Fitch Affirms Banco Brascan S.A. Ratings; Outlook Stable
2009-06-12 21:55:03 -
Fitch Ratings has affirmed the ratings of Banco Brascan S.A. (Brascan) as follows.
--Long-term foreign and local currency Issuer Default ratings (IDRs) at 'BB+'; Outlook Stable;
--Short-term foreign and local currency IDRs at 'B';
--Support rating at '3';
--National Long-term rating at 'AA-(bra)'; Outlook Stable;
--National Short-term rating at 'F1+(bra)'.
The IDRs and National Ratings of Brascan reflect the support of the majority shareholder, Brookfield Asset Management Inc. (BAM; IDR 'BBB+' with a Stable Outlook by Fitch). BAM considers that Brazil is a strategic market and the activities developed by the bank, led by executives with solid experience, are an important complement to the group's Brazilian business, though not yet a significant contributor to the group's business. In Fitch's view, any improvement or deterioration in its risk profile could lead to a change in Brascan's ratings.
Brascan is a small investment bank, with relevant asset and liability concentrations. Its results have been volatile, reflecting lower leveraging and opportunistic action in selected investment banking niches, as well as greater dependency on treasury gains since 2001. The weak performance in 2008 reflected smaller treasury gains during the year and deceleration of the other commercial activities, due to deterioration in the business environment. Fitch foresees earnings in 2009 and 2010 will continue to be pressured as long as it lacks more consistent business and revenue generation.
In response to the global financial crisis, Brascan emphasized the creation of greater cash during 2008 and worked to improve the matching of assets and liabilities, adjusting its business generation to a more adverse scenario. Fitch believes that despite an adverse scenario and a more conservative approach at leverage, treasury will continue to originate the largest risk exposures. Loan portfolio, including guarantees, has presented some growth in recent years, but its participation is still small. It totaled BRL176.9 million at fiscal year end (FYE) 2008 and is concentrated in a select group of clients, with operations mainly secured by company receivables, which has experienced some deterioration due to the worsening of the macroeconomic scenario, leading to increased provisions, common across the banking system.
Impaired loans represented 3.8% of the loan portfolio at FYE08 and were covered by provisions equivalent to a high 90.5%.
In 2003 Brascan was fined by the Federal Revenue Department (SRF) and, in January 2006, received a favorable ruling from the SRF Taxpayer Board. Although the government has appealed the ruling, the prospects regarding the outcome of this fine (estimated at BRL146 million at FYE08) are now more favorable for Brascan. Fitch considers that any potential negative impact, as the bank has not made reserves, would be limited due to the support of the bank's shareholder.
Brascan and its affiliates focus on treasury, financial consulting services, brokerage, asset management and corporate finance for medium-sized and large companies.
Fitch's national ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign's foreign and local currency ratings are below 'AAA'. National ratings are not internationally comparable since the best relative risk within a country is rated 'AAA' and other credits are rated only relative to this risk.
They are signified by the addition of an identifier, for the country concerned, such as 'AAA (bra)' for national ratings in Brazil.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .
Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, Rio de JaneiroMaria Rita Goncalves, +5521 4503 2600Luiz
Claudio Vieira, +5521 4503 2600orBrian Bertsch,
+1-212-908-0549(Media Relations, New York) brian.bertsch@fitchratings.com : mailto:brian.bertsch@fitchratings.com Cindy Stoller,
+1-212-908-0526(Media Relations, New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
