Chavez has been busy in Venezuela

It looks like tensions are rising in Latin America, and we might see failures/defaults/ there.
Please consider the following reports from Bloomberg.

I think the main points are:
  • Venezuela charged the owner of the four banks, Ricardo Fernandez Barrueco, with diverting deposits, improperly issuing credit to the owner’s companies and failing to prove the origin of funds.
  • President Hugo Chavez said yesterday that any private bank that breaks the nation’s laws will be seized, and that he has “no problem” nationalizing the banking sector. The four banks represented about 6 percent of total deposits in Venezuela.
People are concerned because Chavez is sending bankers who have done unlawful things to prison? And shutting down banks which have become insolvent? Isn't that what you should see in the US and Europe and Japan, instead of bailouts and mega bonuses for failed bankers?
Then the question is: what are the laws that have been broken? Maybe Chavez just came up with his own sets of laws just to take over these institutions. Which wouldn't be surprising neither...

Nov. 30 (Bloomberg) -- Venezuela’s government will close Banpro Banco Universal and Banco Canarias de Venezuela CA, two of the four banks it seized Nov. 20, and ensure depositors get their funds, Finance Minister Ali Rodriguez said.

Rodriguez said the other two banks, Banco Confederado SA and Bolivar Banco CA, will be administered by the government in order to try and “rehabilitate” the institutions. Clients won’t have access to their deposits at those banks while the government is administering them, he said.

Venezuela charged the owner of the four banks, Ricardo Fernandez Barrueco, with diverting deposits, improperly issuing credit to the owner’s companies and failing to prove the origin of funds. The attorney general barred 16 of the bank’s executives from leaving the country and a brokerage owned by Canarias, U21 Casa de Bolsa CA, was searched by authorities. “The damage caused has been of such a degree as to severely compromise the solvency of these institutions and obliges us to perform a closed-door intervention,” Rodriguez said in comments on state television today. Attempts by Bloomberg News to reach Barrueco, who is detained by police, or a lawyer representing him weren’t successful. Neither Barrueco, nor his lawyers have commented in public since he was detained.

President Hugo Chavez said yesterday that any private bank that breaks the nation’s laws will be seized, and that he has “no problem” nationalizing the banking sector. The four banks represented about 6 percent of total deposits in Venezuela.

The banking sector had 248 billion bolivars ($115.5 billion) in deposits among 50 institutions at the end of October, according to Softline Consultores, a banking consulting firm in Caracas. Confederado, Banpro and Bolivar had combined losses of 19.5 million bolivars through September, according to the banking superintendent.

Dec. 2 (Bloomberg) -- Venezuela’s benchmark dollar bonds plunged, sending yields to a four-month high, after President Hugo Chavez threatened to seize more banks following the government’s takeover of four lenders.

Local banks and brokerages dumped dollar bonds to raise cash in bolivars and meet redemptions after Chavez’s comments prompted some depositors to withdraw funds, said Russell Dallen, head trader at Caracas Capital Markets at BBO Financial Services. The interbank lending rate surged as high as 28 percent from 15.1 percent yesterday as cash-strapped banks sought overnight funding, brokerage Banco Fondo Comun said.

“People are rushing to withdraw funds from the banks and that’s what’s putting pressure on the Venezuela dollar bonds,” said Boris Segura, a Latin America economist at RBS Securities Inc. in Stamford, Connecticut. “The concern is Chavez is going to nationalize the whole banking system. That’s what is on the back of people’s mind.”

Chavez, who has used Venezuela’s oil wealth to pay for nationalizations of companies in the utilities, metals and cement industries, said today the government is monitoring another group of banks after ordering the seizure of four and jailing their owner on Nov. 20. The government also closed a brokerage and raided another as part of investigations into businessman Ricardo Fernandez Barrueco, who was charged with diverting deposits and making unauthorized stock operations.

Venezuela’s 9.25 percent bonds maturing in 2027 tumbled 2.75 cents on the dollar to 69.50 cents at 3:43 p.m. in New York, according to JPMorgan Chase & Co. The yield surged 55 basis points to 13.92 percent, the highest since July 29. A basis point equals 0.01 percentage point.

“If I need to take over all the Venezuelan banks, I’ll do it,” Chavez said on state television today. “Gentlemen of the oligarchy, the bank that slips will be taken over. This sort of situation allows us to sharpen our swords. The ones that should be taking care now are the private bankers, because I’ve got my eye on them. The public bank sector will have a hegemony.”


The securities regulator closed U21 Casa de Bolsa SA, a brokerage owned by Barrueco, and authorities raided brokerage Interbursa Casa de Bolsa to collect evidence of possible criminal activity, the attorney general’s office said in an emailed statement today.

“There’s been a massive sell-off and everything is way down,” BBO’s Dallen said in a telephone interview. “The banking system is not in good shape.”

The extra yield investors demand to own the country’s dollar bonds instead of U.S. Treasuries swelled 39 basis points to 11.59 percentage points, according to JPMorgan.

At least four international banks have a presence in Venezuela, including Spain’s Banco Bilbao Vizcaya Argentaria SA, Amsterdam-based ABN Amro Holding NV and U.S.-based Citigroup Inc.

Venezuela’s banking sector had 248 billion bolivars ($115.5 billion) in deposits among 50 institutions at the end of October, according to Softline Consultores, a consulting firm in Caracas.

The government this year took control of Stanford Bank SA Banco Comercial and closed the local offices of Antigua-based Stanford International Bank Ltd. after the owner, R. Allen Stanford, was accused of defrauding investors of $8 billion. Venezuelan investors had as much as $3 billion in Stanford’s Antigua bank, the banking superintendent said in February.

Chavez ordered the government to buy Banco de Venezuela, a unit of Spain’s Banco Santander SA, for $1.05 billion to expand the state’s presence in the banking sector this year.

“The president should choose his words carefully because they aren’t necessarily calming depositors,” Alejandro Grisanti, an economist at Barclays Plc in New York said in a telephone interview. “As the nervousness grows in the Venezuelan financial system, brokerages will be looking to boost liquidity levels in bolivars by selling off positions in dollar assets.”

Dec. 2 (Bloomberg) -- Colombian President Alvaro Uribe said Venezuela has put up an illegal trade embargo that is becoming a “Berlin Wall,” cutting off the South American neighbors.

“People have complained so much about the embargo against Cuba, and now Venezuela has an embargo against Colombia,” Uribe said, according to the transcript of a radio interview posted today on the presidential Web site. “And what worries me, because it generates distrust, is that other countries have taken the opportunity to go to the Venezuelan market and substitute Colombian products.”

Venezuelan President Hugo Chavez said in July he was “freezing” ties with his second-biggest trading partner and would do away with Colombian imports as Uribe moved ahead with a plan to allow the U.S. military access to seven Colombian bases. The following month Argentina agreed to send Venezuela $1 billion in goods, including 10,000 cars originally slated to come from Colombia.

Tensions worsened last month after Venezuelan soldiers blew up two foot bridges along the shared border. Venezuelan General Eusebio Aguero said last week troops plan to destroy six more such bridges on suspicion they’re being used to traffic drugs and contraband. Colombia says they’re community crossings.


Trade between the two countries last year totaled about $7 billion. In September, Colombian exports to Venezuela fell 50 percent from the same month a year earlier, according to the national statistics agency.

Colombia is taking steps to secure free trade agreements with countries including the Dominican Republic, Japan, South Korea and Australia, according to the trade ministry. Accords with several Central American and European countries went into effect this year.

Dec. 3 (Bloomberg) -- Venezuelan President Hugo Chavez’s threats to seize banks as part of a drive to nationalize strategic parts of the economy should be taken at “face value,” Goldman Sachs Group Inc.’s Alberto Ramos said.

After seizing four banks and a brokerage on charges that their owner diverted deposits and failed to show the origin of funds, Chavez said yesterday that he has another group of banks on his “radar.” He vowed to nationalize the private banking industry if lenders don’t follow Venezuelan law.

“We should take his statements at face value,” Ramos said. “It’s one of the key sectors of the economy that the government hasn’t yet taken substantial control of.”

Chavez, a 55-year-old former paratrooper and self- proclaimed socialist, has said banks aren’t doing enough to promote development with loans for housing, agriculture or construction. The government’s purchase of Banco de Venezuela from Banco Santander SA for $1.05 billion this year hasn’t created enough competition for private banks, Chavez said.

“Venezuelan banks have degenerated,” Chavez said on state television. “Instead of fulfilling their objective to support development, they specialize in financial speculation.”

Chavez’s past battles with private businesses resulted in the seizure of assets from U.S. oil giants Exxon Mobil Corp. and ConocoPhillips, and the nationalization of the country’s largest steel mill from Luxembourg-based Ternium SA. Venezuela is in talks with Cemex SAB, the largest cement maker in the Americas, over compensation for the takeover of its local subsidiary.

This year, Chavez created a ministry of public banking, increased directed lending percentages for so-called productive sectors and boosted the government’s stake in the banking industry to 21 percent with the purchase of the Santander unit.

Chavez said he personally ordered the seizure of Banco Canarias de Venezuela CA, Banpro Banco Universal, Banco Confederado SA and Bolivar Banco CA on Nov. 20 and that their owner, Ricardo Fernandez Barrueco, is being jailed for not proving the origin of funds used to buy new banks.

Fernandez is a victim of “poor interpretation” by banking authorities, his lawyer, Antonio Guerrero, was quoted as saying yesterday in Caracas newspaper El Mundo.
Venezuelans concerned about the safety of their deposits after Chavez’s comments may move their money to bigger, established banks, Goldman’s Ramos said. Eventually, depositors may flock toward state institutions seeking safety because of an “implicit blanket government guarantee.”

The “financial oligarchs” spread capitalist values of greed and riches in the population and are trying to provoke a run on banks to try to topple the government, Chavez said yesterday.

“If the oligarchs think that the attacks that began to provoke a run on the banks is going to topple Chavez, the private banking sector will fall,” he said.

Chavez will likely proceed gradually in seizing smaller banks that fail to comply with regulatory capital and lending requirements rather than nationalizing the larger, more solvent banks, Jose Guerra, a former central bank director, said in a telephone interview.

“These are credible threats,” he said. “I have the impression this will be a gradual process where small banks could be seized. He doesn’t have the justification to go after the biggest ones.”

The bolivar has tumbled 3.5 percent to 5.73 per dollar in unregulated parallel market trading from 5.53 on Nov. 20, when the government announced it took over the four banks, according to traders. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar.

“This is a delicate situation and the government has to be careful in containing it to avoid a run on banks,” said Maikel Bello, an analyst at Caracas-based economic consultant Ecoanalitica. “The parallel rate will likely continue to weaken as the deteriorated confidence in the banking system leads people to seek dollars.”

Bello forecasts the bolivar will fall toward 6 per dollar in the unregulated market this month should the concerns about the banking system continue.

Venezuela’s benchmark dollar bonds plunged yesterday, sending yields to a four-month high after Chavez’s comments. The extra yield investors demand to own the country’s dollar bonds instead of U.S. treasures swelled 37 basis points to 11.58 percentage points, according to JPMorgan.

The seizure of the four banks for non-compliance with regulatory requirements is a sign of the crisis of capitalism, Chavez said.

“This is part of the crisis of capitalist values, the money, riches, the mechanisms the bourgeoisie uses to rob and pillage the people,” he said. “I won’t permit this to continue.”


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