European banks in Brazil are feeling the effects of the crisis, which makes their EU headquarters reduce credit to increase capital ratios, said newspaper Folha.
The banks’ subsidiaries in Brazil were affected in four ways:
1. exclusion from the international fund raising market;
3. cuts in support and staff;
4. sale of assets to raise cash.
While Brazilian banks keep issuing securities abroad (although at higher costs), the last European subsidiary to raise funds was Santander, last May.
Risk rating agencies have been downgrading European Banks, so their Brazilian subsidiaries’ suffer along the way. This is exactly what happened last Friday to the Brazilian subsidiary of Portuguese bank Banco Espírito Santo (BES), which was rated ‘junk’.
Bad credit ratings lead to higher costs to issue securities. “I have to do all my financing here, as the EU headquarters don’t transfer any funds whatsoeverto us” said a high executive of a bank. The headquarters told him “you are on your own, because not a dime will leave here.” The executive also said that this same bank had US$ 600 million as credit line for the subsidiary, but now it lowered it to US$ 100 million. “I used to finance three projects at a time, but now I only have resources for one.”
S&P; highlights that banks like HSBC (which has 42% of its profits in Asia) and Santander (with subsidiaries that have low financial connections with the headquarters) have good funding, because they have a large number of agencies and account holders. But other banks cannot depend so much on account holders’ money, such as BES and BNP Paribas, which have funds rated “below average”.
Flow chart: although in Portuguese, a picture paints a thousand words