According to Bloomberg Business, Brazilian regulators have revealed that state-owned Banco de Brasilia (BRB) is facing a financial shortfall of over 5 billion reais, or about $951 million. This stems from BRB’s purchase of nearly 13 billion reais in what authorities are calling fake credit portfolios from the now-failed Banco Master SA. The transactions, which happened as BRB attempted an aggressive expansion and even tried to acquire Master in 2023, were allegedly designed to shore up Master’s finances during a liquidity crunch. The central bank’s Supervision Director, Ailton de Aquino, detailed the low-quality assets in a December 30 hearing, with testimonies from him, former BRB CEO Paulo Henrique Costa, and Master CEO Daniel Vorcaro being unsealed on February 15. BRB, which held 83.5 billion reais in assets as of September, is now under close liquidity monitoring, and the local government says it’s prepared to inject capital if needed.
A bailout disguised as a deal
Here’s the thing that jumps out: this looks less like a legitimate business acquisition and more like a backdoor bailout that went horribly wrong. BRB, under then-CEO Costa, announced plans to buy Master last year in a move the industry immediately criticized as a rescue of a troubled lender. Regulators saw right through it and blocked the deal in September, leading to Master’s liquidation in November. But the damage was already done. BRB had already purchased billions in “credit” from Master that was allegedly originated by shell companies created just days before the sales. Basically, they were buying financial fairy dust. Now BRB is left holding the bag, and the government that owns it might have to use public money to fill a billion-dollar hole. So much for a savvy expansion strategy.
Political connections and denials
The political undertones are impossible to ignore. Costa was nominated by Brasilia Governor Ibaneis Rocha, a supporter of former President Bolsonaro with ties to a powerful congressional bloc. Vorcaro, the Master CEO, admitted to speaking with Rocha but denied any political maneuvering influenced the technical decisions. His defense? A pretty good one, actually. He basically said, “If my political connections were so strong, would the deal have been denied? Would I be wearing an ankle monitor?” He was arrested in November trying to fly to Dubai. Meanwhile, Costa claims BRB alerted the central bank after spotting “different patterns” in the documentation and insists the acquisition attempt was purely technical. It’s a classic “he said, he said” in a courtroom, but the billion-dollar loss is very, very real.
Systemic risk is the real worry
This isn’t just about one bank’s bad investment. The regulators pointed out something crucial: BRB’s potential failure poses a much broader risk to Brazil’s financial system than Master’s collapse ever did. Why? Because Master operated in relatively isolated segments. BRB, on the other hand, is a state-owned bank with 83.5 billion reais in assets involved in mainstream activities like mortgages and judicial deposits. Its instability could ripple outwards. It’s a stark reminder of the dangers when public banks make reckless, politically-adjacent plays. The central bank is now babysitting its liquidity, and an external auditor has been brought in. But the question is, how did the controls fail so spectacularly to allow this to happen in the first place? The fallout is far from over.
