Brazil's federal audit court, the TCU, has proposed to prohibit, on a preliminary basis, the use of state workers' fund FGTS to capitalize Caixa Econômica Federal, Folha de S.Paulo reported.
The audit, which was supervised by Attorney General of Public Accounts Julio Marcelo de Oliveira, argues that the capitalization, along the lines proposed by the government, violates the law that governs the FGTS and constitutes a "misuse of purpose." It also maintains a "conflict of interest and abuse of power" on the part of the bank. Caixa would be the beneficiary of the resources but at the same time is the fund's operator and financial agent.
TCU's auditors also said that the transaction is substantially different and more risky than those authorized by the FGTS law.
The opinion was sent to Minister Benjamin Zymler, rapporteur of the case, and will serve as a basis for a court decision on the operation, the report said.
Brazil's federal government is rallying for the use of the FGTS fund to boost the capitalization of Caixa prior to the phasing in of the Basel III framework in January 2019. The bank has not been included in a list of state-owned companies earmarked for a capital increase in the 2018 budget proposal, as the government made it clear that it needs to bolster its capital levels with other means.
Caixa will undergo a comprehensive restructuring due to its capital woes. Aside from the proposed funding from the FGTS fund, the plan also includes the sale of the state-owned bank's credit portfolios, the renegotiation of its relationship with the National Treasury and the remodeling of its security segment. The bank is also looking to cut its administrative costs and tap external sources of funding.
