Brazil's FGC to decide on recapitalization by quarter-end

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By Luciana Magalhaes Brazil's Credit Guarantee Fund (FGC), a private-sector mechanism managing deposit insurance for the financial industry, aims to finalize plans soon for a recapitalization after Banco Master collapsed amid fraud allegations, its top executive said on Thursday."This is a short-term discussion that should progress by the end of the quarter," FGC President Daniel Lima told Reuters.Options to recapitalize under the FGC statute include a five-year advancement of contributions by financial institutions or an extraordinary contribution. Other options may also be discussed, but would need special review before approval, Lima said, without disclosing figures.FGC CAN COVER ALL PAYMENTS: LIMALima added that the FGC is highly liquid and ready to cover all payments related to the Master failure, the largest ever faced by the fund, currently estimated at over 46 billion reais ($8.8 billion)."We have a sense of calm to discuss the fund's recapitalization," Lima said. "The industry prepared itself for what we are experiencing."The FGC has liquidity of 122 billion reais plus another fund with about 26 billion reais, totaling reserves close to 150 billion reais, Lima said.As of Thursday, 32.5 billion reais in guarantees have been paid to creditors of the Master conglomerate, representing 80% of the total amount to be paid. The FGC provides guarantees of up to 250,000 reais per investor for each financial group. Lima said he considered that value appropriate, but acknowledged some were calling for the limit to be reduced. Payments related to Will Bank, which was controlled by Master and liquidated this month, will begin once the FGC receives the creditor database."The focus today is paying the guarantees," Lima said. Once this is complete, the FGC will also concentrate on discussions about how to improve the system to avoid similar situations.Master marketed its debt securities, which paid above-market returns, as backed by the fund.According to Lima, transparency is important so investors know these guarantees exist, but there needs to be a debate on how to increase agents' responsibility to prevent institutions from using such protections in bad faith."There is an understanding that we need to prevent this type of abuse," said Lima. ($1 = 5.2438 reais)

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