today in Brasilia. Prosecutors wanted to re-examine documents, according to a request sent to the court yesterday. The justices didn’t say when deliberations will resume.

Depositors sued the banks for lowering interest rates on their savings accounts during the 1980s and 1990s, a policy the government imposed as a way to fight hyperinflation. The central bank has estimated a ruling against the banks could cost them as much as 341.5 billion reais ($153 billion). Moody’s Investors Service said a favorable decision could free up 20 billion reais in provisions.

“This is a fight that will last for a long time,” Pedro Galdi, chief analyst at brokerage firm SLW Corretora, said in a phone interview from Sao Paulo. “Banks’ shares will rise a little bit on the postponement until the court resumes ruling.”

Banco do Brasil SA, which Galdi said has the most at risk from an adverse ruling, rose 3.4 percent to 23.34 reais at 5:08 p.m. in Sao Paulo. The stock climbed as much as 4.5 percent today, the biggest gain since April 7.

No Consensus

The delay is positive for bank shares because there isn’t a consensus regarding the potential impact in the case of an unfavorable decision, according to Andre Riva Gargiulo, an analyst at brokerage Grupo Bursatil Mexicano in Sao Paulo.

“The postponement opens room for share price appreciation in the short term,” Gargiulo wrote in an e-mail, though he said the risks related to the case aren’t priced into the stocks yet.

Caixa Economica Federal’s dollar bonds due in 2018 rose 0.7 percent to 101.442 cents on the dollar, the biggest one-day gain on a closing basis since the bonds began trading in October. Banco do Brasil’s perpetual bonds rose 4 percent to 85.228 cents on the dollar, in the biggest advance in more than a year.

Today’s postponement comes one week after a lower court ruled against banks in a case involving delinquent interest in class-action lawsuits.

--With assistance from Blake Schmidt in Sao Paulo and Boris Korby in New York.