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RR RUEHRG
DE RUEHSO #0280/01 1341438
ZNR UUUUU ZZH
R 141438Z MAY 09
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 9185
INFO RUEHBR/AMEMBASSY BRASILIA 0336
RUEHRG/AMCONSUL RECIFE 4362
RUEHRI/AMCONSUL RIO DE JANEIRO 9144
RUEHBU/AMEMBASSY BUENOS AIRES 3506
RUEHAC/AMEMBASSY ASUNCION 3753
RUEHMN/AMEMBASSY MONTEVIDEO 2907
RUEHSG/AMEMBASSY SANTIAGO 2753
RUEHLP/AMEMBASSY LA PAZ 4106
RUCPDOC/USDOC WASHDC 3271
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000280 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
STATE PASS NSC FOR ROSSELLO 
DEPT OF TREASURY FOR LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD BR
SUBJECT:  THE BANCO DO BRASIL LEADERSHIP SHAKEUP 
 
REF: A. Brasilia 522; B. Sao Paulo 0265 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary:  President Lula announced last month a leadership 
change at the Banco do Brasil (BB), replacing independent-minded 
Francisco de Lima Neto with PT-loyalist Aldemir Bendine.  The 
shakeup is intended to expand credit in an economy where consumers 
and businesses have long paid high interest rates on loans.  Though 
many fret about the economic implications for the BB, Lula's record 
suggests that substantive financial changes are likely to be smaller 
than his rhetoric indicates.  End Summary. 
 
------------------------------------ 
Lula Sacks Banco do Brasil President 
------------------------------------ 
 
¶2.  (SBU) On April 8, the GOB announced that Banco do Brasil (BB) 
Vice President for Credit Cards, Aldemir Bendine, would replace BB 
President Francisco de Lima Neto.  According to press reports, Lima 
Neto asked Lula to be released from his official duties for personal 
reasons.  However, financial press commentaries have suggested that 
Lula and Finance Minister Guido Mantega forced him out.  Bendine 
wasted no time in replacing six BB vice-presidents whose 
appointments would have ended in 2010.  The leadership exodus 
suggests that the GOB forced out Lima Neto in an effort to exert 
more political control over the 65 percent government-owned bank. 
 
¶3.  (SBU) Shortly after Lula announced the leadership change, 
Mantega declared that Bendine's new job contract will require him to 
expand credit and lower the spread, i.e., the difference between 
interest rates and what banks charge for a loan.  BB shares tumbled 
more than eight percent following this announcement (but since 
recovered since then.)  Bendine later clarified that interest rate 
changes were not part of his contract and that he was receiving no 
pressure from the Lula administration. 
 
¶4.  (SBU) Bendine was a relatively low-profile figure until he 
assumed his new duties.  He has been a BB employee for thirty years 
and has strong ties to the ruling PT party, according to sources in 
the banking industry.  One Brazilian Central Bank (BCB) employee 
told EconOff that he believes Bendine's leadership personality does 
not matter much, because he is widely considered a puppet of Lula's 
administration. 
 
---------------------------- 
Private Sector Not Buying It 
---------------------------- 
 
¶5.  (SBU) Financial analysts in Sao Paulo have told EconOff that 
Lima Neto's removal was a politically-motivated decision with 
potentially serious economic implications.  Alexandre Marinis, a 
consultant for Bloomberg News, told EconOff that BB's leadership 
shakeup could lead to the overexpansion of credit.  According to 
Marinis, the BB could find itself in serious financial trouble if 
the crisis continues beyond 2009.  Former BCB Deputy Governor Luiz 
Fernando Figueiredo told EconOff that the GOB is risking the BB's 
solvency by pushing it to issue more credit, a bet that he believes 
will only pay dividends if the economy begins to recover in quarters 
three and four.  Figueiredo believes that the GOB was appealing to 
populist elements in the country with the Bendine appointment rather 
than sound economic considerations.  A recent statement by PT 
Presidential Candidate Dilma Rousseff would appear to support this. 
In an editorial critical of the leadership shakeup at the BB, the 
newspaper Estado de Sao Paulo quoted Rousseff as telling union 
leaders, "We can no longer stand discussions with the presidents of 
public banks, who think that they are presidents of private banks. 
The public bank cannot act like a private bank and cannot have a 
profit margin of 20 to 30 percent per year.  If they do so, they 
lose their reason for existence." 
 
--------------------------------------------- -------- 
BB's New Agenda Unlikely to Undermine Monetary Policy 
--------------------------------------------- -------- 
 
 
SAO PAULO 00000280  002 OF 002 
 
 
¶6.  (SBU) Aldemir Bendine announced on April 28 a plan to expand 
BB's operations into real estate, with a loan of USD nine million to 
real estate giant Cyrela for participating in the Government's "My 
house, My Life," program (Ref A).  Bendine also announced that the 
BB would lower the interest rate charged for consumer credit, though 
he did not specify by how much.  Bendine hopes to keep the spread 
constant, between 6.8 and 7.2 percent this year, according to 
newspaper reports.  (Note:  The BB's spread in 2008 was 7.1 percent. 
 If net losses from rising default rates grow too high, just 
maintaining the spread at 7.1 percent will be difficult.  Credit 
rating agency Experian released a report in March showing that 
corporate default rates are up 24 percent compared to February.  End 
Note.)  In a separate interview with weekly magazine "Isto E," 
Bendine indicated that he hopes BB will overtake Itau-Unibanco Bank, 
to become once again the largest bank in Brazil. 
 
¶7.  (SBU) Despite concerns, most Consulate interlocutors do not 
believe that Bendine's succession marks a new era of government 
intervention in monetary policy.  Joao Ribeiro, an analyst at the 
consulting firm Tendencias, told EconOff that the specter of 
inflation remains such a national preoccupation that Lula will 
remain conservative in his appointment of the next Brazilian Central 
Bank (BCB) President.  Marinis agreed with his assessment, telling 
EconOff that Lula is generally pragmatic vis-a-vis monetary policy. 
Analysts expect current BCB President Henrique Meirelles' successor 
to be from within the bank, most likely current BCB Deputy Governor 
Alexandre Trombini.  (Note: Meirelles is widely speculated to be 
considering a run for public office in 2010, launching his candidacy 
for either Governor or Senator of the State of Goias.  End note.) 
 
¶8.  (SBU) Central Bank contacts have explained that the threat of 
lawsuits compels central bankers to follow the letter of the law in 
using inflation as the sole criterion in determining the overnight 
interest rate charged to banks, known as the SELIC rate.  The law 
requires the BCB to adjust the SELIC only to meet official inflation 
targets, currently 4.50 percent.  Courts actually could hold those 
on the BCB board of directors civilly liable for their actions if 
they use a target other than inflation to determine the SELIC rate. 
(Note:  PMDB presidential candidate Jose Serra has publically called 
for the BCB to include growth as an additional factor in its 
decision.  He also has begun publically attacking the BCB for not 
lowering interest rates aggressively enough.  End note.) 
 
¶9.  (SBU) Comment:  By expanding its credit offerings, the BB hopes 
to reduce Brazil's high interest rates.  Lula's self-described 
"obsession" to lower interest rate spreads, however, does not extend 
to trimming the taxes that banks build into banking spreads.  Lula's 
push to have the BB expand operations into non-traditional areas may 
not bode well for the bank's long-term financial position, 
particularly if the Brazilian economy takes a turn for the worse and 
default rates continue to rise (Ref B).  While the BB's credit 
expansion could spell financial trouble for the bank itself in a 
worst-case scenario, consensus estimates suggest that the BB's 
leadership change will not have any lasting effect on the overall 
economy.  The President has consistently proven to be an economic 
moderate and his rhetoric has been more radical than his actions. 
End comment. 
 
¶11.  (U) This cable was coordinated with and cleared by the Treasury 
Attache and Embassy Brasilia. 
 
WHITE