BRAZIL - OVER R$ 41 BILLION IN BANCO MASTER CDS WERE SOLD BY XP, BTG AND NUBANK; 1.6 MILLION CLIENTS WILL BE PAID BY THE FGC

THE IMPACT OF THE FORCED LIQUIDATION OF BANCO MASTER IS BECOMING CLEARER AS THE NUMBERS BECOME PUBLIC. ACCORDING TO MARKET SOURCES AND DATA CONFIRMED BY THE CREDIT GUARANTEE FUND, ABOUT 41 BILLION REAIS IN BANK CERTIFICATES OF DEPOSIT WERE DISTRIBUTED BY LARGE DIGITAL PLATFORMS, INVOLVING APPROXIMATELY 1.6 MILLION CREDITORS.

THE LARGEST SHARE OF THIS AMOUNT WAS PLACED IN THE MARKET BY XP INC., WHICH IS BELIEVED TO HAVE SOLD ABOUT 26 BILLION REAIS IN BANCO MASTER CDS, AND ANOTHER 4 BILLION REAIS IN WILL BANK SECURITIES, AN INSTITUTION CONTROLLED THROUGH BANCO MASTER MÚLTIPLO BUT NOT INCLUDED IN THE LIQUIDATION ORDER ISSUED BY THE CENTRAL BANK.

BTG PACTUAL AND NUBANK COME NEXT, WITH 6.7 BILLION REAIS AND 2.9 BILLION REAIS, RESPECTIVELY. IN ALL CASES, MORE THAN 99 PERCENT OF INVESTORS ARE COVERED BY THE CREDIT GUARANTEE FUND, SINCE THE OVERWHELMING MAJORITY OF HOLDERS ARE INDIVIDUAL INVESTORS WITH APPLICATIONS BELOW 250 THOUSAND REAIS PER CPF, THE LIMIT OF THE GUARANTEE.

THE DISTRIBUTION OF MASTER CDS

INSTITUTION	VALUE SOLD (R$)	NOTES
XP	26,000,000,000	LARGEST DISTRIBUTOR OF MASTER PRODUCTS
WILL BANK VIA MASTER	4,000,000,000	OUTSIDE THE LIQUIDATION, ENTERED RAET
BTG PACTUAL	6,700,000,000	ONE OF THE LARGEST SELLERS
NUBANK	2,900,000,000	LARGE RETAIL INVESTOR BASE
TOTAL	41,600,000,000	1.6 MILLION CREDITORS COVERED

WHAT HAPPENED TO BANCO MASTER

THE FORCED LIQUIDATION OF BANCO MASTER WAS ANNOUNCED BY THE CENTRAL BANK AFTER A FEDERAL POLICE OPERATION IDENTIFIED SIGNS OF FINANCIAL FRAUD. THE ACTION RESULTED IN THE ARREST OF EXECUTIVES ACCUSED OF IRREGULAR PRACTICES IN CREDIT OPERATIONS AND ASSET MANAGEMENT.

THE CENTRAL BANK’S DECISION CAME ON THE SAME DAY THE CREDIT GUARANTEE FUND CONFIRMED THAT MORE THAN 1.6 MILLION CREDITORS ARE ELIGIBLE FOR REIMBURSEMENT, A HISTORIC VOLUME BOTH IN NUMBER OF PEOPLE AND IN AMOUNT INVOLVED.

WHY XP, BTG, AND NUBANK BECAME DISTRIBUTION ENGINES FOR MASTER

BANCO MASTER PURSUED AN AGGRESSIVE FUNDRAISING STRATEGY, OFFERING HIGH-YIELD CDS TO ATTRACT INVESTORS. DIGITAL PLATFORMS TURNED THESE SECURITIES INTO MASS-MARKET PRODUCTS, A MODEL THAT GREW SIGNIFICANTLY IN RECENT YEARS.

FOR INVESTORS SEEKING LOW-RISK FIXED-INCOME RETURNS, GIVEN THE COVERAGE OF THE CREDIT GUARANTEE FUND, THE OFFER WAS ATTRACTIVE. AS A RESULT, XP BECAME THE MAIN DISTRIBUTION CHANNEL FOR MASTER PRODUCTS IN THE RETAIL MARKET, WITH BTG AND NUBANK COMPLETING THE LIST OF MAJOR SELLERS.

NEARLY ALL INVESTMENTS ARE COVERED BY THE GUARANTEE FUND

THE MAIN CONCERN FOR INVESTORS WAS THE POSSIBILITY OF LOSSES. HOWEVER, MARKET SOURCES AND THE CREDIT GUARANTEE FUND CONFIRM THAT MORE THAN 99 PERCENT OF THE INVESTED AMOUNT IS WITHIN THE GUARANTEE LIMIT.

THIS MEANS THAT DESPITE THE SCALE OF THE CASE, THE RISK OF SIGNIFICANT LOSSES FOR RETAIL INVESTORS IS LOW. ON THE OTHER HAND, THE REIMBURSEMENT PROCESS WILL BE ONE OF THE MOST COMPLEX EVER CARRIED OUT BY THE FUND, GIVEN THE NUMBER OF PEOPLE INVOLVED.

WHAT IS STILL UNCLEAR

THE EXACT DEADLINE FOR PAYMENTS BY THE CREDIT GUARANTEE FUND, THE IMPACT ON THE REPUTATION OF DIGITAL PLATFORMS, HOW THE MARKET FOR BANK CDS WILL REORGANIZE AFTER THE EVENT, THE REAL SIZE OF BANCO MASTER’S LIABILITIES INCLUDING ALREADY SETTLED SECURITIES.

XP, BTG, AND NUBANK WERE CONTACTED BY THE PRESS, BUT DID NOT COMMENT.