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Wednesday, November 7, 2012

Colombia’s Peso Surges as Seized Brokerage’s Trading Taken Over

Colombia’s peso rose the most in four months as the government said Bancolombia SA (BCOLO) will take over bond trading of the country’s biggest brokerage after it was seized by authorities.


The peso appreciated 1 percent to 1,811.62 per U.S. dollar, the biggest rally since June 29 on a closing basis, as the announcement bolstered investor confidence that the takeover of Interbolsa SA’s brokerage won’t disrupt the country’s financial markets.

The government reached an agreement with Bancolombia, the nation’s largest bank, early this morning as part of its effort to prevent the collapse of Interbolsa’s brokerage from curtailing trading and sparking a broader crisis.

Officials seized the brokerage on Nov. 2, a day after the parent company’s stock sank 30 percent amid a funding shortage.

“People were seeing a risk of non-compliance” on trades Interbolsa was involved in, said Camilo Perez, the head analyst at Banco de Bogota SA, the nation’s second-biggest bank. “The fact that a trustworthy party will take over those operations brings confidence back into the market.”

Chief Financial Regulator Gerardo Hernandez told reporters in Bogota that government bonds managed by Interbolsa are worth 1.6 trillion pesos ($883.2 million).

An existing 20 billion peso fund, known as Fogacol, will be available to provide financing to local brokerages if they face cash shortages, Hernandez said.

Funding Shortage

Colombia’s financial authorities stepped in after Interbolsa’s brokerage said last week that it couldn’t make a payment on a 20 billion peso loan, saying it faced a “temporary” funding shortage.

The stock exchange suspended trading in Interbolsa on Nov. 2 for five trading days, and Hernandez said that day that the government may decide within two months whether the brokerage should be liquidated.

The brokerage was also excluded from Colombia’s market makers program after it was seized by authorities, said Juan Manuel Quintero, the head of local debt sales at the Finance Ministry.

The financial squeeze was specific to Interbolsa and doesn’t represent systemwide weakness, Finance Minister Mauricio Cardenas said in a Nov. 4 interview in Mexico City.

The brokerage is solvent, and excessive risk-taking tied to Interbolsa’s structuring of repurchase agreements on shares of textile company Fabricato SA (FABRI) caused the liquidity crunch, Cardenas said.

He said there is “no risk” to Interbolsa’s 50,000 account holders, echoing comments by President Juan Manuel Santos, who said that the savings of the brokerage’s clients are protected.

Interbolsa also has an investment fund unit that had more than 2 trillion pesos of assets under management as of April, according to the company’s website.

The company also operates a brokerage in Brazil. The yield on the government’s 10 percent peso-denominated bonds due in July 2024 was little changed at 6.25 percent, according to the central bank. The currency extended its rally this year to 7 percent.

bloomberg.com

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