Brazil Closes Investment Bank; Step to Tighter Regulation Seen

Brazil’s central bank, in a crackdown on shaky financial institutions, on Tuesday closed an investment bank owned by Mario Garnero, a Brazilian financial promoter.

The central bank order was seen in financial circles here as the first step by Brazil’s new democratic government toward tighter regulation of the scandal-ridden financial market.

Garnero is a close friend of former President Joao Baptista Figueiredo, an army general whose six-year term ended last Friday.

The order closed Brasilinvest Corp.’s investment bank for what it said were “irregularities practiced by the main promoters of the institution.” The investment bank’s shaky condition had been known for months in financial circles.

Finance Minister Francisco Dorneles asked the Justice Department to prosecute Garnero for criminal responsibility in the bank’s failure. Central bank investigators occupied Brasilinvest’s corporate headquarters, a 21-story office building in Sao Paulo, and began an audit of the bank’s accounts.

Lax regulation had been a contributing factor to huge losses by depositors and investors in the last four years as a series of large financial institutions collapsed.

These included Banco Halles, the Delfin credit consortium and, most recently, Banco Sulbrasileiro, the biggest commercial bank in the state of Rio Grande do Sul, in which the major stockholder was a retirement fund set up by army officers.

“The summary closing of Brasilinvest’s investment bank should be a warning to others in the same situation that the authorities are going to protect depositors and investors,” said Ricardo Betts, a director of a major brokerage firm.

Garnero, 47, had been an aggressive financial promoter during the 21 years of the military regime that ended last week. In 1975, he set up Brasilinvest, a holding company to attract foreign investors to Brazil. Financial sources said the “irregularities” to which the central bank’s announcement referred--without specifying what led to the closing--are the result of bad loans made by the investment bank to other enterprises in the Garnero business empire, including the bankrupt Banco Sulbrasileiro.

The central bank order froze the personal assets of directors of Brasilinvest’s investment bank. An investigation is under way to “establish personal responsibilities, particularly of a criminal nature, for the situation that gave cause” to the closing, the central bank said.