Fux's decision to extend BRB's contract with TJ-BA creates legal uncertainty in the banking sector

The decision by Minister Luiz Fux, of the STF (Supreme Federal Court), to extend for 90 days the contract for managing judicial deposits between the TJ-BA (Court of Justice of Bahia) and the BRB (Banco de Brasília) increased the legal uncertainty of agents in the banking sector regarding assistance to the financial institution of the Federal District government.

Governor Celina Leão's (PP-DF) negotiations with banks and the FGC (Credit Guarantee Fund) are at a standstill awaiting a new proposal, according to people involved with the case. This worsens the situation of BRB, which is experiencing a liquidity crisis and is at risk of intervention by the Central Bank.

Fux's decision, handed down on August 26, reinforced the diagnosis of the legal department of large banks and representatives of the financial sector that the solution put on the negotiation table for the loan to BRB runs the risk of being questioned in the Judiciary if the DF government is unable to honor the financing installments.

The diagnosis is that Fux set a dangerous precedent for the entire banking sector and for TJs by interfering in the private matters of third parties to help a public bank.

When contacted, Minister Fux did not respond to specific questions. Through the advice of the STF, he said that the court bases its actions on legality, due legal process and the powers set out in the Constitution.

"The temporary extension for a period of 90 days was strictly precautionary in nature, aiming to ensure the stability of the parties, the preservation of the public interest, legal certainty and the orderly transition of operations until the assessment of the merits by the court's collegial bodies", says the note. The minister considers that the "parties agreed to continue the negotiations".

TJ-BA's contract with BRB ended on August 26th, but Fux extended the validity for 90 days, a period that lasts until after the elections, providing relief of R$394 million per month in the cash flow of the DF government's financial institution.

BRB went into crisis after purchasing fraudulent credit portfolios from Banco Master, owned by Daniel Vorcaro, who then tried to sell his bank to the DF government, under the management of former governor Ibaneis Rocha (MDB). The deal did not go ahead because the Central Bank vetoed the operation.

Given the expiry of the contract, TJ-BA had already signed an emergency contract with Caixa Econômica Federal to take over the management of new judicial deposits after the BRB crisis.

Fux claimed that the change would represent losses to BRB and the entire financial system. For him, the change would be a huge risk to the ongoing measures to capitalize the institution.

Fux's measure was seen as reckless by the banks, because it ended up bringing responsibility to the STF for possible losses of depositors' resources in the event of BRB's liquidation.

Judicial deposits are amounts under the supervision of the Court, used to store and ensure payment to the parties in a legal dispute.

They are made by individuals or companies and serve as a guarantee that the money will be available to whoever wins the case or to fulfill a legal obligation.

According to three people involved in the negotiations heard by Folha, the relief given by Fux provided breathing space in the short term, but it will not be enough to sustain the bank until the end of the elections. Celina Leão, Ibaneis' vice-president, is seeking re-election.

The lack of cash led to Master being liquidated by the Central Bank in November last year. The bank only had R$4 million saved when it was liquidated.

The DF government, through a note, says it has confidence in BRB's operational and financial capacity. "The bank continues to operate normally, fully honoring its commitments and providing all services to its customers without any complications", he says.

According to Celina Leão's advisors, Minister Fux's decision ensured the "continuity of the operation for a period considered necessary to advance the measures already being implemented aimed at strengthening the Bank and preserving its operational stability".

In addition to TJ-BA, BRB currently has around R$30 billion in judicial deposits under its management from the courts of Justice in DF, Paraíba, Alagoas and Maranhão. The BRB did not inform the amounts deposited in each court.

The design of the loan of R$ 6.6 billion by the FGC (Credit Guarantee Fund) to the government of the DF, controlling shareholder of BRB, foresees that a pool of banks —formed by the largest institutions in the country, members of the so-called S1— would grant a bank guarantee for the FGC loan.

The operation would be guaranteed by resources from the Federal District in the FPE (State Participation Fund) and the FPM (Municipal Participation Fund). The transfers to the DF from these two funds would be used as counter-guarantees to reimburse financial institutions in the event of default.

The FPE and FPM are constitutional funds formed with the collection of federal taxes. Part of the resources is transferred by the Union to states and municipalities.

But, in negotiations, private banks have argued that, according to the Constitution, states and the Federal District cannot use money from these funds to obtain credit from private banks.

Therefore, as Folha revealed in July, Brazil's largest private banks want Banco do Brasil and Caixa to guarantee the loan operation to help BRB.

Celina Leão's government in the DF currently has a fragile fiscal situation and will lose more resources next year, with the bill that removes around R$1.8 billion from the FCDF (Constitutional Fund of the DF). The loss of these resources, if confirmed, could represent more difficulties for BRB to recover, as it undermines the DF's payment capacity.

In a note, the TJ-BA stated that, at the end of the contract with BRB, it was already conducting negotiations for Caixa to take over the management of accounts and judicial flows.

The court also states that, even ready for the transition, it will maintain the provision of services with BRB, as determined by the STF. According to the court, financial operations and the processing of judicial deposits continue without changes to the routine.

The TJ-DFT (Court of Justice of the Federal District and Territories) says that there is no record of interruption or operational difficulty in relation to judicial deposits. The court says it has a control tool and daily, monthly and annual monitoring of the amount of values ​​moved. According to the court, the contract ended regularly during its term and BRB is no longer accredited for new deposits, which will now only be received by Caixa.

When contacted, the courts of Justice in Paraíba, Alagoas and Maranhão did not respond to the report's questions.