Brazil’s biggest state-owned bank plans to sell real estate assets to repay public debt

Caixa Economica Federal also plans to sell stakes in several subsidiaries to repay government bonds totaling about 40 billion reias, or $11 billion
March 23, 2019 12:00PM

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Under new management, the biggest state-owned bank in Brazil plans to restructure itself by selling distressed real estate and equity stakes in subsidiaries.

Chief executive officer Pedro Guimaraes is overseeing the planned asset sales by Caixa Economica Federal to repay perpetual bonds issued by the Brazilian government that total approximately 40 billion reais ($11 billion).

Caixa has assets valued at 1.3 trillion reais, and all extraordinary gains from asset sales “will be used to repay that debt,” Guimaraes said in an interview with Bloomberg.

Guimaraes, 48, has approached investors in distressed real estate to gauge their interest in buying assets that Caixa has seized. The bank valued its portfolio of seized assets, mostly defaulted mortgages, at nearly 8 billion reais as of September, more than any other Brazilian bank.

Caixa also may sell some non-distressed real estate assets, including all or part of 15 buildings in Brasilia, where the bank is based, and seven buildings on Paulista Avenue in Sao Paulo.

In recent years, the bank has struggled with low returns on assets and controversy, including allegations that Caixa officials have loaned money in exchange for bribes.

Guimaraes, who took over as chief executive officer on Jan. 7, has retained Russell Reynolds Associates to minimize political influence on the bank and help Caixa hire board members and executives with market experience. Caixa already has replaced 90 percent of its top-ranked officers.

The new CEO of Caixa plans dual listings in Brazil and New York to sell minority stakes in bank subsidiaries in the insurance and bank-card businesses.  Guimaraes said the bank’s lottery and asset-management subsidiaries will go public in 2020. The bank could collect 15 billion reais in proceeds from the four sales.

Among other plans, Caixa would auction the right to use its 26,000 offices – the largest branch network in the Brazilian banking industry – to sell insurance and card-processing products that generate fees for the bank.

Caixa has a loan portfolio valued at 694 billion reais, which has grown nearly 10-fold over the past 10 years, largely because of efforts by previous administrations of the national government to provide low-cost credit through state-owned banks.

The Brazilian government supported that effort by lending Caixa $40 billion reias through a perpetual bond issue. [Bloomberg]Mike Seemuth