Brazil judge considers blocking asset sales in Banco Master case

By Marcela Ayres and Ricardo Brito

BRASILIA, Jan 5 (Reuters) – A judge at Brazil’s federal audit court TCU said on Monday that he may consider measures to prevent the sale of assets ‍during the liquidation of Banco Master, a mid‑sized lender shut down by the Brazilian central bank in November after months of liquidity problems.

Judge Jhonatan de Jesus also ordered an inspection of central bank documents that underpinned its decision to wind down Master.

The ruling adds to uncertainty around the high-profile liquidation of Master, a ‌lender that grew rapidly by selling high-yield debt through ‌investment platforms, accounting for less than 1% of Brazil’s banking system.

Investors who financed that expansion are awaiting potential payouts from Brazil’s private deposit guarantee fund FGC, but the release of roughly 41 billion reais ($7.58 billion) – about a third ​of FGC’s cash on hand – has been frozen while the case is reviewed in separate sealed proceedings at the audit court and the ‍Supreme Court.

The judge said that while the ​central bank had provided last Monday a response to questions ​raised by the court, it lacked underlying documentation he considered necessary for ‍proper verification.

“Given the risk of potentially irreversible acts, it cannot be ruled out that, at an appropriate moment, a precautionary measure may be considered, directed at the Central Bank of Brazil … aimed at preserving the value of the liquidation estate and the usefulness of external oversight,” the ‍judge wrote.

That means the judge did not rule out a precautionary order barring the central bank from selling Master’s assets. But any unilateral decision would likely ‍have temporary effects, because ‍it would need to be confirmed by the court’s nine ​members.

The central bank cited “serious violations” of financial system rules ​when it ⁠ordered Master’s liquidation in November. The decision came ‌on the same day federal police launched an operation into the alleged issuance of fraudulent credit securities by the institution, arresting controlling shareholder Daniel Vorcaro.

Vorcaro, a banker with extensive political connections in Brasilia, was later released, but ordered to wear an electronic ankle monitor.

($1 = 5.4075 reais)

(Reporting by Marcela Ayres and Ricardo Brito; Editing ⁠by Will Dunham)