Magazine article American Banker

First Chicago's Brazilian Woes Have Precedent

Magazine article American Banker

First Chicago's Brazilian Woes Have Precedent

Article excerpt

NEW YORK -- First Chicago wasn't the first American bank to run into difficulties at the hands of Banco Denasa de Investimento S.A.

Five years before the Chicago bank was humbled by its involvement with Banco Denasa, Security Pacific Corp. wrote off its investment in the Brazilian bank. And a First Chicao spokesman confirmed that his bank was aware of Security Pacific's history with Banco Denasa prior to its own investment.

Since 1980, Security Pacific, which at one point owned 20% of the Brazilian bank, has carried the investment on its books at zero value, a spokeswoman for the Los angeles bank said. First Chicago invested in Denasa in January 1984.

In the first quarter of this year, First Chicago wrote off virtually all of its 44.5% stake in Denasa, at a cost of $15.8 million. This past quarter, First Chicago took complete management control of the Brazilian bank and set aside a pre-tax reserve of $115 million to cover future losses.

Denasa has $180 million in assets, and has suffered continuing losses because of deteriorating economic conditions in Brazil's real estate and financial sectors.

First Chicago's problems with the Brazilian bank have led to a shake-up in the bank's international division, and have contributed to reports that bank regulators are pressuring senior management and the bank's board of directors. But in the past week, the bank's board has publicly affirmed its support of chairman Barry F. Sullivan. …

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