Brazilian federal prosecutors are opening a preliminary inquiry into the acquisition of Banco Master's assets by government-controlled bank BRB (BSLI3.SA) for a potential "crime against the national financial system," a person with direct knowledge of the matter told Reuters on Tuesday.
The source at the federal prosecutors' office declined to give details of the preliminary probe, which has not been made public. Prosecutors typically have 30 days to decide whether to turn such an inquiry into a criminal investigation.
Representatives for BRB and Banco Master did not immediately respond to requests for comment.
The acquisition, announced last month and still pending central bank approval, sent BRB shares soaring last week but raised questions about some 23 billion reais ($3.8 billion) of Banco Master assets left out of the deal, including financial products associated with the bank's aggressive growth strategy.
Brazil's central bank is assessing whether BRB, a lender controlled by the government of the Federal District, has sufficient capacity to support the new capital structure, sources familiar with the matter told Reuters.
The transaction involves BRB acquiring 49% of Master's common shares and 100% of its preferred shares, totaling 58% of the bank's capital.
The deal has drawn scrutiny as it involves two similarly sized banks, and Master had expanded rapidly in recent years through an aggressive funding model reliant on high-yield debt distributed via investment platforms.
On Monday, Moody's placed BRB's ratings under review for downgrade, citing heightened execution risks and likely pressure on profitability due to Master's higher funding costs and limited overlap between the two banks' operations.
The agency also warned BRB would need substantial investment to bolster its risk and compliance infrastructure, particularly as the size of the acquired business is expected to attract greater regulatory scrutiny.
BRB said it selected for acquisition only assets from Master aligned with its strategy. Heavyweight lender BTG Pactual (BPAC3.SA) has been eyeing assets that BRB passed over, according to sources.
($1 = 6.00 reais)
