Brazilian banks may lose US$3.8 billion from lawsuit claiming currency manipulation

RIO DE JANEIRO, BRAZIL – Brazilian banks are facing a “real threat” of losing R$20 billion of their 2021 profits, assesses XP Investimentos in a report to clients on Wednesday, June 16. This is because Brazil exporters have demanded US$3.8 billion from Brazilian banks, alleging currency manipulation in past years.

According to analysts Marcel Campos, Matheus Odaguil and Artur Alves, a class action lawsuit by the Brazilian exporters association (AEB), which has Vale (VALE3), Whirlpool (WHRL3; WHRL4) and Suzano (SUZB3) among its members, is calling for reparations due to currency manipulation.

“While this is a big impact on earnings, with fines ranging from 18% to 24% of expected 2021 earnings, we believe investors should keep in mind that 2021 is a recovery year, the class action lawsuit could take a decade or even longer, and if banks decide to take operating provisions from now until the end of the lawsuit, impact on earnings should not be significant,” they explain. In addition, investors could potentially handle the provision as a non-recurring event.

“The risk is that the lawsuit will only consider the figures for 2010 and 2011, but the complaint claims that the figures for 2008, 2009 and 2012 should also be discussed. And Petrobras is filing a separate lawsuit,” they recall.

Potential Impact of eventual fines

Santander (SANB11): fine of R$3.8 billion, representing 24% of the expected profit for 2021;

Bradesco (BBDC3; BBDC4): R$4.7 billion fine, representing 18% of the expected profit for 2021;

Itaú (ITUB3; ITUB4): a R$4.3 billion fine, representing 17% of the expected profit for 2021.