Saturday, September 15, 2012

Don't tell the Eurozone

Wall Street Journal --

SÃO PAULO, Brazil—Brazil said it would liquidate Banco Cruzeiro do Sul SA,  the third small or midsized lender to fail in two years. Although the bank is Brazilian, some of the biggest losers may be in the U.S. Cruzeiro sold much of its $1.8 billion in bonds to overseas investors in recent years amid optimism for growth in big emerging markets like Brazil. Analysts expect the quest to recover a portion of the money to be lengthy. Most customer deposits will be covered by the country's deposit-insurance program ...

Still, the authorities have won some praise for letting the bank go under, following the rescue of Banco PanAmericano, in which the depositor fund put up a large amount of capital as part of a sale to Banco BTG Pactual SA. A number of market participants have fretted that the move sent a wrong signal and that no matter what the problems, investors would be bailed out. "I see one positive from this liquidation, as it shows that there cannot be impunity," said Paulo Petrassi, a fund manager at Leme Investimento, who manages 235 million Brazilian reais in bonds and equities. "Looking ahead, the signal is positive in terms of regulation." 

It's the position of the European Central Bank, at least as regards Ireland, that bondholders in busted banks can't lose even a cent.