SAO PAULO â€" Brazil’s highest court announced on Wednesday that it would vote next year on a case that could cause several of the country’s largest banks to need a bailout.
Multiple class-action lawsuits could together cost the nation’s banks 149 billion reais, or $64.8 billion â€" more than a quarter of the banking system’s equity â€" according to the Central Bank of Brazil.
For some individual banks, the numbers would be much worse, with Caixa Econômica Federal, Brazil’s third largest bank, potentially owing more than twice its equity.
Hearings on the case began Wednesday, and the justices could have chosen to begin voting this week, but they decided that they would hear oral arguments, then suspend the case until the start of 2014.
Several of the lawsuits have been working their way through Brazil’s notoriously slow legal system for more than 20 years, but an end is now in sight.
In the late 1980s Brazil was fighting hyperinflation, and successive governments imposed multiple plans to try to break inflationary expectations. The plans included measures such as forbidding banks to index interest payments to inflation and freezing many savings accounts.
The plaintiffs claim that the government plans were unconstitutional and that the banks’ profited by them at the expense of savers, while the banks argue that they merely followed the law and did not make any unusual profits.
Fábio Braga, a partner with the Brazilian law firm Demarest Advogados, said it was hard to predict how the case would go.
“The precedents we have are from over 10 years ago, when the court’s composition was entirely different,†he said.
But Mr. Braga said Brazil’s constitution permitted the court to take into account the impact of its decisions on the economy, and that could help the banks’ position.
Brazil’s government clearly hopes so, as over the past week it has sent both the finance minister and the central bank president to meet privately with supreme court justices to explain the potential impact on the economy.
Mario Pierry, managing director of Latin America equity research for Deutsche Bank, said it was hard to know both who would win the case and if the government’s estimate of a 150 billion real price tag was accurate.
“Banks’ management teams don’t even want to say how much they have reserved, because they don’t want people to think they might lose this case,†he said.
David Beker, chief Brazil economist for Bank of America Merrill Lynch in São Paulo, said the figure could be much less, as the court could rule in favor of the plaintiffs in relation to some of the economic plans but not others.
“What we do know is that if the banks lose, the public ones are probably going to have to be recapitalized,†he said.
The government-controlled Banco do Brasil and Caixa Econômica Federal, the country’s largest and third largest banks, had the largest share of the controversial savings accounts.
If the banks require a bailout next year, it would come at an especially bad moment for the government, which faces both presidential elections in October 2014 and criticism from ratings agencies over its budget numbers.
“A ruling against the banks would mean that the risk of a ratings downgrade increases greatly,†Mr. Beker said.
