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Sobering economic forecasts abound; Brazil's political future takes shape

S&P Global Market Intelligence presents the week's latest news and trends in Latin American banking.

Pessimistic economic forecasts

* The International Monetary Fund lowered its economic growth projection for Latin America and the Caribbean to 1.2% in 2018 and 2.2% in 2019. Both estimates are down by 0.4 percentage points from the agency's previous forecasts. The IMF now expects Argentina's economy to contract 2.6% in 2018 and shrink a further 1.6% in 2019.

* The World Bank cut its 2018 economic growth forecast for Latin America to 0.6% from 1.7% previously, pointing to volatility in the key economies of Brazil and Argentina, as well as a continuing crisis in Venezuela.

* The IMF expects inflation in crisis-stricken Venezuela to hit 1,370,000% in 2018 before surging to 10,000,000% the following year. The agency sees Venezuela's economy shrinking 18% this year following a 14% contraction in 2017.

Brazil's political future starts taking shape

* Right-wing Congressman Jair Bolsonaro garnered just over 46% of the votes in the first round of presidential elections in Brazil, while leftist rival Fernando Haddad gained over 29%, setting up a second showdown in a run-off vote on Oct. 28.

* Brazilian markets shot sharply higher a day after perceived market-friendly presidential candidate Jair Bolsonaro performed much stronger than expected in a first-round vote. Top Brazilian equities in the Bovespa index surged 4.72% with record-high volume, while the local real currency gained 2.63% against the U.S. dollar.

* Jair Bolsonaro could tap Roberto Campos Neto, an officer and board member at Banco Santander (Brasil) SA, to lead Brazil's central bank if current governor Ilan Goldfajn decides to step down, Folha de S.Paulo reported. Bolsonaro could also appoint Alexandre Bettamio, currently CEO for Latin America at Bank of America Corp., as head of state-run Banco do Brasil SA, according to the report.

* Federal prosecutors launched an investigation into Paulo Guedes, the main economic adviser to presidential candidate Jair Bolsonaro, for his alleged involvement in fraud at several state-owned pension funds. Guedes, who would likely serve as finance minister should Bolsonaro win the presidency, allegedly siphoned 1 billion reais from state-owned entities in a span of six years, multiple media outlets reported.

Dealmaking

* Dominican Republic-based Banco Múltiple Activo Dominicana acquired the assets of Banco de Ahorro Y Credito Inmobiliario SA as part of its expansion strategy. The terms of the deal were not disclosed.

* Banco Santander (Brasil) SA set up a new insurance company called Santander Auto SA in a joint venture with HDI Seguros SA. The Brazilian bank holds a 50% stake in the joint venture, while HDI Seguros owns the remaining 50%.

* China-based Tencent Holdings Ltd. is investing $180 million to buy an undisclosed minority stake in Brazilian financial technology company Nubank. Tencent will pay $90 million via a capital increase and use the remaining amount to buy partial stakes from the fintech firm's shareholders.

In other news

* Banco Santander Chile said it will not renew a credit card contract, set to expire next year, with card payment processor Transbank SA. Chilean Finance Minister Felipe Larraín said the decision could open up more competition in the payment processing market.

* Brazil's Superior Court of Justice ruled that financial institutions do not violate laws by shuttering the bank accounts of cryptocurrency traders that do not comply with regulations. The ruling followed Mercado Bitcoin Serviços Digitais Ltda. filing a lawsuit against Itaú Unibanco Holding SA after the bank closed the company's account for "commercial reasons."

* Banestes SA - Banco do Estado do Espírito Santo said it will now pay out up to 60% of its adjusted net income in dividends and interest on equity, up from a previous maximum of 40%. The bank also improved certain guidance for 2018, including a new forecast for commission and fee income to rise by 10% to 13%, up from a prior range of 7% to 10%.

* XP Investimentos Corretora de Câmbio Títulos e Valores Mobiliários SA CEO Guilherme Benchimol said the company hopes to launch an affiliated bank in early 2019 and expects to secure central bank approval for the plan by December.

Featured this week on S&P Global Market Intelligence

* Chile's new banking law revamps regulation, hikes capital requirements: A new banking regulation revamp in Chile could force lenders to raise nearly $3 billion of additional capital in the coming years as the sector aligns itself with international Basel III standards.

* Hires and Fires: A weekly rundown of executive management, board and other personnel moves at Latin American financial institutions.

* Ratings Roundup: A summary of various ratings actions on Latin American financial institutions and economies.