What do the twists and turns of the Central Bank's attempts to flog Banco Cruzeiro do Sul, tell us about the health of Brazil's mid- and small banks? The news is not altogether encouraging for those Brazilians banks that want to go it alone.
Cruzeiro is the fourth intervention in the small- and mid-sized sector after fraud was unearthed. Not entirely surprisingly, that has torpedoed foreign investors confidence in the sector.
International bond markets, a key source of funding given Brazil's sky high rates, have shut down for smaller banks, forcing them to rely heavily on a Central Bank programme of guarantees, which has just been massively extended and indefinitely even though it was dreamed up originally as a temporary boon.
Credit, the core business of this sector, is much tougher. The Brazilian consumer is starting to look tipsy, if not outright loaded, when total liabilities are considered as a percentage of salary. Larger banks are showing the power of low costs of capital and efficiencies to be gained from scale while public sector banks are being leaned on to lower rates. All that comes as the economy proves sluggish.
Salvation may lie with take-overs from larger domestic and foreign banks, especially those looking for a Brazilian banking license. Banco BMG has just signed a deal with giant Banco Itaú that secures its future. Indusval is being reinvigorated with a deal with private equity house Warburg Pincus, new management and a focus on more exciting parts of the economy, such as agrobusiness. Other small banks may survive as shareholders pump in more money and retrench.
Still, the number of banks in Brazil is likely to drop further, a worrying phenomenon for a banking sector that is already one of the most concentrated in the world. There will be likely be fewer than 100 banks within at most 10 years. Today, there are 137.